Prepared by R.R. Donnelley Financial -- Form 8-K

-----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, QSDrYHDDIrw/pUbzMGZ1J+nNpptnucRhG73oMeWskNVJ19dmIK9XSMArK1vIrD57 ojVPQzAlbRIK5qmFzmDDuw== 0001012870-02-003287.txt : 20020806 0001012870-02-003287.hdr.sgml : 20020806 20020806171644 ACCESSION NUMBER: 0001012870-02-003287 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020805 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIOS INC CENTRAL INDEX KEY: 0000726512 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 953701481 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11749 FILM NUMBER: 02720961 BUSINESS ADDRESS: STREET 1: 820 W MAUDE AVE CITY: SUNNYVALE STATE: CA ZIP: 94086 BUSINESS PHONE: 4086168200 MAIL ADDRESS: STREET 1: 820 W MAUDE AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94085 FORMER COMPANY: FORMER CONFORMED NAME: CALIFORNIA BIOTECHNOLOGY INC DATE OF NAME CHANGE: 19920302 FORMER COMPANY: FORMER CONFORMED NAME: SCIOS NOVA INC DATE OF NAME CHANGE: 19930423 8-K 1 d8k.htm FORM 8-K Prepared by R.R. Donnelley Financial -- Form 8-K

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 5, 2002

SCIOS INC.

(Exact Name of Registrant as Specified in Charter)

Delaware		0-11749		95-3701481
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

820 West Maude Avenue, Sunnyvale, CA 94085

(Address of Principal Executive Offices) (Zip Code)

(408) 616-8200

(Registrant’s telephone number, including area code)

N/A

(Former Name or Former Address, if Changed Since Last Report)

Item 5. Other Events.

On August 5, 2002, Scios Inc. (the “Company”) closed a private offering of $150 million aggregate principal amount of its 5.50% Convertible Subordinated Notes due 2009. For additional information concerning this offering, refer to the exhibits to this Current Report on Form 8-K.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

The following exhibits are filed as part of this Report:

Exhibit No.		Description
4.1		Indenture, dated as of August 5, 2002, between the Company and Wells Fargo Bank, National Association, as trustee.
4.2		$150,000,000 aggregate principal amount 5.50% Convertible Subordinated Note due 2009.
10.1		Registration Rights Agreement dated as of August 5, 2002, by and among the Company, J.P. Morgan Securities, Inc., Lehman Brothers Inc., SG Cowen Securities Corporation, Needham & Company, Inc., Adams, Harkness & Hill, Inc. and Prudential Securities Incorporated.
10.2		Pledge Agreement, dated as of August 5, 2002, among the Company, Wells Fargo Bank, National Association, as trustee, and Wells Fargo Bank, National Association, as collateral agent.
10.3		Control Agreement, dated as of August 5, 2002, by and among the Company, Wells Fargo Bank, National Association, as trustee, Wells Fargo Bank, National Association, as collateral agent, and Wells Fargo Bank, National Association, in its capacity as securities intermediary and depository bank.
99.1		Press Release dated July 30, 2002 regarding the Convertible Subordinated Notes Offering.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

SCIOS INC.

By:		/s/ DAVID W. GRYSKA
		David W. Gryska Senior Vice President and Chief Financial Officer


Date:		August 6, 2002

EX-4.1 3 dex41.txt INDENTURE DATED 08/05/2002 EXHIBIT 4.1 ================================================================================ SCIOS INC. and WELLS FARGO BANK, NATIONAL ASSOCIATION as Trustee --------------------------- INDENTURE Dated as of August 5, 2002 --------------------------- 5.50% CONVERTIBLE SUBORDINATED NOTES DUE 2009 ================================================================================ TABLE OF CONTENTS

-i- TABLE OF CONTENTS (CONTINUED)

-ii- TABLE OF CONTENTS (CONTINUED)

-iii- TABLE OF CONTENTS (CONTINUED)

-iv- EXHIBITS Exhibit A - Form of Security Exhibit B - Form of Legends Exhibit C - Form of Notice of Transfer Pursuant to Registration Statement -i- CROSS-REFERENCE TABLE

INDENTURE dated as of August 5. 2002 between SCIOS INC., a Delaware corporation (the "Company"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 5.50% Convertible Subordinated Notes Due 2009: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. ----------- "Account Holder" means, initially, Wells Fargo Bank, National Association, as account holder under the Control Agreement. "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For this purpose, "control" shall mean the power to direct the management and policies of a Person through the ownership of securities, by contract or otherwise. "Agent" means any Registrar, Paying Agent, Conversion Agent, authenticating agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of beneficial ownership interests in a Global Security, the rules and procedures of the Depositary that are applicable to such transfer or exchange. "Board of Directors" means the board of directors of the Company or any committee of the Board authorized to act for it hereunder. "Board Resolution" means a copy of a resolution certified by the secretary or an assistant secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Capital Stock" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of the Company and all warrants or options to acquire such capital stock. "Collateral Agent" means, initially, Wells Fargo Bank, National Association, as collateral agent under the Pledge Agreement. "Common Stock" means the common stock, par value $.001 per share, of the Company. "Company" means the party named as such above until a successor replaces it pursuant to an applicable provision hereof and thereafter means the successor. 1 "Company Request" or "Company Order" means a written request or order signed on behalf of the Company by two Officers of the Company and delivered to the Trustee. "Control Agreement" means the Control Agreement, dated as of the date hereof, by and among the Company, the Trustee, the Collateral Agent and the Account Holder, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "Conversion Price" means $39.30 per share of Common Stock, as adjusted pursuant to Article Ten. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 13.2 or such other address as the Trustee may give notice of to the Company. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Depositary" means The Depository Trust Company, its nominees and successors. "Designated Senior Indebtedness" means any particular Senior Indebtedness in which the instrument creating or evidencing the Senior Indebtedness or the assumption or guarantee thereof (or related documents or agreements to which the Company is a party) expressly provides that such Indebtedness shall be "Designated Senior Indebtedness" (provided that such instrument may place limitations and conditions on the right of such Senior Indebtedness to exercise the rights of Designated Senior Indebtedness). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Government Securities" means securities that are (i) direct obligations of the United States of America, the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by or acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which in either case, are not callable or redeemable at the option of the issuer thereof at any time prior to the Stated Maturity of the Securities, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Securities or a specific payment of interest on or principal of any such Government Securities held by such custodian for the account of the holder of a depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Securities for the specific payment of interest on or principal of the Government Securities evidenced by such depository receipt. "Holder" means a Person in whose name a Security is registered on the Registrar's books. "Indebtedness" means, with respect to the Company: 2 (1) all indebtedness, obligations and other liabilities, contingent or otherwise, for borrowed money, including obligations (a) 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 (b) evidenced by bonds, debentures, notes or similar instruments, whether or not the recourse of the lender is to all assets 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, (2) all reimbursement obligations and other liabilities, contingent or otherwise, with respect to letters of credit, bank guarantees or bankers' acceptances, (3) all obligations and liabilities, contingent or otherwise, in respect of leases required, in conformity with generally accepted accounting principles, to be accounted for as capitalized lease obligations on the Company's balance sheet or under other leases for facilities equipment or related assets, whether or not capitalized, entered into or leased for financing purposes, as determined by the Company, (4) 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 (or any personal property included as part of any such lease) which provides that the Company is contractually obligated to purchase or cause a third party to purchase the leased property and thereby guarantee the residual value of leased property to the lessor and all of the Company's obligations under such lease or related documents to purchase the leased property (whether or not such lease transaction is characterized as an operating lease or a capitalized lease in accordance with generally accepted accounting principles), (5) all obligations, contingent or otherwise, with respect to an interest rate, currency or other swap, cap, floor or collar agreement, hedge agreement, forward contract, or other similar instrument or agreement or foreign currency hedge, exchange, purchase or similar instrument or agreement, (6) all direct or indirect guarantees or similar agreements to purchase or otherwise acquire or otherwise assure a creditor against loss in respect of indebtedness, obligations or liabilities or another person of the kind described in clauses (1) through (5) above, 3 (7) any indebtedness or other obligations described in clauses (1) through (6) above 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 has been assumed by the Company, and (8) 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 (1) through (7) above. "Indenture" means this Indenture as amended, restated or supplemented or otherwise modified from time to time. "interest" means, with respect to any Security, interest on the Security plus liquidated damages, if any. "Issue Date" means (i) August 5, 2002 with respect to the $150,000,000 aggregate principal amount of Securities issued on such date, and (ii) with respect to any of up to $25,000,000 aggregate principal amount of Securities that may be issued on or after August 5, 2002 pursuant to the option described in Section 2.2, the issue date of such Securities. "Lien" means, with respect to any asset, a mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset given to secure Indebtedness, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement, under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction with respect to any such lien, pledge, charge or security interest). "liquidated damages" has the meaning provided in the Registration Rights Agreement. "Maturity Date" means August 15, 2009. "Officer" means the chairman of the board, the chief executive officer, the president, the chief scientific officer, any senior vice president, any vice president, the chief financial officer, the treasurer, any assistant treasurer or the secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers of the Company. "Opinion of Counsel" means a written opinion from legal counsel who may be an employee of or counsel for the Company. "Permitted Junior Securities" means (a) shares of stock of any class of the Company or (b) securities of the Company that are subordinated in right of payment to all Senior Indebtedness that may be outstanding at the time of issuance or delivery of such securities to 4 substantially the same extent as, or greater extent than, the Securities are so subordinated pursuant to the terms hereunder. "Permitted Payments" means payments on the Securities derived from the Pledged Securities which are pledged to the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities in accordance with the terms and provisions of the Pledge Agreement. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization, government or other agency or political subdivision thereof or any other entity. "Pledge Account" means an account established by the Collateral Agent pursuant to the terms of the Pledge Agreement for the deposit of the Pledged Securities purchased by the Company. "Pledge Agreement" means the Pledge Agreement, dated as of the date hereof, by and among the Company, the Trustee and the Collateral Agent, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "Pledged Securities" means the Government Securities purchased by the Company and held in the Pledge Account in accordance with the Pledge Agreement. "principal" of a debt security means the principal of the security plus the premium, if any, on the security. "QIB" means a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of August 5, 2002, by and among the Company and the Initial Purchasers, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "Restricted Global Security" means a Global Security that is a Restricted Security. "Restricted Physical Security" means a Physical Security that is a Restricted Security. "Restricted Security" means a Security that constitutes a "Restricted Security" within the meaning of Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and conclusively rely on an opinion of counsel with respect to whether any Security constitutes a Restricted Security. "Rule 144A Global Security" means a permanent Global Security in registered form representing the aggregate principal amount of Securities sold in reliance on Rule 144A. "SEC" means the Securities and Exchange Commission. 5 "Securities" means the 5.50% Convertible Subordinated Notes Due 2009 issued by the Company pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Senior Indebtedness" means all obligations with respect to Indebtedness of the Company whether outstanding on the date hereof or thereafter created, incurred, assumed, guaranteed, or in effect guaranteed, by the Company, including, without limitation, 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 ranks equally in right of payment or junior to, the Securities; provided, however, that Senior Indebtedness does not include (i) Indebtedness evidenced by the Securities, (ii) any Indebtedness of the Company to any Subsidiary, (iii) any obligations for federal, state, local or other taxes and (iv) or any trade or accounts payable arising in the ordinary course of business. "Significant Subsidiary" means, in respect of any Person, a Subsidiary of such Person that would constitute a "significant subsidiary" as such term is defined under Rule 1-02 of Regulation S-X promulgated by the SEC. "Stated Maturity" means, when used with respect to any Security or any installment of interest thereon, 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 (i) a corporation a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by the Company, by one or more Subsidiaries of the Company or by the Company and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation) in which the Company, one or more Subsidiaries thereof or the Company and one or more Subsidiaries thereof, directly or indirectly, at the date of determination thereof, have at least majority ownership interest. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code [sec][sec] 77aaa-77bbbb) as in effect on the date of this Indenture, except as provided in Section 9.3, and except to the extent any amendment to the TIA expressly provides for application of the TIA as in effect on another date. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions hereof and thereafter means the successor. "Unrestricted Global Security" means a Global Security that is not a Restricted Security. 6 "Unrestricted Physical Security" means a Physical Security that is not a Restricted Security. SECTION 1.2 Other Definitions. ----------------- Term Defined in Section ---- ------------------ "Bankruptcy Law".......................... 6.1 "Business Day"............................ 13.7 "Change in Control"....................... 3.8(l) "Closing Price"........................... 10.6(g) "Common Dividend Amount".................. 10.6(e) "Company Notice".......................... 3.8(b) "Conversion Agent"........................ 2.3 "Current Market Price".................... 10.6(g) "Custodian"............................... 6.1 "Event of Default"........................ 6.1 "fair market value"....................... 10.6(g) "Global Security"......................... 2.1 "Initial Purchasers"...................... 2.2 "Legal Holiday"........................... 13.7 "Market Capitalization"................... 10.6(e) "Participants"............................ 2.15(a) "Paying Agent"............................ 2.3 "Payment Blockage Notice"................. 12.1(b) "Payment Blockage Period"................. 12.1(b) "Payment Default"......................... 12.1(b) "Physical Securities"..................... 2.15(b) "Private Placement Legend"................ 2.17 "Record Date"............................. 10.6(g) "Registrar"............................... 2.3 "Repurchase Date"......................... 3.8(a) "Repurchase Price"........................ 3.8(a) "Subject Securities"...................... 10.6(d) "Transfer Certificate".................... 2.6 "Trading Day"............................. 10.6(g) "Trigger Event"........................... 10.6(b) SECTION 1.3 Incorporation by Reference of Trust Indenture Act. ------------------------------------------------- Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms have the following meanings: "Commission" means the SEC; 7 "indenture securities" means the Securities; "indenture security holder" means a Holder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA and not otherwise defined herein have the meanings so assigned to them. SECTION 1.4 Rules of Construction. --------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in effect from time to time; (3) "or" is not exclusive; (4) words in the singular include the plural and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE SECURITIES SECTION 2.1 Form and Dating. --------------- The Securities and the Trustee's certificate of authentication shall be substantially in the form set forth in Exhibit A, which is incorporated in and forms a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication. Securities offered and sold in reliance on Rule 144A shall be issued initially in the form of one or more Global Securities, substantially in the form set forth in Exhibit A (the "Global Security"). The aggregate principal amount of the Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as hereinafter provided. 8 SECTION 2.2 Execution and Authentication. ---------------------------- One Officer shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. Upon a written order of the Company signed by two Officers of the Company, the Trustee shall authenticate Securities for original issue in the principal amount of $150,000,000 and such additional principal amounts, if any, as shall be determined pursuant to the next sentence of this Section 2.2. Upon receipt by the Trustee of an Officers' Certificate stating that the Initial Purchasers have elected to purchase from the Company a specified principal amount of additional Securities, not to exceed $25,000,000, pursuant to Section l of the purchase agreement, dated as of July 30, 2002 (the "Purchase Agreement"), by and among the Company, as issuer, and J.P. Morgan Securities Inc., Lehman Brothers Inc., SG Cowen Securities Corporation, Needham & Company, Inc., Adams, Harkness & Hill, Inc. and Prudential Securities Incorporated, as initial purchasers (the "Initial Purchasers"), the Trustee shall authenticate and deliver such specified principal amount of additional Securities to or upon the written order of the Company signed as provided in the immediately preceding sentence. Such Officers' Certificate must be received by the Trustee at least two full Business Days prior to the proposed date for delivery of such additional Securities, but, in any case, not later than August 29, 2002. The aggregate principal amount of Securities outstanding at any time may not exceed $175,000,000 except as provided in Section 2.7. Upon a written order of the Company signed by two Officers of the Company, the Trustee shall authenticate Securities not bearing the Private Placement Legend to be issued to a transferee when sold pursuant to an effective registration statement under the Securities Act in accordance with the provisions of this Indenture and the Securities. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 principal amount and any integral multiple thereof. The Securities shall bear interest at the rate, calculated and paid, as provided in the form of Security set forth in Exhibit A. 9 SECTION 2.3 Registrar, Paying Agent and Conversion Agent. -------------------------------------------- The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented for payment ("Paying Agent") and an office or agency where Securities may be presented for conversion ("Conversion Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint or change one or more co-registrars, one or more additional paying agents and one or more additional conversion agents without notice and may act in any such capacity on its own behalf. The term "Registrar" includes any co-registrar; the term "Paying Agent" includes any additional paying agent; and the term "Conversion Agent" includes any additional conversion agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to maintain a Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such. The Company initially appoints the Trustee as Paying Agent, Registrar and Conversion Agent. SECTION 2.4 Paying Agent to Hold Money in Trust. ----------------------------------- Prior to 11:00 a.m., New York City time, on each due date of the principal or interest, if any, on any Securities, the Company shall deposit with the Paying Agent a sum sufficient to pay such principal or interest, if any, becoming due. Each Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all monies held by the Paying Agent for the payment of principal of or interest on the Securities, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent shall have no further liability for the money. If the Company acts as Paying Agent, it shall, prior to 11:00 a.m., New York City time, on each due date of the principal or interest on any Securities, segregate and hold as a separate trust fund all money held by it as Paying Agent. SECTION 2.5 Securityholder Lists. -------------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each interest payment date and at such other times as the Trustee may request in writing a list, in such form and as of such date as the Trustee may reasonably require, of the names and addresses of Holders. SECTION 2.6 Transfer and Exchange. --------------------- Subject to compliance with any applicable additional requirements contained in Section 2.16, where Securities are presented to the Registrar with a request to register their 10 transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transaction are met; provided, however, that every Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by an assignment form and, if applicable, a transfer certificate each in the form included in Exhibit A attached hereto (the "Transfer Certificate"). To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. The Company or the Trustee, as the case may be, shall not be required (a) to issue or authenticate, register the transfer of or exchange any Security during a period beginning at the opening of business 10 Business Days before the mailing of a notice of redemption of the Securities selected for redemption under Section 3.2 and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of Securities being redeemed in part. No service charge shall be made for any registration of transfer, exchange or conversion 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 transfer, registration of transfer or exchange of Securities, other than exchanges pursuant to Sections 2.10, 3.6, 9.5 or 10.2 not involving any transfer. SECTION 2.7 Replacement Securities. ---------------------- If the Holder of a Security claims that the Security has been mutilated, lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met and, in the case of a mutilated Security, such mutilated Security is surrendered to the Trustee. In the case of lost, destroyed or wrongfully taken Securities, if required by the Trustee or the Company, an indemnity bond must be provided by the Holder that is sufficient in the judgment of both the Company and the Trustee to protect the Company, the Trustee or any Agent from any loss that any of them may suffer if a Security is replaced. The Company or the Trustee may charge for its expenses in replacing a Security. In case any such mutilated, lost, destroyed or wrongfully taken Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security when due. Every replacement Security is an additional obligation of the Company. SECTION 2.8 Outstanding Securities. ---------------------- Securities outstanding at any time are all the Securities authenticated by the Trustee except for those converted, those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or one of its Subsidiaries or Affiliates holds the Security. 11 If a Security is replaced pursuant to Section 2.7, it ceases to be outstanding unless the Trustee receives proof satisfactory to it, or a court holds, that the replaced Security is held by a protected purchaser. If the Paying Agent (other than the Company) holds on a redemption date, Repurchase Date or the Maturity Date money sufficient to pay Securities payable on that date, then on and after that date, such Securities shall be deemed to be no longer outstanding and interest on them shall cease to accrue. SECTION 2.9 Securities Held by the Company or an Affiliate. ---------------------------------------------- In determining whether the Holders of the required aggregate principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or a Subsidiary or an Affiliate shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that a Trust Officer actually knows are so owned shall be so disregarded. SECTION 2.10 Temporary Securities. -------------------- Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. SECTION 2.11 Cancellation. ------------ The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar, Paying Agent and Conversion Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange, payment or conversion. The Trustee shall cancel all Securities surrendered for registration of transfer, exchange, payment, conversion or cancellation and the Trustee shall dispose of such cancelled Securities in its customary manner. The Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation or that any Holder has converted pursuant to Article Ten. SECTION 2.12 Defaulted Interest. ------------------ If and to the extent the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent not prohibited by applicable statute or case law, interest payable on the defaulted interest at the rate provided in the form of Security set forth in Exhibit A. It may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. The Company shall fix such record date and payment date. At least 15 days before a special record date, the Company shall mail to Holders a notice that states the record date, payment date and amount of interest to be paid. 12 SECTION 2.13 CUSIP Numbers. ------------- The Company in issuing the Securities may use one or more "CUSIP" numbers, and if so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP numbers printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP number. SECTION 2.14 Deposit of Monies. ----------------- Prior to 11:00 a.m., New York City time, on each interest payment date, redemption date, Repurchase Date and the Maturity Date, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such interest payment date, redemption date, Repurchase Date and the Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such interest payment date, Maturity Date, redemption date and Repurchase Date, as the case may be. SECTION 2.15 Book-Entry Provisions for Global Securities. ------------------------------------------- (a) The Global Securities initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear the legend for Global Securities as set forth in Exhibit B(II). Members of, or participants in, the Depositary ("Participants") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Security for all purposes whatsoever. Notwithstanding the foregoing, 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 the Depositary or impair, as between the Depositary and Participants, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Permanent certificated Securities in registered form, in the form set forth in Exhibit A (the "Physical Securities"), shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Securities if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for any Global Security and a successor Depositary is not appointed by the Company or the Depository within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depositary to issue Physical Securities. (c) In connection with any transfer or exchange of a portion of the beneficial interest in a Global Security to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Securities are to be issued) reflect on its books and records the date and a decrease in the aggregate principal amount of such Global Security in an amount equal to the 13 aggregate initial aggregate principal amount of the beneficial interest in the Global Security to be transferred, and the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Securities of authorized denominations in an aggregate principal amount equal to the aggregate principal amount of the beneficial interest in the Global Security so transferred. (d) In connection with the transfer of a Global Security in its entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15, such Global Security shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall upon written instructions from the Company authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in such Global Security, an equal aggregate principal amount of Physical Securities of authorized denominations. (e) Any Physical Security constituting a Restricted Security delivered in exchange for an interest in a Global Security pursuant to paragraph (b) or (c) of this Section 2.15 shall, except as otherwise provided by Section 2.16, bear the Private Placement Legend. (f) The Holder of any Global Security may grant proxies and otherwise authorize any Person, including Participants and Persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 2.16 Special Transfer Provisions. --------------------------- (a) (1) In the event that Physical Securities are to be issued in exchange for beneficial interests in Global Securities pursuant to Section 2.15, only Restricted Physical Securities shall be issued in exchange for beneficial interests in Restricted Global Securities, and only Unrestricted Physical Securities shall be issued in exchange for beneficial interests in Unrestricted Global Securities. Physical Securities issued in exchange for beneficial interests in Global Securities shall be registered in such names and shall be in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver or cause to be delivered such Physical Securities to the Persons in whose names such Securities are so registered. Such exchange shall be effected in accordance with the Applicable Procedures. (2) Notwithstanding any other provisions of this Indenture other than the provisions set forth in Section 2.15 and Section 2.16(a)(l), a Global Security may not be transferred as a whole 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. (b) In the event that Physical Securities are issued in exchange for beneficial interests in Global Securities in accordance with Section 2.15(b) of this Indenture, on or after such event when Physical Securities are presented by a Holder to a Registrar with a request: (x) to register the transfer of the Physical Securities to a Person who will take delivery thereof in the form of Physical Securities only; or 14 (y) to exchange such Physical Securities for an equal principal amount of Physical Securities of other authorized denominations, such Registrar shall register the transfer or make the exchange as requested; provided, however, that the Physical Securities presented or surrendered for register of transfer or exchange: (1) shall be duly endorsed or accompanied by a Transfer Certificate; and (2) in the case of a Restricted Physical Security, such request shall be accompanied by the following additional information and documents, as applicable: (i) if such Restricted Physical Security is being delivered to the Registrar by a Holder for registration in the name of such Holder, without transfer, or such Restricted Physical Security is being transferred to the Company or a Subsidiary of the Company, a certification to that effect from such Holder (in substantially the form set forth in the Transfer Certificate); (ii) if such Restricted Physical Security is being transferred to a Person the Holder reasonably believes is a QIB in accordance with Rule 144A or pursuant to an effective registration statement under the Securities Act, a certification to that effect from such Holder (in substantially the form set forth in the Transfer Certificate); or (iii) if such Restricted Physical Security is being transferred (i) pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 or (ii) pursuant to an exemption from the registration requirements of the Securities Act (other than pursuant to Rule 144A or Rule 144) and as a result of which, in the case of a Security transferred pursuant to this clause (ii), such Security shall cease to be a "Restricted Security" within the meaning of Rule 144, a certification to that effect from the Holder (in substantially the form set forth in the Transfer Certificate) and, if the Company or such Registrar so requests, a customary opinion of counsel, certificates and other information reasonably acceptable to the Company and such Registrar to the effect that such transfer is in compliance with the registration requirements of the Securities Act. (c) Any Person having a beneficial interest in a Restricted Global Security may upon request, subject to the Applicable Procedures, transfer such beneficial interest to a Person who is required or permitted to take delivery thereof in the form of an Unrestricted Global Security. Upon receipt by the Trustee of written instructions, or such other form of instructions as is customary for the Depositary, from the Depositary or its nominee on behalf of any Person having a beneficial interest in a Restricted Global Security and the following additional information and documents in such form as is customary for the Depositary from the Depositary or its nominee on behalf of the Person having such beneficial interest in the Restricted Global Security (all of which may be submitted by facsimile or electronically): (1) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certification to that effect from the transferor (in substantially the form set forth in the Transfer Certificate); or 15 (2) if such beneficial interest is being transferred (i) pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 or (ii) pursuant to an exemption from the registration requirements of the Securities Act (other than pursuant to Rule 144A or Rule 144) and as a result of which, in the case of a Security transferred pursuant to this clause (ii), such Security shall cease to be a "restricted security" within the meaning of Rule 144, a certification to that effect from the transferor (in substantially the form set forth in the Transfer Certificate) and, if the Company or the Trustee so requests, a customary opinion of counsel, certificates and other information reasonably acceptable to the Company and the Trustee to the effect that such transfer is in compliance with the registration requirements of the Securities Act, the Trustee, as Registrar, shall reduce or cause to be reduced the aggregate principal amount of the Restricted Global Security by the appropriate principal amount and shall increase or cause to be increased the aggregate principal amount of the Unrestricted Global Security by a like principal amount. Such transfer shall otherwise be effected in accordance with the Applicable Procedures. If no Unrestricted Global Security is then outstanding, the Company shall execute and the Trustee shall, upon receipt of a Company Order (which the Company agrees to deliver promptly), authenticate and deliver an Unrestricted Global Security. (d) Any Person having a beneficial interest in an Unrestricted Global Security may upon request, subject to the Applicable Procedures, transfer such beneficial interest to a Person who is required or permitted to take delivery thereof in the form of a Restricted Global Security (it being understood that only QIBs may own beneficial interests in Restricted Global Securities). Upon receipt by the Trustee of written instructions or such other form of instructions as is customary for the Depositary, from the Depositary or its nominee, on behalf of any Person having a beneficial interest in an Unrestricted Global Security and, in such form as is customary for the Depositary, from the Depositary or its nominee on behalf of the Person having such beneficial interest in the Unrestricted Global Security (all of which may be submitted by facsimile or electronically) a certification from the transferor (in substantially the form set forth in the Transfer Certificate) to the effect that such beneficial interest is being transferred to a Person that the transferor reasonably believes is a QIB in accordance with Rule 144A. The Trustee, as Registrar, shall reduce or cause to be reduced the aggregate principal amount of the Unrestricted Global Security by the appropriate principal amount and shall increase or cause to be increased the aggregate principal amount of the Restricted Global Security by a like principal amount. Such transfer shall otherwise be effected in accordance with the Applicable Procedures. If no Restricted Global Security is then outstanding, the Company shall execute and the Trustee shall, upon receipt of a Company Order (which the Company agrees to deliver promptly), authenticate and deliver a Restricted Global Security. (e) In the event that Physical Securities are issued in exchange for beneficial interests in Global Securities and, thereafter, the events or conditions specified in Section 2.15(b) which required such exchange shall cease to exist, the Company shall mail notice to the Trustee and to the Holders stating that Holders may exchange Physical Securities for interests in Global Securities by complying with the procedures set forth in this Indenture and briefly describing such procedures and the events or circumstances requiring that such notice be given. Thereafter, if Physical Securities are presented by a Holder to a Registrar with a request: 16 (x) to register the transfer of such Physical Securities to a Person who will take delivery thereof in the form of a beneficial interest in a Global Security, which request shall specify whether such Global Security will be a Restricted Global Security or an Unrestricted Global Security; or (y) to exchange such Physical Securities for an equal principal amount of beneficial interests in a Global Security, which beneficial interests will be owned by the Holder transferring such Physical Securities (provided that in the case of such an exchange, Restricted Physical Securities may be exchanged only for Restricted Global Securities and Unrestricted Physical Securities may be exchanged only for Unrestricted Global Securities), the Registrar shall register the transfer or make the exchange as requested by canceling such Physical Security and causing, or directing the Registrar to cause, the aggregate principal amount of the applicable Global Security to be increased accordingly and, if no such Global Security is then outstanding, the Company shall issue and the Trustee shall authenticate and deliver a new Global Security; provided, however, that the Physical Securities presented or surrendered for registration of transfer or exchange: (1) shall be duly endorsed or accompanied by a Transfer Certificate; (2) in the case of a Restricted Physical Security to be transferred for a beneficial interest in an Unrestricted Global Security, such request shall be accompanied by the following additional information and documents, as applicable: (i) if such Restricted Physical Security is being transferred pursuant to an effective registration statement under the Securities Act, a certification to that effect from such Holder (in substantially the form set forth in the Transfer Certificate); or (ii) if such Restricted Physical Security is being transferred pursuant to (i) an exemption from the registration requirements of the Securities Act in accordance with Rule 144 or (ii) pursuant to an exemption from the registration requirements of the Securities Act (other than pursuant to Rule 144A or Rule 144) and as a result of which, in the case of a Security transferred pursuant to this clause (ii), such Security shall cease to be a "Restricted Security" within the meaning of Rule 144, a certification to that effect from such Holder (in substantially the form set forth in the Transfer Certificate), and, if the Company or the Registrar so requests, a customary opinion of counsel, certificates and other information reasonably acceptable to the Company and the Trustee to the effect that such transfer is in compliance with the registration requirements of the Securities Act; (3) in the case of a Restricted Physical Security to be transferred or exchanged for a beneficial interest in a Restricted Global Security, such request shall be accompanied by a certification from such Holder (in substantially the form set forth in the Transfer Certificate) to the effect that such Restricted Physical Security is being transferred to a Person the Holder reasonably believes is a QIB (which, in the case of an exchange, shall be such Holder) in accordance with Rule 144A; 17 (4) in the case of an Unrestricted Physical Security to be transferred or exchanged for a beneficial interest in an Unrestricted Global Security, such request need not be accompanied by any additional information or documents; and (5) in the case of an Unrestricted Physical Security to be transferred or exchanged for a beneficial interest in a Restricted Global Security, such request shall be accompanied by a certification from such Holder (in substantially the form set forth in the Transfer Certificate) to the effect that such Unrestricted Physical Security is being transferred to a Person the Holder reasonably believes is a QIB (which, in the case of an exchange, shall be such Holder) in accordance with Rule 144A. (f) Transfers to the Company. Nothing in this Indenture or in the Securities shall prohibit the sale or other transfer of any Securities (including beneficial interests in Global Securities) to the Company or any of its Subsidiaries, which Securities shall thereupon be cancelled in accordance with Section 2.11. SECTION 2.17 Restrictive Legends. ------------------- (a) Except as permitted by Sections 2.17(b) and (c), each Global Security and Physical Security (and all Securities issued in exchange therefor or upon registration of transfer or replacement thereof) shall bear a legend as set forth in Exhibit B(I) hereto. Each Restricted Security shall have attached thereto a Transfer Certificate. (b) Upon any sale or transfer of a Restricted Security (w) after the expiration of the holding period applicable to sales of the Securities under Rule 144(k) of the Securities Act, (x) pursuant to Rule 144, (y) pursuant to an effective registration statement under the Securities Act or (z) pursuant to any other available exemption (other than Rule 144A) from the registration requirements of the Securities Act and as a result of which, in the case of a Security transferred pursuant to this clause (z), such Security shall cease to be a "restricted security" within the meaning of Rule 144: (i) in the case of any Restricted Physical Security, any Registrar shall permit the Holder thereof to exchange such Restricted Physical Security for an Unrestricted Physical Security, or (under the circumstances described in Section 2.16(e)) to transfer such Restricted Physical Security to a transferee who shall take such Security in the form of a beneficial interest in an Unrestricted Global Security, and in each case shall rescind any restriction on the transfer of such Security; provided, however, that the Holder of such Restricted Physical Security shall, in connection with such exchange or transfer, comply with the other applicable provisions of this Section 2.17; and (ii) in the case of any beneficial interest in a Restricted Global Security, the Trustee shall permit the beneficial owner thereof to transfer such beneficial interest to a transferee who shall take such interest in the form of a beneficial interest in an Unrestricted Global Security and shall rescind any restriction on transfer of such beneficial interest; provided, that such Unrestricted Global Security shall continue to be subject to the provisions of Section 2.16(a)(2); and provided, further, that the owner of such beneficial interest shall, in connection with such transfer, comply with the other applicable provisions of this Section 2.12. 18 (c) Upon the exchange, registration of transfer or replacement of Securities not bearing the legend described in paragraph (1) above, the Company shall execute, and the Trustee shall authenticate and deliver Securities that do not bear such legend and that do not have a Transfer Certificate attached thereto. (d) After the expiration of the holding period pursuant to Rule 144(k) of the Securities Act, the Company may with the consent of the Holder of a Restricted Global Security or Restricted Physical Security, remove any restriction of transfer on such Security, and the Company shall execute, and the Trustee shall authenticate and deliver Securities that do not bear such legend and that do not have a Transfer Certificate attached thereto. ARTICLE THREE REDEMPTION; REPURCHASE SECTION 3.1 Right to Redeem; Notices to Trustee. ----------------------------------- The Securities may be redeemed at the election of the Company, as a whole or from time to time in part, at any time on or after August 19, 2005, on at least 30 days' and not more than 60 days' notice at the redemption prices specified in paragraph 6 of the form of Security attached hereto as Exhibit A, together with accrued and unpaid interest up to, but not including, the redemption date; provided that if the redemption date is an interest payment date, the accrued interest will be paid in the ordinary course. If the Company elects to redeem Securities pursuant to this Section 3.1 and paragraph 6 of the Securities, it shall notify the Trustee at least 45 days prior to the redemption date (unless a shorter notice period shall be satisfactory to the Trustee) of the redemption date and the aggregate principal amount of Securities to be redeemed. If the Company wants to credit against any such redemption Securities it has not previously delivered to the Trustee for cancellation (other than Securities repurchased pursuant to Section 3.8), it shall deliver the Securities with the notice. SECTION 3.2 Selection of Securities to Be Redeemed. -------------------------------------- If less than all the outstanding Securities are to be redeemed, the Trustee shall select the Securities to be redeemed on either a pro rata basis or by lot or such other method as the Trustee shall deem fair and equitable. The Trustee shall make the selection from Securities outstanding and not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000 principal amount. Securities and portions of them it selects shall be in amounts of $1,000 principal amount or integral multiples of $1,000 principal amount. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Registrar need not register the transfer of or exchange any Securities selected for redemption. Also, the Registrar need not transfer or exchange any Securities for a period of 10 days before selecting Securities to be redeemed. 19 SECTION 3.3 Notice of Redemption. -------------------- At least 30 days but not more than 60 days before a redemption date, the Company shall mail by first-class mail or cause to be mailed a notice of redemption to each Holder whose Securities are to be redeemed. The notice shall identify the Securities and the aggregate principal amount thereof to be redeemed and shall state: (1) the redemption date; (2) the redemption price, plus the amount of accrued and unpaid interest to be paid on the Securities called for redemption; (3) the then current Conversion Price; (4) the name and address of the Paying Agent and Conversion Agent; (5) the date on which the right to convert the principal of the Securities called for redemption will terminate and the place or places where such Securities may be surrendered for conversion; (6) that Holders who want to convert Securities must satisfy the requirements in Article Ten; (7) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; (8) that interest on Securities called for redemption ceases to accrue on and after the redemption date; and (9) the CUSIP number of the Securities. The date on which the right to convert the principal of the Securities called for redemption will terminate shall be at the close of business on the Business Day prior to the redemption date. At the Company's Request (which request shall be furnished to the Trustee at least 40 days prior to the redemption date (unless a shorter period shall be acceptable to the Trustee)), the Trustee shall give the notice of redemption in the Company's name and at the Company's expense; provided that the form and content of such notice shall be prepared by the Company. SECTION 3.4 Effect of Notice of Redemption. ------------------------------ Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date at the redemption price plus accrued and unpaid interest to, but excluding, the date of redemption, and, on and after such date (unless the Company shall 20 default in the payment of the redemption price), such Securities shall cease to bear interest. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price plus accrued interest to, but excluding the redemption date, unless the redemption date is an interest payment date, in which case the accrued interest will be paid in the ordinary course. SECTION 3.5 Deposit of Redemption Price. --------------------------- On or prior to the redemption date, the Company shall deposit with the Trustee or with a Paying Agent pursuant to Section 2.14 money in funds immediately available on the redemption date sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date. The Paying Agent shall return to the Company, as soon as practicable, any money not required for that purpose because of conversion of Securities. SECTION 3.6 Securities Redeemed in Part. --------------------------- Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unredeemed portion of the Security surrendered. If a portion of a Holder's Securities is selected for partial redemption and that Holder converts a portion of that Holder's Securities, the converted portion shall be deemed (as far as may be) to be the portion selected for redemption. SECTION 3.7 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 called for redemption by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying in cash to a Paying Agent (other than the Company or any of its Affiliates) in trust for the Holders, on or before 11:00 a.m., New York City time, on the redemption date, an amount that, together with any amounts deposited with such Paying Agent by the Company for the redemption of such Securities, is not less than the redemption price, together with interest accrued and unpaid to, but not including, the redemption date (unless the redemption date is an interest payment date, in which case accrued interest will be paid in the ordinary course), of such Securities. Notwithstanding anything to the contrary contained in this Article Three, the obligations of the Company to pay the redemption price of such Securities, including all accrued and unpaid interest, shall be deemed to be satisfied and discharged to the extent such amount is so paid by such purchasers; provided, however, that nothing in this Section 3.7 shall relieve the Company of its obligation to pay the redemption price, plus accrued and unpaid interest to but excluding the relevant redemption date (unless the redemption date is an interest payment date, in which case the accrued interest will be paid in the ordinary course) on Securities called for redemption. If such an agreement with one or more investment banks or other purchasers is entered into any Securities called for redemption and not surrendered for conversion by the Holders thereof prior to the relevant redemption date may, at the option of the Company upon written notice to the Trustee, be deemed, to the fullest extent permitted by law, acquired by such purchasers from such Holders and (notwithstanding anything to the contrary contained in Article Ten) surrendered by such purchasers for conversion, all as of 11:00 a.m., New York City time, on the 21 redemption date, subject to payment of the above amount as aforesaid. The Paying Agent shall hold and pay to the Holders whose Securities are selected for redemption any such amount paid to it for purchase in the same manner as it would money deposited with it by the Company for the redemption of Securities. Without the Paying Agent'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 Paying Agent as set forth in this Indenture, and the Company agrees to indemnify the Paying Agent 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 incurred by the Paying Agent 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. SECTION 3.8 Repurchase at Option of Holder upon a Change in Control. ------------------------------------------------------- (a) If there shall occur a Change in Control, then 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 thereof (in principal amounts of $1,000 or integral multiples thereof), on the date (the "Repurchase Date") that is fixed by the Company not more than sixty (60) days after the date of such Change in Control. Except as set forth in this Section 3.8, such repurchase shall be made in cash at a price equal to 100% of the principal amount of Securities such Holder elects to require the Company to repurchase, together with accrued interest, if any, to but excluding the Repurchase Date (the "Repurchase Price"); provided, however, that if such Repurchase Date is an interest payment date, then the interest payable on such date shall be paid to the Holder of record of the Security on the preceding record date for the payment of interest. Subject to the fulfillment by the Company of the conditions set forth in Section 3.8(k), the Company may elect to pay the Repurchase Price (to the extent not paid in cash) by delivering the number of shares of Common Stock equal to (i) the Repurchase Price (to the extent not paid in cash) divided by (ii) 95% of the average of the Closing Prices per share of the Common Stock for the five consecutive Trading Days immediately preceding and including the third Trading Day preceding the Repurchase Date. (b) Unless the Company shall have theretofore called for redemption all of the outstanding Securities, on or before the thirtieth (30th) day after the occurrence of a Change in Control, the Company or, at the written request of the Company, the Trustee shall mail to all holders of record of the Securities a notice (the "Company Notice") in the form prepared by the Company of the occurrence of the Change in Control and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such Company Notice to the Trustee. The Company Notice shall contain the following information: (1) the Repurchase Date; (2) the date by which the repurchase right must be exercised; 22 (3) the last date by which the election to require repurchase, if submitted, must be revoked; (4) the Repurchase Price and whether the Repurchase Price shall be payable in cash or Common Stock or a combination thereof, and if payable in a combination thereof, the proportion of cash and Common Stock, and, if payable in Common Stock, the method of calculating the amount of the Common Stock to be delivered upon the repurchase as provided in Section 3.8(k); (5) a description of the procedure that a Holder must follow to exercise a repurchase right; (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 Securities may be surrendered for conversion; and (7) the CUSIP numbers of the Securities. 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 are inconsistent with applicable law, such law shall govern. (c) To exercise a repurchase right, a Holder shall deliver to the Trustee on or before the close of business on the third Business Day preceding the Repurchase Date (i) written notice to the Company (or agent designated by the Company for such purpose) 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, a statement that an election to exercise the repurchase right is being made thereby, and, in the event that the Repurchase Price shall be paid in whole or in part in shares of Common Stock, the name or names (with addresses) in which the certificate or certificates for shares of Common Stock shall be issued, and (ii) the Securities with respect to which the repurchase right is being exercised, duly endorsed for transfer to the Company. Election of repurchase by a Holder shall be revocable at any time prior to, but excluding, the Second Business Day prior to the Repurchase Date, by delivering written notice to that effect to the Trustee prior to the close of business on the second Business Day prior to the Repurchase Date. (d) If the Company fails to repurchase on the Repurchase Date any Securities (or portions thereof) as to which the repurchase right has been properly exercised, then the principal of such Securities shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate borne by the Securities and each such Security shall be convertible into Common Stock in accordance with this Indenture until the principal of such Security shall have been paid or duly provided for. (e) Any Security that is to be repurchased only in part shall be surrendered to the Trustee duly endorsed for transfer to the Company and accompanied by appropriate evidence 23 of genuineness and authority 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 deliver to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) On or prior to the Repurchase Date, the Company shall deposit with the Trustee or with a Paying Agent, pursuant to Section 2.14, the Repurchase Price in cash, Common Stock, or a combination thereof, if permitted hereunder, for payment to the Holders on the Repurchase Date; provided that if payment is to be paid in whole or in part in cash and such cash payment is made on the Repurchase Date it must be received by the Trustee or Paying Agent, as the case may be, by 11:00 a.m., New York City time, on such date; provided, further, that if the Repurchase Price is to be paid in whole or in part in shares of Common Stock, such shares of Common Stock are to be paid as promptly after the Repurchase Date as practicable. (g) Any issuance of shares of Common Stock in respect of the Repurchase Price shall be deemed to have been effected immediately prior to the close of business on the Repurchase Date and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such repurchase shall be deemed to have become on the Repurchase Date the holder or holders of record of the shares represented thereby; provided, however, that any surrender for repurchase on a date when the stock transfer books of the Company shall be closed shall constitute the Person or Persons in whose name or names the certificate or certificates for such shares are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open. No payment or adjustment shall be made for dividends or distributions on any Common Stock issued upon repurchase of any Security declared prior to the Repurchase Date. (h) No fractions of shares shall be issued upon repurchase of Securities. If more than one Security shall be repurchased from the same Holder and the Repurchase Price shall be payable in shares of Common Stock, the number of full shares which shall be issuable upon such repurchase shall be computed on the basis of the aggregate principal amount of the Securities so repurchased. Instead of any fractional share of Common Stock otherwise issuable on the repurchase of any Security or Securities, the Company will deliver to the applicable Holder its check for the current market value of such fractional share. The current market value of a fraction of a share is determined by multiplying the current market price of a full share by the fraction, and rounding the result to the nearest cent. For purposes of this Section, the current market price of a share of Common Stock is the Closing Price of the Common Stock on the Trading Day immediately preceding the Repurchase Date. (i) Any issuance and delivery of certificates for shares of Common Stock on repurchase of Securities shall be made without charge to the Holder of Securities being repurchased for such certificates or for any tax or duty in respect of the issuance or delivery of such certificates or the securities represented thereby; provided, however, that the Company shall not be required to pay any tax or duty which may be payable in respect of (i) income of the Holder or (ii) any transfer involved in the issuance or delivery of certificates for shares of 24 Common Stock in a name other than that of the Holder of the Securities being repurchased, and no such issuance or delivery shall be made unless and until the Person requesting such issuance or delivery 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. (j) All Securities delivered for repurchase shall be delivered to the Trustee to be canceled in accordance with the provisions of Section 2.11. (k) The Company may elect to pay the Repurchase Price by delivery of shares of Common Stock if and only if the following conditions shall have been satisfied: (i) such shares have been registered under the Securities Act or are freely transferable without such registration; (ii) the issuance of such Common Stock does not require registration or qualification with or approval of any governmental authority under any State law or any other federal law, which registration or qualification or approval has not been made or obtained; (iii) such shares have been approved for quotation on the Nasdaq National Market or listing on a national securities exchange; and (iv) such shares will be issued out of the Company's authorized but unissued Common Stock and, upon issuance, will be duly and validly and fully paid and non-assessable and free of any preemptive rights. (l) For purposes of this Section 3.8: (i) the term "beneficial owner" shall be determined in accordance with Rule 13d-3 and 13d-5, as in effect on the date of the original execution of this Indenture, promulgated by the SEC pursuant to the Exchange Act; (ii) the term "Person" or "group" shall include any syndicate or group which would be deemed to be a "person" under Section 13(d) and 14(d) of the Exchange Act as in effect on the date of this Indenture; (iii) a "Change in Control" shall be deemed to have occurred when (i) any "Person" or "group" is or becomes the "beneficial owner" of shares representing more than 50% of the combined voting power of the then outstanding securities entitled to vote generally in elections of directors of the Company (the "Voting Stock"); (ii) the Company consolidates with or merges into any other Person or any other Person merges into the Company or the Company conveys, transfers or leases all or substantially all of its assets to any Person other than a Subsidiary or Subsidiaries, and as a result, the outstanding Common Stock of the Company is changed or exchanged into other assets or securities, unless the shareholders of the Company immediately before such transaction own, directly or indirectly, immediately following such transaction, more than 50% of the combined voting power of the outstanding voting securities of the Person resulting from such transaction or the transferee Person; or (iii) there shall occur the liquidation or 25 dissolution of the Company; provided that a Change in Control shall not be deemed to have occurred if either (x) the Closing Price of the Common Stock for any five (5) Trading Days within (a) the period of ten (10) consecutive Trading Days immediately after the later of the Change in Control or the public announcement of the Change in Control, in the case of a Change in Control resulting solely from a Change in Control under (i) or (ii) above, or (b) the period of ten (10) consecutive Trading Days immediately preceding the Change in Control, in the case of a Change in Control under (iii) above, in each such case, is at least equal to 105% of the Conversion Price in effect on the date on which the Change in Control occurs or (y) in the case of a merger or consolidation otherwise constituting a Change in Control, all of the consideration (excluding cash payments for fractional shares) in such merger or consolidation constituting the Change in Control consists of common stock traded on a United States national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted when issued or exchanged in connection with such Change in Control) and as a result of such transaction or transactions the Securities become convertible solely into such common stock. The Company may arrange for a third party to make the offer to repurchase the Securities upon a Change in Control in the manner and otherwise in compliance with the requirements of this Section 3.8. The Company shall not be required to make the offer to repurchase the Securities upon a Change in Control if such third party (i) makes the offer to repurchase the Securities in the manner and at the time and otherwise in compliance with the terms of this Section 3.8, and (ii) purchases all Securities validly tendered and not withdrawn under such offer. ARTICLE FOUR COVENANTS SECTION 4.1 Payment of Securities. --------------------- The Company shall pay the principal amount, premium, if any, of and any accrued and unpaid interest on the Securities on the dates and in the manner provided in the Securities. The principal, premium, if any, and any accrued and unpaid interest thereon shall be considered paid on the date due if the Paying Agent holds (or, if the Company is acting as Paying Agent, if the Company has segregated and holds in trust in accordance with Section 2.4) by 11:00 a.m., New York City time, on that date money sufficient to pay the principal, premium, if any, and any accrued and unpaid interest thereon. The Company shall pay interest on any overdue principal at the rate borne by the Securities. The Company shall pay interest on overdue installments of interest at the same rate to the extent not prohibited by applicable law. SECTION 4.2 Maintenance of Office or Agency. ------------------------------- The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be surrendered for registration of transfer or exchange 26 or conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as an agency of the Company in accordance with Section 2.3. SECTION 4.3 Reports to Holders. ------------------ (a) The Company (at its own expense) will deliver or otherwise make available to the Trustee within 15 days after the filing of the same with the SEC, copies of the quarterly and annual reports and of the information, documents and other reports, if any, the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. (b) Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will promptly provide the information required by Rule 144A(d)(4) to any Holder that so requests. (c) In addition, if and when this Indenture becomes subject to the TIA, the Company will file a copy of all such information with the SEC for public availability (unless the Commission will not accept such a filing) and make such information available to investors who request it in writing. The Company will also comply with the other provisions of TIA [sec]. 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.4 Compliance Certificate. ---------------------- The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating whether or not the signers know of any Default or Event of Default by the Company in performing any of its obligations under this Indenture or the Securities. If they do know of any such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status. 27 SECTION 4.5 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, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever 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 that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.6 Corporate Existence. ------------------- Subject to Article Five, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each Subsidiary in accordance with the respective organizational documents of each Subsidiary and the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any Subsidiary, if in the judgment of the Company, (i) such preservation or existence is not material to the conduct of business of the Company and (ii) the loss of such right, license or franchise or the dissolution of such Subsidiary does not have a material adverse impact on the Holders. SECTION 4.7 Notice of Default. ----------------- In the event that any Default under Section 6.1 hereof shall occur, the Company will give prompt written notice of such Default to the Trustee. ARTICLE FIVE CONSOLIDATION, MERGER AND SALE OF ASSETS SECTION 5.1 When Company May Merge, etc. --------------------------- The Company shall not consolidate with or merge into any other Person, in a transaction in which the Company is not the surviving corporation, or convey, transfer or lease its properties and assets substantially as an entirety to, another Person, unless (i) the successor, if any, is a corporation organized under the laws of the United States or any State thereof or the District of Columbia; (ii) the successor assumes by supplemental indenture the Company's obligations under the Securities and this Indenture; and (iii) immediately after giving effect to the transaction, no Default or Event of Default shall have occurred and be continuing. The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture will, upon consummation of the proposed transaction, comply with this Indenture. 28 The foregoing shall not prohibit any of the Subsidiaries from merging with or into the Company or a merger effected solely for the purposes of reincorporating the Company in another jurisdiction. SECTION 5.2 Successor Substituted. --------------------- Upon any consolidation or merger or transfer or lease of all or substantially all of the assets of the Company in accordance with Section 5.1, the successor Person formed by such consolidation or into which the Company is merged or to which such transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, and shall assume every duty and obligation of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein. Except in the case of a lease, if the predecessor Person is still in existence after the transaction, it will be released from its obligations and covenants under this Indenture and the Securities. ARTICLE SIX DEFAULTS AND REMEDIES SECTION 6.1 Events of Default. ----------------- An "Event of Default" occurs if: (1) the Company fails to pay the principal of or any premium on the Securities when due (whether or not prohibited by the provisions set forth in Article Twelve hereof); (2) the Company fails to pay any interest on the Securities when due, if such failure continues for 30 days (whether or not prohibited by the provisions set forth in Article Twelve hereof); provided that a failure to make any of the first six scheduled interest payments on the Securities within three (3) Business Days after the applicable interest payment dates will constitute an Event of Default with no additional grace or cure period; (3) the Company fails to perform any other covenant in this Indenture, if such failure continues for 60 days after receipt of the notice specified in the last paragraph of this Section 6.1; (4) any Indebtedness for money borrowed by the Company or any of its Significant Subsidiaries in an outstanding principal amount in excess of $20,000,000, is not paid at final maturity or upon acceleration, and such Indebtedness is not discharged, or such default on payment or acceleration is not cured, waived or rescinded within 30 days after receipt of the notice specified in the last paragraph of this Section 6.1; (5) the Company or any of its Significant Subsidiaries pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, 29 (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; (6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any of its Significant Subsidiaries in an involuntary case, (B) appoints a Custodian of the Company or any of its Significant Subsidiaries for all or substantially all of its property, or (C) orders the liquidation of the Company or any of its Significant Subsidiaries, and the order or decree remains unstayed and in effect for 60 consecutive days; or (7) the Pledge Agreement shall cease to be in full force and effect or enforceable in accordance with its terms. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or State law for the relief of debtors. The term "Custodian" means any receiver trustee, assignee, liquidator or similar official under any Bankruptcy Law. A Default under clause (3) or (4) is not an Event of Default until the Trustee notifies the Company in writing, or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding notify the Company and the Trustee of the default and the Company does not cure the Default (and such Default is not waived) within the time periods specified in clause (3) or (4) above. The notice must specify the Default, demand that it be remedied and state that the notice is a "Notice of Default." If the Holders of 25% in aggregate principal amount of the outstanding Securities request the Trustee to give such notice on their behalf, the Trustee shall do so. When a Default is cured, it ceases. SECTION 6.2 Acceleration. ------------ If an Event of Default (other than an Event of Default specified in Section 6.1(5) or (6)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities then outstanding by notice to the Company and the Trustee, may declare the principal amount including any accrued and unpaid interest on the Securities immediately due and payable. If an Event of Default under Section 6.1(5) or (6) occurs, the principal amount of all the Securities will automatically become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. 30 The Company shall promptly notify holders of Designated Senior Indebtedness if payment of the Securities is accelerated because of an Event of Default. After a declaration of acceleration, but before a judgment or decree of the money due in respect of the Securities has been obtained, the Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default (other than the nonpayment of principal of and interest on the Securities which has become due solely by virtue of such acceleration) have been cured or waived, (ii) the rescission would not conflict with any judgment or decree and (iii) the Company shall have paid all amounts due pursuant to Section 7.7. SECTION 6.3 Other Remedies. -------------- Notwithstanding any other provision of this Indenture, if an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of the principal of, premium, if any, and interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative. SECTION 6.4 Waiver of Past Defaults. ----------------------- Subject to Sections 6.2, 6.7 and 9.2, the Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may waive any past Default or Event of Default and its consequences, except a Default or Event of Default in the payment of the principal of or interest on any Security or any Default or Event of Default in respect of any provision of this Indenture or the Securities that, under Section 9.2, cannot be modified or amended without the consent of the Holder of each Security affected. When a Default or an Event of Default is waived, it is cured and ceases. SECTION 6.5 Control by Majority. ------------------- The Holders of a majority in aggregate principal amount of the Securities then outstanding may 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 it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, is unduly prejudicial to the rights of other Holders or would involve the Trustee in personal liability if the Trustee shall have reasonable grounds for believing that adequate indemnity against such liability is not reasonably assured to it; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. 31 SECTION 6.6 Limitation on Suits. ------------------- Except as provided in Section 6.7, a Holder may pursue a remedy with respect to this Indenture or the Securities only if: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in aggregate principal amount of the Securities then outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holders of a majority in aggregate principal amount of the Securities then outstanding do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 6.7 Rights of Holders to Receive Payment or Convert. ----------------------------------------------- Notwithstanding any other provision of this Indenture, (i) the right of any Holder to receive payment of the principal of and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder and (ii) the right of any Holder to bring suit for the enforcement of the right to convert the Security shall not be impaired or affected without the consent of the Holder. SECTION 6.8 Collection Suit by Trustee. -------------------------- If an Event of Default specified in Section 6.1(l) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid and amounts due to the Trustee under Section 7.7. SECTION 6.9 Trustee May File Proofs of Claim. -------------------------------- The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee, any predecessor Trustee and the Holders allowed in any judicial proceedings relative to the Company, its creditors or its property. 32 Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder 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 in any such proceeding. SECTION 6.10 Priorities. ---------- If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.7; Second: to holders of Senior Indebtedness to the extent required by Article Twelve; Third: to Holders for amounts due and unpaid on the Securities for principal of, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any, and interest, respectively, and Fourth: to the Company. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment by it to Holders pursuant to this Section 6.10. SECTION 6.11 Undertaking for Costs. --------------------- In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit other than the Trustee of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by a Holder or group of Holders of more than 10% in aggregate principal amount of the outstanding Securities, or to any suit instituted by any Holder for the enforcement or the payment of the principal or interest on any Securities on or after the respective due dates for such Securities. ARTICLE SEVEN TRUSTEE SECTION 7.1 Duties of Trustee. ----------------- (a) If an Event of Default has occurred and is continuing, 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 its exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. 33 (b) Except during the continuance of an Event of Default: (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others shall be inferred or implied; 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 examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of any mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section 7.1; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.5. (d) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.2 Rights of Trustee. ----------------- (a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document; if, however, 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 at the expense of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate and/or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. 34 (c) 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 of Directors shall be sufficiently evidenced by a Board Resolution. (d) The Trustee may consult with counsel appointed with due care 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. (e) The Trustee may act through agents or attorneys and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (f) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its discretion, rights or powers hereunder. (g) 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 may, in absence of bad faith on its part, rely upon an Officers' Certificate. (h) 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, unless such Holders shall have offered to the Trustee reasonable security or indemnity satisfactory to it against costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (i) The Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Securities unless either (1) a Trust Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been given to the Trustee by the Company or by any Holder. (j) 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 unless security or indemnity satisfactory to the Trustee against the costs, expenses and liability which might be incurred by it in compliance with such performance has been offered. (k) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder. SECTION 7.3 Individual Rights of Trustee. ---------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate thereof with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, must comply with Sections 7.10 and 7.11. 35 SECTION 7.4 Trustee's Disclaimer. -------------------- The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities; it shall not be accountable for the Company's use of the proceeds from the Securities; and it shall not be responsible for any statement in the Securities other than its certificate of authentication. SECTION 7.5 Notice of Defaults. ------------------ If a Default or Event of Default occurs and is continuing and if it is actually known to a Trust Officer of the Trustee, the Trustee shall mail to each Holder a notice of the Default or Event of Default within 60 days after it occurs unless such Default or Event of Default has been cured or waived. Except in the case of a Default or Event of Default in payment of the principal of, premium, if any, and interest on any Security, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the best interests of Holders. SECTION 7.6 Reports by Trustee to Holders. ----------------------------- Within 60 days after each May 15 beginning with May 15, 2003, the Trustee shall mail to each Holder, to the extent required by TIA [sec]. 313(c), a brief report dated as of such reporting date that complies with TIA [sec]. 313(a). In such event, the Trustee also shall comply with TIA [sec]. 313(b). A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed by the Trustee with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange or delisted therefrom. SECTION 7.7 Compensation and Indemnity. -------------------------- The Company shall pay to the Trustee from time to time such compensation for its services as shall be agreed upon in writing from time to time. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and out-of-pocket expenses of the Trustee's agents and counsel. The Company shall fully indemnify the Trustee against any and all loss, claim, damage or liability or expense (including the reasonable fees and expenses of counsel) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers and duties hereunder. The Company need not pay for any settlement made without its consent which shall not be unreasonably withheld. The Trustee shall notify the Company promptly of any claim for which it may seek indemnification. The Company need not reimburse any expense or indemnify against any loss or liability determined by a court of competent jurisdiction to have been caused by the Trustee's own negligence or bad faith. 36 To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay the principal of, premium, if any, and interest on particular Securities. The indemnity obligations of the Company with respect to the Trustee provided for in this Section 7.7 shall survive any resignation or removal of the Trustee and the termination of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(5) or (6) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 7.8 Replacement of Trustee. ---------------------- A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.8. The Trustee may resign by so notifying the Company in writing 30 days prior to such resignation. The Holders of a majority in aggregate principal amount of the Securities then outstanding may remove the Trustee by so notifying the Trustee and the Company in writing and may appoint a successor Trustee with the Company's consent. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the Securities then outstanding may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in aggregate principal amount of the outstanding Securities may petition at the expense of the Company any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. 37 A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall upon payment of all amounts due it hereunder promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.7. SECTION 7.9 Successor Trustee by Merger, etc. -------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee, if such successor corporation is otherwise eligible hereunder. SECTION 7.10 Eligibility; Disqualification. ----------------------------- This Indenture shall always have a Trustee who satisfies the requirements of TIA [sec] 310(a)(1). The Trustee shall always have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA [sec] 310(b). SECTION 7.11 Preferential Collection of Claims Against Company. ------------------------------------------------- The Trustee shall comply with TIA [sec] 311(a), excluding any creditor relationship listed in TIA [sec] 311(b). A Trustee who has resigned or been removed shall be subject to TIA [sec] 311(a) to the extent indicated. ARTICLE EIGHT SATISFACTION AND DISCHARGE SECTION 8.1 Termination of Company's Obligations. ------------------------------------ This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Securities herein expressly provided for and except as further provided below), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (i) 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 2.7 and (ii) Securities for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company as provided in Section 8.3) have been delivered to the Trustee for cancellation; or 38 (ii) all such Securities not theretofore delivered to the Trustee for cancellation (a) have become due and payable, or (b) will become due and payable at the final maturity date within one year; or (c) 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 (a), (b) or (c) above, has irrevocably deposited or caused to be irrevocably deposited with the Trustee or a Paying Agent (other than the Company or any of its Affiliates) as trust funds in trust for the purpose cash in an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Maturity Date 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. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.7 shall survive and, if money shall have been deposited with the Trustee pursuant to clause (1) of this Section, the provisions of Sections 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2,10, 2.12, 2.13, 2.16, 3.6, 3.8, 4.2, 7.1, 7.2, 7.3, 7.4, 8.3, 8.4, Article Ten, the last paragraph of Section 4.3 and this Article Eight, shall survive until the Securities have been paid in full. Thereafter, the Company's obligations in Sections 7.7, 8.3 and 8.4 shall survive such satisfaction and discharge. SECTION 8.2 Application of Trust Money. -------------------------- Subject to the provisions of Section 8.3, the Trustee or a Paying Agent shall hold in trust money deposited with it. It shall apply the deposited money in accordance with this Indenture to the payment of the principal of, premium, if any, and interest on the Securities. Money so held in trust is not subject to the subordination provisions of Article Twelve. SECTION 8.3 Repayment to Company. -------------------- The Trustee and the Paying Agent shall promptly pay to the Company upon request any excess money or securities held by them at any time. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of the 39 principal, premium, if any, and interest that remains unclaimed for two years; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may, at the expense of the Company, cause to be mailed to each Holder, notice stating that such money remains and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person. SECTION 8.4 Reinstatement. ------------- If the Trustee or Paying Agent is unable to apply any money in accordance with Section 8.1 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.1 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.1; provided, however, that to the extent the Company makes any payment of the principal of, premium, if any, and interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS SECTION 9.1 Without Consent of Holders. -------------------------- Without the consent of the Holders of the Securities, the Company, when authorized by a Board Resolution, and the Trustee may enter into one or more supplemental indentures for any of the following purposes: (1) to cure any ambiguity, omission, defect or inconsistency; (2) to provide for uncertificated Securities in addition to or in place of certificated Securities; (3) to comply with Sections 5.1 and 10.7; (4) to reduce the Conversion Price; (5) to make any change that would provide any additional rights or benefits to the Holder of the Securities or that does not adversely affect the legal rights under this Indenture of any such Holder; or (6) to comply with the requirements of the Commission in order to maintain the qualification of this Indenture under the TIA. 40 SECTION 9.2 With Consent of Holders. ----------------------- The Company, when authorized by a Board Resolution, and the Trustee may modify, amend or supplement this Indenture or the Securities without notice to any Holder but with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities. Subject to Section 6.7, the Holders of a majority in aggregate principal amount of the outstanding Securities may waive compliance by the Company with any provision of this Indenture or the Securities without notice to any other Holder. However, without the consent of each Holder affected, an amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may not: (1) change the Stated Maturity or the Maturity Date of the Securities; (2) reduce the principal of, premium, if any, or interest on the Securities; (3) change the place of payment from New York, New York or change the currency in which the Securities are payable; (4) impair the right to sue for payment after the Stated Maturity or Maturity Date pursuant to Section 6.7; (5) modify the provisions of Article Twelve in an adverse manner to the Holders; (6) adversely affect the right to convert the Securities other than as provided in or under this Indenture; (7) change the provisions of this Section 9.2; or (8) reduce the percentage in principal amount of the outstanding Securities necessary for a waiver of compliance with certain provisions of this Indenture or for waiver of certain Defaults or Events of Default pursuant to Section 6.4. Furthermore, an amendment under this Article Nine may not make any change that adversely affects the rights of any holder of Senior Indebtedness under Article Twelve unless the holders of such Senior Indebtedness consent to such change pursuant to the terms governing such Senior Indebtedness. It shall not be necessary for the consent of the Holders under this Section 9.2 to approve the particular form of any proposed amendment or supplement, but it shall be sufficient if such consent approves the substance thereof. Promptly after an amendment under this Section 9.2 becomes effective, the Company shall mail to Holders a notice briefly describing the amendment. 41 SECTION 9.3 Compliance with Trust Indenture Act. ----------------------------------- Every amendment, waiver or supplement to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.4 Revocation and Effect of Consents. --------------------------------- Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. After an amendment, supplement or waiver becomes effective with respect to the Securities, it shall bind every Holder unless it makes a change described in any of clauses (1) through (8) of Section 9.2. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security. SECTION 9.5 Notation on or Exchange of Securities. ------------------------------------- If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver it to the Trustee. The Trustee may place an appropriate notation on the Security as directed and prepared by the Company about the changed terms and return it to the Holder. Alternatively, if the Company so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. SECTION 9.6 Trustee Protected. ----------------- The Trustee shall sign any amendment or supplemental indenture authorized pursuant to this Article Nine if the amendment or supplemental indenture does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, in its sole discretion, but need not sign such amendment or supplemental indenture. In signing or refusing to sign such amendment or supplemental indenture, the Trustee shall be entitled to receive and, subject to Section 7.1, shall be fully protected in relying upon, an Opinion of Counsel stating that such amendment or supplemental indenture is authorized or permitted by this Indenture. 42 ARTICLE TEN CONVERSION SECTION 10.1 Conversion Privilege; Restrictive Legends. ----------------------------------------- A Holder of a Security may convert the principal of such Security into Common Stock at any time during the period stated in paragraph 9 of the Securities. The number of shares issuable upon conversion of a Security is determined as follows: divide each $1,000 of the principal amount to be converted by the Conversion Price in effect on the conversion date and round the result to the nearest 1/100th of a share. The Conversion Price is subject to adjustment in accordance with Section 10.6. A Holder may convert a portion of the principal of such Security if the portion is at least $1,000 principal amount or an integral multiple of $1,000 principal amount. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of it. Any shares issued upon conversion of a Security shall bear the Private Placement Legend set forth in Exhibit B(I) until after the expiration of the holding period applicable to sales of Securities under Rule 144(k) of the Securities Act. SECTION 10.2 Conversion Procedure. -------------------- To convert a Security a Holder must satisfy the requirements in paragraph 9 of the Securities. The date on which the Holder satisfies all those requirements is the conversion date. As soon as practicable, the Company shall deliver to the Holder through the Conversion Agent a certificate for the number of full shares of Common Stock issuable upon the conversion and a check in lieu of any fractional share. The Person in whose name the certificate is registered shall be treated as a shareholder of record on and after the conversion date. Except as described below, no payment or adjustment will be made for accrued interest on, or liquidated damages with respect to, a converted Security or for dividends on any Common Stock issued on conversion. If any Security is converted during the period from but excluding, a record date for the payment of interest to, but excluding, the next succeeding interest payment date, unless such Security has been called for redemption on a redemption date between such dates, such Security must be accompanied by funds equal to the interest payable to the registered Holder on such interest payment date on the principal amount so converted. A Security converted on an interest payment date need not be accompanied by any payment, and the interest on the principal amount of the Security being converted will be paid on such interest payment date to the registered Holder of such Security on the applicable record date. If a Holder converts more than one Security at the same time, the number of full shares issuable upon the conversion shall be based on the total principal amount of the Securities converted. 43 Upon surrender of a Security that is converted in part the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unconverted portion of the Security surrendered. If the last day on which a Security may be converted is a Legal Holiday in a place where a Conversion Agent is located, the Security may be surrendered to that Conversion Agent on the next succeeding day that is not a Legal Holiday. SECTION 10.3 Fractional Shares. ----------------- The Company will not issue fractional shares of Common Stock upon conversion of Securities and instead will deliver a cash adjustment in lieu of the fractional share based upon the current market value of the Common Stock. The current market value of a fraction of a share is determined by multiplying the current market price of a full share by the fraction, and rounding the result to the nearest cent. For purposes of this Section, the current market price of a share of Common Stock is the Closing Price of the Common Stock on the Trading Day immediately preceding the conversion date. SECTION 10.4 Taxes on Conversion. ------------------- If a Holder converts its Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the shares are issued in a name other than the Holder's name. SECTION 10.5 Company to Provide Stock. ------------------------ The Company shall reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion of all of the Securities, including such greater number of shares of Common Stock into which such Securities shall be convertible into as a result of a Conversion Price adjustment contemplated by Section 10.6 hereof. All shares of Common Stock which may be issued upon conversion of the Securities shall be validly issued, fully paid and non-assessable. The Company will endeavor to comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities and will endeavor to list such shares on each national securities exchange on which the Common Stock is listed. SECTION 10.6 Adjustment of Conversion Price. ------------------------------ The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the Record 44 Date with respect to shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the Record Date. If any dividend or distribution of the type described in this Section 10.6(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them for a period of not more than 60 days to subscribe for or purchase shares of Common Stock at a price per share or a Conversion Price per share less than the Current Market Price on the Record Date fixed for the determination of shareholders 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 at the opening of business on the date after such Record Date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date plus the number of shares which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the close of business on the Record Date plus the total number of additional shares of Common Stock so offered for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of shareholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants, the Conversion Price shall be readjusted to the Conversion Price that 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 that would then be in effect if such date fixed for the determination of shareholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined in good faith by the Board of Directors. For purposes of this Section 10.6(b), 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) that are (i) deemed to be transferred with such shares of Common Stock; (ii) not exercisable; and (iii) issued in respect of future issuances of Common Stock, until 45 the occurrence of a specified event or events ("Trigger Event"), shall be deemed not to have been distributed and no adjustment to the Conversion Price with respect thereto shall be made until the occurrence of the earliest Trigger Event. If any such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different securities, evidences of indebtedness or other assets or entitle the holder to purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and record date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder 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 resulted in an adjustment to the Conversion Price under this Section 10.6(b), (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 of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants all of which shall have expired or been terminated without exercise, the Conversion Price shall be readjusted as if such rights and warrants had never been issued. (c) In case the outstanding shares of Common Stock shall be split or subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of capital stock of the Company (other than any dividends or distributions to which Section 10.6(a) applies) or evidences of its Indebtedness, cash or other assets (including securities, but excluding (1) any rights or warrants referred to in Section 10.6(b) and (2) dividends and distributions paid exclusively in cash (the foregoing hereinafter in this Section 10.6(d) called the "Subject Securities"), unless the Company elects to reserve such Subject Securities for distribution to the Holders upon conversion of the Securities so that any such Holder converting Securities will receive upon such conversion, in addition to the shares of Common Stock to which such Holder is entitled, the amount and kind of such Subject Securities which such Holder would have received if such Holder had converted its Securities into Common Stock immediately prior to the Record Date for such distribution of the Subject 46 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 immediately prior to the close of business on the Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price on such date less the fair market value on such date of the portion of the Subject Securities so distributed applicable to one share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following the Record Date; provided, however, that in the event the then fair market value of the portion of the Subject Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, then in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Security (or any portion thereof) the amount of Subject Securities such Holder would have received had such Holder converted such Security (or portion thereof) immediately prior to such 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. For purposes of this Section 10.6(d) and Sections 10.6(a) and (b), any dividend or distribution to which this Section 10.6(d) is otherwise applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock applies (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of Indebtedness, assets, shares of capital stock, rights or warrants (other than such shares of Common Stock or rights or warrants) (and any Conversion Price reduction required by this Section 10.6(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 10.6(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of shareholders entitled to receive such dividend or other distribution", "Record Date fixed for such determination" and "Record Date" within the meaning of Section 10.6(a) and as "the date fixed for the determination of shareholders entitled to receive such rights or warrants", "the Record Date fixed for the determination of the shareholders entitled to receive such rights or warrants" and "such Record Date" within the meaning of Section 10.6(b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the Record Date fixed for such determination" within the meaning of Section 10.6(a). With respect to any shareholder rights plan existing on the date hereof or in the event that the Company implements any other shareholder rights plan, upon conversion of the Securities the Holders will receive, in addition to the Common Stock issuable upon such conversion, the rights issued under such rights plan (notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion); provided, a Holder who is a holder of Common Stock (or direct or indirect interests therein) at the time of conversion, but who is not entitled as such a holder to such rights pursuant to the terms of any such plan, shall not be eligible to receive any such rights hereunder. Any distribution of rights or warrants pursuant to a 47 shareholder rights plan complying with the requirements set forth in the immediately preceding sentence of this paragraph shall not constitute a distribution of rights or warrants for the purposes of the other provisions of this Section 10.6(d). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash, in an aggregate amount that, combined together with (1) the aggregate amount of all other such all-cash distributions to all holders of its Common Stock within the twelve (12) months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 10.6(e) or Section 10.6(f) has been made, and (2) the aggregate of any cash plus the fair market value of other consideration payable in respect of any tender offer by the Company or any Subsidiary for all or any portion of the Common Stock concluded within the twelve (12) months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 10.6(e) or Section 10.6(f) has been made (such aggregate amount, the "Common Dividend Amount"), exceeds 10% of the product of the Current Market Price on the Record Date with respect to such distribution times the number of shares of Common Stock outstanding on such date (the "Market Capitalization"), then, and in each such case, immediately after the close of business on such date, 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 Record Date by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the amount by which the Common Dividend Amount exceeds 10% of the Market Capitalization and (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the denominator of which shall be equal to the Current Market Price on such date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Security (or any portion thereof) the amount of cash such Holder would have received had such holder converted such Security (or portion thereof) immediately prior to such 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. (f) In case a tender offer made by the Company or any Subsidiary for all or any portion of the Common Stock shall expire and such tender offer shall require the payment to holders of Common Stock of an aggregate cash plus the fair market value of other consideration payable that together with (1) the aggregate of the cash plus the fair market value of other consideration payable in respect of any other tender offers by the Company or any of its Subsidiaries for all or any portion of the Common Stock expiring within the twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 10.6(e) or this Section 10.6(f) has been made, and 48 (2) the aggregate amount of any all-cash distributions to all holders of the Company's Common Stock made within twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 10.6(e) or this Section 10.6(f) has been made, exceeds 10% of the product of the Current Market Price as of the time of expiration of such tender offer times the number of shares of Common Stock outstanding at such time, then, and in each such case, immediately prior to the opening of business on the day after the expiration of such tender offer, 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 close of business on the date of the expiration of such tender offer by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of expiration of the tender offer multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the date of expiration of the tender offer and the denominator shall be the sum of (x) the fair market value of the aggregate consideration payable for all shares of Common Stock validly tendered and not withdrawn as of the date of expiration of the tender offer and (y) the product of the number of shares of Common Stock outstanding less all shares validly tendered and not withdrawn as of the date of expiration of the tender offer and the Current Market Price of the Common Stock on the Trading Day next succeeding the date of expiration of the tender offer, such reduction (if any) to become effective immediately prior to the opening of business on the day following the date of expiration of the tender offer. In the event 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 offer had not been made. If the application of this Section 10.6(f) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 10.6(f). (g) For purposes of this Section 10.6, the following terms have the meanings indicated: (1) "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 Nasdaq National Market or New York Stock Exchange, as applicable, or, if such security is not listed or admitted to trading on such Nasdaq National Market or New York Stock Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good 49 faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution. (2) "Current Market Price" shall mean the average of the Closing Prices per share of Common Stock for the ten (10) consecutive Trading Days immediately prior to the date for which a Current Market Price is required; provided, however, that: (i) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 10.6(a), (b), (c), (d), (e) or (f) occurs during such ten consecutive Trading Days, then the Closing Price for each Trading Day prior to the "ex" date for such 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 event, (ii) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 10.6(a), (b), (c), (d), (e) or (f) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the Trading Day in question, then the Closing Price for each Trading Day on and after the "ex" date for such 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 event, and (iii) if the "ex" date for the issuance or distribution requiring such computation is prior to the Trading 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 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 10.6(f), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 10.6(a), (b), (c), (d), (e) or (f) occurs on or after the date of expiration of 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. 50 For purposes of this definition, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the expiration of such offer. Notwithstanding the foregoing, wherever successive adjustments to the Conversion Price are called for pursuant to this Section 10.6, such adjustments shall be made to the current Market Price as may be necessary or appropriate to effectuate the intent of this Section 10.6 and to avoid unjust and inequitable results as determined in good faith by the Board of Directors. (3) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution. (4) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (5) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or such other national security exchange, as the case may be, is open for business, (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (h) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 10.6(a), (b), (c), (d), (e) and (f), as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or 51 distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days and the reduction is irrevocable during the period. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to the Holder of each Security at his last address appearing on the register maintained by the Registrar a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. (i) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article Ten shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for a Company plan for reinvestment of dividends or interest or for a change in the par value or no par value of the Common Stock. (j) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee, and any Conversion Agent other than the Trustee, an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Unless and until a Trust Officer of the Trustee shall have received such Officers' Certificate, the Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Price and may assume without inquiry that the last Conversion Price of which it has knowledge remains in effect. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the Holder of each Security at his last address appearing on the register maintained by the Registrar, within twenty (20) days of the effective date of such adjustment. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (k) In any case in which this Section 10.6 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any Security converted after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such Holder any amount in cash in lieu of any fraction pursuant to Section 10.3. (l) For purposes of this Section 10.6, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but 52 shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. SECTION 10.7 Effect of Reclassification, Consolidation, Merger or Sale. --------------------------------------------------------- In the case of (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination, or as a result of an increase or decrease in the number of outstanding shares), (ii) any consolidation, merger or combination of the Company with another corporation or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation, in each such case as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash), in respect of or in exchange for all shares of Common Stock, then, unless an adjustment with respect thereto shall be made pursuant to Section 10.6, the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture providing that the Securities shall thereafter be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Securities immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance and assuming such holder of Common Stock did not exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article Ten. If, in the case of any such reclassification, change, consolidation, merger, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock include shares of stock or other securities and assets of a Person other than the successor or purchasing corporation, as the case may be, in such reclassification, change, consolidation, merger, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other Person and shall contain such additional provisions to protect the interests of the Holders as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder of Securities, at its address appearing on the register maintained by the Registrar, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. SECTION 10.8 Notice of Certain Transactions. ------------------------------ If: (1) the Company proposes to take any action that would require an adjustment in the Conversion Price; 53 (2) the Company proposes to take any action that would require a supplemental indenture pursuant to Section 10.7; or (3) there is a proposed liquidation, winding up or dissolution of the Company, the Company shall mail to Holders a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. The Company shall mail the notice at least 15 days before such date. Failure to mail the notice or any defect in it shall not affect the validity of the transaction. SECTION 10.9 Company Determination Final. --------------------------- Any determination that the Board of Directors makes pursuant to this Article Ten is conclusive, absent manifest error. SECTION 10.10 Trustee's Disclaimer. -------------------- The Trustee has no duty to determine when an adjustment under this Article or under the terms of the Securities should be made, how it should be made or what it should be. Such information shall be timely provided to the Trustee in an Officers' Certificate. The Trustee has no duty to determine whether any provisions of a supplemental indenture under Section 10.7 are correct. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article. Each Conversion Agent other than the Company shall have the same protection under this Section 10.10 as the Trustee. ARTICLE ELEVEN COLLATERAL SECURITY SECTION 11.1 Collateral Security. ------------------- (a) On the Issue Date, the Company shall (i) enter into the Pledge Agreement and the Control Agreement and thereafter comply with the terms and provisions of each such agreements and (ii) pledge the Pledged Securities (and additional Pledged Securities prior to any sale of Option Securities (as defined in the Pledge Agreement)) to the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders in such amount as will be sufficient upon receipt of scheduled interest and/or principal payments of such Pledged Securities to provide for payment in full of the first six scheduled interest payments due on the Securities. The Pledged Securities shall be pledged by the Company to the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders and shall be held by the Collateral Agent in the Pledge Account pending disposition pursuant to the Pledge Agreement. (b) Each Holder, by its acceptance of a Security, consents and agrees to the terms of the Pledge Agreement (including, without limitation, the provisions providing for foreclosure and release of the Pledged Securities) and the Control Agreement as either such agreement may be in effect or may be amended from time to time in accordance with their terms, 54 and authorizes and directs the Collateral Agent and the Trustee to enter into the Pledge Agreement and the Control Agreement and to perform their respective obligations and exercise their respective rights under each such agreement in accordance therewith. The Company will do or cause to be done all such acts and things as may be necessary or reasonably requested by the Collateral Agent or the Trustee, or as may be required by the provisions of the Pledge Agreement and the Control Agreement, to assure and confirm to the Collateral Agent and the Trustee the security interest in the Pledged Securities contemplated hereby, by the Pledge Agreement or by the Control Agreement or any part of any such agreement, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Securities secured hereby, according to the intent and purposes herein and therein expressed. The Company shall take, or cause to be taken, upon request of the Collateral Agent or the Trustee, any and all actions reasonably required to create and maintain, as security for the obligations of the Company under this Indenture and the Securities, a valid, enforceable and perfected first priority Lien in and on all the Pledged Securities, in favor of the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders, superior to and prior to the rights of third Persons and subject to no other Liens. (c) The release of any portion of the Pledged Securities pursuant to the Pledge Agreement will not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Pledged Securities are released pursuant to this Indenture, the Pledge Agreement and the Control Agreement. To the extent applicable, the Company shall cause TIA Section 314(d) relating to the release of property or securities from the Lien and security interest of the Pledge Agreement and relating to the substitution therefore of any property or securities to be subjected to the Lien and security interest of the Pledge Agreement to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an Officer of the Company, except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent Person, which Person shall be an independent engineer, appraiser or other expert selected by the Company. (d) The Company shall cause TIA Section 314(b), relating to opinions of counsel regarding the Lien under the Pledge Agreement, to be complied with. The Collateral Agent and the Trustee may accept, to the extent permitted by Sections 4.4 and 7.6 as conclusive evidence of compliance with the foregoing provisions, the appropriate statements contained in such instruments. (e) The Collateral Agent and the Trustee may, in their sole discretion and without the consent of the Holders, on behalf of the Holders, take all reasonable actions in accordance with the Pledge Agreement and the Control Agreement, necessary or appropriate in order to (i) enforce any of the terms of the Pledge Agreement and the Control Agreement and (ii) collect and receive any and all amounts payable in respect of the obligations of the Company under such agreements. The Collateral Agent and the Trustee shall have power to institute and to maintain such suits and proceedings as the they may reasonably deem expedient to preserve or protect their interests and the interests of the Holders in the Pledged Securities (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would 55 impair the security interest hereunder or be prejudicial to the interests of the Holders, the Collateral Agent or of the Trustee). ARTICLE TWELVE SUBORDINATION SECTION 12.1 Securities Subordinated to Senior Indebtedness. ---------------------------------------------- The Company covenants and agrees, and each Holder of a Security, by its acceptance thereof, likewise covenants and agrees, that the indebtedness evidenced by the Securities and the payment of the principal of (and premium, if any) and interest on each and all of the Securities (except as set forth in this Article Twelve with respect to Permitted Payments) is hereby expressly subordinate and junior, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all Senior Indebtedness. (a) Upon any distribution of the Company's assets upon any dissolution, winding-up, liquidation or reorganization, or in bankruptcy, insolvency, receivership or similar proceedings, payment of the principal of, premium, if any, interest and all other obligations in respect of the Securities, including by way of redemption, acquisition or other purchase thereof, on the Securities (except for Permitted Payments and payments the Company may choose to make comprised solely of Permitted Junior Securities acceptable to the Holders) will be subordinated in right of payment to the prior payment in full, in cash or other payment satisfactory to holders of Senior Indebtedness, of all of the Company's existing and future Senior Indebtedness. For purposes of this Article Twelve, the words, "cash, securities or other property" 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 Twelve with respect to the Securities to the payment of all Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior Indebtedness is assumed by the new corporation, if any, resulting from any reorganization or readjustment, and (ii) the rights of the holders of Senior Indebtedness (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 consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Article Five shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 12.1(a) if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article Five. (b) No payment (except for Permitted Payments and payments the Company may choose to make comprised solely of Permitted Junior Securities acceptable to the Holders) upon redemption or repurchase shall be made by the Company with respect to the principal of, premium, if any, or interest on the Securities or to acquire any of the Securities, if (i) any default 56 in payment of the principal of or premium, if any, or interest on, or any other obligation under any Designated Senior Indebtedness occurs and is continuing beyond any applicable grace period with respect thereto (a "Payment Default"), unless and until all such payments due in respect of such Designated Senior Indebtedness have been paid in full in cash or other consideration satisfactory to holders of Senior Indebtedness or such default shall have been cured or waived or shall have ceased to exist, or (ii) any event of default, other than a Payment Default, with respect to any Designated Senior Indebtedness occurs and is continuing permitting the holders of such Designated Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) to declare such Designated Senior Indebtedness due and payable prior to the date on which it would otherwise have become due and payable, and the Trustee receives notice thereof from the Company or by any holders of such Designated Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) (the "Payment Blockage Notice"), for a period (the "Payment Blockage Period") ending on the earlier of the date on which such event of default shall have been cured or waived or shall have ceased to exist or 179 days after receipt of the Payment Blockage Notice; provided, further, any number of additional Payment Blockage Periods may be commenced during an existing Payment Blockage Period; provided, however, that no such additional Payment Blockage Period shall extend beyond the initial Payment Blockage Period. Notwithstanding anything in the subordination provisions of this Indenture or the Securities to the contrary, (x) in no event will a Payment Blockage Period extend beyond 179 days from the date of the Payment Blockage Notice in respect thereof was given and (y) there shall be no new Payment Blockage Period unless and until 360 days have elapsed since the initial effectiveness of the prior Payment Blockage Period. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be the basis for a subsequent payment blockage notice, unless the default has been cured or waived for a period of not less than 90 consecutive days. (c) If the maturity of the Securities is accelerated because of an Event of Default, no payment (except for Permitted Payments and payments the Company may choose to make comprised solely of Permitted Junior Securities acceptable to the Holders) may be made on the Securities until all amounts due or to become due on Senior Indebtedness have been paid in full in cash or other consideration satisfactory to holders of Senior Indebtedness or until such acceleration has been cured or waived. (d) In the event that, notwithstanding the foregoing provisions of Sections 12.1(a), (b) and (c), any payment on account of principal of or interest on the Securities shall be made by or on behalf of the Company and received by the Trustee, by any Holder or by any Paying Agent (or, if the Company is acting as its own Paying Agent, money for any such payment shall be segregated and held in trust), at a time when such payment is not permitted by any of such provisions, then, unless and until all Senior Indebtedness (or Designated Senior Indebtedness, in the case of Section 12.1(b)) is paid in full in cash or other consideration satisfactory to the holders thereof, or such payment is otherwise permitted to be made by the provisions of each of Sections 12.1(a), 12.1(b) and 12.1(c) (subject, in each case, to the provisions of Section 12.6), such payment on account of principal of or interest on the Securities shall be held in trust for the benefit of, and shall be immediately paid over to, the holders of Senior Indebtedness (or Designated Senior Indebtedness, in the case of Section 12.1(b)) or their representative or representatives or the trustee or trustees under any indenture under which any 57 instruments evidencing any of the Senior Indebtedness (or Designated Senior Indebtedness, in the case of Section 12.1(b)) may have been issued, as their interests may appear. Regardless of anything to the contrary herein, nothing shall prevent (A) any payment by the Company or the Trustee to Holders of amounts in connection with a redemption of Securities if (i) notice of such redemption has been given pursuant to Section 3.1 prior to the receipt by the Trustee of a Payment Blockage Notice, and (ii) such notice of redemption is given not earlier than 60 days before the Redemption Date, or (B) any payment by the Trustee to the Holders of amounts deposited with it pursuant to Section 8.1. SECTION 12.2 Subrogation. ----------- Subject to the payment in full of all Senior Indebtedness to which the indebtedness evidenced by the Securities (except for Permitted Payments) is in the circumstances subordinated as provided in Section 12.1, the Holders of the Securities (together with the holders of any other indebtedness of the Company which is subordinate in right of payment to the payment in full of all Senior Indebtedness, which is not subordinate in right of payment to the Securities and which by its terms grants such right of subrogation to the holders thereof) shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to such Senior Indebtedness until all amounts owing on the Securities shall be paid in full, and, as among the Company, its creditors other than holders of such Senior Indebtedness, and the Holders of the Securities, no such payment or distribution made to the holders of Senior Indebtedness by virtue of this Article which otherwise would have been made to the Holders of the Securities shall be deemed to be a payment by the Company on account of such Senior Indebtedness, it being understood that the provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of Senior Indebtedness, on the other hand. SECTION 12.3 Obligation of Company Unconditional. ----------------------------------- Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Indebtedness, 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 Senior Indebtedness, 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 of the holders of Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. 58 SECTION 12.4 Modification of Terms of Senior Indebtedness. -------------------------------------------- Any renewal or extension of the time of payment of any Senior Indebtedness or the exercise by the holders of Senior Indebtedness of any of their rights under any instrument creating or evidencing Senior Indebtedness, including without limitation the waiver of default thereunder, may be made or done without notice to or assent from the Holders of the Securities or the Trustee. No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liability or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Indebtedness is outstanding or of such Senior Indebtedness, whether or not such release is in accordance with the provisions of any applicable document, shall in any way alter or affect any of the provisions of this Article or of the Securities relating to the subordination thereof. SECTION 12.5 Effectuation of Subordination by Trustee. ---------------------------------------- Each Holder of Securities, by its acceptance thereof, authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his or attorney-in-fact for any and all such purposes. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee 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 any such dissolution, winding up, liquidation or reorganization proceeding affecting the affairs of the Company is pending or upon a certificate of the trustee in bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee or agent or other Person making any 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 payment or distribution, and as to other facts pertinent to the right of such Persons under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Persons pending judicial determination as to the right of such Persons to receive such payment. SECTION 12.6 Knowledge of Trustee. -------------------- Notwithstanding the provisions of this Article or any other provisions of this Indenture, the Trustee shall not be charged with knowledge of the existence of any Senior Indebtedness, of any default in payment of principal of, premium (if any) or interest on any Senior Indebtedness, or of any facts which would prohibit the making of any payment of monies to or by the Trustee, or the taking of any other action by the Trustee, unless and until a Trust Officer of the Trustee having responsibility for the administration of the trust established by this Indenture shall have received written notice thereof from the Company, any Holder of Securities, any Paying or Conversion Agent of the Company or the holder or representative of any class of Senior Indebtedness, and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such default or facts exist; provided, however, that 59 unless on the third Business Day prior to the date upon which by the terms hereof any such monies may become payable for any purpose the Trustee shall have received the notice provided for in this Section 12.6, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such monies and 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 date. SECTION 12.7 Trustee's Relation to Senior Indebtedness. ----------------------------------------- The Trustee shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness at the time held by it, to the same extent as any other holder of Senior Indebtedness and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of or payments to the Trustee under or pursuant to Section 7.7. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to the holders of Senior Indebtedness 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 and the Trustee shall not be liable to any holder of Senior Indebtedness if it shall pay over or deliver to Holders, the Company or any other Person monies or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article or otherwise. SECTION 12.8 Rights of Holders of Senior Indebtedness Not Impaired. ----------------------------------------------------- No right of any present or future holder of any Senior Indebtedness to enforce the subordination herein shall at any time or in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. SECTION 12.9 Certain Conversions Not Deemed Payment. -------------------------------------- For the purposes of Article Ten only, (1) the issuance and delivery of Permitted Junior Securities upon conversion of Securities in accordance with Article Ten shall not be deemed to constitute a payment or distribution on account of the principal of, 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 10.3 and Permitted Payments, if any), property or securities (other than Permitted Junior Securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal of, premium, if any, or interest on such Security. Nothing contained in this Article Twelve 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) and the Holders, the right, which is absolute and unconditional, of the Holder of any Security to convert such note in accordance with Article Ten. 60 ARTICLE THIRTEEN MISCELLANEOUS SECTION 13.1 Trust Indenture Act Controls. ---------------------------- If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 13.2 Notices. ------- Any notice, request or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person, mailed by first-class mail or by express delivery to the other's address stated in this Section 13.2. The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication to a Holder shall be mailed by first-class mail to its address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. All notices or communications shall be in writing. The Company's address is: Scios Inc. 820 West Maude Avenue Sunnyvale, California 94085 Attention: General Counsel The Trustee's address is: Wells Fargo Bank, National Association 45 Broadway, 12th Floor New York, New York 10006 Attention: Corporate Trust Department With a copy to: Wells Fargo Bank, National Association 61 707 Wilshire Blvd., 17th Floor Los Angeles, CA 90017 Attention: Corporate Trust Department SECTION 13.3 Communication by Holders with Other Holders. ------------------------------------------- Holders may communicate pursuant to TIA [sec] 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA [sec] 312(c). SECTION 13.4 Certificate and Opinion as to Conditions Precedent. -------------------------------------------------- Upon any request or application by the Company to the Trustee to take any action under this Indenture the Company shall furnish to the Trustee: (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each signer of an Officers' Certificate or an Opinion of Counsel may (if so stated) rely, effectively, upon an Opinion of Counsel as to legal matters and an Officers' Certificate as to factual matters if such signer reasonably and in good faith believes in the accuracy of the document relied upon. SECTION 13.5 Statements Required in Certificate or Opinion. --------------------------------------------- Each Officers' Certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her 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 or not, in the opinion of such Person, such condition or covenant has been complied with. 62 SECTION 13.6 Rules by Trustee and Agents. --------------------------- The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar, Paying Agent or Conversion Agent may make reasonable rules and set reasonable requirements for their respective functions. SECTION 13.7 Legal Holidays. -------------- A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in The City of New York, in the State of New York or in the city in which the Trustee administers its corporate trust business. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on that payment for the intervening period. A "Business Day" is a day other than a Legal Holiday. SECTION 13.8 No Recourse Against Others. -------------------------- All liability described in the Securities of any director, officer, employee or shareholder, as such, of the Company is waived and released. SECTION 13.9 Duplicate Originals. ------------------- The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 13.10 Governing Law. ------------- The laws of the State of New York, without regard to principles of conflicts of law, shall govern this Indenture and the Securities. SECTION 13.11 No Adverse Interpretation of Other Agreements. --------------------------------------------- This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 13.12 Successors. ---------- All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 13.13 Separability. ------------ In case any provision in this Indenture or in 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 and a Holder shall have no claim therefor against any party hereto. 63 SECTION 13.14 Table of Contents, Headings, etc. -------------------------------- The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 64 S-1 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first above written. SCIOS INC. By: /s/ David W. Gryska ------------------------------ Name: David W. Gryska Title: CFO WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: /s/ Jeanie Mar ------------------------------ Name: Jeanie Mar Title: Vice President, Authorized Officer EXHIBIT A --------- REGISTERED [Face of Security] NUMBER $______________ CUSIP______________ SCIOS INC. 5.50% CONVERTIBLE SUBORDINATED NOTE DUE 2009 SCIOS INC., a Delaware corporation (herein called the "Company"), for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of _____________ DOLLARS ($__________) on August 15, 2009, and to pay interest thereon as provided on the reverse hereof on the principal sum, until the principal hereof and any unpaid and accrued interest is paid or duly provided for. The right to payment of principal, premium, if any, and interest is subordinated to the rights of Senior Indebtedness as set forth in the Indenture referred to on the reverse side hereof. Interest Payment Dates: February 15 and August 15, with the first payment to be made on February 15, 2003. Record Dates: February 1 and August 1. A-1 IN WITNESS WHEREOF, SCIOS INC. has caused this instrument to be duly signed. SCIOS INC. By: __________________________________ Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By:__________________________________________________ Authorized Officer A-2 [REVERSE OF SECURITY] SCIOS INC. 5.50% CONVERTIBLE SUBORDINATED NOTE DUE 2009 1. Interest. Scios Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually in arrears on February 15 and August 15 of each year, with the first payment to be made on February 15, 2003. Interest on the Securities will accrue on the principal amount from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid, from August 5, 2002. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Holder of this Note is entitled to the benefits of the Pledge Agreement, dated as of August 5, 2002, by and among the Company, Wells Fargo Bank, National Association, as the trustee (the "Trustee"), and Wells Fargo Bank, National Association, as collateral agent for the Trustee and the Holders from time to time (the "Collateral Agent") and pursuant to which the Company has placed in the Pledge Account cash or Pledged Securities sufficient to provide for the payment of the first six interest payments on the Securities. 2. Maturity. The Securities will mature on August 15, 2009 unless earlier converted, redeemed or repurchased pursuant to the terms hereof and the Indenture. 3. Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date set forth on the face of this Security next preceding the applicable interest payment date except that (i) interest payable upon redemption or repurchase, unless the date of redemption or repurchase is an interest payment date, will be payable to the Person to whom the principal is payable and (ii) in the case of any Security or portion of any Security that is converted into Common Stock during the period from, but excluding, a record date for any interest payment date to, but excluding, that interest payment date either (A) if the Security, or portion of the Security, has been called for redemption on a redemption date that occurs during that period, or is to be repurchased on a Repurchase Date that occurs during that period, the Company will not be required to pay interest on that interest payment date in respect of any Security, or portion of any Security, that is so redeemed or repurchased; or (B) if otherwise, any Security or portion of any Security that is not called for redemption but is submitted for conversion during that period must be accompanied by funds equal to the interest payable on that interest payment date on the principal amount so converted. Holders must surrender Securities to a Paying Agent to collect the principal payments. The Company will pay the principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender. Principal and interest may, at the Company's option, be paid either (i) by check mailed to the address of the Person entitled to the interest as it appears in the register kept by the Registrar (provided (a) payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee and (b) a Holder with an aggregate principal amount of Securities in excess of $2 million will, at the written election of the Holder, filed on or before the relevant record date with the Trustee, be paid by wire transfer A-3 in immediately available funds); or (ii) by transfer to an account maintained by that Person located in the United States. 4. Paying Agent, Registrar, Conversion Agent. Initially, the Trustee will act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar or Conversion Agent without notice. The Company may act in any such capacity. 5. Indenture. The Company issued the Securities under an Indenture, dated as of August 5, 2002 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code [sec][sec] 77aaa-77bbbb) (the "Act") as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and the Act for a statement of such terms. The Securities are general unsecured subordinated obligations of the Company limited to a maximum of $150,000,000 aggregate principal amount (plus such additional amount (up to an aggregate of $175,000,000) purchased by the Initial Purchasers pursuant to the option described in Section 2.2 of the Indenture), except as otherwise provided in the Indenture (except for Securities issued in substitution for destroyed, mutilated, lost or stolen Securities). Terms used herein which are defined in the Indenture have the meanings assigned to them in the Indenture. 6. Optional Redemption by the Company. At any time on or after August 19, 2005, the Company may redeem the Securities on at least 30 days' notice as a whole or, from time to time, in part at the following prices, expressed as a percentage of the principal amount, together with accrued interest to, but excluding, the date fixed for redemption:

Any accrued interest becoming due on the date fixed for redemption will be payable to the holders of record on the relevant record date of the Securities being redeemed. 7. Notice of Redemption. Notice of redemption pursuant to paragraph 6 will be mailed at least 30 days before the redemption date to each Holder of Securities to be redeemed at its registered address. Securities in denominations larger than $1,000 principal amount may be redeemed in part but only in whole multiples of $1,000 principal amount. On and after the redemption date interest ceases to accrue on Securities or portions of them called for redemption. 8. Repurchase at Option of Holder. Pursuant to Section 3.8 of the Indenture, within 30 days after a Change in Control occurs, the Company is required to give notice of the Change in Control to the Holders. Each Holder has the right, at its option, to require the Company to repurchase all or any portion of the Securities on a date fixed by the Company not A-4 more than 60 days after the occurrence of a Change in Control. The Repurchase Price will be 100% of the principal amount of the Securities submitted for repurchase, plus accrued and unpaid interest to, but excluding, the Repurchase Date. If a Repurchase Date is an interest payment date, then the interest payable on that date will be paid to the holder of record on the relevant record date. Subject to the conditions of Section 3.8 of the Indenture, the Company may elect to pay the Repurchase Price (to the extent not paid in cash) by delivering the number of shares of Common Stock equal to (i) the Repurchase Price (to the extent not paid in cash) divided by (ii) 95% of the average of the Closing Prices per share of the Common Stock for the five Trading Days immediately preceding and including the third Trading Day preceding the Repurchase Date. 9. Conversion. A Holder of a Security may convert the principal of such Security into Common Stock at any time after the date of original issuance of the Security to the close of business on the business day prior to the close of business on August 15, 2009, or (x) if the Security is called for redemption by the Company, the Holder may convert it at any time before the close of business on the date that is one business day before the date fixed for such redemption, or (y) if the Security is to be repurchased by the Company pursuant to paragraph 8 hereof, the Holder may convert it at any time before the close of business on the date that is one business day before the date fixed for such repurchase. The initial Conversion Price is $39.30 per share of Common Stock, subject to adjustment in certain circumstances as set forth in Section 10.6 of the Indenture. To determine the number of shares issuable upon conversion of a Security, divide each $1,000 of the principal amount to be converted by the Conversion Price in effect on the conversion date and round the result to the nearest 1/100th share. The Company is not required to issue fractional shares of Common Stock upon conversion and, instead, will pay a cash amount as provided in Section 10.3 of the Indenture. Except as provided in Article Ten of the Indenture, no payment or adjustment for the principal of, premium, if any, interest on or liquidated damages with respect to, the Securities or for dividends on any Common Stock will be made. If a Holder surrenders a Security for conversion between the record date for the payment of interest and the next interest payment date, such Security, when surrendered for conversion, must be accompanied by payment of an amount equal to the interest thereon which the registered Holder on such record date is to receive. The following sentence does not apply in the case of such Security or portions of such Security called for redemption or subject to repurchase following a Change in Control during that period. A Security which the Holder has elected to be repurchased may be converted only if the Holder withdraws its election to have such Security repurchased in accordance with the terms of the Indenture before the close of business on the business day prior to the Repurchase Date. To convert a Security a Holder must (1) complete and sign the Conversion Notice, with appropriate signature guarantee, on the back of the Security, (2) surrender the Security to a Conversion Agent, (3) furnish appropriate endorsements and transfer documents if required by the Registrar or Conversion Agent, (4) pay the amount of interest, if any, the Holder may be paid as provided in the second to last sentence of the above paragraph and (5) pay any transfer or similar tax if required. A Holder may convert a portion of a Security if the portion is $1,000 principal amount or an integral multiple of $1,000 principal amount. A-5 Any shares issued upon conversion of a Security shall bear the Private Placement Legend until after the expiration of the holding period applicable to sales of Securities under Rule 144(k) of the Securities Act. 10. Subordination. The Securities are subordinated in right of payment, in the manner and to the extent set forth in the Indenture, to the prior payment in full of all Senior Indebtedness. Each Holder by accepting a Security agrees to such subordination and authorizes the Trustee to give it effect. 11. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 principal amount and whole multiples of $1,000 principal amount. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents. 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 cover any tax or other governmental charge payable in connection therewith. The Registrar need not exchange or register the transfer of any Security selected for redemption in whole or in part. Also, it need not exchange or register the transfer of any Securities for a period of 10 Business Days before the mailing of a notice of redemption of the Securities selected to be redeemed. 12. Persons Deemed Owners. The registered Holder of a Security may be treated as the owner of such Security for all purposes. 13. Merger or Consolidation. The Company shall not consolidate with, or merge into any other Person, in a transaction in which the Company is not the surviving corporation, or convey, transfer or lease its properties and assets substantially as an entirety to, any Person unless, among other things, the successor, if any, is a corporation organized under the laws of the United States, any State thereof or the District of Columbia and such corporation assumes by supplemental indenture all the obligations of the Company under the Securities and the Indenture, and immediately after giving effect to the transaction no Default or Event of Default shall have occurred and be continuing. Notwithstanding the foregoing, any Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company or any other Subsidiary or Subsidiaries of the Company. 14. Amendments, Supplements and Waivers. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or the consent of any Holder, the Indenture or the Securities may be amended or supplemented, among other things, to cure any ambiguity, omission, defect or inconsistency, to provide for uncertificated Securities in addition to certificated Securities, to comply with Sections 5.1 and 10.7 of the Indenture or to make any change that does not adversely affect the rights of any Holder. A-6 15. Defaults and Remedies. An Event of Default includes the occurrence of any or the following: default in payment of the principal of or any premium on the Securities when due; default for 30 days in payment of interest on the Securities when due, provided that a failure to make any of the first six scheduled interest payments on the Securities within three (3) Business Days after the applicable interest payment dates will constitute an Event of Default with no additional grace or cure periods; failure by the Company to perform any other covenant in the Indenture for 60 days after receipt of the notice to it required by the Indenture; certain events of bankruptcy or insolvency; default in the payment of certain Indebtedness of the Company or any of its Significant Subsidiaries, provided such default is not cured, waived or rescinded within 30 days after receipt of the notice to it required by the Indenture; and the Pledge Agreement shall cease to be in full force and effect or enforceable in accordance with its terms. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may declare all the Securities to be due and payable, subject to certain limitations contained in the Indenture. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 16. Registration Rights. The Holders are entitled to shelf registration rights as set forth in the Registration Rights Agreement. The Holders shall be entitled to receive liquidated damages in certain circumstances, all as set forth in the Registration Rights Agreement. 17. Trustee Dealings with Company. The Trustee under the Indenture, or any banking institution serving as successor Trustee thereunder, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 18. No Recourse Against Others. No past, present or future director, officer, employee or shareholder, as such, of the Company shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 19. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 20. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act). A-7 THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: SCIOS INC. 820 West Maude Avenue Sunnyvale, California 94085 ATTENTION: General Counsel A-8 [FORM OF ASSIGNMENT] I or we assign to PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER _______________________________________________ ________________________________________________________________________________ (please print or type name and address) ________________________________________________________________________________ ________________________________________________________________________________ the within Security and all rights thereunder, and hereby irrevocably constitutes and appoints ________________________________________________________________________________ attorney to transfer the Security on the books of the Company with full power of substitution in the premises. Dated:_________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Security in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee:____________________________________________________________ (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Security (which effectiveness shall have been suspended or terminated at the date of the transfer) and (ii) _________________ the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with transfer: A-9 [Check One] (1) ____ to the Company or a Subsidiary thereof; or (2) ____ pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) ____ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) ____ pursuant to the exemption from registration provided by Rule 144 under the Securities Act of 1933, as amended; or (5) ____ pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (6) ____ pursuant to another available exemption from the registration statement requirements of the Securities Act of 1933, as amended. and unless the box below is checked, the undersigned confirms that such Security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): [ ] The transferee is an Affiliate of the Company. (If the Security is transferred to an Affiliate, the restrictive legend must remain on the Security for two years following the date of the transfer). Unless one of the items is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided, however, that if item (3), (4) or (6) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Securities, in their sole discretion, such written legal opinions, certifications (including an investment letter in the case of box (3)) and other information as the Trustee or the Company have reasonably requested 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 of 1933, as amended. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.16 of the Indenture shall have been satisfied. Dated:_____________________________Signed:____________________________________ (Sign exactly as name appears on the other side of this Security) A-10 Signature Guarantee:____________________________________________________________ TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ________________________________ __________________________________ NOTICE: To be executed by an executive officer A-11 CONVERSION NOTICE To convert this Security into Common Stock of the Company, check the box: [ ] To convert only part of this Security, state the principal amount to be converted (must be in multiples of $1,000): $_______________________________________________________________________________ If you want the stock certificate made out in another person's name, fill in the form below: ________________________________________________________________________________ (Insert other person's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type other person's name, address and zip code) ________________________________________________________________ Date:__________________ Signature(s):_______________________________ __________________________________ (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-12 Signature(s) guaranteed by:______________________________________________ (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-13 OPTION OF HOLDER TO ELECT PURCHASE NOTICE If you want to elect to have this Security purchased by the Company pursuant to Section 3.8 of the Indenture, check the box: [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 3.8 of the Indenture, state the principal amount: $_______________________________________ (in an integral multiple of $1,000) Date:______________________ Signature(s):___________________________ ________________________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: _______________________________________ (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-14 SCHEDULE OF EXCHANGES OF SECURITIES/1/ The following exchanges, redemptions, repurchases or conversion of a part of this Global Security have been made: Principal Amount of this Global Security Following Amount of Decrease in Amount of Increase in Such Decrease Date of Authorized Signatory of Principal Amount of Principal Amount of Exchange (or Increase) Securities Custodian this Global Security this Global Security ---------------------- -------------------- -------------------- --------------------

- -------------------------- /1/ This schedule should be included only if the Security is a Global Security. A-15 EXHIBIT B --------- FORM OF LEGENDS I. PRIVATE PLACEMENT LEGEND Each Security issued under the Indenture shall bear a legend (and any common stock issued upon conversion of such Security shall bear a comparable legend) substantially in the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS) AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY (OTHER THAN A TRANSFER PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT), THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM 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. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS. B-1 II. GLOBAL SECURITY LEGEND Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE 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) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE. B-2 EXHIBIT C --------- Form of Notice of Transfer Pursuant to Registration Statement ------------------------------------------------------------- [Date] Scios Inc. 820 West Maude Avenue Sunnyvale, California 94085 Wells Fargo Bank, National Association 45 Broadway, 12th Floor New York, New York 10006 Attention: Corporate Trust Department With a copy to: Wells Fargo Bank, National Association 707 Wilshire Blvd., 17th Floor Los Angeles, CA 90017 Attention: Corporate Trust Department Re: Scios Inc. (the "Company") 5.50% Convertible Subordinated Notes Due 2009 Ladies and Gentlemen: Please be advised that _____________ has transferred $___________ aggregate principal amount of the Securities or __ shares of the Company's common stock, $.0001 par value per share, issuable on conversion of the Securities ("Stock") pursuant to an effective Shelf Registration Statement on Form S-3 (File No. _________) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933 as amended, have been satisfied with respect to the transfer described above and that the above-named beneficial owner of the Securities or Stock is named as a "Selling Security Holder" in the Prospectus dated _____________ or in amendments or supplements thereto, and that the aggregate principal amount of the Securities, or number of shares of Stock transferred are [a portion of] the Securities or Stock listed in such Prospectus, as amended or supplemented, opposite such owner's name. Very truly yours, _____________________________ (Name) C-1 EX-4.2 4 dex42.txt CONVERTIBLE SUBORDINATED NOTE DUE 2009 EXHIBIT 4.2 THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (D) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS) AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY (OTHER THAN A TRANSFER PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT), THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM 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. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS. THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE 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) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED 1 REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), 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 IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE. 2 REGISTERED [Face of Security] NUMBER 1 $150,000,000 CUSIP 808905 AA 1 SCIOS INC. 5.50% CONVERTIBLE SUBORDINATED NOTE DUE 2009 SCIOS INC., a Delaware corporation (herein called the "Company"), for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of ONE HUNDRED FIFTY MILLION DOLLARS ($150,000,000) on August 15, 2009, and to pay interest thereon as provided on the reverse hereof on the principal sum, until the principal hereof and any unpaid and accrued interest is paid or duly provided for. The right to payment of principal, premium, if any, and interest is subordinated to the rights of Senior Indebtedness as set forth in the Indenture referred to on the reverse side hereof. Interest Payment Dates: February 15 and August 15, with the first payment to be made on February 15, 2003. Record Dates: February 1 and August 1. 3 IN WITNESS WHEREOF, SCIOS INC. has caused this instrument to be duly signed. SCIOS INC. By: /s/ David W. Gryska ----------------------------- Name: David W. Gryska Title: Chief Financial Officer Dated: August 5, 2002 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: /s/ Jeanie Mar ------------------------------------------ Authorized Officer 4 [REVERSE OF SECURITY] SCIOS INC. 5.50% CONVERTIBLE SUBORDINATED NOTE DUE 2009 1. Interest. Scios Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually in arrears on February 15 and August 15 of each year, with the first payment to be made on February 15, 2003. Interest on the Securities will accrue on the principal amount from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid, from August 5, 2002. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Holder of this Note is entitled to the benefits of the Pledge Agreement, dated as of August 5, 2002, by and among the Company, Wells Fargo Bank, National Association, as the trustee (the "Trustee"), and Wells Fargo Bank, National Association, as collateral agent for the Trustee and the Holders from time to time (the "Collateral Agent") and pursuant to which the Company has placed in the Pledge Account cash or Pledged Securities sufficient to provide for the payment of the first six interest payments on the Securities. 2. Maturity. The Securities will mature on August 15, 2009 unless earlier converted, redeemed or repurchased pursuant to the terms hereof and the Indenture. 3. Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the Persons who are registered Holders of Securities at the close of business on the record date set forth on the face of this Security next preceding the applicable interest payment date except that (i) interest payable upon redemption or repurchase, unless the date of redemption or repurchase is an interest payment date, will be payable to the Person to whom the principal is payable and (ii) in the case of any Security or portion of any Security that is converted into Common Stock during the period from, but excluding, a record date for any interest payment date to, but excluding, that interest payment date either (A) if the Security, or portion of the Security, has been called for redemption on a redemption date that occurs during that period, or is to be repurchased on a Repurchase Date that occurs during that period, the Company will not be required to pay interest on that interest payment date in respect of any Security, or portion of any Security, that is so redeemed or repurchased; or (B) if otherwise, any Security or portion of any Security that is not called for redemption but is submitted for conversion during that period must be accompanied by funds equal to the interest payable on that interest payment date on the principal amount so converted. Holders must surrender Securities to a Paying Agent to collect the principal payments. The Company will pay the principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender. Principal and interest may, at the Company's option, be paid either (i) by check mailed to the address of the Person entitled to the interest as it appears in the register kept by the Registrar (provided (a) payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee and (b) a Holder with an aggregate principal amount of Securities in excess of $2 million will, at the written election of the Holder, filed on or before the relevant record date with the Trustee, be paid by wire transfer 5 in immediately available funds); or (ii) by transfer to an account maintained by that Person located in the United States. 4. Paying Agent, Registrar, Conversion Agent. Initially, the Trustee will act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar or Conversion Agent without notice. The Company may act in any such capacity. 5. Indenture. The Company issued the Securities under an Indenture, dated as of August 5, 2002 (the "Indenture"), between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code [sec][sec]. 77aaa-77bbbb) (the "Act") as in effect on the date of the Indenture. The Securities are subject to all such terms, and Holders are referred to the Indenture and the Act for a statement of such terms. The Securities are general unsecured subordinated obligations of the Company limited to a maximum of $150,000,000 aggregate principal amount (plus such additional amount (up to an aggregate of $175,000,000) purchased by the Initial Purchasers pursuant to the option described in Section 2.2 of the Indenture), except as otherwise provided in the Indenture (except for Securities issued in substitution for destroyed, mutilated, lost or stolen Securities). Terms used herein which are defined in the Indenture have the meanings assigned to them in the Indenture. 6. Optional Redemption by the Company. At any time on or after August 19, 2005, the Company may redeem the Securities on at least 30 days' notice as a whole or, from time to time, in part at the following prices, expressed as a percentage of the principal amount, together with accrued interest to, but excluding, the date fixed for redemption:
Redemption Period Price - -------- ----------- Beginning August 19, 2005 and ending on August 14, 2006.......................................... 103.143% Beginning August 15, 2006 and ending on August 14, 2007.......................................... 102.357% Beginning August 15, 2007 and ending on August 14, 2008.......................................... 101.571% Beginning August 15, 2008 and ending on August 14, 2009.......................................... 100.786%
Any accrued interest becoming due on the date fixed for redemption will be payable to the holders of record on the relevant record date of the Securities being redeemed. 7. Notice of Redemption. Notice of redemption pursuant to paragraph 6 will be mailed at least 30 days before the redemption date to each Holder of Securities to be redeemed at its registered address. Securities in denominations larger than $1,000 principal amount may be redeemed in part but only in whole multiples of $1,000 principal amount. On and after the redemption date interest ceases to accrue on Securities or portions of them called for redemption. 8. Repurchase at Option of Holder. Pursuant to Section 3.8 of the Indenture, within 30 days after a Change in Control occurs, the Company is required to give notice of the Change in Control to the Holders. Each Holder has the right, at its option, to require the Company to repurchase all or any portion of the Securities on a date fixed by the Company not more than 60 days after the occurrence of a Change in Control. The Repurchase Price will be 100% of the principal amount of the Securities submitted for repurchase, plus accrued and unpaid interest to, 6 but excluding, the Repurchase Date. If a Repurchase Date is an interest payment date, then the interest payable on that date will be paid to the holder of record on the relevant record date. Subject to the conditions of Section 3.8 of the Indenture, the Company may elect to pay the Repurchase Price (to the extent not paid in cash) by delivering the number of shares of Common Stock equal to (i) the Repurchase Price (to the extent not paid in cash) divided by (ii) 95% of the average of the Closing Prices per share of the Common Stock for the five Trading Days immediately preceding and including the third Trading Day preceding the Repurchase Date. 9. Conversion. A Holder of a Security may convert the principal of such Security into Common Stock at any time after the date of original issuance of the Security to the close of business on the business day prior to the close of business on August 15, 2009, or (x) if the Security is called for redemption by the Company, the Holder may convert it at any time before the close of business on the date that is one business day before the date fixed for such redemption, or (y) if the Security is to be repurchased by the Company pursuant to paragraph 8 hereof, the Holder may convert it at any time before the close of business on the date that is one business day before the date fixed for such repurchase. The initial Conversion Price is $39.30 per share of Common Stock, subject to adjustment in certain circumstances as set forth in Section 10.6 of the Indenture. To determine the number of shares issuable upon conversion of a Security, divide each $1,000 of the principal amount to be converted by the Conversion Price in effect on the conversion date and round the result to the nearest 1/100th share. The Company is not required to issue fractional shares of Common Stock upon conversion and, instead, will pay a cash amount as provided in Section 10.3 of the Indenture. Except as provided in Article Ten of the Indenture, no payment or adjustment for the principal of, premium, if any, interest on or liquidated damages with respect to, the Securities or for dividends on any Common Stock will be made. If a Holder surrenders a Security for conversion between the record date for the payment of interest and the next interest payment date, such Security, when surrendered for conversion, must be accompanied by payment of an amount equal to the interest thereon which the registered Holder on such record date is to receive. The following sentence does not apply in the case of such Security or portions of such Security called for redemption or subject to repurchase following a Change in Control during that period. A Security which the Holder has elected to be repurchased may be converted only if the Holder withdraws its election to have such Security repurchased in accordance with the terms of the Indenture before the close of business on the business day prior to the Repurchase Date. To convert a Security a Holder must (1) complete and sign the Conversion Notice, with appropriate signature guarantee, on the back of the Security, (2) surrender the Security to a Conversion Agent, (3) furnish appropriate endorsements and transfer documents if required by the Registrar or Conversion Agent, (4) pay the amount of interest, if any, the Holder may be paid as provided in the second to last sentence of the above paragraph and (5) pay any transfer or similar tax if required. A Holder may convert a portion of a Security if the portion is $1,000 principal amount or an integral multiple of $1,000 principal amount. Any shares issued upon conversion of a Security shall bear the Private Placement Legend until after the expiration of the holding period applicable to sales of Securities under Rule 144(k) of the Securities Act. 10. Subordination. The Securities are subordinated in right of payment, in the manner and to 7 the extent set forth in the Indenture, to the prior payment in full of all Senior Indebtedness. Each Holder by accepting a Security agrees to such subordination and authorizes the Trustee to give it effect. 11. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 principal amount and whole multiples of $1,000 principal amount. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents. 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 cover any tax or other governmental charge payable in connection therewith. The Registrar need not exchange or register the transfer of any Security selected for redemption in whole or in part. Also, it need not exchange or register the transfer of any Securities for a period of 10 Business Days before the mailing of a notice of redemption of the Securities selected to be redeemed. 12. Persons Deemed Owners. The registered Holder of a Security may be treated as the owner of such Security for all purposes. 13. Merger or Consolidation. The Company shall not consolidate with, or merge into any other Person, in a transaction in which the Company is not the surviving corporation, or convey, transfer or lease its properties and assets substantially as an entirety to, any Person unless, among other things, the successor, if any, is a corporation organized under the laws of the United States, any State thereof or the District of Columbia and such corporation assumes by supplemental indenture all the obligations of the Company under the Securities and the Indenture, and immediately after giving effect to the transaction no Default or Event of Default shall have occurred and be continuing. Notwithstanding the foregoing, any Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company or any other Subsidiary or Subsidiaries of the Company. 14. Amendments, Supplements and Waivers. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or the consent of any Holder, the Indenture or the Securities may be amended or supplemented, among other things, to cure any ambiguity, omission, defect or inconsistency, to provide for uncertificated Securities in addition to certificated Securities, to comply with Sections 5.1 and 10.7 of the Indenture or to make any change that does not adversely affect the rights of any Holder. 15. Defaults and Remedies. An Event of Default includes the occurrence of any or the following: default in payment of the principal of or any premium on the Securities when due; default for 30 days in payment of interest on the Securities when due, provided that a failure to make any of the first six scheduled interest payments on the Securities within three (3) Business Days after the applicable interest payment dates will constitute an Event of Default with no additional grace or cure periods; failure by the Company to perform any other covenant in the 8 Indenture for 60 days after receipt of the notice to it required by the Indenture; certain events of bankruptcy or insolvency; default in the payment of certain Indebtedness of the Company or any of its Significant Subsidiaries, provided such default is not cured, waived or rescinded within 30 days after receipt of the notice to it required by the Indenture; and the Pledge Agreement shall cease to be in full force and effect or enforceable in accordance with its terms. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may declare all the Securities to be due and payable, subject to certain limitations contained in the Indenture. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. 16. Registration Rights. The Holders are entitled to shelf registration rights as set forth in the Registration Rights Agreement. The Holders shall be entitled to receive liquidated damages in certain circumstances, all as set forth in the Registration Rights Agreement. 17. Trustee Dealings with Company. The Trustee under the Indenture, or any banking institution serving as successor Trustee thereunder, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 18. No Recourse Against Others. No past, present or future director, officer, employee or shareholder, as such, of the Company shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 19. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 20. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act). THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: SCIOS INC. 820 West Maude Avenue Sunnyvale, California 94085 ATTENTION: General Counsel 9 [FORM OF ASSIGNMENT] I or we assign to PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ______________________________________ ________________________________________________________________________________ (please print or type name and address) ________________________________________________________________________________ ________________________________________________________________________________ the within Security and all rights thereunder, and hereby irrevocably constitutes and appoints ________________________________________________________________________________ attorney to transfer the Security on the books of the Company with full power of substitution in the premises. Dated:_________________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Security in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ___________________________________________________________ (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act") covering resales of this Security (which effectiveness shall have been suspended or terminated at the date of the transfer) and (ii) _________________ the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with transfer: 10 [Check One] (1) ____ to the Company or a Subsidiary thereof; or (2) ____ pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) ____ to an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) ____ pursuant to the exemption from registration provided by Rule 144 under the Securities Act of 1933, as amended; or (5) ____ pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (6) ____ pursuant to another available exemption from the registration statement requirements of the Securities Act of 1933, as amended. and unless the box below is checked, the undersigned confirms that such Security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): [ ] The transferee is an Affiliate of the Company. (If the Security is transferred to an Affiliate, the restrictive legend must remain on the Security for two years following the date of the transfer). Unless one of the items is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided, however, that if item (3), (4) or (6) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Securities, in their sole discretion, such written legal opinions, certifications (including an investment letter in the case of box (3)) and other information as the Trustee or the Company have reasonably requested 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 of 1933, as amended. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.16 of the Indenture shall have been satisfied. Dated: ________________________ Signed:_______________________________ (Sign exactly as name appears on the other side of this Security) 11 Signature Guarantee: ___________________________________________________________ TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ______________________________ ___________________________________ NOTICE: To be executed by an executive officer 12 CONVERSION NOTICE To convert this Security into Common Stock of the Company, check the box: [ ] To convert only part of this Security, state the principal amount to be converted (must be in multiples of $1,000): $_______________________________________________________________________________ If you want the stock certificate made out in another person's name, fill in the form below: ________________________________________________________________________________ (Insert other person's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type other person's name, address and zip code) _______________________________________________________ Date:____________________ Signature(s):______________________ _________________________________ (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) 13 Signature(s) guaranteed by:_____________________________________________________ (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) 14 OPTION OF HOLDER TO ELECT PURCHASE NOTICE If you want to elect to have this Security purchased by the Company pursuant to Section 3.8 of the Indenture, check the box: [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 3.8 of the Indenture, state the principal amount: $___________________________________ (in an integral multiple of $1,000) Date:_________________________ Signature(s):_______________________________ ____________________________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: ____________________________________________ (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) 15 SCHEDULE OF EXCHANGES OF SECURITIES The following exchanges, redemptions, repurchases or conversion of a part of this Global Security have been made: Principal Amount of this Global Security Following Amount of Decrease in Amount of Increase in Such Decrease Date of Authorized Signatory of Principal Amount of Principal Amount of Exchange (or Increase) Securities Custodian this Global Security this Global Security ---------------------- -------------------- -------------------- --------------------

16 EX-10.1 5 dex101.txt REGISTRATION RIGHTS AGREEMENT DATED 08/05/2002 EXHIBIT 10.1 REGISTRATION RIGHTS AGREEMENT Dated as of August 5, 2002 By and Among SCIOS INC., as Issuer and J.P. MORGAN SECURITIES INC., LEHMAN BROTHERS INC. SG COWEN SECURITIES CORPORATION NEEDHAM & COMPANY, INC. ADAMS, HARKNESS & HILL, INC. and PRUDENTIAL SECURITIES INCORPORATED as Initial Purchasers 5.50% Convertible Subordinated Notes Due 2009 TABLE OF CONTENTS
Page ---- 1. Definitions.........................................................................................1 2. Shelf Registration..................................................................................4 (a) Shelf Registration.........................................................................4 (b) Subsequent Shelf Registrations.............................................................5 (c) Supplements and Amendments.................................................................5 (d) Information from Holders...................................................................5 3. Liquidated Damages..................................................................................6 4. Registration Procedures.............................................................................7 5. Registration Expenses..............................................................................14 6. Indemnification....................................................................................15 7. Rules 144 and 144A.................................................................................17 8. Underwritten Registrations.........................................................................18 9. Miscellaneous......................................................................................18 (a) No Inconsistent Agreements................................................................18 (b) Adjustments Affecting Registrable Securities..............................................18 (c) Amendments and Waivers....................................................................19 (d) Notices...................................................................................19 (e) Successors and Assigns....................................................................20 (f) Counterparts..............................................................................20 (g) Headings..................................................................................20 (h) Governing Law.............................................................................21 (i) Severability..............................................................................21 (j) Securities Held by the Company or Its Affiliates..........................................21 (k) Third Party Beneficiaries.................................................................21 (l) Entire Agreement..........................................................................21
-i- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of August 5, 2002, by and among SCIOS INC., a Delaware corporation (the "Company"), J.P. MORGAN SECURITIES INC., LEHMAN BROTHERS INC., SG COWEN SECURITIES CORPORATION, NEEDHAM & COMPANY, INC., ADAMS, HARKNESS & HILL, INC. and PRUDENTIAL SECURITIES INCORPORATED (each individually, an "Initial Purchaser" and, together, the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated July 30, 2002 (the "Purchase Agreement"), by and among the Company and the Initial Purchasers, which provides for the sale by the Company to the Initial Purchasers of $150,000,000 aggregate principal amount of the Company's 5.50% Convertible Subordinated Notes Due 2009 (the "Firm Notes"), which are convertible into Common Stock of the Company, par value $0.001 per share (the "Underlying Shares"), plus up to an additional $25,000,000 aggregate principal amount of the same that the Initial Purchasers may subsequently elect to purchase pursuant to the terms of the Purchase Agreement (the "Additional Notes" and, together with the Firm Notes, the "Convertible Notes"). The Convertible Notes are being issued pursuant to an indenture dated as of the date hereof (the "Indenture") between the Company and Wells Fargo Bank, National Association, as Trustee. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and subsequent holders of the Convertible Notes or Underlying Shares. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Firm Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: Agreement: See the first introductory paragraph hereto. Amount of Registrable Securities: (a) With respect to Convertible Notes constituting Registrable Securities, the aggregate principal amount of all such Convertible Notes outstanding, (b) with respect to Underlying Shares constituting Registrable Securities, the aggregate number of such Underlying Shares outstanding multiplied by the Conversion Price at the time such Convertible Notes were converted (as defined in the Indenture), and (c) with respect to combinations thereof, the sum of (a) and (b) for the relevant Registrable Securities. Business Day: Any day that is not a Saturday, Sunday or a day on which banking institutions in New York are authorized or required by law to be closed. -1- Closing Date: August 5, 2002. Company: See the first introductory paragraph hereto. Convertible Notes: See the second introductory paragraph hereto. Counsel to the Holders: See Section 5(b) hereof. Damages Payment Date: See Section 3(c) hereof. Depositary: The Depository Trust Company until a successor is appointed by the Company. Effectiveness Date: The 180th day after the Closing Date. Effectiveness Period: See Section 2(a) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Filing Date: The 90th day after the Closing Date. Holder: Any holder of Registrable Securities. Indemnified Holder: See Section 6 hereof. Indemnified Person: See Section 6 hereof. Indemnifying Person: See Section 6 hereof. Indenture: See the second introductory paragraph hereto. Initial Purchasers: See the first introductory paragraph hereto. Initial Shelf Registration: See Section 2(a) hereof. Inspectors: See Section 4(n) hereof. Liquidated Damages: See Section 3(a) hereof. NASD: See Section 4(q) hereof. Person: An individual, partnership, corporation, limited liability company, unincorporated association, trust or joint venture, or a governmental agency or political subdivision thereof. -2- Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the second introductory paragraph hereto. Questionnaire Deadline: See Section 2(d) hereof. QIU: See Section 4(q) hereof. Records: See Section 4(n) hereof. Registrable Securities: Each Convertible Note and all Underlying Shares issuable upon conversion thereof and at all times subsequent thereto until the earliest to occur of (i) a Registration Statement covering such Convertible Note and Underlying Shares having been declared effective by the SEC and such Convertible Note or Underlying Shares have been disposed of in accordance with such effective Registration Statement, (ii) such Convertible Note or Underlying Shares having been sold in compliance with Rule 144 or could (except with respect to affiliates of the Company within the meaning of the Securities Act) be sold in compliance with Rule 144(k) or (iii) such Convertible Notes and any Underlying Shares cease to be outstanding. Registration Default: See Section 3(a) hereof. Registration Statement: Any registration statement of the Company filed with the SEC pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. -3- Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Registration: See Section 2(b) hereof. Shelf Registration Statement: See Section 2(b) hereof. Subsequent Shelf Registration: See Section 2(b) hereof. TIA: The Trust Indenture Act of 1939, as amended, and the rules and regulations of the SEC promulgated thereunder. Trustee: The Trustee under the Indenture. Underlying Shares: See the second introductory paragraph hereto. Underwritten registration or underwritten offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Shelf Registration. (a) Shelf Registration. The Company shall use its reasonable best efforts to prepare and file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration") on or prior to the Filing Date. The Initial Shelf Registration shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by Holders in the manner or manners designated by them (including, without limitation, one or more underwritten offerings). The Company shall not permit any securities other than the Registrable Securities to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Company shall use its reasonable best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and, except as set forth in Section 3(b) hereof, to keep such Initial Shelf Registration continuously effective under the Securities Act until the date that is two years from the Closing Date or such shorter period ending on the earliest of (1) the date when all Registrable Securities have been registered on a Shelf Registration Statement and resold in the manner contemplated hereby, (2) the date on which all Registrable Securities are eligible to be sold to the public pursuant to Rule 144(k) under the Securities Act of 1933, (3) the date on which all Registrable Securities have been resold pursuant to Rule 144 under the Securities Act of 1933 and (4) the -4- date on which all the Registrable Securities cease to be outstanding (such shortest time period referred to as the "Effectiveness Period"). (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below) ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall, within 45 days of such cessation of effectiveness, amend the Initial Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration and the term "Shelf Registration Statement" means any Registration Statement filed in connection with a Shelf Registration. (c) Supplements and Amendments. The Company shall use its reasonable best efforts to promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by (i) the Holders of the majority in Amount of Registrable Securities covered by such Registration Statement or (ii) by any underwriter of such Registrable Securities. (d) Information from Holders. No Holder may include any of its Registrable Securities in the Shelf Registration Statement pursuant to this Agreement unless such Holder furnishes to the Company in writing, prior to or on the 20th Business Day after receipt of a request therefor (the "Questionnaire Deadline"), such information as the Company may reasonably request for use in connection with the Shelf Registration Statement or Prospectus or preliminary Prospectus included therein and in any application to be filed with or under state securities laws. In connection with all such requests for information from Holders of Registrable Securities, the Company shall notify such Holders of the requirements set forth in the preceding sentence. No Holder of Registrable Securities shall be entitled to Liquidated Damages pursuant to Section 3 hereof unless such Holder shall have provided all such reasonably requested information prior to or on the Questionnaire Deadline. Each Holder as to which the Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make information previously furnished to the Company by such Holder not materially misleading. -5- 3. Liquidated Damages. (a) The Company and the Initial Purchasers agree that the Holders of Registrable Securities will suffer damages if the Company fails to fulfill its obligations under Section 2 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay liquidated damages on the Registrable Securities ("Liquidated Damages") under the circumstances and to the extent set forth below (each of which shall be given independent effect; each a "Registration Default"): (i) if the Initial Shelf Registration is not filed on or prior to the Filing Date, then commencing on the day after the Filing Date, Liquidated Damages shall accrue on the Registrable Securities at a rate of 0.25% per annum on the Amount of Registrable Securities for the first 90 days immediately following the Filing Date, such Liquidated Damages increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period; (ii) if the Initial Shelf Registration is not declared effective by the SEC on or prior to the Effectiveness Date, then commencing on the day after the Effectiveness Date, Liquidated Damages shall accrue on the Registrable Securities at a rate of 0.25% per annum on the Amount of Registrable Securities for the first 90 days immediately following the day after such Effectiveness Date, such Liquidated Damages increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period; and (iii) if a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time during the Effectiveness Period (other than as permitted under Section 3(b) hereof), Liquidated Damages shall accrue on the Registrable Securities at a rate of 0.25% per annum on the Amount of Registrable Securities for the first 90 days commencing on the day such Shelf Registration ceases to be effective, such Liquidated Damages increasing by an additional 0.25% per annum at the beginning of each such subsequent 90-day period; provided, however, that Liquidated Damages on the Registrable Securities may not accrue under more than one of the foregoing clauses (i), (ii) or (iii) at any one time and at no time shall the aggregate amount of Liquidated Damages accruing exceed in the aggregate 0.50% per annum of the Amount of Registrable Securities; provided, further, however, that (1) upon the filing of the Initial Shelf Registration as required hereunder (in the case of clause (a)(i) of this Section 3), (2) upon the effectiveness of the Initial Shelf Registration as required hereunder (in the case of clause (a)(ii) of this Section 3) or (3) upon the effectiveness of a Shelf Registration which had ceased to remain effective (in the case of clause (a)(iii) of this Section 3), Liquidated Damages on the Registrable Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. It is understood and agreed that, notwithstanding any provision to the contrary, (x) so long as any Registrable Security is then covered by an effective Shelf Registration Statement, no Liquidated Damages shall accrue on such Registrable Security and (y) no Holder of Registrable Securities shall be -6- entitled to Liquidated Damages unless such Holder has complied with its obligations to furnish the information required regarding such Holder by the terms of this Agreement. (b) Notwithstanding paragraph (a) of this Section 3, the Company shall be permitted to suspend the effectiveness of a Shelf Registration for a period not to exceed 45 days in any 90-day period, and not to exceed an aggregate of 120 days in any 360-day period, if (i) the Prospectus contained in such Shelf Registration Statement would, in the Company's judgment, contain a material misstatement or omission as a result of an event that has occurred and is continuing; and (ii) the Company reasonably determines that the disclosure of this material non-public information would have a material adverse effect on the Company and its subsidiaries taken as a whole. However, if the disclosure relates to a previously undisclosed proposed or pending material business transaction, the disclosure of which would impede the Company's ability to consummate such transaction, the Company may extend the suspension period from 45 days to 60 days. Each Holder of Registrable Securities, by its acceptance of thereof, agrees to hold any communication by the Company in response to a notice of proposed material pending business transaction in confidence. (c) So long as Convertible Notes remain outstanding, the Company shall notify the Trustee within two Business Days after each and every date on which an event occurs in respect of which Liquidated Damages is required to be paid. Any amounts of Liquidated Damages due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 3 will be payable in cash semi-annually on each Interest Payment Date, as defined in the Convertible Notes (each a "Damages Payment Date"), commencing with the first such date occurring after any such Liquidated Damages commences to accrue, to Holders to whom regular interest is payable on such Damages Payment Date with respect to Convertible Notes that are Registrable Securities and to Persons that are registered Holders 15 days prior to such Damages Payment Date with respect to Underlying Shares that are Registrable Securities. The amount of Liquidated Damages for Registrable Securities will be determined by multiplying the applicable rate of Liquidated Damages by the Amount of Registrable Securities outstanding on the Damages Payment Date following such Registration Default in the case of the first such payment of Liquidated Damages with respect to a Registration Default (and thereafter at the next succeeding Damages Payment Date until the cure of such Registration Default), multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. 4. Registration Procedures. In connection with the filing of any Registration Statement pursuant to Section 2 hereof, the Company shall effect such registrations to permit the resale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder the Company shall: -7- (a) Prepare and file with the SEC on or prior to the Filing Date, a Registration Statement or Registration Statements as prescribed by Section 2 hereof, and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Securities that have provided the information required by the second full paragraph of this Section 4, Counsel (chosen in accordance with Section 5(b) hereof) to the Holders and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents proposed to be filed (in each case, where possible, at least five Business Days prior to such filing, or such date as is reasonable under the circumstances). The Company shall not file any Registration Statement or Prospectus or any amendments or supplements thereto if the Holders of a majority in Amount of Registrable Securities that have provided the information required by the second full paragraph of this Section 4, Counsel to the Holders or the managing underwriters representing such Holders, if any, shall reasonably object. (b) Except as set forth in Section 3(b) hereof, prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented. The Company shall be deemed not to have used its reasonable best efforts to keep a Registration Statement effective during the Effectiveness Period if it voluntarily takes any action that would result in selling Holders of the Registrable Securities covered thereby not being able to sell such Registrable Securities during that period unless such action is required by applicable law or unless the Company complies with this Agreement, including, without limitation, the provisions of Sections 3(b) and 4(k) hereof. (c) Notify the selling Holders of Registrable Securities, a single Counsel to the Holders (chosen in accordance with Section 5(b) hereof) and the managing underwriters, if any, promptly (but in any event within two Business Days) and, if requested by such persons, confirm such notice in writing, (i) when a Prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a statement that any Holder may, upon request, obtain, at the sole expense of the Company, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary Prospectus or the initiation of any proceedings for that purpose, -8- (iii) of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and (iv) of the Company's determination that a post-effective amendment to a Registration Statement or the filing of a Prospectus Supplement would be appropriate. (d) Use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) In the event of an underwritten offering pursuant to the terms of this Agreement, if requested by the managing underwriter or underwriters, if any, or the Holders of the majority in Amount of Registrable Securities being sold in connection with such underwritten offering (i) promptly incorporate in a Prospectus supplement or, if required, a post-effective amendment such information as the managing underwriter or underwriters (if any), such Holders or counsel for any of them reasonably determine is necessary to be included therein, (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as reasonably practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment and (iii) supplement or make amendments to such Registration Statement. (f) Furnish to each selling Holder of Registrable Securities a single Counsel to the Holders and each managing underwriter, if any, who so requests, at the sole expense of the Company, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements and schedules. (g) Deliver to each selling Holder of Registrable Securities, a single Counsel to the Holders and the underwriters, if any, at the sole expense of the Company, as many copies of the Prospectus (including each form of preliminary Prospectus) and each amendment or supplement thereto as such Persons may reasonably request; and the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the -9- underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (h) Prior to any public offering of Registrable Securities, to use its reasonable best efforts to register or qualify, to the extent required by applicable law, and to cooperate with the selling Holders of Registrable Securities, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities or offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, or the managing underwriter or underwriters, if any, reasonably request; keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (i) Cooperate with the selling Holders of Registrable Securities and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing shares of Registrable Securities to be sold, which certificates, when such Registrable Securities are sold pursuant to the Shelf Registration Statement, shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such shares of Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (j) Use its reasonable best efforts to cause the Registrable Securities covered by any Shelf Registration Statement to be registered with or approved by such other governmental agencies or authorities in the United States as may be reasonably necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities, except as may be required solely as a consequence of the nature of such selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such registration and the granting of such approvals. (k) Upon the occurrence of any event contemplated by paragraph 4(c)(ii), 4(c)(iii) or 4(c)(iv) hereof, as promptly as practicable prepare and (subject to Section 4(a) and Section 3(b) hereof) file with the SEC, at the sole expense of the Company, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorpo -10- rated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (l) Prior to the effective date of the first Registration Statement relating to the Registrable Securities, (i) provide the Trustee with certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company and (ii) provide required CUSIP numbers for the Registrable Securities. (m) In connection with any underwritten offering of Registrable Securities pursuant to a Shelf Registration, enter into an underwriting agreement as is customary in underwritten offerings of securities similar to the Registrable Securities and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Securities and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters as such managing underwriter or underwriters reasonably request with respect to the business of the Company and its subsidiaries (including any acquired business, properties or entity, if applicable) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of securities similar to the Registrable Securities and confirm the same in writing if and when requested; (ii) obtain the written opinion of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of securities similar to the Registrable Securities and such other matters as may be reasonably requested by the managing underwriter or underwriters; and (iii) obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified 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 or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of securities similar to the Registrable Securities and such other matters as reasonably requested by the managing underwriter or underwriters as permitted by the Statement on Auditing Standards No. 72. The above shall be done as and to the extent required by such underwriting agreement. (n) Make available for inspection by any selling Holder of such Registrable Securities being sold, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any -11- such selling Holder, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours at such time or times as shall be mutually convenient for the Company and the Inspectors as a group, all financial and other records, pertinent corporate documents and instruments of the Company and its subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. Records that the Company determines, in good faith, to be confidential and any Records that it notifies the Inspectors are confidential shall not be disclosed by any Inspector unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such information is, in the opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding directly involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement or any transactions contemplated hereby or arising hereunder or (iv) the information in such Records has been made generally available to the public other than through the acts of such Inspector or as a result of a breach of this Agreement; provided, however, that prior notice shall be provided as soon as practicable to the Company of the potential disclosure of any information by such Inspector pursuant to clause (i), (ii) or (iii) of this sentence to permit the Company to obtain a protective order (or waive the provisions of this paragraph (n)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of any Holder or Inspector. (o) Provide (i) the Holders of the Registrable Securities to be included in such Registration Statement and not more than one Counsel to the Holders (ii) the underwriters (which term, for purposes of this Registration Rights Agreement, shall include a Person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, thereof, (iii) the sales or placement agent, if any, thereof, and (iv) one counsel for such underwriters or agents, reasonable opportunity to participate in the preparation of such Registration Statement, each Prospectus included therein or filed with the SEC, and each amendment or supplement thereto. (p) Comply with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of -12- the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (q) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"), including, if the Conduct Rules of the NASD or any successor thereto as amended from time to time so require, engaging a "qualified independent underwriter" ("QIU") as contemplated therein and making Records available to such QIU as though it were a participating underwriter for the purposes of Section 4(n) and otherwise applying the provisions of this Agreement to such QIU (including indemnification) as though it were a participating underwriter. (r) Cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Securities; and in connection therewith, cooperate with the Trustee and the Holders of the Registrable Securities to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner. (s) Use its reasonable best efforts to take all other steps necessary or advisable to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. Each Holder who intends to be named as a selling Holder in the Shelf Registration Statement shall furnish to the Company in writing, within 20 Business Days after receipt of a request therefor as set forth in a questionnaire in the form attached hereto as Annex A, such information regarding such Holder and the proposed distribution by such Holder of its Registrable Securities as the Company may reasonably request for use in connection with the Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. Holders that do not complete the questionnaire and deliver it to the Company shall not be named as selling securityholders in the Prospectus or preliminary Prospectus included in the Shelf Registration Statement and therefore shall not be permitted to sell any Registrable Securities pursuant to the Shelf Registration Statement. Each Holder who intends to be named as a selling Holder in the Shelf Registration Statement shall promptly furnish to the Company in writing such other information as the Issuer may from time to time reasonably request in writing. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Company all information required to be disclosed so that the information previously furnished to the Company by such seller is not materially misleading and does not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. -13- Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 3(b), 4(c)(ii), 4(c)(iii) or 4(c)(iv) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(b) or Section 4(k) hereof, as the case may be, or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. 5. Registration Expenses. (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, including, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as provided in Section 4(h) hereof) and excluding fees with respect to filings required to be made with the NASD in connection with an underwritten offering, (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriter or underwriters, if any, or by the Holders of the majority in Amount of Registrable Securities included in any Registration Statement, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) fees and disbursements of all independent certified public accountants referred to in Section 4(m)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) fees and expenses of all other Persons retained by the Company, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, and any other documents necessary in order to comply with this Agreement (other than underwriting agreements and securities sales agreements). Notwithstanding anything in this Agreement to the contrary, each Holder shall pay all underwriting discounts and brokerage commissions with respect to any Registrable Securities sold by it. (b) The Company shall reimburse the Holders of the Registrable Securities being registered in a Shelf Registration for the reasonable fees and disbursements of not more than one counsel chosen by the Holders of a majority in Amount of Registrable Securities to be included in such Registration Statement ("Counsel to the Holders"). -14- 6. Indemnification. The Company agrees to indemnify and hold harmless (i) each Initial Purchaser, (ii) each Holder, (iii) each Person, if any, who controls (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) any of the foregoing (any of the Persons referred to in this clause (iii) being hereinafter referred to as a "controlling person"), (iv) the respective officers, directors, partners, employees, representatives and agents of the Initial Purchasers, the Holders or any controlling person (any person referred to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an "Indemnified Holder"), from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, reasonable legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus, or any amendment or supplement thereto or any related preliminary Prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Holder furnished to the Company in writing by such Holder expressly for use therein; provided, however, that the Company shall not be liable to any Indemnified Holder under the indemnity agreement of this Section 6 with respect to any preliminary Prospectus to the extent that any such loss, claim, damage, liability, judgment or expense of such Indemnified Holder results from the fact that such Indemnified Holder sold Registrable Securities under a Registration Statement to a Person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus (or of the preliminary Prospectus as then amended or supplemented if the Company shall have furnished such Indemnified Holder with such amendment or supplement thereto on a timely basis), and the loss, claim, damage, liability or expense of such Indemnified Holder results from an untrue statement or omission of a material fact contained in the preliminary Prospectus which was corrected in the Prospectus (or in the preliminary Prospectus as then amended or supplemented if the Company shall have furnished such Indemnified Holder with such amendment or supplement thereto, as the case may be, on a timely basis). The Company shall notify the Indemnified Holder promptly of the institution, threat or assertion of any claim, proceeding (including any governmental investigation) or litigation in connection with the matters addressed by this Agreement which involves the Company or such Indemnified Holder. Each Holder and each Initial Purchaser agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, officers, partners, employees, representatives and agents and each Person who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Holder, but only with reference to information relating to a Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement or Prospectus, or any amendment or supplement thereto or any related preliminary Prospectus. -15- If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person or Persons against whom such indemnity may be sought (each an "Indemnifying Person") in writing, and such Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 6 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) such Indemnifying Person and the Indemnified Person shall have mutually agreed in writing to the contrary, (ii) such Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to such Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include an Indemnifying Person and an Indemnified Person and the Indemnified Person reasonably concludes, based upon the advice of legal counsel, that representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that an Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Indemnified Holders shall be designated in writing by the Holders of the majority in Amount of Registrable Securities, and any such separate firm for the Company, its directors, officers and such control Persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, such Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding. If the indemnification provided for in the first and second paragraphs of this Section 6 is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Person on the one hand, and the Indemnified Person on the other hand, pursuant to the Purchase Agreement and from the offering of the Registrable Securities pursuant to any Shelf Registration or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not -16- only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Person on the one hand, and the Indemnified Person on the other, in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand, and any Indemnified Holder on the other, shall be deemed to be in the same proportion as the total net proceeds from the initial offering and sale of Convertible Notes (before deducting expenses) received by the Company bear to the total net proceeds received by such Indemnified Holder from sales of Registrable Securities giving rise to such obligations. The relative fault of the parties 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 or such Indemnified Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Each of the Company and the Initial Purchasers agrees that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, in no event shall any Holder be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder from the sale of the Registrable Securities pursuant to a Shelf Registration Statement exceeds the amount of damages which such Holder would have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. 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 who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any Indemnified Person at law or in equity. The indemnity and contribution agreements contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder or any Person controlling any Holder or by or on behalf of the Company, its officers or directors or any other Person controlling the Company and (iii) acceptance of and payment for any of the Registrable Securities by the Initial Purchasers. 7. Rules 144 and 144A. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC there -17- under in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, for so long as any Registrable Securities remain outstanding, if at any time the Company is not required to file such reports, it will, upon the request of any Holder or beneficial owner of Registrable Securities, make available such information necessary to permit sales pursuant to Rule 144A under the Securities Act. The Company further covenants that, for so long as any Registrable Securities remain outstanding, it will use its reasonable best efforts to take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Registrable Securities covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of the majority in Amount of Registrable Securities to be included in such offering and will be reasonably acceptable to the Company. No Holder of Registrable Securities may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) No Inconsistent Agreements. The Company has not, as of the date hereof, and the Company shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that would prevent the Company from satisfying its obligations hereunder or that would otherwise conflict with the provisions hereof, other than the warrant agreement dated as of January 10, 2001, by and between the company and PharmaBio Development, Inc., as amended and restated pursuant to the Amended and Restated Alliance Agreement - - Natrecor (Nesiritide), made as November 1, 2001, by and between the Company and Innovex L.P.. The Company has not entered and will not enter into any agreement with respect to any of its securities that will grant to any Person piggyback registration rights with respect to a Registration Statement, other than such rights that have been waived. (b) Adjustments Affecting Registrable Securities. The Company shall not, directly or indirectly, take any action with respect to the Registrable Securities as a class that -18- would adversely affect the ability of the Holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Company and the Holders of not less than the majority in Amount of Registrable Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority in Amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day courier or facsimile: (1) if to a Holder of the Registrable Securities, at the most current address of such Holder set forth on the records of the registrar under the Indenture, in the case of Holders of Convertible Notes, and the stock ledger of the Company, in the case of Holders of common stock of the Company. (2) if to the Initial Purchasers: J.P. MORGAN SECURITIES INC. LEHMAN BROTHERS INC. SG COWEN SECURITIES CORPORATION c/o J.P. Morgan Securities Inc. 277 Park Avenue 19th Floor New York, New York 10172 Attention: Syndicate Department with copies to: Cooley Godward LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, California 94306 Facsimile No.: (650) 849-7400 Attention: Robert J. Brigham -19- (3) if to the Company, at the addresses as follows: Scios Inc. 820 West Maude Avenue Sunnyvale, California 94085 Facsimile No.: (408) 616-8319 Attention: Matthew R. Hooper, General Counsel with copies to: Latham & Watkins 505 Montgomery Street Suite 1900 San Francisco, California 94111 Facsimile No.: (415) 395-8095 Attention: Kimberly L. Wilkinson All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day courier; and when receipt is acknowledged by the addressee, if sent by facsimile. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including the Holders; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and except to the extent such successor or assign holds Registrable Securities. Notwithstanding the foregoing, if the Company consolidates or merges into any other person in a transaction in which the Company is not the surviving corporation, or conveys, transfers or leases its properties and assets substantially as an entirety to, any person, then the successor entity shall assume the Company's obligations under this Agreement. If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. -20- (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (j) Securities Held by the Company or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage in Amount of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. (k) Third Party Beneficiaries. Holders of Registrable Securities are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. (l) Entire Agreement. This Agreement is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Initial Purchasers on the one hand, and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof are merged herein and replaced hereby. -21- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. SCIOS INC. By: /s/ David W. Gryska --------------------------------------- Name: David W. Gryska Title: CFO J.P. MORGAN SECURITIES INC. LEHMAN BROTHERS INC. SG COWEN SECURITIES CORPORATION NEEDHAM & COMPANY, INC. ADAMS, HARKNESS & HILL, INC. PRUDENTIAL SECURITIES INCORPORATED By: J.P. MORGAN SECURITIES INC. By: /s/ Michael R. Harris ---------------------------------- Name: Michael R. Harris Title: Vice President -22- EX-10.2 6 dex102.txt PLEDGE AGREEMENT DATED 08/05/2002 EXHIBIT 10.2 PLEDGE AGREEMENT This PLEDGE AGREEMENT (the "Pledge Agreement") is made and entered into as of August 5, 2002, by and among SCIOS INC., a Delaware corporation (the "Pledgor"), having its principal office at 820 West Maude Avenue, Sunnyvale, California 94085, WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as trustee (the "Trustee") for the holders from time to time (the "Holders") of the Securities (as defined herein), issued by the Pledgor under the Indenture referred to below, and WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent for the Trustee and the Holders (the "Collateral Agent"). Capitalized terms used and not defined in this Pledge Agreement have the meanings set forth or referred to in the Indenture (as defined below). WITNESSETH WHEREAS, the Pledgor and J.P. Morgan Securities Inc., Lehman Brothers Inc., SG Cowen Securities Corporation, Needham & Company, Inc., Adams, Harkness & Hill, Inc. and Prudential Securities Incorporated (collectively, the "Initial Purchasers") are parties to a Purchase Agreement, dated as of July 30, 2002 (the "Purchase Agreement"), pursuant to which the Pledgor will issue and sell Initial Purchasers $150,000,000 aggregate principal amount of 5.50% Convertible Subordinated Notes due 2009 (the "Initial Securities") and pursuant to which the Pledgor has granted to the Initial Purchasers options to purchase all or any part of up to an additional $25,000,000 aggregate principal amount of the Securities (the "Option Securities" and together with the Initial Securities, the "Securities"); WHEREAS, the Pledgor and the Trustee have entered into that certain indenture, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Pledgor is issuing the Initial Securities on the date hereof; WHEREAS, the Pledgor is the beneficial owner of security entitlements (the "Pledged Security Entitlements") with respect to (i) the United States Treasury securities identified by CUSIP number in SCHEDULE I hereto, and credited to the Pledgor's account with Wells Fargo Bank, National Association (the "Account Holder"), ABA No. 091000019, CR: Corporate Trust Clearing, A/C: 0001038377, FFC: Scios Inc. A/C: 12948301 at its office at 45 Broadway, 12th Floor, New York, New York 10006, in the name of Wells Fargo Bank, National Association, as Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the 5.50% Convertible Subordinated Notes due 2009 of Scios Collateral Pledge Account" (the "Pledge Account") and (ii) all other financial assets credited from time to time to the Pledge Account (collectively with the assets described in clause (i) above, the "Pledged Financial Assets"); WHEREAS, to secure the obligations of the Pledgor under this Pledge Agreement, the Registration Rights Agreement, the Indenture and the Securities to pay in full each of the first six scheduled interest payments on the Securities when due and to secure repayment of a portion of the principal, premium (if any) and interest on the Securities in the event that the Securities become due and payable prior to such time as the first six scheduled interest payments thereon shall have been paid in full (collectively, the "Obligations"), the Pledgor has agreed to pledge to 1. the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities, a security interest in the Collateral (as defined herein) securing the payment and performance by the Pledgor of all of the Obligations; WHEREAS, it is a condition precedent to the initial purchase of the Securities by the Initial Purchasers thereof that the Pledgor shall have executed and delivered this Pledge Agreement; and WHEREAS, unless otherwise defined herein or in the Indenture, terms used in Article 8 or 9 of the Uniform Commercial Code as in effect in the State of New York ("UCC") and/or in the Federal Book Entry Regulations (as defined below) are used in this Pledge Agreement as such terms are defined in such Article 8 or 9 and/or the Federal Book Entry Regulations. The term "Federal Book Entry Regulations" means (a) the federal regulations contained in Subpart B ("Treasury/Reserve Automated Debt Entry System (TRADES)") governing book-entry securities consisting of U.S. Treasury bonds, notes and bills and Subpart D ("Additional Provisions") of 31 C.F.R. Part 357, 31 C.F.R. Section 357.2, Section 357.10 through Section 357.14 and Section 357.41 through Section 357.44 and (b) to the extent substantially identical to the federal regulations referred to in clause (a) above (as in effect from time to time), the federal regulations governing other book-entry securities. AGREEMENT NOW, THEREFORE, in consideration of the premises herein contained, and in order to induce the Holders of the Securities to purchase the Securities, the Pledgor hereby agrees with the Collateral Agent, for the benefit of the Trustee and for the ratable benefit of the Holders of the Securities, as follows: SECTION 1. Pledge and Grant of Security Interest. The Pledgor hereby pledges to the Collateral Agent, for the benefit of the Trustee and the ratable benefit of the Holders of the Securities, and hereby grants to the Collateral Agent, a security interest and continuing lien in, all of the Pledgor's right, title and interest in and to the following, in each case, whether now owned or hereafter acquired by the Pledgor, wherever located and whether now or hereafter existing or arising (hereinafter collectively referred to as the "Collateral"): (a) the Pledged Financial Assets and the certificates, if any, representing the Pledged Financial Assets, and all dividends, interest, money (as defined in the UCC), instruments (as defined in the UCC, the "Instruments") and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such Pledged Financial Assets; (b) the Pledge Account and all security entitlements with respect thereto, all Pledged Security Entitlements with respect to all Pledged Financial Assets from time to time credited to the Pledge Account, any and all securities accounts in which the Pledged Security Entitlements are carried, and all dividends, interest, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable in respect of or in exchange for any or all of such Pledged Security Entitlements; 2. (c) all other securities, securities entitlements and other financial assets hereafter acquired by the Pledgor pursuant to Article 11 of the Indenture; and (d) all proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (a), (b) and (c) of this Section 1) and, to the extent not otherwise included, all cash. SECTION 2. Security for Obligations. This Pledge Agreement secures, and the Collateral is collateral security for, the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of all the Obligations or other obligations of the Pledgor, whether for principal, interest, fees or otherwise, now or hereafter existing, under this Pledge Agreement, the Securities, the Registration Rights Agreement and the Indenture (all such obligations being the "Secured Obligations"). Without limiting the generality of the foregoing, this Pledge Agreement secures, and the Collateral is collateral security for, the payment of all amounts that constitute part of the Secured Obligations and would be owed by the Pledgor to the Collateral Agent, the Trustee or the Holders under this Pledge Agreement, the Securities, the Registration Rights Agreement and the Indenture but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the Pledgor. SECTION 3. Maintaining the Pledge Account. So long as any Secured Obligation shall remain outstanding: (a) The Pledgor will maintain separately the Pledge Account with Wells Fargo Bank, National Association. (b) Notwithstanding any term or condition to the contrary in any other agreement relating to the Pledge Account, and except as otherwise provided by the provisions of Section 5 and Section 18 hereof, no funds shall be paid or released to or for the account of, or withdrawn by or for the account of, the Pledgor or any other Person from the Pledge Account. The Pledge Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect. SECTION 4. Delivery of Collateral. (a) All cash, certificates or instruments representing or evidencing the Pledged Financial Assets, the Pledged Security Entitlements or the Pledge Account shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. The Collateral Agent shall have the right, at any time in its discretion and without notice to the Pledgor, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Collateral. In addition, the Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing any or all of the Collateral for certificates or instruments of smaller or larger denominations. Also, the Collateral Agent shall have the right at any time to convert Collateral consisting of financial assets credited to the 3. Pledge Account to Collateral consisting of financial assets held directly by the Collateral Agent, and to convert Collateral consisting of financial assets held directly by the Collateral Agent to Collateral consisting of financial assets credited to the Pledge Account. (b) With respect to any Collateral in which the Pledgor has any right, title or interest and that constitutes an uncertificated security, the Pledgor shall cause the issuer thereof either (i) to register the Collateral Agent as the registered owner of such security or (ii) to agree in writing with the Pledgor and the Collateral Agent that such issuer will comply with instructions with respect to such security originated by the Collateral Agent without further consent of the Pledgor, such agreement to be in form and substance satisfactory to the Collateral Agent. (c) With respect to any Collateral in which the Pledgor has any right, title or interest and that constitutes a security entitlement, the Pledgor shall cause the securities intermediary with respect to such security entitlement either (i) to identify in its records the Collateral Agent as the entitlement holder of such security entitlement against such securities intermediary or (ii) to agree in writing with the Pledgor and the Collateral Agent that such securities intermediary will comply with entitlement orders (that is, notifications communicated to such securities intermediary directing transfer or redemption of the financial asset to which the Pledgor has a security entitlement) originated by the Collateral Agent without further consent of the Pledgor, such agreement to be in substantially the form of ANNEX A hereto or otherwise in form and substance satisfactory to the Collateral Agent. (d) With respect to any Collateral that constitutes a securities account, the Pledgor will comply with subsection (c) of this Section 4 with respect to all security entitlements carried in such securities account. (e) Prior to or concurrently with the execution and delivery hereof and prior to the transfer to the Collateral Agent of the Pledged Security Entitlements, as provided in subsections (a) through (c) of this Section 4, the Collateral Agent shall establish the Pledge Account with Wells Fargo Bank, National Association. Upon transfer of the Pledged Financial Assets to the Collateral Agent, as confirmed to the Collateral Agent by the securities intermediary, the Collateral Agent shall make appropriate book entries indicating that the Pledged Financial Assets have been credited to and are held in the Pledge Account. Subject to the other terms and conditions of this Pledge Agreement, all funds or other property held by the Collateral Agent pursuant to this Pledge Agreement shall be held in the Pledge Account subject (except as expressly provided in Sections 5(a), (b) and (c) hereof) to the exclusive dominion and control of the Collateral Agent and exclusively for the benefit of the Trustee and the ratable benefit of the Holders of the Securities and segregated from all other funds or other property otherwise held by the Collateral Agent. (f) All Collateral shall be retained in the Pledge Account pending disbursement pursuant to the terms hereof. (g) Concurrently with the execution and delivery of this Pledge Agreement, the Collateral Agent, the Trustee and the Account Holder is delivering to the Pledgor a duly 4. executed Control Agreement (the "Control Agreement"), in the form of ANNEX A attached hereto. (h) Concurrently with the execution and delivery of this Pledge Agreement, the Collateral Agent is delivering, and concurrently with the execution of any supplement to this Pledge Agreement, the Collateral Agent will deliver, to the Pledgor and the Initial Purchasers, a duly executed certificate, in the form of ANNEX B attached hereto, of an officer of the Collateral Agent. (i) Concurrently with the execution and delivery of this Pledge Agreement, the Pledgor is delivering to the Collateral Agent acknowledgment copies or stamped receipt copies of proper financing statements, duly filed on or before the Closing Date under the UCC, covering the Collateral described in this Pledge Agreement. SECTION 5. Disbursements. (a) At least three Business Days prior to the due date of any of the first six scheduled interest payments on the Securities, the Pledgor may, pursuant to written instructions given by the Pledgor to the Collateral Agent (an "Issuer Order"), direct the Collateral Agent to release from the Pledge Account and pay to the Holders of the Securities proceeds sufficient to provide for payment in full of such interest then due on the Securities. Upon receipt of an Issuer Order, the Collateral Agent will (i) issue a Payment Order (as defined in the Control Agreement) to the Account Holder for the release from the Pledge Account funds to the Collateral Agent in an amount sufficient to provide for the payment of the interest on the Securities in accordance with such Issuer Order and (ii) pay such funds to the Holders of the Securities in accordance with the Indenture and the Securities. Nothing in this Section 5 shall affect the Collateral Agent's rights to apply the Collateral to the payments of amounts due on the Securities upon acceleration thereof. (b) If the Pledgor makes any of the first six scheduled interest payments on the Securities or portion of such an interest payment from a source of funds other than the Pledge Account ("Pledgor Funds"), the Pledgor may, after payment in full of such interest payment, direct the Collateral Agent pursuant to an Issuer Order to issue a Payment Order (as defined in the Control Agreement) to the Account Holder for the release to the Pledgor or to another party at the direction of the Pledgor (the "Pledgor's Designee") proceeds from the Pledge Account in an amount less than or equal to the amount of Pledgor Funds applied to such interest payment. Upon receipt by the Collateral Agent of such Issuer Order and provided the Collateral Agent has received such interest payment, the Collateral Agent shall direct the Account Holder pursuant to a Payment Order to pay over to the Pledgor or the Pledgor's Designee, as the case may be, the requested amount from proceeds in the Pledge Account as soon as practicable. (c) At least three Business Days prior to the due date of each of the first six scheduled interest payments on the Securities, the Pledgor shall give the Collateral Agent notice (by Issuer Order) as to whether such interest payment will be made pursuant to Section 5(a) or 5(b) above and the respective amounts of interest that will be paid from the Pledge Account and from Pledgor Funds. Any Pledgor Funds to be used to make any interest payment shall be delivered to the Collateral Agent, in immediately available funds, prior to 10:00 a.m. (New York 5. time) on such interest payment date. If no such notice is given or such Pledgor Funds have not been so delivered, the Collateral Agent will act pursuant to Section 5(a) above as if it had received an Issuer Order pursuant thereto for the payment in full of the interest then due from the Pledge Account. (d) The Collateral Agent shall instruct the Account Holder to liquidate Collateral in the Pledge Account (pursuant to written instructions from Pledgor) in order to make any of the scheduled payments of interest on the Securities, unless there are sufficient funds in the Pledge Account on such interest payment date. The Collateral Agent shall be entitled to instruct the Account Holder to sell any Collateral as contemplated hereunder prior to the maturity of such Collateral and shall not be responsible for any costs and expenses of such sale. (e) Nothing contained in this Pledge Agreement shall (i) afford the Pledgor any right to issue entitlement orders with respect to any of the Pledged Security Entitlements or any securities account in which any such security entitlement may be carried, or otherwise afford the Pledgor control of any Pledged Security Entitlement or (ii) otherwise give rise to any rights of the Pledgor with respect to the Pledged Financial Assets or any securities account in which any such security entitlement may be carried, other than the Pledgor's rights under this Pledge Agreement as the beneficial owner of collateral pledged to and subject to the exclusive dominion and control (except as expressly provided in Sections 5(a) and (b) hereof) of the Collateral Agent in its capacity as such (and not as a securities intermediary) before the payment in full, when due, of the Obligations. The Pledgor acknowledges, confirms and agrees that the Collateral Agent is an entitlement holder of the Pledged Security Entitlements solely as Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities and not as a securities intermediary. SECTION 6. Investing of Amounts in the Pledge Account. If requested and as directed by the Pledgor, the Collateral Agent will, subject to the provisions of Sections 3, 5 and 14 of this Pledge Agreement, from time to time, instruct the Account Holder to invest interest paid on the Pledged Financial Assets and reinvest other proceeds of any Pledged Financial Assets that may mature or be sold, in each case, in (i) identified United States Treasury securities or (ii) selected shares of a money market fund registered under the Investment Company Act of 1940, as amended, the portfolio of which consists of United States Treasury securities, in each case credited to the Pledge Account. SECTION 7. Representations and Warranties. (a) The Pledgor hereby represents and warrants that: (1) This Pledge Agreement has been duly authorized, validly executed and delivered by the Pledgor and (assuming the due authorization and valid execution and delivery of this Pledge Agreement by each of the Trustee and the Collateral Agent and the enforceability of this Pledge Agreement against each of the Trustee and the Collateral Agent in accordance with its terms) constitutes a valid and binding agreement of the Pledgor, enforceable against the Pledgor in accordance with its terms, except as (i) the enforceability hereof may be limited by bankruptcy, insolvency, fraudulent conveyance, preference, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting creditors' rights or 6. remedies generally, (ii) the availability of equitable remedies may be limited by equitable principles of general applicability and the discretion of the court before which any proceeding therefore may be brought, (iii) the exculpation provisions and rights to indemnification hereunder may be limited by U.S. federal and state securities laws and public policy considerations and (iv) the waiver of rights and defenses contained in Section 12(b), Section 19.8 and Section 19.13 hereof may be limited by applicable law. (2) The Pledgor's exact legal name, as provided in Section 9-503(a)(1) of the UCC, is Scios Inc. The Pledgor is located (within the meaning of Section 9-307 of the UCC) in the State of Delaware. (3) The Pledgor is the legal and beneficial owner of the Collateral free and clear of any Lien, claim, option or right of others (except for the security interests created by this Pledge Agreement). No effective financing statement or instrument similar in effect covering all or any part of the Collateral is on file in any public or recording office, other than the financing statements filed pursuant to this Pledge Agreement. (4) Upon the delivery of the Collateral in accordance with the terms hereof, all filings and other actions (including, without limitation, (A) actions necessary to obtain control of the Collateral as provided in Sections 9-104, 9-105, 9-106 and 9-107 of the UCC and (B) actions necessary to perfect the Collateral Agent's security interest with respect to the Collateral evidenced by a certificate of ownership) necessary to perfect the security interest in the Collateral created under this Pledge Agreement have been duly made or taken and are in full force and effect, and this Pledge Agreement creates in favor of the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities a valid and, together with such filings and other actions, perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations. (5) The execution and delivery by the Pledgor of, and the performance by the Pledgor of its obligations under, this Pledge Agreement will not contravene any provision of applicable law or the Certificate of Incorporation of the Pledgor or any material agreement or other material instrument binding upon the Pledgor or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Pledgor, or result in the creation or imposition of any Lien on any assets of the Pledgor, except for the security interests granted under this Pledge Agreement. (6) No consent of any other person and no approval, authorization, order of, action by notice to, filing or qualification with, any governmental authority, regulatory body, agency or other third party is required for (i) the grant by the Pledgor of the assignment, pledge and security interest granted under this Pledge Agreement, (ii) the execution or delivery by the Pledgor of, or the performance by the Pledgor of its obligations under, this Pledge Agreement, (iii) the perfection or maintenance of the assignment, pledge and security interest created hereunder (including the first priority nature of such assignment, pledge or security interest), or (iv) except for such consents, approvals, authorizations or orders required to be obtained by the Collateral Agent (or the Holders) for reasons other than the consummation of this transaction, for the exercise by the Collateral Agent of its voting or other rights provided for in this Pledge Agreement or the remedies in respect of the Collateral pursuant to this Pledge 7. Agreement, except as may be required in connection with the disposition of any portion of the Collateral by laws affecting the offering and sale of securities generally. (7) There are no legal or governmental proceedings pending or, to the best of the Pledgor's knowledge, threatened to which the Pledgor or any of the properties of the Pledgor is subject that would materially adversely affect the power or ability of the Pledgor to perform its obligations under this Pledge Agreement or to consummate the transactions contemplated hereby. (8) The pledge of the Collateral pursuant to this Pledge Agreement is not prohibited by law or governmental regulation (including, without limitation, Regulations T, U and X of the Board of Governors of the Federal Reserve System) applicable to the Pledgor. (9) No Event of Default (as defined below) exists. (10) The jurisdiction (for purposes of Section 8-110(e) of the UCC) of the securities intermediary that maintains the Pledge Account and all securities accounts carrying the Pledged Security Entitlements is New York. (b) The Collateral Agent hereby represents and warrants that: (1) This Pledge Agreement has been duly authorized, validly executed and delivered by the Collateral Agent and (assuming the due authorization and valid execution and delivery of this Pledge Agreement by each of the Trustee and the Pledgor and the enforceability of this Pledge Agreement against each of the Trustee and the Pledgor in accordance with its terms) constitutes a valid and binding agreement of the Collateral Agent, enforceable against the Collateral Agent in accordance with its terms, except as the availability of equitable remedies may be limited by equitable principles of general applicability and the discretion of the court before which any proceeding therefore may be brought. (2) The execution and delivery by the Collateral Agent of, and the performance by the Collateral Agent of its obligations under, this Pledge Agreement will not contravene any provision of applicable law or its organizational documents or any material agreement or other material instrument binding upon the Collateral Agent or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Collateral Agent. (3) No consent of any other person and no approval, authorization, order of, action by notice to, filing or qualification with, any governmental authority, regulatory body, agency or other third party is required for (i) the execution or delivery by the Collateral Agent of, or the performance by the Collateral Agent of its obligations under, this Pledge Agreement, or (ii) except for such consents, approvals, authorizations or orders required to be obtained by the Collateral Agent (or the Holders) for reasons other than the consummation of this transaction, for the exercise by the Collateral Agent of its voting or other rights provided for in this Pledge Agreement or the remedies in respect of the Collateral pursuant to this Pledge Agreement, except as may be required in connection with the disposition of any portion of the Collateral by laws affecting the offering and sale of securities generally. 8. (4) There are no legal or governmental proceedings pending or, to the best of the Collateral Agent's knowledge, threatened to which the Collateral Agent or any of the properties of the Collateral Agent is subject that would materially adversely affect the power or ability of the Collateral Agent to perform its obligations under this Pledge Agreement or to consummate the transactions contemplated hereby. SECTION 8. Further Assurances. (a) The Pledgor agrees that from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary, or that the Collateral Agent may reasonably request, in order to perfect and protect any pledge or security interest granted or purported to be granted hereunder or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Pledgor will: (i) if any Collateral shall be evidenced by a promissory note or other instrument, deliver and pledge to the Collateral Agent hereunder such note or instrument, duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Collateral Agent; (ii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Collateral Agent may reasonably request, in order to perfect and preserve the pledge and security interest granted or purported to be granted hereby; (iii) deliver and pledge to the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities certificates representing Collateral that constitutes certificated securities, accompanied by undated stock or bond powers executed in blank; and (iv) deliver to the Collateral Agent evidence that all other action that the Collateral Agent may deem reasonably necessary or desirable in order to perfect and protect the security interest created by Pledgor under this Pledge Agreement has been taken. (b) The Pledgor hereby authorizes the Collateral Agent to file one or more financing or continuation statements, and amendments thereto, including, without limitation, one or more financing statements indicating that such financing statements cover all assets or all personal property (or words of similar effect), in each case without the signature of the Pledgor, and regardless of whether any particular asset described in such financing statements falls within the scope of UCC or the granting clause of this Pledge Agreement. A photocopy or other reproduction of this Pledge Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. The Pledgor ratifies its authorization for the Collateral Agent to have filed such financing statements, continuation statements or amendments filed prior to the date hereof. (c) The Pledgor will furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail. (d) The Pledgor will promptly pay all reasonable costs incurred in connection with any of the foregoing within 30 days of receipt of an invoice therefor. The Pledgor also agrees, whether or not requested by the Collateral Agent, to take all actions that are necessary to 9. perfect or continue the perfection of, or to protect the first priority of, the Collateral Agent's security interest in and to the Collateral, including the filing of all necessary financing and continuation statements, and to protect the Collateral against the rights, claims or interests of third persons (other than any such rights, claims or interests created by or arising through the Collateral Agent). SECTION 9. Covenants. The Pledgor covenants and agrees with the Collateral Agent for the benefit of the Trustee and ratable benefit of the Holders of the Securities that from and after the date of this Pledge Agreement until the earlier of payment in full in cash of (x) the Obligations when due under the terms of the Indentures or (y) all obligations due and owing under the Indenture and the Securities in the event such obligations become due and payable prior to the payment of the first six scheduled interest payments on the Securities: (a) that (A) it will not (and will not purport to) sell, assign or otherwise dispose of, or grant any option or warrant with respect to, any of the Collateral or its beneficial interest therein, and (B) it will not create or suffer to exist any Lien or other adverse interest upon or with respect to any of the Collateral or its beneficial interest therein (except for the security interests granted under this Pledge Agreement and any Lien arising under the Indenture in favor of the Collateral Agent); (b) that it will not (A) enter into any agreement or understanding that restricts or inhibits or purports to restrict or inhibit the Collateral Agent's rights or remedies hereunder, including, without limitation, the Collateral Agent's right to sell or otherwise dispose of the Collateral or (B) fail to pay or discharge any tax, assessment or levy of any nature with respect to its beneficial interest in the Collateral not later than five days prior to the date of any proposed sale under any judgment, writ or warrant of attachment with respect to such beneficial interest; (c) that it will not change its name, type of organization, jurisdiction of organization, organizational identification number or location from those set forth in Section 7(a)(2) hereof without first giving at least 30 days' prior written notice to the Collateral Agent and taking all action reasonably required by the Collateral Agent under this Pledge Agreement for the purpose of perfecting or protecting the security interest granted by this Pledge Agreement; (d) that it will, and cause the Collateral Agent and the Trustee to, execute and deliver on or prior to any sale of Option Securities, a supplement to this Pledge Agreement, in substantially the form attached hereto as ANNEX C, providing for the pledge of additional Collateral to secure all Obligations in respect of the Option Securities; and (e) that it agrees with the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities that in the event of a Registration Default, as defined in the Registration Rights Agreement, and the interest rate on the Securities is increased as provided in the Registration Rights Agreement, the Pledgor shall, as promptly as practicable, deliver free to the Collateral Agent additional Pledged Security Entitlements in such amount as will be sufficient upon receipt of scheduled interest and/or principal payments of all Pledged Security Entitlements thereafter held in the Pledge Account, in the opinion of a nationally recognized firm of independent public accountants selected by the Pledgor, to provide payment 10. for the first six scheduled interest payments due on the Securities (assuming the additional interest requirement remains in effect for the entire period). The additional Pledged Security Entitlements shall be pledged by the Pledgor to the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders and shall be held by the Collateral Agent in the Pledge Account. SECTION 10. Power of Attorney. In addition to all of the powers granted to the Collateral Agent pursuant to the Indenture, the Pledgor hereby irrevocably appoints the Collateral Agent as the Pledgor's attorney-in-fact (with full power of substitution), with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Collateral Agent's discretion, to take any action and to execute any instrument that is necessary or advisable or as the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including: (a) to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, indorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; (c) to file any claims or take any action or institute any proceedings that the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Collateral; and (d) to pay or discharge taxes or Liens levied or placed upon the Collateral that the Pledgor has failed to pay or discharge in accordance herewith, the legality or validity thereof and the amounts necessary to discharge the same to be determined by the Collateral Agent in its sole reasonable discretion, and such payments made by the Collateral Agent to become part of the Obligations of the Pledgor to the Collateral Agent, due and payable immediately upon demand; provided, however, that the Collateral Agent shall have no obligation to perform any of the foregoing actions. The Collateral Agent's authority under this Section 10 shall include, without limitation, the authority to endorse and negotiate any checks or instruments representing proceeds of Collateral in the name of the Pledgor, execute and give receipt for any certificate of ownership or any document constituting Collateral, transfer title to any item of Collateral, sign the Pledgor's name on all financing statements (to the extent permitted by applicable law) or any other documents deemed necessary or appropriate by the Collateral Agent to preserve, protect or perfect the security interest in the Collateral granted hereunder and to file the same, prepare, file and sign the Pledgor's name on any notice of Lien, and to take any other actions arising from or incident to the powers granted to the Collateral Agent in this Pledge Agreement. This power of attorney is coupled with an interest and is irrevocable by the Pledgor. SECTION 11. No Assumption of Duties; Reasonable Care. The powers conferred on the Collateral Agent hereunder are solely to protect the security interest of the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities in the 11. Collateral and shall not impose any duty on the Collateral Agent to exercise any such powers other than those expressly provided herein or imposed by applicable law. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral as to (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Collateral Agent has or is deemed to have knowledge of such matters, (ii) taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral or (iii) except as otherwise set forth in Section 6 hereof, investing or reinvesting any of the Collateral or any loss on any investment; provided however, that in the case of clause (i) and clause (ii) of the sentence, nothing contained in this Pledge Agreement shall relieve the Collateral Agent of any responsibilities in its capacity as securities intermediary. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which it accords its own property. The Collateral Agent shall be entitled to all the rights, benefits, privileges and immunities accorded to it under the Indenture. SECTION 12. Indemnity and Expenses. (a) The Pledgor agrees to indemnify, defend and save and hold harmless each the Collateral Agent and the Trustee and its officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or resulting from this Pledge Agreement (including, without limitation, enforcement of this Pledge Agreement), except to the extent such claim, damage, loss, liability or expense results from such Indemnified Party's bad faith, gross negligence or willful misconduct. (b) The Pledgor will upon demand pay to the Collateral Agent and the Trustee the amount of any and all reasonable expenses, including, without limitation, the reasonable fees and expenses of its counsel and of any experts and agents, that such party may incur in connection with (i) the review, negotiation and administration of this Pledge Agreement, (ii) the custody or preservation of, or the sale of, collection from or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent, the Trustee or the Holders of the Securities hereunder or (iv) the failure by the Pledgor to perform or observe any of the provisions hereof. SECTION 13. Remedies. If any Event of Default under the Indenture or default hereunder (any such Event of Default or default being referred to in this Pledge Agreement as an "Event of Default") shall have occurred and be continuing: (a) The Collateral Agent, the Trustee and the Holders of the Securities may exercise in respect of the Collateral, in addition to all other rights and remedies given by law or by this Pledge Agreement or the Indenture, all of the rights and remedies of a secured party under the UCC (whether or not the UCC applies to the affected Collateral) and also may: (i) require the Pledgor to, and the Pledgor hereby agrees that it will at its expense and upon request 12. of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place and time to be designated by the Collateral Agent that is reasonably convenient to both parties and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at any broker's board or at public or private sale, in one or more sales or lots, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Collateral Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The purchaser of any or all Collateral so sold shall thereafter hold the same absolutely, free from any claim, encumbrance or right of any kind whatsoever created by or through the Pledgor. Any sale of the Collateral conducted in conformity with reasonable commercial practices of banks, insurance companies, commercial finance companies, or other financial institutions disposing of property similar to the Collateral shall be deemed to be commercially reasonable. The Collateral Agent, the Trustee or any Holder of Securities may, in its own name or in the name of a designee or nominee, buy any of the Collateral at any public sale and, if permitted by applicable law, at any private sale. All expenses (including court costs and reasonable attorneys' fees, expenses and disbursements) of, or incident to, the enforcement of any of the provisions hereof shall be recoverable from the proceeds of the sale or other disposition of the Collateral. (b) Any cash held by or on behalf of the Collateral Agent and all cash proceeds received by or on behalf of the Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Collateral Agent, be held by the Collateral Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Collateral Agent pursuant to Section 12(b) of this Pledge Agreement) in whole or in part by the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities against, all or any part of the Secured Obligations in such order as the Collateral Agent shall elect. Any surplus of such cash or cash proceeds held by or on behalf of the Collateral Agent and remaining after payment in full of all the Secured Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. (c) The Collateral Agent may, without notice to the Pledgor except as required by law and at any time or from time to time, charge, set off and otherwise apply all or any part of the Secured Obligations against the Pledge Account or any part thereof. (d) The Pledgor agrees to (i) provide the Collateral Agent with such information as may be necessary, or in the opinion of the Collateral Agent, advisable to enable the Collateral Agent to effect the sale of the Collateral and (ii) use its reasonable best efforts to do or cause to be done all such other acts and things as may be necessary to make such sale or sales of all or any portion of the Collateral pursuant to this Section 13 valid and binding and in compliance with any and all other applicable requirements of law. The Pledgor further agrees 13. that a breach of any of the covenants contained in this Section 13(d) will cause irreparable injury to the Collateral Agent, the Trustee and the Holders of the Securities, that the Collateral Agent, the Trustee and the Holders of the Securities have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 13(d) shall be specifically enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred and is continuing. (e) The Pledgor acknowledges the impossibility of ascertaining the amount of damages that would be suffered by the Collateral Agent, the Trustee or any Holders of the Securities by reason of the failure by the Pledgor to perform any of the covenants contained in Section 13(d) above and, consequently, agrees that, if the Pledgor shall fail to perform any of such covenants, it will pay, as liquidated damages and not as a penalty, an amount equal to the value of the Collateral on the date the Collateral Agent shall demand compliance with Section 13(d) above. SECTION 14. Security Interest Absolute. All rights of the Collateral Agent, the Trustee and the Holders of the Securities and the pledges, assignments and security interests hereunder, and all obligations of the Pledgor hereunder, shall be irrevocable, absolute and unconditional and the rights of the Collateral Agent hereunder shall be enforceable irrespective of any or all of the following: (a) any lack of validity or enforceability of the Indenture or Securities or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Indenture or Securities or any other agreement or instrument relating thereto; (c) any taking, exchange or release of, or non-perfection of any Liens on, any Collateral or any other collateral for all or any of the Secured Obligations; (d) any manner of application of any Collateral or any other collateral, or proceeds thereof, to all or any of the Secured Obligations, or any manner of sale or other disposition of any Collateral or any other collateral for all or any of the Secured Obligations or any other assets of the Pledgor; (e) any change, restructuring or termination of the corporate structure or existence of the Pledgor; or (f) to the extent permitted by applicable law, any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by the Collateral Agent, the Trustee or any Holder of the Securities, which might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Secured Obligations or of this Pledge Agreement. 14. This Pledge Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Secured Obligations is rescinded or must otherwise be returned by the Collateral Agent, the Trustee or any Holder of the Securities or by any other Person upon the insolvency, bankruptcy or reorganization of the Pledgor or otherwise, all as though such payment had not been made. SECTION 15. Amendments, Waivers and Consents. (a) No amendment or waiver of any provision of this Pledge Agreement, and no consent to any departure by the Pledgor from any provision of this Pledge Agreement, shall in any event be effective unless the same shall be in writing and signed by the Collateral Agent and the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Collateral Agent, the Trustee or any Holder of the Securities to exercise, and no delay in exercising any right hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. SECTION 16. Notices. Any notice or communication given hereunder shall be sufficiently given if in writing and delivered in person or mailed by first class mail, commercial courier service or telecopier communication, addressed as follows; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties: if to the Pledgor: Scios Inc. 820 West Maude Avenue Sunnyvale, California 94085 Fax: (408) 616-8319 Attention: General Counsel if to the Trustee: Wells Fargo Bank, National Association 45 Broadway, 12th Floor New York, New York 10006 Fax: (212) 555-5252 Attn: Corporate Trust Department With a copy to: Wells Fargo Bank, National Association 707 Wilshire Blvd., 17th Floor Los Angeles, CA 90017 Fax: (213) 614-3355 Attention: Corporate Trust Department 15. if to the Collateral Agent: Wells Fargo Bank, National Association 45 Broadway, 12th Floor New York, New York 10006 Fax: (212) 555-5252 Attn: Corporate Trust Department With a copy to: Wells Fargo Bank, National Association 707 Wilshire Blvd., 17th Floor Los Angeles, CA 90017 Fax: (213) 614-3355 Attention: Corporate Trust Department All such notices and other communications shall, when mailed, delivered or telecopied, respectively, be effective when deposited in the mails, delivered or telecopied, respectively, addressed as aforesaid. SECTION 17. Continuing Security Interest. This Pledge Agreement shall create a continuing security interest in the Collateral and (a) shall, unless otherwise provided in this Pledge Agreement, remain in full force and effect until terminated in accordance with Section 18 hereof, (b) be binding upon the Pledgor, its successors and assigns and (c) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Trustee and the Holders of the Securities and their respective successors, transferees and assigns. SECTION 18. Termination. So long as no Event of Default shall have occurred and be continuing, this Pledge Agreement (other than Pledgor's obligations under Section 12 hereof) shall terminate upon the earliest of (i) the redemption of the Securities in whole, (ii) the payment in full of the Obligations when due, or (iii) the discharge of the Indenture. Upon any such termination, without any necessary action on the part of the Pledgor, (i) the Control Agreement(s) will terminate and control of the Pledge Account and the Pledged Security Entitlements shall revert to the Pledgor, (ii) the Collateral Agent shall promptly obtain from the Account Holder and deliver to the Pledgor all certificates and instruments representing any portion of the Pledged Financial Assets constituting certificated securities and (iii) the Collateral Agent shall no longer have any rights in any of the Collateral. SECTION 19. Miscellaneous Provisions. 19.1 No Adverse Interpretation of Other Agreements. This Pledge Agreement may not be used to interpret another pledge, security or debt agreement of the Pledgor or any subsidiary thereof. No such pledge, security or debt agreement (other than the Indenture) may be used to interpret this Pledge Agreement. 19.2 Severability. The provisions of this Pledge Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such 16. clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Pledge Agreement in any jurisdiction. 19.3 Headings. The headings in this Pledge Agreement have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 19.4 Counterpart Originals. This Pledge Agreement may be signed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Pledge Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Pledge Agreement. 19.5 Benefits of Pledge Agreement. Nothing in this Pledge Agreement, express or implied, shall give to any person, other than the parties hereto and their successors hereunder, and the Holders of the Securities and the Account Holder, any benefit or any legal or equitable right, remedy or claim under this Pledge Agreement. If the Pledgor consolidates or merges into any other Person, in a transaction in which the Pledgor is not the surviving corporation, or conveys, transfers or leases its properties and assets substantially as an entirety to, any person, then the successor entity shall assume the Pledgor's obligations under this Pledge Agreement in writing. 19.6 Interpretation of Agreement. To the extent a term or provision of this Pledge Agreement conflicts with the Indenture, the Indenture shall control with respect to the subject matter of such term or provision. Acceptance of or acquiescence in a course of performance rendered under this Pledge Agreement shall not be relevant to determine the meaning of this Pledge Agreement even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection. 19.7 Survival of Representations and Covenants. All representations, warranties and covenants contained herein shall survive the execution and delivery of this Pledge Agreement, and shall terminate only upon the termination of this Pledge Agreement, except as otherwise specified in such representatives, warranties and covenants. 19.8 Waivers. The Pledgor waives presentment and demand for payment of any of the Obligations, protest and notice of dishonor or default with respect to any of the Obligations, and all other notices to which the Pledgor might otherwise be entitled, except as otherwise expressly provided herein or in the Indenture. 19.9 Authority of the Collateral Agent. (a) The Collateral Agent shall have and be entitled to exercise all powers hereunder that are specifically granted to the Collateral Agent by the terms hereof, together with such powers as are reasonably incident thereto. The Collateral Agent may perform any of its duties hereunder or in connection with the Collateral by or through agents or employees and shall be entitled to retain counsel and to act in reliance upon the advice of counsel concerning all such matters. Except as otherwise expressly provided in this Pledge Agreement 17. or the Indenture, neither the Collateral Agent nor any director, officer, employee, attorney or agent of the Collateral Agent shall be liable to the Pledgor for any action taken or omitted to be taken by the Collateral Agent, in its capacity as Collateral Agent, hereunder, except for its own bad faith, gross negligence or willful misconduct, and the Collateral Agent shall not be responsible for the validity, effectiveness or sufficiency hereof or of any document or security furnished pursuant hereto. The Collateral Agent and its directors, officers, employees, attorneys and agents shall be entitled to rely on any communication, instrument or document believed by it or them to be genuine and correct and to have been signed or sent by the proper person or persons. (b) The Pledgor acknowledges that the rights and responsibilities of the Collateral Agent and the Trustee under this Pledge Agreement with respect to any action taken by the Collateral Agent or the Trustee or the exercise or non-exercise by the Collateral Agent or the Trustee of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Pledge Agreement shall, as between the Collateral Agent or the Trustee and the Holders of the Securities, be governed by the Indenture and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Collateral Agent or Trustee and the Pledgor, the Collateral Agent or the Trustee shall be conclusively presumed to be acting as agent for the Holders of the Securities with full and valid authority so to act or refrain from acting, and the Pledgor shall not be obligated or entitled to make any inquiry respecting such authority. 19.10 Final Expression. This Pledge Agreement, together with the Indenture and any other agreement executed in connection herewith, is intended by the parties as a final expression of this Pledge Agreement and is intended as a complete and exclusive statement of the terms and conditions thereof. 19.11 Rights of Holders of the Securities. No Holder of Securities shall have any independent rights hereunder other than those rights granted to individual Holders of the Securities pursuant to Section 6.6 of the Indenture; provided that nothing in this subsection shall limit any rights granted to the Collateral Agent or the Trustee under the Securities or the Indenture. 19.12 Appointment of the Collateral Agent. The Trustee hereby appoints the Wells Fargo Bank, National Association as Collateral Agent, in accordance with the terms and conditions set forth herein and Wells Fargo Bank, National Association hereby accepts such appointment. 19.13 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial; Waiver of Damages. (a) This Pledge Agreement shall be governed by, and construed in accordance with, the laws of the state of New York. (b) The Pledgor agrees that each the Collateral Agent and the Trustee shall, in its respective capacity as collateral agent and trustee or in the name and on behalf of any Holder of Securities, have the right, to the extent permitted by applicable law, to proceed against 18. the Pledgor or the Collateral in a court in any location reasonably selected in good faith (and having personal or in rem jurisdiction over the Pledgor or the Collateral, as the case may be) to enable the Collateral Agent or the Trustee to realize on the Collateral, or to enforce a judgment or other court order entered in favor of the Collateral Agent or the Trustee. The Pledgor agrees that it will not assert any counterclaims, setoffs or crossclaims in any proceeding brought by the Collateral Agent or the Trustee to realize on such property or to enforce a judgment or other court order in favor of the Collateral Agent of the Trustee, except for such counterclaims, setoffs or crossclaims which, if not asserted in any such proceeding, could not otherwise be brought or asserted. The Pledgor waives any objection that it may have to the location of the court in the city of New York once the Collateral Agent or the Trustee has commenced a proceeding described in this paragraph including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens. (c) The Pledgor agrees that neither any Holder of Securities nor (except as otherwise provided in this Pledge Agreement or the Indenture), the Collateral Agent nor the Trustee in its capacity as trustee shall have any liability to the Pledgor (whether arising in tort, contract or otherwise) for losses suffered by the Pledgor in connection with, arising out of, or in any way related to, the transactions contemplated and the relationship established by this Pledge Agreement, or any act, omission or event occurring in connection therewith, unless it is determined by a final and nonappealable judgment of a court that is binding on the Collateral Agent, the Trustee or such Holder of Securities, as the case may be, that such losses were the result of acts or omissions on the part of the Collateral Agent, the Trustee or such Holders of Securities, as the case may be, constituting bad faith, gross negligence or willful misconduct. (d) To the extent permitted by applicable law, the Pledgor waives the posting of any bond otherwise required of the Collateral Agent, the Trustee or any Holder of Securities in connection with any judicial process or proceeding to enforce any judgment or other court order pertaining to this Pledge Agreement or any related agreement or document entered in favor of the Collateral Agent, the Trustee or any Holder of Securities, or to enforce by specific performance, temporary restraining order or preliminary or permanent injunction, this Pledge Agreement or any related agreement or document between the Pledgor on the one hand and the Collateral Agent, the Trustee and/or the Holders of the Securities on the other hand. [The remainder of this page intentionally left blank.] 19. IN WITNESS WHEREOF, the Pledgor, the Collateral Agent and the Trustee have each caused this Pledge Agreement to be duly executed and delivered as of the date first above written. PLEDGOR: SCIOS INC. By: /s/ David W. Gryska --------------------------------------------------- Name: David W. Gryska -------------------------------------------------- Title: Chief Financial Officer ------------------------------------------------- COLLATERAL AGENT: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Collateral Agent By: /s/ Jeanie Mar ---------------------------------------------------- Name: Jeanie Mar -------------------------------------------------- Title: Vice President, Authorized Officer ------------------------------------------------- TRUSTEE: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: /s/ Jeanie Mar ---------------------------------------------------- Name: Jeanie Mar -------------------------------------------------- Title: Vice President, Authorized Officer ------------------------------------------------- 20. SCHEDULE I Pledged Financial Assets Security Coupon Date CUSIP No. U.S. Treasury Strips 2/15/03 912820BF3 U.S. Treasury Strip 8/15/03 912820BG1 U.S. Treasury Strip 2/15/04 912820BH9 U.S. Treasury Strip 8/15/04 912820BK2 U.S. Treasury Strip 2/15/05 912833CM0 U.S. Treasury Strip 8/15/05 912803AG8 1. ANNEX A CONTROL AGREEMENT THIS CONTROL AGREEMENT (the "Agreement"), dated as of August 5, 2002, by and among SCIOS INC. (the "Pledgor"), WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as trustee (the "Trustee") for the Holders (as defined in the Pledge Agreement referred to below), WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent for the Trustee and the Holders (the "Collateral Agent"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as securities intermediary and depository bank (the "Account Holder"). PRELIMINARY STATEMENTS: (1) The Pledgor has granted the Collateral Agent a security interest (the "Security Interest") in certain security entitlements (the "Pledged Security Entitlements") with respect to certain U.S. Treasury securities (the "Pledged Financial Assets") identified on SCHEDULE I attached hereto maintained by the Collateral Agent with the Account Holder and carried from time to time in an account with the Account Holder, ABA No. 091000019, CR: Corporate Trust Clearing, A/C: 0001038377, FFC: Scios Inc. A/C: 12948301 at its office at 45 Broadway, 12th Floor, New York, New York 10006, in the name of "Wells Fargo Bank, National Association, as the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the 5.50% Convertible Subordinated Notes due 2009 of Scios Inc., Collateral Pledge Account" (the "Pledge Account") and all additions thereto and substitutions and proceeds thereof (collectively, the "Collateral"), pursuant to, and as more particularly described in, a Pledge Agreement dated as of August 5, 2002, by and among the Pledgor, the Collateral Agent and the Trustee (as the same may hereafter be amended, restated, supplemented or otherwise modified from time to time, the "Pledge Agreement"; terms defined in the Pledge Agreement and not otherwise defined herein are used herein as therein defined). The Pledgor acknowledges having received value for such pledge of the Collateral. (2) Terms defined in Article 8 or 9 of the Uniform Commercial Code as in effect in the State of New York (the "UCC") are used in this Agreement (including, without limitation, paragraph (1) above) as such terms are defined in such Article 8 or 9. "FRB" means the Federal Reserve Bank or, as applicable, a branch thereof. "FRB Account" means the FRB Member Securities Account maintained in the name of the Collateral Agent by the FRB. "FRB Member" means any person that is eligible to maintain (and that maintains) with the FRB one or more FRB Member Securities Accounts in such person's name. "FRB Member Securities Account" means, in respect of any person, the participant's securities account maintained in the name of such person at the FRB, to which account Government Securities held for such person are or may be credited. (3) The Pledgor, the Collateral Agent, the Trustee and the Account Holder are delivering this Agreement pursuant to the terms of the Pledge Agreement. NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto hereby agree as follows: 1. SECTION 1. Notice of Exclusive Control. The Pledgor, the Collateral Agent and Trustee are entering into this Agreement to perfect, and confirm the first priority lien of, the Collateral Agent's security interest in the Collateral. The Account Holder agrees to promptly make all necessary entries or notations in its books and records to reflect the Collateral Agent's security interest in the Collateral and to apply any value distributed on account of any Pledged Financial Assets as directed in writing by the Collateral Agent without further consent from the Pledgor. The Account Holder acknowledges that the Collateral Agent has exclusive control over the Pledge Account and all Pledged Security Entitlements contained therein from time to time. SECTION 2. The Account. The Account Holder represents and warrants to, and agrees with, the Pledgor, the Collateral Agent, the Trustee and the Holders of the Securities: (a) That the Account Holder has established the Pledge Account and shall not change the name or account number of the Pledge Account without the prior written consent of the Collateral Agent; (b) That the Account Holder maintains the Pledge Account for the Collateral Agent, and all property (including, without limitation, all funds and financial assets) held by the Account Holder for the account of the Collateral Agent is, and will continue to be, credited to the Pledge Account; (c) That, to the extent that funds are credited to the Pledge Account, the Pledge Account is a deposit account; and to the extent that financial assets are credited to the Pledge Account, the Pledge Account is a securities account. The Account Holder is (i) the bank with which the Pledge Account is maintained and (ii) the securities intermediary with respect to financial assets held in the Pledge Account. The Collateral Agent is (x) the Account Holder's customer with respect to the Pledge Account and (y) the entitlement holder with respect to financial assets credited from time to time to the Pledge Account; (d) That all financial assets in registered form or payable to or to the order of and credited to the Pledge Account shall be registered in the name of, payable to or to the order of, or endorsed to, the Account Holder and in no case during the term of the Pledge Agreement will any financial asset credited to the Pledge Account be registered in the name of, payable to or to the order of, or endorsed to, the Pledgor, except to the extent the foregoing have been subsequently endorsed by the Pledgor to the Account Holder or in blank; (e) That, notwithstanding any other agreement to the contrary, the Account Holder's jurisdiction with respect to the Pledge Account for purposes of the UCC is, and will continue to be for so long as the Security Interest shall be in effect, the State of New York; (f) That the Account Holder does not know of any claim to or interest in the Pledge Account or any property (including, without limitation, all funds and financial assets) credited to the Pledge Account, except for claims and interests of the parties referred to in this Agreement; (g) That it is a commercial bank that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity hereunder and with respect to the Pledge Account; 2. (h) That it maintains the FRB Account with the FRB; (i) That the Pledge Account shall be an account to which funds or financial assets may be credited, and undertakes to treat the Collateral Agent (in its capacity as such) as entitled to exercise rights that comprise (and entitled to the benefits of) such funds or financial assets, and entitled to exercise the rights of an entitlement holder in the manner contemplated by the UCC; (j) That, subject to applicable law, it has not granted, and covenants that so long as it acts as a securities intermediary or bank hereunder it shall not grant, control over or with respect to any Collateral credited to any Pledge Account from time to time to any other person other than the Collateral Agent (in its capacity as such); (k) That it shall not, subject to applicable law, knowingly take any action inconsistent with, and represents and covenants that it is not and so long as this Agreement remains in effect will not knowingly become, party to any agreement the terms of which are inconsistent with, the provisions of this Agreement; (l) That any item of property credited to the Pledge Account shall be treated as funds or a financial asset; (m) That any item of Collateral credited to the Pledge Account shall not be subject to any security interest, lien or right of set-off in favor of it as securities intermediary, except as may be expressly permitted under the Indenture and the Pledge Agreement; (n) To maintain the Pledge Account and maintained appropriate books and records in respect thereof in accordance with its usual procedures and subject to the terms of this Agreement; (o) That, with respect to any Collateral that constitutes a security entitlement, it shall comply with the provisions of Section 3(a) of this Agreement and, with respect to any Collateral that constitutes a securities account, it shall comply with the provisions of Section 3(a) of this Agreement with respect to all security entitlements carried in such securities account; and (p) That if its jurisdiction as securities intermediary shall change from that jurisdiction specified in Section 2(e) of this Agreement, it will promptly notify the Collateral Agent and the Trustee of such change and of such new jurisdiction. SECTION 3. Control by the Collateral Agent. (a) The Account Holder will comply with (A) all written instructions directing disposition of the funds in the Pledge Account (such instructions, a "Payment Order"), (B) all notifications and entitlement orders that the Account Holder receives directing it to transfer or redeem any financial asset in the Pledge Account and (C) all other directions concerning the Collateral, including, without limitation, directions to distribute to the Collateral Agent proceeds of any such transfer or redemption or interest on any property in the Pledge Account (any such instruction, notification or direction referred to in clause (A), (B) or (C) above being an 3. "Account Direction"), in each case of clauses (A), (B) and (C) above originated by the Collateral Agent without further consent by the Pledgor or any other person. (b) The Collateral Agent hereby acknowledges that it shall maintain and exercise control of the Pledge Account on behalf of the Trustee and the Holders of the Securities. (c) The Account Holder will not (i) comply with Account Directions or other directions concerning the Collateral originated by the Pledgor or (ii) distribute to the Pledgor interest or other distributions on or in respect of the Collateral. SECTION 4. Priority of Collateral Agent's Security Interest. (a) The Account Holder (i) subordinates to the Security Interest and in favor of the Collateral Agent any security interest, lien, or right of setoff the Account Holder may have, now or in the future, against the Pledge Account or property in the Pledge Account, and (ii) agrees that it will not exercise any right in respect of any such security interest or lien or any such right of setoff until the Security Interest is terminated, except that the Account Holder will retain its prior lien on property in the Pledge Account to secure payment for property purchased for the Pledge Account and normal commissions and fees for the Pledge Account. (b) The Account Holder will not enter into any other agreement with any Person relating to Account Directions or other directions with respect to the Pledge Account. SECTION 5. Statements, Confirmations, and Notices of Adverse Claims. (a) The Account Holder will send copies of all statements and confirmations for the Pledge Account simultaneously to the Pledgor and the Collateral Agent. (b) When the Account Holder knows of any claim or interest in the Pledge Account or any property credited to the Pledge Account other than the claims and interests of the parties referred to in this Agreement, the Account Holder will promptly notify the Collateral Agent and the Pledgor of such claim or interest. SECTION 6. The Account Holder's Responsibility. (a) The Account Holder will not be liable to the Pledgor of the Collateral Agent or the Trustee or the Holders of the Securities for complying with an Account Direction or other direction concerning the Collateral originated by the Collateral Agent, even if the Pledgor notifies the Account Holder that the Collateral Agent is not legally entitled to issue the Account Direction or such other direction unless the Account Holder takes the action after it is served with an injunction, restraining order, or other legal process enjoining it from doing so, issued by a court of competent jurisdiction, and had a reasonable opportunity to act on the injunction, restraining order or other legal process. (b) This Agreement does not create any obligation of the Account Holder except for those expressly set forth in this Agreement and in Part 5 of Article 8 of the UCC and in Article 4 of the UCC. In particular, the Account Holder need not investigate whether the Collateral Agent is entitled under the Collateral Agent's agreements with the Pledgor to give an 4. Account Direction or other direction concerning the Pledge Account. The Account Holder may conclusively rely on notices and communications it believes given by the appropriate party. (c) In no event shall the Account Holder or any of its affiliates, shareholders, directors, officers, employees or agents be liable for indirect, special, punitive, incidental or consequential damages of any kind whatsoever even if advised of the possibility of such damages, other than such damages caused by its own bad faith, gross negligence or willful misconduct. (d) Without limiting the foregoing, and notwithstanding any provision to the contrary elsewhere, the Account Holder and its affiliates, shareholders, directors, officers, employees or agents: (i) shall have no responsibilities, obligations or duties in respect of the subject matter hereof other than those expressly set forth in this Agreement, and no implied duties, responsibilities, covenants or obligations shall be read into this Agreement against the Account Holder. Without limiting the foregoing, the Account Holder shall have no duty or authority to determine and/or investigate whether or not an event of default exists under any agreement between the Pledgor and the Trustee and/or the Collateral Agent, or to determine and/or investigate whether or not the Collateral Agent is entitled to give any Account Direction with respect to the Collateral; (ii) may in any instance where the Account Holder determines that it lacks or is uncertain as to its authority to take or refrain from taking certain action hereunder, or as to any of the requirements of this Agreement under the circumstance before it, delay or refrain from taking any action unless and until it shall have received appropriate written instructions from the Collateral Agent or advice from legal counsel selected by it (or other appropriate advisor), as the case may be, detailing the action required to be taken hereunder and the Account Holder may rely conclusively on any such instructions or advice; (iii) so long as it and they shall have acted (or refrained from acting) in good faith and within the reasonable belief that such action or omission is duly authorized or within the discretion or powers granted to it hereunder, shall not be responsible or liable for any error of judgment in any action taken, suffered or omitted by it or them, or for any act done or step taken or omitted, or for any mistake of fact or law, unless such action constitutes gross negligence or willful misconduct as finally determined by a non-appealable judgment of a court of competent jurisdiction on its (or their) part; (iv) will not be responsible or liable to the Pledgor, the Collateral Agent, the Trustee, or any other person or entity whatsoever for the due execution, legality, validity, enforceability, genuineness, effectiveness or sufficiency of this Agreement (provided, however, that the Account Holder warrants that the Account Holder has legal capacity and has been duly authorized to enter into this Agreement) or for any statement, warranty or representation made by any other party in connection with this Agreement; (v) will not incur any responsibility or liability by acting or not acting in reliance upon advice of counsel, or upon any notice, consent, certificate, instruction, Account 5. Direction, statement, wire instruction, telecopy or other writing reasonably and in good faith believed by it or them to be genuine and in conformance with this Agreement and signed or sent by the proper party or parties and contemplated herein; and (vi) shall not be required to expend or risk its or their own funds, or to take any action (including the institution or defense of legal proceedings) which in its or their reasonable judgment may cause it or them to incur or suffer any expense or liability, unless the Account Holder shall have been provided with security or indemnity, acceptable to Account Holder in its sole discretion, for the payment of the costs, expenses (including reasonable attorneys' fees) and liabilities which may be incurred therein or thereby. (e) If any Collateral subject to this Agreement is at any time attached or levied upon, or in case the transfer or delivery of any such Collateral shall be stayed or enjoined, or in the case of any other legal process or judicial order affecting such Collateral, the Account Holder is authorized to comply with any such order in any manner as the Account Holder or its legal counsel reasonably deems appropriate. The Account Holder shall give prompt written notice to the Pledgor and the Collateral Agent of any such attachment, levy, stay, injunction or legal process. If the Account Holder complies with any process, order, writ, judgment or decree relating to the Collateral subject to this Agreement, then the Account Holder shall not be liable or responsible to the Pledgor, the Collateral Agent, the Trustee, or any other person or entity whatsoever even if such order, writ, judgment, decree or process is subsequently modified, vacated or otherwise determined to have been without legal force or effect. (f) The Account Holder shall not be liable or responsible for any delays or failures in performance of any of its duties hereunder which result from events or conditions beyond its reasonable control and so long as the same exist or continue and cannot reasonably be remedied by the Account Holder in accordance with its normal business practices. Such events or conditions shall include, but shall not be limited to, acts of God, strikes, lockouts, riots, acts of war or terrorism, epidemics, nationalization, expropriation, currency restrictions, governmental regulations superimposed after the fact, fire, communication line failures (including the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility), power failures, earthquakes or other disasters. SECTION 7. Indemnity. The Pledgor will indemnify the Account Holder, its officers, directors, employees and agents against claims, liabilities and expenses arising out of this Agreement (including, without limitation, reasonable attorney's fees and disbursements), except to the extent the claims, liabilities or expenses are caused by the Account Holder's gross negligence or willful misconduct as found by a court of competent jurisdiction in a final, non-appealable judgment. SECTION 8. Termination; Survival. (a) This Agreement shall terminate automatically upon receipt by the Account Holder of written notice executed by an officer of the Collateral Agent that (i) all of the Secured Obligations have been paid in full in cash or otherwise satisfied or (ii) all of the Collateral has been released, which ever is earlier, and the Account Holder shall thereafter be relieved of all duties and obligations hereunder. The Account Holder may terminate this Agreement on 60 6. days' prior notice to the Collateral Agent, the Trustee and the Pledgor, provided that before such termination the Account Holder and the Pledgor shall make arrangements to transfer the property in the Pledge Account to another securities intermediary that shall have executed, together with the Collateral Agent, the Trustee and the Pledgor, a control agreement in favor of the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities in respect of such property in substantially the form of this Agreement or otherwise in form and substance satisfactory to the Collateral Agent. (b) In the event that the Collateral Agent no longer serves as Collateral Agent for the Collateral, the Collateral Agent, the Trustee, the Account Holder and the Pledgor shall make arrangements for another Person to assume the rights and obligations of the Collateral Agent hereunder, and such Person shall have executed, together with the Account Holder and the Pledgor, a control agreement in favor of such Person for the benefit of the Trustee and the ratable benefit of the Holders of the Securities in substantially the form of this Agreement or otherwise in form and substance satisfactory to the Collateral Agent. (c) Sections 7 and 8 will survive termination of this Agreement. SECTION 9. Conflict with Other Agreements. (a) In the event of any conflict between this Agreement (or any portion thereof) and any other agreement now existing or hereafter entered into, the terms of this Agreement shall prevail; (b) No amendment or modification of this Agreement or waiver of any right hereunder shall be binding on any party hereto unless it is in writing and is signed by all of the parties hereto; (c) The Account Holder hereby confirms and agrees that: (i) There are no other agreements entered into between the Account Holder and the Pledgor with respect to the Pledge Account; (ii) It has not entered into, and until the termination of the this Agreement will not enter into, any agreement with any other person relating to the Pledge Account and/or any financial assets credited thereto pursuant to which it has agreed to comply with entitlement orders (as defined in Section 8-102(a)(8) of the UCC) of such other person; and (iii) It has not entered into, and until the termination of this Agreement will not enter into, any agreement with the Pledgor or the Collateral Agent purporting to limit or condition the obligation of the Account Holder to comply with Account Directions as set forth in Section 3 hereof. SECTION 10. Permitted Investments. In accordance with the Pledge Agreement, the Collateral Agent shall direct the Account Holder with respect to the selection of investments to be made with the funds in the Pledge Account. 7. SECTION 11. Entire Agreement. This Agreement is the entire agreement, and supersedes any prior agreements, and contemporaneous oral agreements, of the parties concerning its subject matter. The Collateral Agent, the Trustee and the Account Holder shall be entitled to all the rights, benefits, privileges and immunities accorded to the Collateral Agent and the Trustee under the Indenture. SECTION 12. Amendments. No modification, amendment or waiver of, nor consent to any departure by any party from, any provision of this Agreement will be effective unless made in writing signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. SECTION 13. Financial Assets. The Account Holder agrees with the Collateral Agent, the Trustee and the Pledgor that, to the fullest extent permitted by applicable law, all property credited from time to time to the Pledge Account will be treated as financial assets under Article 8 of the UCC. SECTION 14. Notices. All notices, demands, requests, consents, approvals and other communications required or permitted hereunder must be in writing and will be effective upon receipt if delivered personally, or if sent by facsimile transmission with confirmation of delivery, or by nationally recognized overnight courier service, to the Pledgor's, the Collateral Agent's and the Trustee's addresses as set forth in the Pledge Agreement, and to the Account Holder's address as set forth below, or to such other address as any party may give to the others in writing for such purpose. SECTION 15. Binding Effect. This Agreement shall become effective when it shall have been executed by the Pledgor, the Collateral Agent, the Trustee and the Account Holder, and thereafter shall be binding upon and inure to the benefit of the Pledgor, the Collateral Agent, the Trustee and the Account Holder and their respective successors and assigns. If the Pledgor consolidates or merges into any other Person, in a transaction in which the Pledgor is not the surviving corporation, or conveys, transfers or leases its properties and assets substantially as an entirety to, any person, then the successor entity shall assume the Pledgor's obligations under this Agreement in writing. SECTION 16. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. SECTION 17. Governing Law and Jurisdiction. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Each of the parties hereby irrevocably submits for itself and its property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction and venue of the courts of the State of New York, the courts of the United States of America in New York, and appellate courts from any thereof. 8. SECTION 18. Waiver Of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. EACH PARTY HERETO ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. 9. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. PLEDGOR: SCIOS INC. By: ___________________________________ Name: _________________________________ Title: ________________________________ COLLATERAL AGENT: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Collateral Agent By: ___________________________________ Name: _________________________________ Title: ________________________________ TRUSTEE: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: ___________________________________ Name: _________________________________ Title: ________________________________ ACCOUNT HOLDER: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Account Holder By: ___________________________________ Name: _________________________________ Title: ________________________________ Address: ________________________ _________________________________ Attn: _______________________ Fax: ________________________ SCHEDULE I Pledged Financial Assets Security Coupon Date CUSIP No. U.S. Treasury Strips 2/15/03 912820BF3 U.S. Treasury Strip 8/15/03 912820BG1 U.S. Treasury Strip 2/15/04 912820BH9 U.S. Treasury Strip 8/15/04 912820BK2 U.S. Treasury Strip 2/15/05 912833CM0 U.S. Treasury Strip 8/15/05 912803AG8 1. ANNEX B WELLS FARGO BANK, NATIONAL ASSOCIATION OFFICER'S CERTIFICATE PURSUANT TO SECTION 4(H) OF THE PLEDGE AGREEMENT, dated as of August 5, 2002 (as amended, restated, supplemented or otherwise modified from time to time, the "Pledge Agreement"), by and among SCIOS INC., a Delaware corporation (the "Pledgor"), WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as trustee (the "Trustee") for the holders from time to time (the "Holders") of the Securities (as defined in the Pledge Agreement), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent for the Trustee and the Holders (the "Collateral Agent"), the undersigned officer of the Collateral Agent, on behalf of the Collateral Agent, makes the following certifications to the Pledgor and the Initial Purchasers. Capitalized terms used and not defined in this Officer's Certificate have the meanings set forth or referred to in the Pledge Agreement. 1. Substantially contemporaneously with the execution and delivery of this Officer's Certificate, the Collateral Agent has acquired its security entitlement to the [initial Pledged Financial Assets] [the additional Pledged Financial Assets identified on Supplement No.__ to the Pledge Agreement] through a "securities account" (as defined in Section 8-501(a) of the N.Y. Uniform Commercial Code) maintained by the Collateral Agent, for value and without notice of any adverse claim thereto. Without limiting the generality of the foregoing, the Collateral Account, the Pledged Financial Assets and the other Collateral are not, and the Collateral Agent's security entitlement to the Collateral is not, to the actual knowledge of the corporate trust officer having responsibility for the administration of the Pledge Agreement on behalf of the Collateral Agent, subject to any Lien granted by or to or arising through or in favor of any securities intermediary (including, without limitation, Wells Fargo Bank, National Association) through which the Collateral Agent derives its security entitlement to the Collateral. 2. The Collateral Agent has not knowingly caused or permitted the Collateral Account or its security entitlement thereto to become subject to any Lien created by or arising through the Collateral Agent. 2. IN WITNESS WHEREOF, the undersigned officer has executed this Officer's Certificate on behalf of Wells Fargo Bank, National Association, as Collateral Agent this 5th day of August, 2002. WELLS FARGO BANK, NATIONAL ASSOCIATION, as Collateral Agent By:_______________________________________ Name: Title: 3. ANNEX C [Form of Supplement to the Pledge Agreement] SUPPLEMENT NO. _____ dated as of ____________, 2002, to the PLEDGE AGREEMENT dated as of August 5, 2002 (as amended, restated supplemented or otherwise modified from time to time, the "Pledge Agreement") among SCIOS, INC., a Delaware corporation (the "Pledgor"), WELLS FARGO BANK, NATIONAL ASSOCIATION, as trustee (in such capacity, the "Trustee") for the holders (the "Holders") of the Securities (as defined below) issued by the Pledgor under the Indenture referred to below, and WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent (in such capacity, the "Collateral Agent"). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Pledge Agreement. WHEREAS, the Pledgor, J.P. Morgan Securities Inc., Lehman Brothers Inc. and SG Cowen Securities Corporation (the "Initial Purchasers") are parties to a Purchase Agreement dated as of July 30, 2002 (the "Purchase Agreement"), pursuant to which the Pledgor granted the Initial Purchasers an overallotment option to purchase up to $25,000,000 aggregate principal amount of the Pledgor's 5.50% Convertible Subordinated Notes due 2009 (the "Securities"); WHEREAS, the Pledgor and the Trustee have entered into that certain Indenture dated as of August 5, 2002 (as amended, restated supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Pledgor is issuing the Securities. WHEREAS, pursuant to the Indenture, the Pledgor is required to purchase, or cause the purchase of, and pledge to the Collateral Agent for the benefit of the Trustee and the Holders, on or prior to any sale of Option Securities Additional Collateral (as defined below) in an amount that will be sufficient upon receipt of scheduled interest and principal payments of such securities, according to a written report of a nationally recognized firm of independent public accountants selected by the Pledgor and delivered to the Trustee, to provide payment in full of the first six scheduled interest payments due on the Securities; WHEREAS, the Pledgor, the Trustee and the Collateral Agent have entered into the Pledge Agreement, pursuant to which the Pledgor has previously pledged the Collateral to the Collateral Agent for the benefit of the Holders in connection with the purchase by the Initial Purchasers of $__________ aggregate principal amount of Securities; WHEREAS, the Initial Purchasers have exercised their overallotment option under the Purchase Agreement to purchase $[__________] aggregate principal amount of Securities; WHEREAS, it is a condition precedent to the purchase of the Securities by the Initial Purchasers pursuant to the overallotment option granted in the Purchase Agreement that the Pledgor purchase Additional Collateral and deposit such Additional Collateral into the Pledge Account to be held therein subject to the terms of the Pledge Agreement and shall have granted the assignment and security interest and made the pledge and assignment contemplated by the Pledge Agreement; 1. NOW THEREFORE, in consideration of the premises herein contained, and in order to induce the Initial Purchasers to purchase the Securities, the Pledgor, the Trustee and the Collateral Agent hereby agree, for the benefit of the Initial Purchasers and for the ratable benefit of the Holders, as follows: SECTION 1. Pledge and Grant of Security Interest. Pursuant to Section 1 of the Pledge Agreement, as security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Pledgor hereby assigns and pledges to the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders and hereby grants to the Collateral Agent for the benefit of the Trustee and for the ratable benefit of the Holders, a lien on and security interest in all of the Pledgor's right, title and interest in, to and under the following property: (a) the Government Securities identified by CUSIP No. in Part I of Schedule I hereto (the "Additional Collateral") and the certificates representing the Additional Collateral, the scheduled payments of principal and interest thereon which will be sufficient to provide for payment in full of the first six scheduled interest payments due on the Securities issued in connection herewith and (b) the security entitlements described in Part II of Schedule I hereto, with respect to the financial assets described, the securities intermediary named, and the securities account referred to therein. The Pledge Agreement is hereby incorporated herein by reference. SECTION 2. Supplement to Schedule I. The parties hereto agree that Schedule I to the Pledge Agreement shall be supplemented by Schedule I hereto. SECTION 3. Transfer of Additional Collateral. Pursuant to Section 9(d) of the Pledge Agreement, on or prior to the date hereof, the Pledgor agrees to transfer, or caused to be transferred, to the Pledge Account, the Additional Collateral in such amount that will be sufficient upon receipt of scheduled interest, and principal payments of such securities, according to a written report of a national recognized firm of independent public accountants selected by the Pledgor and delivered to the Trustee, to provide for payment in full of the first six scheduled interest payments due on the Securities. SECTION 4. Representations and Warranties. (a) The Pledgor hereby represents and warrants to the Trustee and the Collateral Agent that: (1) Each of this Supplement and the Pledge Agreement as supplemented hereby has been duly authorized, validly executed and delivered by the Pledgor and (assuming the due authorization and valid execution and delivery of this Supplement by each of the Trustee and the Collateral Agent) constitutes a valid and binding agreement of the Pledgor, enforceable against the Pledgor in accordance with its terms, except as (i) the enforceability hereof and thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, preference, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors generally, (ii) the availability of equitable remedies may be limited by equitable principles of general applicability and the discretion of the court before which any proceeding therefore may be brought, (iii) the exculpation provisions and rights to indemnification under the Pledge Agreement may be limited by U.S. federal and state securities 2. laws and public considerations and (iv) the waiver of rights and defenses contained in Section 12(b), Section 19.8 and Section 19.13 of the Pledge Agreement may be limited by applicable law; and (2) The representations and warranties of the Pledgor set forth in Section 7(a) of the Pledge Agreement are true and correct in all material respects with the same effect as if made on and as of the date hereof. (b) The Collateral Agent hereby represents and warrants to the Trustee and the Pledgor that: (1) Each of this Supplement and the Pledge Agreement as supplemented hereby has been duly authorized, validly executed and delivered by the Collateral Agent and (assuming the due authorization and valid execution and delivery of this Supplement by each of the Trustee and the Pledgor) constitutes a valid and binding agreement of the Collateral Agent, enforceable against the Collateral Agent in accordance with its terms, except as the availability of equitable remedies may be limited by equitable principles of general applicability and the discretion of the court before which any proceeding therefore may be brought; and (2) The representations and warranties of the Collateral Agent set forth in Section 7(b) of the Pledge Agreement are true and correct in all material respects with the same effect as if made on and as of the date hereof. SECTION 5. Execution in Counterparts. This Supplement may be signed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same agreement. This Supplement shall become effective when the Collateral Agent shall have received counterparts of this Supplement that, when taken together, bear the signatures of the Pledgor, the Trustee and the Collateral Agent. SECTION 6. Effect of Supplement. Except as expressly supplemented hereby, the Pledge Agreement shall remain in full force and effect. SECTION 7. Governing Law. This Supplement shall be governed by and construed in accordance with the laws of the State of New York. 3. IN WITNESS WHEREOF, the Pledgor, the Trustee and the Collateral Agent have caused this Supplement to be duly executed and delivered as of the date first above written. PLEDGOR: SCIOS INC. By: ___________________________________ Name:______________________________ Title:_____________________________ TRUSTEE: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: ___________________________________ Name:______________________________ Title:_____________________________ COLLATERAL AGENT: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Collateral Agent By: ___________________________________ Name:______________________________ Title:_____________________________ 4. SCHEDULE I ADDITIONAL COLLATERAL Part I Government Securities Security Coupon Date CUSIP No. Part II Securities Entitlements Financial Asset Securities Intermediary Securities Account 5. EX-10.3 7 dex103.txt CONTROL AGREEMENT WITH WELLS FARGO EXHIBIT 10.3 CONTROL AGREEMENT THIS CONTROL AGREEMENT (the "Agreement"), dated as of August 5, 2002, by and among SCIOS INC. (the "Pledgor"), WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as trustee (the "Trustee") for the Holders (as defined in the Pledge Agreement referred to below), WELLS FARGO BANK, NATIONAL ASSOCIATION, as collateral agent for the Trustee and the Holders (the "Collateral Agent"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, in its capacity as securities intermediary and depository bank (the "Account Holder"). PRELIMINARY STATEMENTS: (1) The Pledgor has granted the Collateral Agent a security interest (the "Security Interest") in certain security entitlements (the "Pledged Security Entitlements") with respect to certain U.S. Treasury securities (the "Pledged Financial Assets") identified on SCHEDULE I attached hereto maintained by the Collateral Agent with the Account Holder and carried from time to time in an account with the Account Holder, ABA No. ABA No. 091000019, CR: Corporate Trust Clearing, A/C: 0001038377, FFC: Scios Inc. A/C: 12948301 at its office at 45 Broadway, 12th Floor, New York, New York 10006, in the name of "Wells Fargo Bank, National Association, as the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the 5.50% Convertible Subordinated Notes due 2009 of Scios Inc., Collateral Pledge Account" (the "Pledge Account") and all additions thereto and substitutions and proceeds thereof (collectively, the "Collateral"), pursuant to, and as more particularly described in, a Pledge Agreement dated as of August 5, 2002, by and among the Pledgor, the Collateral Agent and the Trustee (as the same may hereafter be amended, restated, supplemented or otherwise modified from time to time, the "Pledge Agreement"; terms defined in the Pledge Agreement and not otherwise defined herein are used herein as therein defined). The Pledgor acknowledges having received value for such pledge of the Collateral. (2) Terms defined in Article 8 or 9 of the Uniform Commercial Code as in effect in the State of New York (the "UCC") are used in this Agreement (including, without limitation, paragraph (1) above) as such terms are defined in such Article 8 or 9. "FRB" means the Federal Reserve Bank or, as applicable, a branch thereof. "FRB Account" means the FRB Member Securities Account maintained in the name of the Collateral Agent by the FRB. "FRB Member" means any person that is eligible to maintain (and that maintains) with the FRB one or more FRB Member Securities Accounts in such person's name. "FRB Member Securities Account" means, in respect of any person, the participant's securities account maintained in the name of such person at the FRB, to which account Government Securities held for such person are or may be credited. (3) The Pledgor, the Collateral Agent, the Trustee and the Account Holder are delivering this Agreement pursuant to the terms of the Pledge Agreement. NOW, THEREFORE, in consideration of the premises and mutual agreements contained 1 herein, the parties hereto hereby agree as follows: SECTION 1. Notice of Exclusive Control. The Pledgor, the Collateral Agent and Trustee are entering into this Agreement to perfect, and confirm the first priority lien of, the Collateral Agent's security interest in the Collateral. The Account Holder agrees to promptly make all necessary entries or notations in its books and records to reflect the Collateral Agent's security interest in the Collateral and to apply any value distributed on account of any Pledged Financial Assets as directed in writing by the Collateral Agent without further consent from the Pledgor. The Account Holder acknowledges that the Collateral Agent has exclusive control over the Pledge Account and all Pledged Security Entitlements contained therein from time to time. SECTION 2. The Account. The Account Holder represents and warrants to, and agrees with, the Pledgor, the Collateral Agent, the Trustee and the Holders of the Securities: (a) That the Account Holder has established the Pledge Account and shall not change the name or account number of the Pledge Account without the prior written consent of the Collateral Agent; (b) That the Account Holder maintains the Pledge Account for the Collateral Agent, and all property (including, without limitation, all funds and financial assets) held by the Account Holder for the account of the Collateral Agent is, and will continue to be, credited to the Pledge Account; (c) That, to the extent that funds are credited to the Pledge Account, the Pledge Account is a deposit account; and to the extent that financial assets are credited to the Pledge Account, the Pledge Account is a securities account. The Account Holder is (i) the bank with which the Pledge Account is maintained and (ii) the securities intermediary with respect to financial assets held in the Pledge Account. The Collateral Agent is (x) the Account Holder's customer with respect to the Pledge Account and (y) the entitlement holder with respect to financial assets credited from time to time to the Pledge Account; (d) That all financial assets in registered form or payable to or to the order of and credited to the Pledge Account shall be registered in the name of, payable to or to the order of, or endorsed to, the Account Holder and in no case during the term of the Pledge Agreement will any financial asset credited to the Pledge Account be registered in the name of, payable to or to the order of, or endorsed to, the Pledgor, except to the extent the foregoing have been subsequently endorsed by the Pledgor to the Account Holder or in blank; (e) That, notwithstanding any other agreement to the contrary, the Account Holder's jurisdiction with respect to the Pledge Account for purposes of the UCC is, and will continue to be for so long as the Security Interest shall be in effect, the State of New York; (f) That the Account Holder does not know of any claim to or interest in the Pledge Account or any property (including, without limitation, all funds and financial assets) credited to the Pledge Account, except for claims and interests of the parties referred to in this Agreement; 2 (g) That it is a commercial bank that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity hereunder and with respect to the Pledge Account; (h) That it maintains the FRB Account with the FRB; (i) That the Pledge Account shall be an account to which funds or financial assets may be credited, and undertakes to treat the Collateral Agent (in its capacity as such) as entitled to exercise rights that comprise (and entitled to the benefits of) such funds or financial assets, and entitled to exercise the rights of an entitlement holder in the manner contemplated by the UCC; (j) That, subject to applicable law, it has not granted, and covenants that so long as it acts as a securities intermediary or bank hereunder it shall not grant, control over or with respect to any Collateral credited to any Pledge Account from time to time to any other person other than the Collateral Agent (in its capacity as such); (k) That it shall not, subject to applicable law, knowingly take any action inconsistent with, and represents and covenants that it is not and so long as this Agreement remains in effect will not knowingly become, party to any agreement the terms of which are inconsistent with, the provisions of this Agreement; (l) That any item of property credited to the Pledge Account shall be treated as funds or a financial asset; (m) That any item of Collateral credited to the Pledge Account shall not be subject to any security interest, lien or right of set-off in favor of it as securities intermediary, except as may be expressly permitted under the Indenture and the Pledge Agreement; (n) To maintain the Pledge Account and maintained appropriate books and records in respect thereof in accordance with its usual procedures and subject to the terms of this Agreement; (o) That, with respect to any Collateral that constitutes a security entitlement, it shall comply with the provisions of Section 3(a) of this Agreement and, with respect to any Collateral that constitutes a securities account, it shall comply with the provisions of Section 3(a) of this Agreement with respect to all security entitlements carried in such securities account; and (p) That if its jurisdiction as securities intermediary shall change from that jurisdiction specified in Section 2(e) of this Agreement, it will promptly notify the Collateral Agent and the Trustee of such change and of such new jurisdiction. SECTION 3. Control by the Collateral Agent. (a) The Account Holder will comply with (A) all written instructions directing disposition of the funds in the Pledge Account (such instructions, a "Payment Order"), (B) all notifications and entitlement orders that the Account Holder receives directing it to transfer or redeem any financial asset in the Pledge Account and (C) all other directions concerning the 3 Collateral, including, without limitation, directions to distribute to the Collateral Agent proceeds of any such transfer or redemption or interest on any property in the Pledge Account (any such instruction, notification or direction referred to in clause (A), (B) or (C) above being an "Account Direction"), in each case of clauses (A), (B) and (C) above originated by the Collateral Agent without further consent by the Pledgor or any other person. (b) The Collateral Agent hereby acknowledges that it shall maintain and exercise control of the Pledge Account on behalf of the Trustee and the Holders of the Securities. (c) The Account Holder will not (i) comply with Account Directions or other directions concerning the Collateral originated by the Pledgor or (ii) distribute to the Pledgor interest or other distributions on or in respect of the Collateral. SECTION 4. Priority of Collateral Agent's Security Interest. (a) The Account Holder (i) subordinates to the Security Interest and in favor of the Collateral Agent any security interest, lien, or right of setoff the Account Holder may have, now or in the future, against the Pledge Account or property in the Pledge Account, and (ii) agrees that it will not exercise any right in respect of any such security interest or lien or any such right of setoff until the Security Interest is terminated, except that the Account Holder will retain its prior lien on property in the Pledge Account to secure payment for property purchased for the Pledge Account and normal commissions and fees for the Pledge Account. (b) The Account Holder will not enter into any other agreement with any Person relating to Account Directions or other directions with respect to the Pledge Account. SECTION 5. Statements, Confirmations, and Notices of Adverse Claims. (a) The Account Holder will send copies of all statements and confirmations for the Pledge Account simultaneously to the Pledgor and the Collateral Agent. (b) When the Account Holder knows of any claim or interest in the Pledge Account or any property credited to the Pledge Account other than the claims and interests of the parties referred to in this Agreement, the Account Holder will promptly notify the Collateral Agent and the Pledgor of such claim or interest. SECTION 6. The Account Holder's Responsibility. (a) The Account Holder will not be liable to the Pledgor of the Collateral Agent or the Trustee or the Holders of the Securities for complying with an Account Direction or other direction concerning the Collateral originated by the Collateral Agent, even if the Pledgor notifies the Account Holder that the Collateral Agent is not legally entitled to issue the Account Direction or such other direction unless the Account Holder takes the action after it is served with an injunction, restraining order, or other legal process enjoining it from doing so, issued by a court of competent jurisdiction, and had a reasonable opportunity to act on the injunction, restraining order or other legal process. 4 (b) This Agreement does not create any obligation of the Account Holder except for those expressly set forth in this Agreement and in Part 5 of Article 8 of the UCC and in Article 4 of the UCC. In particular, the Account Holder need not investigate whether the Collateral Agent is entitled under the Collateral Agent's agreements with the Pledgor to give an Account Direction or other direction concerning the Pledge Account. The Account Holder may conclusively rely on notices and communications it believes given by the appropriate party. (c) In no event shall the Account Holder or any of its affiliates, shareholders, directors, officers, employees or agents be liable for indirect, special, punitive, incidental or consequential damages of any kind whatsoever even if advised of the possibility of such damages, other than such damages caused by its own bad faith, gross negligence or willful misconduct. (d) Without limiting the foregoing, and notwithstanding any provision to the contrary elsewhere, the Account Holder and its affiliates, shareholders, directors, officers, employees or agents: (i) shall have no responsibilities, obligations or duties in respect of the subject matter hereof other than those expressly set forth in this Agreement, and no implied duties, responsibilities, covenants or obligations shall be read into this Agreement against the Account Holder. Without limiting the foregoing, the Account Holder shall have no duty or authority to determine and/or investigate whether or not an event of default exists under any agreement between the Pledgor and the Trustee and/or the Collateral Agent, or to determine and/or investigate whether or not the Collateral Agent is entitled to give any Account Direction with respect to the Collateral; (ii) may in any instance where the Account Holder determines that it lacks or is uncertain as to its authority to take or refrain from taking certain action hereunder, or as to any of the requirements of this Agreement under the circumstance before it, delay or refrain from taking any action unless and until it shall have received appropriate written instructions from the Collateral Agent or advice from legal counsel selected by it (or other appropriate advisor), as the case may be, detailing the action required to be taken hereunder and the Account Holder may rely conclusively on any such instructions or advice; (iii) so long as it and they shall have acted (or refrained from acting) in good faith and within the reasonable belief that such action or omission is duly authorized or within the discretion or powers granted to it hereunder, shall not be responsible or liable for any error of judgment in any action taken, suffered or omitted by it or them, or for any act done or step taken or omitted, or for any mistake of fact or law, unless such action constitutes gross negligence or willful misconduct as finally determined by a non-appealable judgment of a court of competent jurisdiction on its (or their) part; (iv) will not be responsible or liable to the Pledgor, the Collateral Agent, the Trustee, or any other person or entity whatsoever for the due execution, legality, validity, enforceability, genuineness, effectiveness or sufficiency of this Agreement (provided, however, that the Account Holder warrants that the Account Holder has legal capacity and has 5 been duly authorized to enter into this Agreement) or for any statement, warranty or representation made by any other party in connection with this Agreement; (v) will not incur any responsibility or liability by acting or not acting in reliance upon advice of counsel, or upon any notice, consent, certificate, instruction, Account Direction, statement, wire instruction, telecopy or other writing reasonably and in good faith believed by it or them to be genuine and in conformance with this Agreement and signed or sent by the proper party or parties and contemplated herein; and (vi) shall not be required to expend or risk its or their own funds, or to take any action (including the institution or defense of legal proceedings) which in its or their reasonable judgment may cause it or them to incur or suffer any expense or liability, unless the Account Holder shall have been provided with security or indemnity, acceptable to Account Holder in its sole discretion, for the payment of the costs, expenses (including reasonable attorneys' fees) and liabilities which may be incurred therein or thereby. (e) If any Collateral subject to this Agreement is at any time attached or levied upon, or in case the transfer or delivery of any such Collateral shall be stayed or enjoined, or in the case of any other legal process or judicial order affecting such Collateral, the Account Holder is authorized to comply with any such order in any manner as the Account Holder or its legal counsel reasonably deems appropriate. The Account Holder shall give prompt written notice to the Pledgor and the Collateral Agent of any such attachment, levy, stay, injunction or legal process. If the Account Holder complies with any process, order, writ, judgment or decree relating to the Collateral subject to this Agreement, then the Account Holder shall not be liable or responsible to the Pledgor, the Collateral Agent, the Trustee, or any other person or entity whatsoever even if such order, writ, judgment, decree or process is subsequently modified, vacated or otherwise determined to have been without legal force or effect. (f) The Account Holder shall not be liable or responsible for any delays or failures in performance of any of its duties hereunder which result from events or conditions beyond its reasonable control and so long as the same exist or continue and cannot reasonably be remedied by the Account Holder in accordance with its normal business practices. Such events or conditions shall include, but shall not be limited to, acts of God, strikes, lockouts, riots, acts of war or terrorism, epidemics, nationalization, expropriation, currency restrictions, governmental regulations superimposed after the fact, fire, communication line failures (including the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility), power failures, earthquakes or other disasters. SECTION 7. Indemnity. The Pledgor will indemnify the Account Holder, its officers, directors, employees and agents against claims, liabilities and expenses arising out of this Agreement (including, without limitation, reasonable attorney's fees and disbursements), except to the extent the claims, liabilities or expenses are caused by the Account Holder's gross negligence or willful misconduct as found by a court of competent jurisdiction in a final, non-appealable judgment. SECTION 8. Termination; Survival. 6 (a) This Agreement shall terminate automatically upon receipt by the Account Holder of written notice executed by an officer of the Collateral Agent that (i) all of the Secured Obligations have been paid in full in cash or otherwise satisfied or (ii) all of the Collateral has been released, which ever is earlier, and the Account Holder shall thereafter be relieved of all duties and obligations hereunder. The Account Holder may terminate this Agreement on 60 days' prior notice to the Collateral Agent, the Trustee and the Pledgor, provided that before such termination the Account Holder and the Pledgor shall make arrangements to transfer the property in the Pledge Account to another securities intermediary that shall have executed, together with the Collateral Agent, the Trustee and the Pledgor, a control agreement in favor of the Collateral Agent for the benefit of the Trustee and the ratable benefit of the Holders of the Securities in respect of such property in substantially the form of this Agreement or otherwise in form and substance satisfactory to the Collateral Agent. (b) In the event that the Collateral Agent no longer serves as Collateral Agent for the Collateral, the Collateral Agent, the Trustee, the Account Holder and the Pledgor shall make arrangements for another Person to assume the rights and obligations of the Collateral Agent hereunder, and such Person shall have executed, together with the Account Holder and the Pledgor, a control agreement in favor of such Person for the benefit of the Trustee and the ratable benefit of the Holders of the Securities in substantially the form of this Agreement or otherwise in form and substance satisfactory to the Collateral Agent. (c) Sections 7 and 8 will survive termination of this Agreement. SECTION 9. Conflict with Other Agreements. (a) In the event of any conflict between this Agreement (or any portion thereof) and any other agreement now existing or hereafter entered into, the terms of this Agreement shall prevail; (b) No amendment or modification of this Agreement or waiver of any right hereunder shall be binding on any party hereto unless it is in writing and is signed by all of the parties hereto; (c) The Account Holder hereby confirms and agrees that: (i) There are no other agreements entered into between the Account Holder and the Pledgor with respect to the Pledge Account; (ii) It has not entered into, and until the termination of the this Agreement will not enter into, any agreement with any other person relating to the Pledge Account and/or any financial assets credited thereto pursuant to which it has agreed to comply with entitlement orders (as defined in Section 8-102(a)(8) of the UCC) of such other person; and (iii) It has not entered into, and until the termination of this Agreement will not enter into, any agreement with the Pledgor or the Collateral Agent purporting to limit or condition the obligation of the Account Holder to comply with Account Directions as set forth in Section 3 hereof. 7 SECTION 10. Permitted Investments. In accordance with the Pledge Agreement, the Collateral Agent shall direct the Account Holder with respect to the selection of investments to be made with the funds in the Pledge Account. SECTION 11. Entire Agreement. This Agreement is the entire agreement, and supersedes any prior agreements, and contemporaneous oral agreements, of the parties concerning its subject matter. The Collateral Agent, the Trustee and the Account Holder shall be entitled to all the rights, benefits, privileges and immunities accorded to the Collateral Agent and the Trustee under the Indenture. SECTION 12. Amendments. No modification, amendment or waiver of, nor consent to any departure by any party from, any provision of this Agreement will be effective unless made in writing signed by the parties hereto, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. SECTION 13. Financial Assets. The Account Holder agrees with the Collateral Agent, the Trustee and the Pledgor that, to the fullest extent permitted by applicable law, all property credited from time to time to the Pledge Account will be treated as financial assets under Article 8 of the UCC. SECTION 14. Notices. All notices, demands, requests, consents, approvals and other communications required or permitted hereunder must be in writing and will be effective upon receipt if delivered personally, or if sent by facsimile transmission with confirmation of delivery, or by nationally recognized overnight courier service, to the Pledgor's, the Collateral Agent's and the Trustee's addresses as set forth in the Pledge Agreement, and to the Account Holder's address as set forth below, or to such other address as any party may give to the others in writing for such purpose. SECTION 15. Binding Effect. This Agreement shall become effective when it shall have been executed by the Pledgor, the Collateral Agent, the Trustee and the Account Holder, and thereafter shall be binding upon and inure to the benefit of the Pledgor, the Collateral Agent, the Trustee and the Account Holder and their respective successors and assigns. If the Pledgor consolidates or merges into any other Person, in a transaction in which the Pledgor is not the surviving corporation, or conveys, transfers or leases its properties and assets substantially as an entirety to, any person, then the successor entity shall assume the Pledgor's obligations under this Agreement in writing. SECTION 16. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. SECTION 17. Governing Law and Jurisdiction. THIS AGREEMENT WILL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. Each of the parties hereby irrevocably submits for itself and its 8 property in any legal action or proceeding relating to this Agreement, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction and venue of the courts of the State of New York, the courts of the United States of America in New York, and appellate courts from any thereof. SECTION 18. Waiver Of Jury Trial. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) OF ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. EACH PARTY HERETO ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY. 9 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. PLEDGOR: SCIOS INC. By: /s/ David W. Gryska ----------------------------------------- Name: David W. Gryska --------------------------------------- Title: Chief Financial Officer -------------------------------------- COLLATERAL AGENT: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Collateral Agent By: /s/ Jeanie Mar ----------------------------------------- Name: Jeanie Mar --------------------------------------- Title: Vice President, Authorized Officer -------------------------------------- TRUSTEE: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: /s/ Jeanie Mar ----------------------------------------- Name: Jeanie Mar --------------------------------------- Title: Vice President, Authorized Officer -------------------------------------- ACCOUNT HOLDER: WELLS FARGO BANK, NATIONAL ASSOCIATION, as Account Holder By: /s/ Jeanie Mar ----------------------------------------- Name: Jeanie Mar --------------------------------------- Title: Vice President, Authorized Officer -------------------------------------- Address: 707 Wilshire Blvd., 17th Floor ------------------------------------ Los Angeles, CA 90017 --------------------------------------------- Attn: Corporate Trust Department --------------------------------------- Fax: (213) 614-3355 ---------------------------------------- SCHEDULE I Pledged Financial Assets Security Coupon Date CUSIP No. U.S. Treasury Strips 2/15/03 912820BF3 U.S. Treasury Strip 8/15/03 912820BG1 U.S. Treasury Strip 2/15/04 912820BH9 U.S. Treasury Strip 8/15/04 912820BK2 U.S. Treasury Strip 2/15/05 912833CM0 U.S. Treasury Strip 8/15/05 912803AG8 EX-99.1 8 dex991.txt PRESS RELEAASE DATED 07/30/2002 EXHIBIT 99.1 Press Release [SCIOS LOGO] Scios Inc. 820 West Maude Avenue Sunnyvale, CA 94085 Telephone 408 616 8200 Telefax 408 616 8206 www.sciosinc.com Contact: - ------- Suzanne Beveridge, Scios Inc. (408) 616-2947 (media & investors) Jim Weiss, WeissCom Partners (415) 260-1274 (media) Fern Lazar, Lazar Partners (212) 867-1765 (investors) Scios Announces Pricing of $150 Million Convertible Subordinated Notes SUNNYVALE, CA, July 30, 2002 -- Scios Inc. (NASDAQ: SCIO) today announced that it has agreed to sell $150 million in aggregate principle amount of 5.50% convertible subordinated notes due August 15, 2009 through a private placement to qualified institutional buyers. The company also granted the initial purchasers a 30-day option to acquire up to an additional $25 million in principal amount to cover over-allotments. The notes will be convertible at the option of the holders into shares of Scios Inc. common stock initially at a conversion price of $39.30, representing a conversion premium of 23% over today's closing price. The company intends to use a portion of the net proceeds to repay outstanding indebtedness and the remaining amount for general corporate purposes. The notes and the common stock issuable upon conversion have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws, and have been privately offered only to qualified institutional buyers in reliance on Rule 144A under the Securities Act of 1933, as amended. Unless so registered, the notes and common stock issuable upon conversion of the notes may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws. (more) This press release shall not constitute an offer to sell or the solicitation of an offer to buy these securities, 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. Scios Inc. - --------- Scios is a biopharmaceutical company developing novel treatments for cardiovascular and inflammatory disease. The company's disease-based technology platform integrates expertise in protein biology with computational and medicinal chemistry to identify novel targets and rationally design small molecule compounds for large markets with unmet medical needs. Forward-Looking Safe Harbor Statement - ------------------------------------- This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We generally identify such forward-looking statements using words like "believe," "intend," "expect," "may," "should," "plan," "project," "contemplate," "anticipate" or similar statements. Statements that are not historical facts are forward-looking statements based on current assumptions that involve risks and uncertainties. These risks and uncertainties may include the sales penetration and success of Natrecor, the success of clinical trials of Natrecor our pipeline products, including SCIO-469 and inhibitors to TGF-beta and our ability to partner the development and commercialization of our pipeline products and Natrecor (outside the U.S. and Europe) with third parties on favorable terms, or at all, as well as the other risks detailed from time to time in the reports filed by Scios with the SEC, including the company's quarterly reports and annual report on Form 10-K. Actual results, performance or achievements of Scios may differ significantly from those described in these forward-looking statements. Scios disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. # # # ~~-----END PRIVACY-ENHANCED MESSAGE-----~~