Indebtedness

Our indebtedness is summarized as follows (in thousands):



	March 31, 2012		December 31, 2011
Current portion:
Promissory note related to revenue sharing obligation	$	68,304	$	63,552
Current portion of indebtedness	$	68,304	$	63,552
Non-current portion:
Convertible senior notes, net of debt discount	$	503,274	$	496,037
Notes payable, net of debt discount	155,602		155,064
Promissory note related to revenue sharing obligation	947,092		924,306
Non-current portion of indebtedness	$	1,605,968	$	1,575,407

The following is a summary description of our indebtedness as of March 31, 2012:

Promissory Note Related to Revenue Sharing Obligation

On November 7, 2011 we entered into a secured promissory note with Lilly, the RSO, under which we agreed to pay to Lilly a principal sum of $1.2 billion, plus interest. Repayments on the Secured Promissory Note are determined based upon the quarterly net sales of exenatide products. The RSO has a scheduled maturity of December 31, 2036, however we may prepay all or any portion of the balance without penalty.

The following table summarizes the principal amount of the liability component (including accrued interest), the unamortized discount and net carrying amount of the RSO as of March 31, 2012 and December 31, 2011 (in thousands):



	March 31, 2012			December 31, 2011
Promissory note related to revenue sharing obligation —Due December 31, 2036
Principal amount, including accrued interest	$	1,230,632		$	1,209,109
Unamortized debt discount	(215,236		)	(221,251		)
Net carrying amount	1,015,396			987,858
Less current portion	(68,304		)	(63,552		)
Non-current portion	$	947,092		$	924,306

The significant terms of the RSO are discussed below.

Interest accruals. Interest on the RSO accrues and compounds in an amount equal to 2.295% of the total RSO balance outstanding on the last day of the calendar quarter (with an annual effective rate of 9.5%). Interest is not payable in cash when it accrues, but is instead added to the then outstanding principal amount of the RSO on the last day of each quarter.

Debt discount amortization. The debt discount is being amortized to interest expense over the expected term of the RSO at an effective interest rate of 14.4% for the three months ended March 31, 2012.

Calculation of payment amounts. Amylin is required to make quarterly payments on the RSO in an amount equal to 15% of net sales for exenatide products for the immediate preceding calendar quarter. For the period commencing with December 1, 2011 through and including December 31, 2013, Amylin is obligated to make payments on the RSO equal to the greater of (i) 15% of net sales for exenatide products in the United States and, if control of an OUS jurisdiction has transitioned to Amylin from Lilly, net sales for exenatide products in those OUS jurisdictions, for the immediately preceding calendar quarter or (ii) 15% of 80% of a product revenue forecast that was mutually agreed upon by both Amylin and Lilly. In the event Amylin receives upfront or milestone payments from a third party in connection with an agreement with respect to exenatide products, Amylin is obligated to make payments on the RSO equal to 20% of such upfront or milestone payments. The minimum annual RSO payments Amylin could be required to make for the years ended December 31, 2012 and 2013 is $61.3 million and $86.5 million, respectively.

Provisions related to repayment. The repayment terms for the RSO contain provisions whereby the obligation under the RSO could change under certain circumstances. The RSO could be fully discharged in the event (i) BYDUREON is not approved by June 30, 2014 and (ii) in the event all exenatide products are removed from the US, all of Europe or both for safety or efficacy reasons and continuing for a period of four years. These options were accounted for as embedded derivatives. The FDA approved BYDUREON on January 27, 2012 therefore the provision related to BYDUREON approval has expired. The provision related to removal of exenatide products from the market for safety or efficacy reasons is considered to have a very low likelihood of occurrence. See the Fair Value Measurements discussion in Note 1, regarding the considerations associated with valuing these embedded derivatives as of March 31, 2012.

Security Agreement and Events of Default. Amylin, Amylin Ohio LLC and Lilly entered into a Security Agreement pursuant to which Amylin and Amylin Ohio LLC granted to Lilly, as collateral to secure the RSO, a security interest in intellectual property relating to the exenatide products, U. S. regulatory approvals relating to the exenatide products, certain third party license agreements, certain deposit accounts into which counterparties of such license agreements are required to make payments, certain third party supply agreements, inventory and a supply agreement for BYDUREON entered into between Amylin’s wholly-owned subsidiary Amylin Ohio LLC and Amylin, collectively referred to as the Collateral. On November 7, 2011, Amylin Ohio LLC and Lilly entered into a Subsidiary Guarantee Agreement, or the Guarantee, pursuant to which Amylin Ohio LLC provided a guarantee of the Secured Obligations to Lilly. Any Amylin affiliate that owns Collateral is required to become a grantor under the Security Agreement and guarantee the RSO.

Under the terms of the promissory note an event of default would occur if Amylin fails to make RSO payments in accordance with the terms of the Termination Agreement, upon the occurrence of a bankruptcy or insolvency of Amylin or any of its affiliates party to the Security Agreement or providing a guarantee, if certain representations and warranties of Amylin and Amylin Ohio LLC are not true and correct in any material respects when made, or if Amylin breaches certain assignment provisions in the Termination Agreement, Note Agreement or Security Agreement. Upon the occurrence and continuance of an event of default under the Note, Lilly may declare all outstanding amounts under the Note due and payable and may exercise its rights with respect to the Collateral under the Security Agreement. The sole recourse in respect of the Secured Obligations under the Note, the Security Agreement and the Guarantee is limited to the Collateral. These features are not significant to the accounting for this instrument.

Convertible Senior Notes

The following table summarizes the principal amount of the liability component, the unamortized discount and the net carrying amount of our convertible senior notes (in thousands):



	March 31, 2012			December 31, 2011
2007 Notes—Due June 15, 2014
Principal amount	$	575,000		$	575,000
Unamortized debt discount	(71,726		)	(78,963		)
Net carrying amount	503,274			496,037
Total convertible senior notes, net	503,274			496,037
Less current portion	—			—
Non-current portion	$	503,274		$	496,037

In June 2007, we issued notes with an aggregate principal amount of $575 million in a private placement, and that are due June 15, 2014, referred to as the 2007 Notes. The 2007 Notes are senior unsecured obligations and rank equally with all other existing and future senior unsecured debt. The 2007 Notes bear interest at 3.0% per year, payable in cash semi-annually, and are initially convertible into a total of up to 9.4 million shares of common stock at a conversion price of $61.07 per share, subject to the customary adjustment for stock dividends and other dilutive transactions. We may not redeem the 2007 Notes prior to maturity. In addition, if a “fundamental change” (as defined in the associated indenture agreement) occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of notes that elects to convert its notes in connection with such fundamental change. The maximum conversion rate is 22.93 ($43.62 per share), which would result in a maximum issuance of 13.2 million shares of common stock if all holders converted at the maximum conversion rate. The principal amount of the 2007 Notes exceeds the current if-converted value.

The 2007 Notes will be convertible into shares of our common stock unless we elect net-share settlement. If we elect net-share settlement, we will satisfy the accreted value of the obligation in cash and will satisfy the excess of conversion value over the accreted value in shares of our common stock based on a daily conversion value, determined in accordance with the associated indenture agreement, calculated on a proportionate basis for each day of the relevant 20-day observation period. Holders may convert the 2007 Notes only in the following circumstances and to the following extent: (1) during the five business-day period after any five consecutive trading day period (the measurement period) in which the trading price per note for each day of such measurement period was less than 97% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter after the calendar quarter ending March 31, 2007, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; (3) upon the occurrence of specified events; and (4) the 2007 Notes will be convertible at any time on or after April 15, 2014 through the scheduled trading day immediately preceding the maturity date.

Subject to certain exceptions, if we undergo a “designated event” (as defined in the associated indenture agreement) including a “fundamental change,” such as if a majority of our Board of Directors ceases to be composed of the existing directors or other individuals approved by a majority of the existing directors, holders of the 2007 Notes will, for the duration of the notes, have the option to require us to repurchase all or any portion of their 2007 Notes. The designated event repurchase price will be 100% of the principal amount of the 2007 Notes to be purchased plus any accrued interest up to but excluding the relevant repurchase date. We will pay cash for all notes so repurchased. The 2007 Notes have been registered under the Securities Act of 1933, as amended, to permit registered resale of the 2007 Notes and of the common stock issuable upon conversion of the 2007 Notes. The 2007 Notes pay interest in cash, semi-annually in arrears on June 15 and December 15 of each year, which began on December 15, 2007.

The fair value of the 2007 Notes, determined by observed market prices within the Level 2 hierarchy, was $569.3 and $514.3 million at March 31, 2012 and December 31, 2011, respectively. Since we have the option to elect net-share settlement upon conversion of the 2007 Notes, we account for the 2007 Notes in accordance with the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion. The carrying amount of the equity component of the 2007 Notes was $180.3 million at March 31, 2012 and December 31, 2011. The net book value of debt issuance costs as of March 31, 2012 and December 31, 2011 was $3.5 million and $3.9 million, respectively. The debt discount and issuance costs are being amortized to interest expense over the term of the 2007 Notes, approximately two years of which remain as of March 31, 2012. The effective interest rate on the net carrying value of the 2007 Notes was 9.3% in the three months ended March 31, 2012 and 2011.

Note Payable

In October 2008, we and Lilly entered into a loan agreement pursuant to which Lilly made available to us a $165 million unsecured line of credit. In May 2011 we drew $165 million from this facility, referred to as the Note Payable to Lilly. The interest rate on the Note Payable to Lilly is fixed at 5.51% and is due and payable quarterly in arrears on the first business day of each quarter and the initial maturity date was May 23, 2014. In connection with the Termination Agreement, the Note Payable to Lilly was amended and restated effective November 7, 2011 (“the Amended Note Payable to Lilly”). Under the terms of the Amended Note Payable to Lilly, the maturity date was extended to June 30, 2016; the interest rate on the Amended Lilly Loan remains fixed at 5.51% and interest continues to be due and payable quarterly in arrears on the first business day of each quarter. A portion of the consideration paid in connection with the Settlement and Termination Agreement represents the value Amylin received in connection with the extension of the maturity date of the Lilly Loan at a below market interest rate. The value representing the fee paid to extend the note at a below market interest rate was recorded as a discount on the Lilly Loan and is being accreted to interest expense over the remaining life of the loan. The unamortized balance of the discount on the Lilly Loan was $9.4 million and $9.9 million as of March 31, 2012 and December 31, 2011, respectively.