e424b5
This filing is made pursuant to Rule 424(b)(5)
Under the Securities Act of 1933
In connection with Registration Nos. 333-138373 and 333-139154
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 7, 2006)
$100,000,000
MannKind
Corporation
3.75% Senior Convertible
Notes due 2013
The
Offering:
The notes will bear interest at the rate of 3.75% per year
on the principal amount of the notes, payable in cash
semiannually in arrears on June 15 and December 15 of
each year, beginning June 15, 2007. The notes will mature
on December 15, 2013. The notes will be our general,
unsecured, senior obligations and will rank equally in right of
payment with our other senior unsecured debt and will
effectively rank junior in right of payment to all of our
secured debt, to the extent of the value of the assets securing
such debt, and to the debt and all other liabilities of our
subsidiaries.
Convertibility
of the Notes:
Holders may convert, at any time prior to the close of business
on the business day immediately preceding the stated maturity
date, any outstanding notes into shares of our common stock. The
notes are convertible at a conversion rate of
44.5002 shares per $1,000 principal amount of notes, which
is equal to a conversion price of approximately $22.47 per
share, subject to adjustment. If a holder elects to convert
notes in connection with a fundamental change, such holder will
also be entitled to receive a make-whole premium upon conversion
in certain circumstances. Our common stock is quoted on the
Nasdaq Global Market under the symbol MNKD. On
December 6, 2006, the last sale price for our common stock
as reported on the Nasdaq Global Market was $17.42 per
share.
Purchase
of the Notes at the Option of the Holder:
Upon a fundamental change of our company, each holder may
require us to purchase all or a portion of such holders
notes at a price equal to the principal plus accrued and unpaid
interest, if any.
In addition, concurrently with this note offering, we are
offering 20,000,000 shares of our common stock (or
23,000,000 shares if the underwriters exercise their
over-allotment option in full) in a public offering pursuant to
a separate prospectus supplement. This note offering is not
contingent upon the common stock offering and the common stock
offering is not contingent upon this note offering.
Investing in our notes involves
risks, including those described in the Risk Factors
section beginning on
page S-9
of this prospectus supplement and incorporated by reference in
this prospectus supplement and the accompanying
prospectus.
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Per Note
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Total
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Public offering price
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$
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1,000
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$
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100,000,000
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Underwriting discount
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$
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30
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$
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3,000,000
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Proceeds to MannKind, before
expenses
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$
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970
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$
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97,000,000
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We have granted the underwriters a
13-day
option to purchase up to an additional $15,000,000 principal
amount of notes to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The notes will be ready for delivery in book entry form only
through The Depository Trust Company on or about
December 12, 2006.
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Merrill
Lynch & Co. |
JPMorgan |
The date of this prospectus supplement is December 7, 2006.
TABLE OF
CONTENTS
Prospectus
Supplement
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Page
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S-1
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S-1
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S-3
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S-6
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S-9
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S-17
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S-18
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S-19
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S-21
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S-21
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S-22
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S-42
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S-48
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S-52
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S-52
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Prospectus
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Summary
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1
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Risk Factors
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2
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The Securities We May Offer
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2
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Ratio of Earnings to Fixed Charges
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4
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Special Note Regarding
Forward-Looking Statements
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5
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Use of Proceeds
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5
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Description of Common Stock
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6
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Description of Warrants
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8
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Description of Debt Securities
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11
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Legal Ownership of Securities
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16
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Plan of Distribution
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Legal Matters
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Experts
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Where You Can Find More Information
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Incorporation by Reference
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You should rely only on the information contained or
incorporated by reference in this prospectus supplement, the
accompanying prospectus and any free writing prospectus that we
authorize to be distributed to you. We have not, and the
underwriters have not, authorized anyone to provide you with
different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not,
and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in
this prospectus supplement, the accompanying prospectus, the
documents incorporated by reference in this prospectus
supplement and the accompanying prospectus, and any free writing
prospectus is accurate only as of the date on those respective
documents. Our business, financial condition, results of
operations and prospects may have changed since those dates. You
should read this prospectus supplement, the accompanying
prospectus, the documents incorporated by reference in this
prospectus supplement and the accompanying prospectus, and any
free writing prospectus when making your investment decision.
You should also read and consider the information in the
documents we have referred you to in the sections of the
prospectus entitled Where You Can Find More
Information and Incorporation by Reference.
i
ABOUT
THIS PROSPECTUS SUPPLEMENT
This prospectus supplement and the accompanying prospectus are
part of a registration statement that we filed with the
Securities and Exchange Commission, or SEC, utilizing a
shelf registration process. This prospectus
supplement provides you with the specific details regarding this
offering, including the principal amount, conversion ratio and
ranking of our notes, and the risks of investing in our notes.
The accompanying prospectus provides you with more general
information, some of which does not apply to the offering of our
notes. To the extent information in this prospectus supplement
is inconsistent with the accompanying prospectus or any of the
documents incorporated by reference into this prospectus
supplement and the accompanying prospectus, you should rely on
this prospectus supplement. You should read and consider the
information in this prospectus supplement, the accompanying
prospectus and any free writing prospectus, together with the
additional information described under the headings Where
You Can Find More Information and Incorporation by
Reference in the accompanying prospectus.
This prospectus supplement and the accompanying prospectus have
not been approved by the Financial Services Authority. The notes
may not be offered or sold to any person in the United Kingdom
except where the offer is exempt from the general prohibition
against the offer of securities to the public under
section 85 of the Financial Services and Markets Act 2000,
or FMSA, by virtue of one or more of the criteria set out in
section 86 of FMSA.
This prospectus supplement and the accompanying prospectus is
directed only at (i) persons outside the United Kingdom,
(ii) persons who have professional experience in matters
relating to investments and who are investment professionals
within the meaning of Article 19(5) of FMSA (Financial
Promotion) Order 2005 of the United Kingdom (the Financial
Promotion Order), (iii) persons who fall within
Article 49(2)(a) through (d) (high net worth
companies, unincorporated associations, etc.) of the Financial
Promotion Order, or (iv) any other persons to whom this
prospectus supplement and the accompanying prospectus for the
purposes of Section 21 of FSMA can otherwise lawfully be
made (all such persons together being referred to as Relevant
Persons), and must not be acted on or relied upon by persons
other than Relevant Persons.
Unless the context otherwise requires, references to
MannKind or the company, we,
us, and our in this prospectus
supplement and the accompanying prospectus mean MannKind
Corporation and its wholly owned subsidiary.
Technosphere®
and
MedTone®
are registered trademarks of MannKind Corporation. We have also
applied for or registered company trademarks in other
jurisdictions, including Europe and Japan. This prospectus
supplement also include references to registered service marks
and trademarks of other entities.
NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This prospectus supplement and the accompanying prospectus,
including the documents that we incorporate by reference herein
and therein, contain statements that are not strictly historical
in nature and are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended,
or the Securities Act, and within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. These forward-looking statements
are subject to the safe harbor created by
Section 27A of the Securities Act and Section 21E of
the Exchange Act and may include, but are not limited to,
statements about:
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the progress or success of our research, development and
clinical programs;
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the timing of completion of enrollment in our clinical trials,
the timing of the interim analyses and the timing or success of
the commercialization of our Technosphere Insulin System, or any
other products or therapies that we may develop;
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our ability to market, commercialize and achieve market
acceptance for our Technosphere Insulin System, or any other
products or therapies that we may develop;
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S-1
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our ability to protect our intellectual property and operate our
business without infringing upon the intellectual property
rights of others;
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our estimates for future performance; our estimates regarding
anticipated operating losses, future revenues, capital
requirements and our needs for additional financing;
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scientific studies and the conclusions we draw from
them; and
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our ability to successfully enter into strategic business
collaborations.
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In some cases, you can identify forward-looking statements by
terms such as anticipates, believes,
could, estimates, expects,
goal, intends, may,
plans, potential, predicts,
projects, should, will,
would, the negative of these words and words or
similar expressions intended to identify forward-looking
statements. These statements reflect our views as of the date on
which they were made with respect to future events and are based
on assumptions and subject to risks and uncertainties. The
underlying information and expectations are likely to change
over time. Given these uncertainties, you should not place undue
reliance on these forward-looking statements as actual events or
results may differ materially from those projected in the
forward-looking statements due to various factors, including,
but not limited to, those set forth under the heading Risk
Factors in this prospectus supplement, in the accompanying
prospectus and in our SEC filings. These forward-looking
statements represent our estimates and assumptions only as of
the date of the document containing the applicable statement.
You should rely only on the information contained, or
incorporated by reference, in this prospectus supplement, the
accompanying prospectus, the registration statement of which
this prospectus supplement is a part, the documents incorporated
by reference herein, and any applicable prospectus supplement
and understand that our actual future results may be materially
different from what we expect. We qualify all of the
forward-looking statements in the foregoing documents by these
cautionary statements. Unless required by law, we undertake no
obligation to update or revise any forward-looking statements to
reflect new information or future events or developments. Thus,
you should not assume that our silence over time means that
actual events are bearing out as expressed or implied in such
forward-looking statements. Before deciding to purchase our
securities, you should carefully consider the risk factors
discussed here or incorporated by reference, in addition to the
other information set forth in this prospectus supplement, the
accompanying prospectus and in the documents incorporated by
reference.
S-2
PROSPECTUS
SUPPLEMENT SUMMARY
This summary highlights selected information contained
elsewhere or incorporated by reference in this prospectus
supplement. This summary does not contain all the information
that you should consider before investing in our notes. You
should read the entire prospectus supplement, the accompanying
prospectus and any free writing prospectus carefully, including
Risk Factors, the financial statements and other
information included or incorporated by reference in this
prospectus supplement and the accompanying prospectus before
making an investment decision. This prospectus supplement
contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from
the results anticipated in these forward-looking statements as a
result of factors described under the Risk Factors
section and elsewhere in this prospectus supplement and in the
risk factors set forth under Item 1A. Risk
Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2005 and each of our
Quarterly Reports on
Form 10-Q
for the periods ended March 31, 2006, June 30, 2006
and September 30, 2006, and elsewhere in the documents
incorporated by reference.
MannKind
Corporation
Overview
MannKind Corporation is a biopharmaceutical company focused on
the discovery, development and commercialization of therapeutic
products for diseases such as diabetes and cancer. Our lead
investigational product candidate, the Technosphere Insulin
System, is currently in Phase 3 clinical trials in the
United States, Europe and Latin America to study its safety and
efficacy in the treatment of diabetes. This therapy consists of
a proprietary dry powder formulation of insulin that is inhaled
into the deep lung using our proprietary inhaler. We believe
that the performance characteristics, unique kinetics,
convenience and ease of use of the Technosphere Insulin System
may have the potential to change the way diabetes is treated.
According to the Centers for Disease Control, diabetes affects
approximately 20.8 million patients in the United States.
Furthermore, we believe that not one diabetes drug is included
among the top 20 best-selling drugs in the United States. We
believe there is a large unmet medical need to treat diabetes
patients with a convenient and effective insulin regimen.
We believe our Technosphere Insulin System will address some of
the shortcomings of traditional insulin therapies. In
particular, we have observed in our clinical trials to date that
the Technosphere Insulin System produces a profile of insulin
levels in the bloodstream that approximates the insulin profile
normally seen in healthy individuals immediately following the
beginning of a meal, but which is absent in patients with
diabetes. Specifically, Technosphere Insulin is rapidly absorbed
into the bloodstream following inhalation, reaching peak levels
within 12 to 14 minutes. As a result of this rapid onset of
action, most of the glucose-lowering activity of Technosphere
Insulin occurs within the first three hours of
administration which is generally when glucose
becomes available from a meal instead of the much
longer duration of action observed when insulin is injected
subcutaneously. We believe that the relatively short duration of
action of Technosphere Insulin reduces the need for patients to
snack between meals in order to manage ongoing blood glucose
excursions. Indeed, in our clinical trials, we have observed
that patients using Technosphere Insulin have achieved
significant reductions in post-meal glucose excursions and
significant improvements in overall glucose control, as measured
by decreases in glycosylated hemoglobin, or HbA1c, levels,
without the weight gain typically associated with insulin
therapy.
In our clinical trials to date, we have observed no difference
in pulmonary function between patients treated with Technosphere
Insulin and patients treated with standard diabetes care.
However, the longest study that we have completed so far is a
six-month trial. In September 2006, we completed patient
enrollment in a pivotal, two-year, Phase 3, safety study of
Technosphere Insulin that will compare the pulmonary function of
diabetes patients randomized to either Technosphere Insulin or
standard diabetes care. We are continuing to enroll patients in
three other major Phase 3 clinical trials, two of which are
pivotal efficacy trials. Based on our discussions with the Food
and Drug Administration, or FDA, we plan to accumulate two years
of controlled safety data before we file a new drug application
for the Technosphere Insulin System. We anticipate that our
S-3
entire clinical trial program, including several special
population studies, will involve more than 4,500 patients.
Larger populations and longer durations of exposure may be
necessary depending on the safety profile of our product.
Our Technosphere Insulin System utilizes our proprietary
Technosphere formulation technology, which is based on a class
of organic molecules that are designed to self-assemble into
small particles onto which drug molecules can be loaded. We are
also developing additional Technosphere-based products for the
delivery of other drugs. In October 2006, we filed an
investigational new drug application, or IND, in respect of our
cancer immunotherapy program. This IND has received FDA
clearance and we plan to initiate Phase 1 clinical trials
of a therapeutic cancer vaccine by the end of 2006.
We are a development stage enterprise and have incurred
significant losses since our inception in 1991. As of
September 30, 2006, we have incurred a cumulative net loss
of $716.6 million. To date, we have not generated any
product revenues and have funded our operations primarily
through the sale of equity securities.
We do not anticipate sales of any product prior to regulatory
approval and commercialization of our Technosphere Insulin
System. We currently do not have the required approvals to
market any of our product candidates, and we may not receive any
approvals. We may not be profitable even if we succeed in
commercializing any of our product candidates. We expect to make
substantial and increasing expenditures and to incur additional
operating losses for at least the next several years as we:
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continue the clinical development and commercialization of our
Technosphere Insulin System for the treatment of diabetes;
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expand our manufacturing operations for our Technosphere Insulin
System to meet our currently anticipated commercial production
needs;
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expand our other research, discovery and development programs;
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expand our proprietary Technosphere platform technology and
develop additional applications for the pulmonary delivery of
other drugs; and
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enter into sales and marketing collaborations with other
companies, if available on commercially reasonable terms, or
develop these capabilities ourselves.
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Our business is subject to significant risks, including but not
limited to the risks inherent in our ongoing clinical trials and
the regulatory approval process, the results of our research and
development efforts, competition from other products and
technologies and uncertainties associated with obtaining and
enforcing patent rights.
Recent
Developments
On September 16, 2006, we announced the results of a
Phase 3 clinical study of Technosphere Insulin in patients
with type 2 diabetes. This study was designed to evaluate
whether our Technosphere Insulin System demonstrated similar
safety and efficacy compared to patients treated with insulin
aspart, an injected rapid-acting insulin analog, or RAA. The
study included 308 patients with type 2 diabetes who where
randomized to receive either Technosphere Insulin or RAA at meal
times, in each case together with insulin glargine, a
long-acting insulin, as basal insulin. After six months of
treatment, both patient groups achieved statistically
significant reductions in HbA1c levels, with the Technosphere
Insulin patient group achieving an average 1.05% reduction and
the injected RAA patient group achieving an average 1.30%
reduction. Significantly fewer patients experienced hypoglycemia
in the Technosphere Insulin patient group than in the injected
RAA patient group. Additionally, after six months of treatment,
the Technosphere Insulin patient group experienced average
weight loss of 1.7 pounds compared with the injected RAA patient
group, which experienced average weight gain of 0.5 pounds.
Pulmonary function did not differ between the two patient groups
after six months of treatment and after a six-month withdrawal
period. These results are consistent with our previous studies
on Technosphere Insulin that demonstrated improvement in
glycemic control with no effect on lung function.
S-4
Company
Information
We were incorporated in the State of Delaware on
February 14, 1991. Our principal executive offices are
located at 28903 North Avenue Paine, Valencia, California 91355,
and our telephone number at that address is
(661) 775-5300.
MannKind Corporation and the MannKind Corporation logo are our
service marks. Our website address is
http://www.mannkindcorp.com. The information contained in, and
that can be accessed through, our website is not incorporated
into and does not form a part of this prospectus.
S-5
THE
OFFERING
The following is a brief summary of the terms of this offering.
For a complete description of the terms of the notes, see
Description of Notes in this prospectus supplement.
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Issuer
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MannKind Corporation |
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Notes to be offered
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$100,000,000 aggregate principal amount, or $115,000,000 if the
underwriters exercise their option to purchase additional notes
in full. |
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Maturity date
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December 15, 2013. |
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Interest and payment dates
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3.75% per year on the principal amount, payable
semiannually in arrears in cash on June 15 and
December 15 of each year, beginning June 15, 2007. |
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Conversion rights
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The notes are convertible, at the option of the holder, at any
time on or prior to the close of business on the business day
immediately preceding the stated maturity date, into shares of
our common stock at a conversion rate of 44.5002 shares per
$1,000 principal amount of notes per share, which is equal to a
conversion price of approximately $22.47 per share. The
conversion rate is subject to adjustment as set forth in
Description of Notes Adjustment of Conversion
Rate. |
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Make-whole premium upon a fundamental change
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If a fundamental change (as described in this prospectus
supplement) occurs, other than a fundamental change described
under the third or fourth bullet points under the definition of
a change in control described in Description of
Notes Repurchase at Option of Holders Upon a
Fundamental Change, we will pay a make-whole premium on
notes converted in connection with a fundamental change by
increasing the conversion rate on such notes. |
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The amount of the make-whole premium, if any, will be based on
our common stock price and the effective date of the fundamental
change. A description of how the make-whole premium will be
determined and a table showing the make-whole premium that would
apply at various common stock prices and fundamental change
effective dates is set forth under Description of
Notes Make-Whole Premium Upon a Fundamental
Change. |
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Repurchase of notes by us at the option of the holders upon a
fundamental change
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If we undergo a fundamental change, except in certain
circumstances, each holder will have the option to require us to
repurchase all or any portion of that holders notes. The
fundamental change repurchase price will be 100% of the
principal amount of the notes to be repurchased plus accrued and
unpaid interest, if any. |
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Ranking |
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The notes: |
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will be our general, unsecured, senior obligations
and will rank equally in right of payment with our other
unsecured senior debt;
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will effectively rank junior in right of payment to
any of our existing and future secured debt, to the extent of
the value of the assets securing such debt; and
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will effectively rank junior in right of payment to
any existing and future debt and other liabilities of our
subsidiaries, including trade payables.
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As of September 30, 2006, after giving effect to this
offering of notes and the use of proceeds therefrom, we would
have had no outstanding secured debt, and our subsidiary would
have had no outstanding liabilities to which the notes would
rank effectively junior. |
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The terms of the supplemental indenture and the indenture under
which the notes are issued do not limit our ability to incur
additional debt, including secured debt. |
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Use of proceeds |
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We intend to use the net proceeds to us from this offering and
the concurrent common stock offering to fund the costs of our
clinical trials programs and other research and development
activities, to expand our manufacturing operations, both
on-going and planned, and for general corporate purposes,
including working capital and repayment of $70.0 million in
principal amount of indebtedness, plus accrued interest, owed to
Alfred E. Mann pursuant to an outstanding note. We may also use
a portion of the net proceeds to in-license, invest in or
acquire businesses or technologies that we believe are
complementary to our own, although we have no current plan,
commitments or agreements with respect to any acquisitions as of
the date of this prospectus supplement. This offering is not
contingent on the concurrent common stock offering. See
Use of Proceeds. |
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Form and denomination |
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The notes will be issued in minimum denominations of $1,000 and
any integral multiple of $1,000. |
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The notes will be issued in book-entry form and will be
represented by permanent global certificates deposited with, or
on behalf of, The Depository Trust Company, or DTC, and
registered in the name of a nominee of DTC. Beneficial interests
in any of the notes will be shown on, and transfers will be
effected only through, records maintained by DTC or its nominee
and any such interest may not be exchanged for certificated
securities, except in limited circumstances. See
Description of Notes Book-Entry System. |
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The notes will not be listed on any securities exchange or
included in any automated quotation system. The notes will be
new securities for which there is currently no public market. |
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Nasdaq symbol for common stock |
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Our common stock is quoted on the Nasdaq Global Market under the
symbol MNKD. |
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Material U.S. federal income tax consequences
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The notes and the shares of our common stock issuable upon
conversion of the notes will be subject to certain
U.S. federal income tax consequences. Holders are
encouraged to consult their tax advisors as to the
U.S. federal, state, local or other tax consequences of |
S-7
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acquiring, owning and disposing of the notes. See Material
U.S. Federal Income Tax Consequences. |
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Risk factors |
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See Risk Factors and other information included in
this prospectus supplement, the accompanying prospectus and the
documents incorporated by reference in this prospectus
supplement and the accompanying prospectus for a discussion of
factors you should carefully consider before deciding to invest
in our notes. |
Unless otherwise noted, the information in this prospectus
supplement assumes that the underwriters over-allotment
option will not be exercised.
Concurrent
Common Stock Offering
Concurrently with this offering of notes, we are offering
20,000,000 shares of our common stock (or
23,000,000 shares if the underwriters exercise their
over-allotment option in full) at a public offering price of
$17.42 per share pursuant to a separate prospectus
supplement. We refer to that offering herein as the common stock
offering. As part of the common stock offering, the underwriters
are selling an aggregate of 5,776,000 shares of our common
stock to certain of our officers and directors, including our
chairman, chief executive officer and principal stockholder,
Alfred E. Mann. The underwriters will not receive any
underwriting discount with respect to these shares. This note
offering is not contingent upon the common stock offering and
the common stock offering is not contingent upon this note
offering.
S-8
RISK
FACTORS
Investing in our securities involves a high degree of risk.
You should consider carefully the risk factors described below
and all other information contained in or incorporated by
reference in this prospectus supplement, the accompanying
prospectus and any free writing prospectus before deciding to
invest in our securities. If any of the following risks actually
occur, they may materially harm our business, financial
condition, operating results and cash flow. As a result, the
market price of our common stock could decline, and you could
lose all or part of your investment. Additional risks and
uncertainties that are not yet identified or that we think are
immaterial may also materially harm our business, operating
results and financial condition and could result in a complete
loss of your investment.
Certain
risks related to regulatory approvals
Our product candidates must undergo rigorous preclinical and
clinical testing and we must obtain regulatory approvals, which
could be costly and time-consuming and subject us to
unanticipated delays or prevent us from marketing any
products.
Our research and development activities, as well as the
manufacturing and marketing of our product candidates, including
our Technosphere Insulin System, are subject to regulation,
including regulation for safety, efficacy and quality, by the
FDA in the United States and comparable authorities in
other countries. FDA regulations and the regulation of
comparable foreign regulatory authorities are wide-ranging and
govern, among other things:
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product design, development, manufacture and testing;
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product labeling;
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product storage and shipping;
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pre-market clearance or approval;
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advertising and promotion; and
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product sales and distribution.
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Clinical testing can be costly and take many years, and the
outcome is uncertain and susceptible to varying interpretations.
We expect, based on our discussions with the FDA and on our
understanding of the interactions between the FDA and other
pharmaceutical companies developing inhaled insulin delivery
systems, that we will need safety data covering at least two
years from patients treated with our Technosphere Insulin System
and that we must complete a two-year carcinogenicity study and
an additional six-month carcinogenicity study of Technosphere
Insulin in rodents to obtain approval, among other requirements.
We cannot be certain when or under what conditions we will
undertake further clinical trials. The clinical trials of our
product candidates may not be completed on schedule, the FDA or
foreign regulatory agencies may order us to stop or modify our
research, or these agencies may not ultimately approve any of
our product candidates for commercial sale. The data collected
from our clinical trials may not be sufficient to support
regulatory approval of our various product candidates, including
our Technosphere Insulin System. Even if we believe the data
collected from our clinical trials are sufficient, the FDA has
substantial discretion in the approval process and may disagree
with our interpretation of the data. For example, even if we
obtain statistically significant results with respect to the
primary endpoint in a pivotal clinical study (102) of the
Technosphere Insulin System, the FDA may deem the results
uninterpretable because of issues related to the open-label,
non-inferiority design of the study. Our failure to adequately
demonstrate the safety and efficacy of any of our product
candidates would delay or prevent regulatory approval of our
product candidates, which could prevent us from achieving
profitability.
The requirements governing the conduct of clinical trials and
manufacturing and marketing of our product candidates, including
our Technosphere Insulin System, outside the United States
vary widely from country to country. Foreign approvals may take
longer to obtain than FDA approvals and can require, among other
things, additional testing and different clinical trial designs.
Foreign regulatory approval processes
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include all of the risks associated with the FDA approval
processes. Some of those agencies also must approve prices of
the products for government reimbursement. Approval of a product
by the FDA does not ensure approval of the same product by the
health authorities of other countries. In addition, changes in
regulatory policy in the United States or in foreign
countries for product approval during the period of product
development and regulatory agency review of each submitted new
application may cause delays or rejections.
The process of obtaining FDA and other required regulatory
approvals, including foreign approvals, is expensive, often
takes many years and can vary substantially based upon the type,
complexity and novelty of the products involved. We are not
aware of any precedent for the successful commercialization of
products based on our technology. On January 26, 2006, the FDA
approved the first inhaled insulin product, Exubera. This may
impact the development and registration of our Technosphere
Insulin System in many ways, including: the approval of Exubera
may increase the difficulty of enrolling patients in our
clinical trials; Exubera may be viewed as standard of care by
the FDA and used as a reference for the safety/efficacy
evaluations of our Technosphere Insulin System; and the approval
standards set for Exubera may be applied to other products that
follow including our Technosphere Insulin System. The FDA has
advised us that it will regulate our Technosphere Insulin System
as a combination product because of the complex
nature of the system that includes the combination of a new drug
(Technosphere Insulin) and a new medical device (the MedTone
inhaler used to administer the insulin). The FDA indicated that
the review of a future drug marketing application for our
Technosphere Insulin System will involve three separate review
groups of the FDA: (1) the Metabolic and Endocrine Drug Products
Division; (2) the Pulmonary Drug Products Division; and (3) the
Center for Devices and Radiological Health within the FDA that
reviews medical devices. We currently understand that the
Metabolic and Endocrine Drug Products Division will be the lead
group and will obtain consulting reviews from the other two FDA
groups. The FDA has not made an official final decision in this
regard, however, and we can make no assurances at this time
about what impact FDA review by multiple groups will have on the
review and approval of our product or whether we are correct in
our understanding of how the Technosphere Insulin System will be
reviewed and approved.
Also, questions that have been raised about the safety of
marketed drugs generally, including pertaining to the lack of
adequate labeling, may result in increased cautiousness by the
FDA in reviewing new drugs based on safety, efficacy, or other
regulatory considerations and may result in significant delays
in obtaining regulatory approvals. Such regulatory
considerations may also result in the imposition of more
restrictive drug labeling or marketing requirements as
conditions of approval, which may significantly affect the
marketability of our drug products. FDA review of our
Technosphere Insulin System as a combination product therapy may
lengthen the product development and regulatory approval
process, increase our development costs and delay or prevent the
commercialization of our Technosphere Insulin System.
We are developing our Technosphere Insulin System as a new
treatment for diabetes utilizing unique, proprietary components.
As a combination product, any changes to either the MedTone
inhaler, the Technosphere material or the insulin, including new
suppliers, could possibly result in FDA requirements to repeat
certain clinical studies. This means, for example, that
switching to an alternate delivery system could require us to
undertake additional clinical trials and other studies, which
could significantly delay the development and commercialization
of our Technosphere Insulin System. Our product candidates that
are currently in development for the treatment of cancer also
face similar obstacles and costs.
We currently expect that our inhaler will be reviewed for
approval as part of the New Drug Application, or NDA, for our
Technosphere Insulin System. No assurances exist that we will
not be required to obtain separate device clearances or approval
for use of our inhaler with our Technosphere Insulin System.
This may result in our being subject to medical device review
user fees and to other device requirements to market our inhaler
and may result in significant delays in commercialization. Even
if the device component is approved as part of our NDA for the
Technosphere Insulin System, numerous device regulatory
requirements still apply to the device part of the drug-device
combination.
S-10
Risks
Related to the Notes and Our Common Stock
The
effective subordination of the notes may limit our ability to
satisfy our obligations under the notes.
The notes will be our senior unsecured obligations and will rank
equally in right of payment with all of our other senior
unsecured indebtedness. However, the notes will be effectively
subordinated in right of payment to all of our secured
indebtedness, including any secured indebtedness we may incur in
the future, to the extent of the value of the collateral
securing such indebtedness. As of September 30, 2006, we
had no outstanding secured indebtedness. The indenture governing
the notes does not prohibit us from incurring secured
indebtedness in the future. Consequently, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to us, the holders of any secured
indebtedness will be entitled to proceed directly against the
collateral that secures such indebtedness. Therefore, the
collateral will not be available for satisfaction of any amounts
owed under our unsecured indebtedness, including the notes,
until the secured indebtedness is satisfied in full.
The notes also will be effectively subordinated in right of
payment to all unsecured and secured liabilities of our
subsidiary. In the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding with respect
to our subsidiary, we, as an equity owner of the subsidiary, and
therefore you, as holders of our debt, including the notes, will
be subject to the prior claims of the subsidiarys
creditors, including trade creditors and preferred equity
holders. As of September 30, 2006, our subsidiary had no
indebtedness (exclusive of intercompany debt, trade payables,
distribution payables, accrued expenses and other liabilities).
The indenture governing the notes does not prohibit our
subsidiaries from incurring indebtedness in the future.
We may
not have the ability to repurchase notes for cash pursuant to
their terms.
In connection with a fundamental change, you may require us to
repurchase all or a portion of your notes in cash. If you were
to require us to repurchase your notes, we may not be able to
pay the amount required in cash. Our ability to repurchase the
notes is subject to our liquidity position at the time, and may
be limited by law, by the indenture, and by indebtedness and
agreements that we may enter into in the future which may
replace, supplement or amend our existing or future debt. In
addition, if we did not have sufficient cash to meet our
obligations, while we could seek to obtain third-party financing
to pay for any amounts due in cash upon such events, third-party
financing may not be available on commercially reasonable terms,
if at all. Our failure to repurchase the notes would constitute
an event of default under the indenture under which we issued
the notes, which might constitute an event of default under the
terms of our other indebtedness at that time.
The notes
contain no financial covenants, therefore, the note holders will
not have protection against adverse changes in our
business.
The indenture does not contain any financial covenants, restrict
our ability to repurchase our securities other than the notes in
accordance with their terms, pay dividends or make restricted
payments or contain any covenants or other provisions to afford
holders protection in the event of a transaction that
substantially increases the level of our indebtedness.
Furthermore, the indenture will contain only limited protections
in the event of a change in control. We could also engage in
many types of transactions, such as acquisitions, refinancings
or recapitalizations, that could substantially affect our
capital structure and the value of the notes and our common
stock.
Because
your right to require us to repurchase the notes is limited, the
market price of the notes may decline if we enter into a
transaction that is not a fundamental change under the
indenture.
The term fundamental change is limited and may not
include every event that might cause the market price of the
notes to decline. The term fundamental change does
not apply to transactions in which 90% of the consideration paid
for our common stock, excluding cash payments for fractional
shares and cash payments made in respect of dissenters
appraisal rights, in a merger or similar transaction is publicly
traded
S-11
common stock. Our obligation to repurchase the notes upon
certain fundamental changes may not preserve the value of the
notes in the event of a highly leveraged transaction,
reorganization, merger or similar transaction. See
Description of Notes Repurchase at Option of
Holders Upon a Fundamental Change.
The
make-whole premium that may be payable upon conversion in
connection with certain fundamental changes may not adequately
compensate you for the lost option time value of your notes as a
result of such change in control.
If you convert notes in connection with certain fundamental
changes, we may be required to pay a make-whole premium by
increasing the conversion rate. The make-whole payment is
described under Description of Notes
Make-Whole Premium Upon a Fundamental Change. While the
make-whole premium is designed to compensate you for the lost
option time value of your notes as a result of certain
fundamental changes, the make-whole amount is only an
approximation of such lost value and may not adequately
compensate you for such loss. In addition, in some other cases
described under Description of Notes
Make-Whole Premium Upon a Fundamental Change, there will
be no such make-whole premium.
Conversion
of the notes may dilute the ownership interest of existing
stockholders.
The conversion of some or all of the notes may dilute the
ownership interests of existing stockholders, including holders
who have previously converted their notes. Any sales in the
public market of the common stock issuable upon such conversion
could adversely affect prevailing market prices of our common
stock. In addition, the existence of the notes may encourage
short selling by market participants, because the conversion of
the notes could depress the price of our common stock.
The
conversion rate of the notes may not be adjusted for all
dilutive events.
The conversion rate of the notes is subject to adjustment for
certain events, including, among others, the issuance of stock
dividends on our common stock, the issuance of rights or
warrants to acquire shares of our common stock or securities
convertible into shares of our common stock, subdivisions and
combinations of our common stock, dividends of our capital
stock, certain cash dividends and certain tender or exchange
offers. See Description of Notes Adjustment of
Conversion Rate. The conversion rate will not be adjusted
for other events, such as an issuance of shares of common stock
for cash, that may adversely affect the trading price of the
notes or our common stock. It is also possible that an event
that adversely affects the value of the notes, but does not
result in an adjustment to the conversion rate, could occur.
If you
hold notes, you are not entitled to any rights with respect to
our common stock, but you are subject to all changes made with
respect to our common stock.
If you hold notes, you are not entitled to any rights with
respect to our common stock, including, without limitation,
voting rights and rights to receive any dividends or other
distributions on our common stock, but you are subject to all
changes affecting the common stock. You will only be entitled to
rights on the common stock if and when we deliver shares of
common stock to you in exchange for your notes and in limited
cases under the anti-dilution adjustment provisions of the
notes. For example, in the event that an amendment is proposed
to our restated certificate of incorporation or amended and
restated bylaws requiring stockholder approval and the record
date for determining the stockholders of record entitled to vote
on the amendment occurs prior to delivery of the common stock,
you will not be entitled to vote on the amendment, although you
will nevertheless be subject to any changes in the powers or
rights of our common stock.
You may
have to pay taxes with respect to distributions on our common
stock that you do not receive.
The conversion rate of the notes is subject to adjustment for
certain events arising from stock splits and combinations, stock
dividends and other actions by us that modify our capital
structure. See Description of Notes Adjustment
of Conversion Rate. The conversion rate is also subject to
adjustment for other events such as certain fundamental changes
resulting in the payment of a make-whole premium by us. See
Description of Notes Make-Whole Premium Upon a
Fundamental Change. If the conversion rate is
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adjusted, under certain circumstances you may be deemed to have
received a constructive dividend from us, resulting in ordinary
income to you for U.S. federal income tax purposes, even
though you would not receive any cash related to that adjustment
and even though you might not exercise your conversion right.
See Material U.S. Federal Income Tax
Consequences.
An active
trading market for the notes may not develop, and you may not be
able to sell your notes at attractive prices or at
all.
The notes are a new issue of our securities for which there is
currently no public market, and no active trading market might
ever develop. If the notes are traded after their initial
issuance, they may trade at a discount from their initial
offering price, depending on prevailing interest rates, the
market for similar securities, the price, and volatility in the
price, of shares of our common stock, our performance and other
factors. In addition, we do not know whether an active trading
market will develop for the notes and even if one develops, that
it will be maintained. To the extent that an active trading
market does not develop or is maintained, the liquidity and
trading prices for the notes may be harmed.
We have no plans to list the notes on a securities exchange. We
have been advised by the underwriters that they presently intend
to make a market in the notes. However, the underwriters are not
obligated to do so. Any market-making activity, if initiated,
may be discontinued at any time, for any reason or for no
reason, without notice. If the underwriters cease to act as the
market makers for the notes, we cannot assure you another firm
or person will make a market in the notes.
The liquidity of any market for the notes will depend upon the
number of holders of the notes, our results of operations and
financial condition, the market for similar securities, the
interest of securities dealers in making a market in the notes
and other factors. An active or liquid trading market of the
notes may not develop.
An
adverse rating of the notes may cause their trading prices to
fall.
If a rating agency rates the notes, it may assign a rating that
is lower than investors expectations. Rating agencies also
may lower ratings on the notes in the future. If rating agencies
assign a
lower-than-expected
rating or reduce, or indicate that they may reduce, their
ratings in the future, the trading price of the notes could
significantly decline.
We may
issue additional shares of common stock and thereby materially
and adversely affect the price of our notes.
We are not restricted from issuing additional shares of common
stock during the life of the notes. If we issue additional
shares of common stock, the price of our common stock, and in
turn, the price of the notes may decline.
Our
management will have broad discretion in how we use the net
proceeds of this offering and the common stock
offering.
We have not determined the specific allocation of the net
proceeds from this offering and the concurrent common stock
offering. Our management will have broad discretion over the use
and investment of the net proceeds, and, accordingly, investors
in this offering will need to rely upon the judgment of our
management with respect to the use of proceeds, with only
limited information concerning managements specific
intentions. Our management may spend a portion or all of the new
proceeds in ways that our securityholders may not desire or that
may not yield a favorable return. The failure of our management
to apply the net proceeds from this offering and the concurrent
common stock offering effectively could harm our business,
financial condition and results of operations.
S-13
Our stock
price is volatile and may affect the trading price of the
notes.
The stock market, particularly in recent years, has experienced
significant volatility particularly with respect to
pharmaceutical and biotechnology stocks, and this trend may
continue. The volatility of pharmaceutical and biotechnology
stocks often does not relate to the operating performance of the
companies represented by the stock. Our business and the market
price of our common stock may be influenced by a large variety
of factors, including:
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the progress and results of our clinical trials;
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announcements by us or our competitors concerning their clinical
trial results, acquisitions, strategic alliances, technological
innovations and newly approved commercial products;
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the availability of critical materials used in developing and
manufacturing our Technosphere Insulin System or other product
candidates;
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developments or disputes concerning our patents or proprietary
rights;
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developments in our litigation with our former Chief Medical
Officer;
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the expense and time associated with, and the extent of our
ultimate success in, securing regulatory approvals;
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changes in securities analysts estimates of our financial
and operating performance;
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general market conditions and fluctuations for emerging growth
and pharmaceutical market sectors;
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sales of large blocks of our common stock, including sales by
our executive officers, directors and significant stockholders;
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discussion of our Technosphere Insulin System, our other product
candidates, competitors products, or our stock price by
the financial and scientific press, the healthcare community and
online investor communities such as chat rooms; and
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general economic, political or stock market conditions.
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Any of these risks, as well as other factors, could cause the
market price of our common stock to decline.
Because the notes are convertible into shares of our common
stock, volatility or depressed prices for our common stock could
have a similar effect on the trading price of the notes. This
may result in greater volatility in the trading price of the
notes than would be expected for any non-convertible debt
securities we may issue. Holders who receive our common stock
upon conversion of the notes will also be subject to the risk of
volatility and depressed prices of our common stock.
If other
biotechnology and biopharmaceutical companies or the securities
markets in general encounter problems, the market price of our
common stock could be adversely affected.
Public companies in general and companies included on the Nasdaq
Global Market in particular have experienced extreme price and
volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those
companies. There has been particular volatility in the market
prices of securities of biotechnology and other life sciences
companies, and the market prices of these companies have often
fluctuated because of problems or successes in a given market
segment or because investor interest has shifted to other
segments. These broad market and industry factors may cause the
market price of our common stock to decline, regardless of our
operating performance. We have no control over this volatility
and can only focus our efforts on our own operations, and even
these may be affected due to the state of the capital markets.
In the past, following periods of large price declines in the
public market price of a companys securities, securities
class action litigation has often been initiated against that
company. Litigation of this type
S-14
could result in substantial costs and diversion of
managements attention and resources, which would hurt our
business. Any adverse determination in litigation could also
subject us to significant liabilities.
Our
chairman, chief executive officer and principal stockholder can
individually control our direction and policies, and his
interests may be adverse to the interests of our other
stockholders. After his death, his stock will be left to his
funding foundations for distribution to various charities, and
we cannot assure you of the manner in which those entities will
manage their holdings.
Alfred E. Mann has been our primary source of financing to date.
At September 30, 2006, Mr. Mann beneficially owned
approximately 48.9% of our outstanding shares of capital stock.
Members of Mr. Manns family beneficially owned at
least an additional 2.0% of our outstanding shares of common
stock, although Mr. Mann does not have voting or investment
power with respect to these shares. In addition, as part of the
concurrent common stock offering, Mr. Mann is purchasing
5,750,000 shares of our common stock. By virtue of his
holdings, Mr. Mann can and will continue to be able to
effectively control the election of the members of our board of
directors, our management and our affairs and prevent corporate
transactions such as mergers, consolidations or the sale of all
or substantially all of our assets that may be favorable from
our standpoint or that of our other stockholders or cause a
transaction that we or our other stockholders may view as
unfavorable.
Subject to compliance with federal and state securities laws and
the lockup restrictions described in
Underwriting No Sales of Similar
Securities, Mr. Mann is free to sell the shares of
our stock he holds at any time. Upon his death, we have been
advised by Mr. Mann that his shares of our capital stock
will be left to the Alfred E. Mann Medical Research
Organization, or AEMMRO, and AEM Foundation for Biomedical
Engineering, or AEMFBE,
not-for-profit
medical research foundations that serve as funding organizations
for Mr. Manns various charities, including the Alfred
Mann Foundation, or AMF, and the Alfred Mann Institutes at the
University of Southern California and at the Technion-Israel
Institute of Technology, and that may serve as funding
organizations for any other charities that he may establish. The
AEMMRO is a membership foundation consisting of six members,
including Mr. Mann, four of his children and
Dr. Joseph Schulman, the director of AMF. The AEMFBE is a
membership foundation consisting of five members, including
Mr. Mann and the same four of his children. Although we
understand that the members of AEMMRO and AEMFBE have been
advised of Mr. Manns objectives for these
foundations, once Mr. Manns shares of our capital
stock become the property of the foundations, we cannot assure
you as to how those shares will be distributed or how they will
be voted.
The
future sale of our common stock could negatively affect our
stock price.
As of September 30, 2006, and assuming the sale of
20,000,000 shares in the concurrent common stock offering, we
had approximately 69,895,691 shares of common stock
outstanding. Substantially all of these shares are available for
public sale, subject in some cases to volume and other
limitations or delivery of a prospectus. If our common
stockholders sell substantial amounts of common stock in the
public market, or the market perceives that such sales may
occur, the market price of our common stock may decline.
Furthermore, if we were to include in a company-initiated
registration statement shares held by our stockholders pursuant
to the exercise of their registrations rights, the sale of those
shares could impair our ability to raise needed capital by
depressing the price at which we could sell our common stock.
In addition, we will need to raise substantial additional
capital in the future to fund our operations. If we raise
additional funds by issuing equity securities, the market price
of our common stock may decline and our existing stockholders
may experience significant dilution.
Anti-takeover
provisions in our charter documents and under Delaware law could
make an acquisition of us, which may be beneficial to our
stockholders, more difficult and may prevent attempts by our
stockholders to replace or remove our current
management.
We are incorporated in Delaware. Certain anti-takeover
provisions of Delaware law and our certificate of incorporation
and amended and restated bylaws, as currently in effect, may
make a change of
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control of our company more difficult, even if a change in
control would be beneficial to our stockholders. Our
anti-takeover provisions include provisions such as a
prohibition on stockholder actions by written consent, the
authority of our board of directors to issue preferred stock
without stockholder approval, and supermajority voting
requirements for specified actions. In addition, we are governed
by the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits stockholders owning
15% or more of our outstanding voting stock from merging or
combining with us in certain circumstances. These provisions may
delay or prevent the acquisition of us, even if the acquisition
may be considered beneficial by some of our stockholders. In
addition, they may frustrate or prevent any attempts by our
stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of
our board of directors, which is responsible for appointing the
members of our management.
Because
we do not expect to pay dividends in the foreseeable future, you
must rely on stock appreciation for any return on your
investment.
We have paid no cash dividends on any of our capital stock to
date, and we currently intend to retain our future earnings, if
any, to fund the development and growth of our business. As a
result, we do not expect to pay any cash dividends in the
foreseeable future, and payment of cash dividends, if any, will
also depend on our financial condition, results of operations,
capital requirements and other factors and will be at the
discretion of our board of directors. Furthermore, we may in the
future become subject to contractual restrictions on, or
prohibitions against, the payment of dividends. Accordingly, the
success of your investment in our common stock will likely
depend entirely upon any future appreciation. There is no
guarantee that our common stock will appreciate in value after
the offering or even maintain the price at which you purchased
your shares, and you may not realize a return on your investment
in our common stock.
S-16
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
charges for the periods indicated:
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Nine Months
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Ended
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Fiscal the Year Ended December 31,
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September 30,
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2001
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2002
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2003
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2004
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2005
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2006
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Ratio of earnings to fixed charges
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For the purpose of this table, earnings consist of
income (loss) from continuing operations before income taxes,
extraordinary items, cumulative effect of accounting changes,
equity in net losses of affiliates and fixed charges and
fixed charges consist of interest expense and the
portion of operating lease expense that represents interest. For
the fiscal years ended December 31, 2001, 2002, 2003, 2004
and 2005, and the nine months ended September 30, 2006, we
had no earnings. Our earnings for those periods were
insufficient to cover fixed charges by $48.2 million,
$206.3 million, $65.9 million, $76.0 million,
$114.3 million and $158.6 million, respectively.
S-17
USE OF
PROCEEDS
We estimate the net proceeds to us from the sale of the notes
will be approximately $96.8 million or $111.3 million
if the underwriters exercise their over-allotment option in
full, after payment of the underwriting discount and estimated
expenses of this offering. We estimate that the net proceeds
from the sale of common stock in the concurrent common stock
offering will be approximately $335.8 million or
$385.4 million if the underwriters exercise their
over-allotment option in full, after payment of the underwriting
discount and estimated expenses of the offering at a public
offering price of $17.42 per share. Of the
20,000,000 shares of our common stock being sold in the
concurrent common stock offering, the underwriters will not
receive any underwriting discount with respect to the
5,776,000 shares being sold to certain of our officers and
directors.
We intend to use the net proceeds to us from this note offering
and of the concurrent common stock offering to fund the costs of
our clinical trials programs and other research and development
activities, to expand our manufacturing operations, both
on-going and planned, and for general corporate purposes,
including working capital and repayment of $70.0 million in
principal amount of indebtedness, plus accrued interest, owed to
Alfred E. Mann pursuant to an outstanding note. This
indebtedness accrues interest at the lesser of London Interbank
Offered Rate plus 3% per annum and the maximum rate
permissible by law, and matures one year from the date of each
advance. We may also use a portion of the net proceeds to
in-license, invest in or acquire businesses or technologies that
we believe are complementary to our own, although we have no
current plan, commitments or agreements with respect to any
acquisitions as of the date of this prospectus supplement.
Pending these uses, we intend to invest the net proceeds in
investment-grade, interest-bearing securities. As of the date of
this prospectus supplement, we cannot specify with certainty all
of the particular uses for the net proceeds to us from the
offerings. Accordingly, we will retain broad discretion over the
use of these proceeds.
S-18
CAPITALIZATION
The following table shows our cash and cash equivalents and
marketable securities and capitalization as of
September 30, 2006:
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on an actual basis;
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on an as-adjusted basis to give effect to our issuance and sale
of $100.0 million aggregate principal amount of notes in
this offering, after deducting the underwriting discount and
estimated offering expenses payable by us, and (ii) the
(a) receipt by us of $20.0 million in cash that was
borrowed pursuant to our loan arrangement with Alfred E. Mann
after September 30, 2006 and (b) the repayment on the
date of this offering of all amounts owed under our loan
arrangement with Mr. Mann ($70.0 million in principal
amount of indebtedness plus approximately $0.9 million in
accrued interest); and
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on a pro forma as-adjusted basis to give effect to (i) both
our issuance and sale of $100.0 million aggregate principal
amount of notes in this offering and our concurrent issuance and
sale of 20,000,000 shares of common stock in the common
stock offering at the public offering price of $17.42 per
share, after deducting the underwriting discounts and estimated
offering expenses payable by us in connection with both
offerings, and (ii) the (a) receipt by us of
$20.0 million in cash that was borrowed pursuant to our
loan arrangement with Alfred E. Mann after September 30,
2006 and (b) the repayment on the date of this offering of
all amounts owed under our loan arrangement with Mr. Mann
($70.0 million in principal amount of indebtedness plus
approximately $0.9 million in accrued interest).
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This table should be read with our financial statements and the
related notes incorporated by reference in this prospectus
supplement and the accompanying prospectus.
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As of September 30, 2006
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Pro Forma
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As-Adjusted
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As-Adjusted
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(This Offering
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(Both Offerings
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and Debt
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and Debt
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(in thousands, except for share and per share data)
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Actual
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Repayment)(1)
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Repayment)(1)
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Cash, cash equivalents and
marketable securities
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$
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50,093
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$
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95,971
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$
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431,771
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Note payable to principal
stockholder(2)
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50,000
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Deferred compensation and other
liabilities
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24
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24
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24
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Senior convertible notes
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100,000
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100,000
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Stockholders equity:
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Undesignated preferred stock,
$0.01 par value, 10,000,000 shares authorized; no
shares issued or outstanding
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Common stock, $0.01 par
value; 90,000,000 shares authorized; 49,895,691 shares
issued and outstanding; 49,895,691 shares issued and
outstanding as adjusted; 69,895,691 shares issued and
outstanding pro forma as
adjusted(1)
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499
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499
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699
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Additional paid-in capital
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778,053
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778,053
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1,113,653
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Deficit accumulated during the
development stage
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(716,581
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)
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(716,581
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(716,581
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Total stockholders equity
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61,971
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61,971
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397,771
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Total capitalization
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$
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111,995
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$
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161,995
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$
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497,795
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(1) |
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The number of shares of common stock is based on the actual
number of shares outstanding as of September 30, 2006, but
excludes: |
S-19
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an aggregate of 5,891,800 shares of our common stock
issuable upon exercise of stock options outstanding as of
September 30, 2006, having a weighted average exercise
price of $13.46 per share, of which options to purchase
2,604,125 shares were exercisable as of that date at a
weighted average exercise price of $12.46 per share;
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an aggregate of 3,026,659 shares of common stock reserved
for issuance upon the exercise of warrants outstanding as of
September 30, 2006, with a weighted average exercise price
of $12.23 per share, all of which are exercisable as of
that date;
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an aggregate of 823,102 of our common stock issuable upon
vesting of restricted stock units as of September 30, 2006,
granted under our 2004 Equity Incentive Plan;
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an aggregate of 6,300,143 shares of our common stock
reserved for future issuance under our 2004 Equity Incentive
Plan, 2004 Non-Employee Directors Stock Option Plan and
2004 Employee Stock Purchase Plan as of September 30,
2006; and
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shares of common stock reserved for issuance upon conversion of
the convertible notes concurrently being offered by us in this
offering.
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(2) |
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The amount of Note payable to principal stockholder in the
Actual column reflects the $50.0 million in principal
amount outstanding as of September 30, 2006 and does not
reflect the additional $20.0 million in principal amount
that has since been borrowed by us and will also be repaid with
the proceeds from this offering. |
S-20
PRICE
RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq Global Market under the
symbol MNKD. The following table sets forth, during
the periods indicated, the high and low sales prices per share
of our common stock, as reported on the Nasdaq Global Market:
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Common Stock Price
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High
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Low
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Year Ended December 31, 2004
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Third Quarter (beginning
July 28, 2004)
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$
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24.31
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$
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10.71
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Fourth Quarter
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$
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20.40
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$
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14.32
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Year Ended December 31, 2005
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First Quarter
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$
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16.15
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$
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11.67
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Second Quarter
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$
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15.98
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$
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8.58
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Third Quarter
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$
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13.94
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$
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8.42
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Fourth Quarter
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$
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13.85
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$
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10.60
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Year Ended December 31, 2006
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First Quarter
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$
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21.74
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$
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11.20
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Second Quarter
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$
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21.74
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$
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16.42
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Third Quarter
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$
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21.48
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$
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16.26
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Fourth Quarter (through December
6, 2006)
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$
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21.68
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$
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15.73
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The last reported sale price of our common stock on the Nasdaq
Global Market on December 6, 2006 was $17.42. As of
December 5, 2006, there were approximately 204 stockholders
of record of our common stock.
DIVIDEND
POLICY
We have never declared or paid cash dividends. We do not
anticipate declaring or paying cash dividends in the foreseeable
future. Instead, we will retain our earnings, if any, for the
future operation and expansion of our business.
S-21
DESCRIPTION
OF NOTES
The notes will be issued under a senior indenture and
supplemental indenture between us and Wells Fargo Bank, National
Association, as trustee. We refer to the supplemental indenture
together with the senior indenture, as the indenture. Copies of
the form of indenture and the notes will be made available to
prospective investors in the notes upon request to us.
The following description is a summary of the material
provisions of the notes and the indenture. It does not purport
to be complete. This summary is subject to and is qualified by
reference to all the provisions of the notes and the indenture,
including the definitions of some terms used in these documents.
Wherever particular provisions or defined terms of the indenture
or form of note are referred to, these provisions or defined
terms are incorporated in this prospectus supplement by
reference. This description of the particular terms of the notes
supplements and, to the extent inconsistent with the description
of the general terms of the senior debt securities and the
indenture set forth in the accompanying prospectus under
Description of Debt Securities, replaces the
description in the accompanying prospectus. We urge you to read
the indenture and the notes because they define your rights as a
holder of the notes. Capitalized terms not defined in this
description have the meanings given them in the indenture. In
this section, MannKind, we,
our and us each refers only to MannKind
Corporation and not to any existing or future subsidiary.
General
The notes are our general, unsecured, senior obligations and are
convertible into our common stock as described under
Conversion Rights below. The notes are
limited to an aggregate principal amount of $100,000,000 (or
$115,000,000 if the underwriter exercises its overallotment
option in full) and will mature on December 15, 2013.
The notes bear interest at the rate of 3.75% per year from
the date of issuance of the notes, or from the most recent date
to which interest had been paid or provided for. Interest is
payable semi-annually in arrears on June and December 15 of
each year, commencing June 15, 2007 to holders of record at
the close of business on the preceding June and December 1,
respectively, except interest payable upon repurchase on a
fundamental change will be paid to the person to whom principal
is payable. Interest is computed on the basis of a
360-day year
comprised of twelve
30-day
months. Payment of cash interest on the notes will include
interest accrued for the period commencing on and including the
immediately preceding interest payment date (or, if none, the
original issuance date) through the day before the applicable
interest payment date or fundamental change purchase date, as
the case may be. In the event of the maturity, conversion or
purchase by us at the option of the holder of a note, interest
ceases to accrue on the note under the terms of, and subject to
the conditions of, the indenture.
We may pay interest by check mailed to the holders address
as it appears in the note register, provided that if the holder
holds an aggregate principal amount in excess of
$2.0 million, the holder shall be paid, at the
holders written election, by wire transfer in immediately
available funds. However, payments to The Depository Trust
Company, New York, New York, which we refer to as DTC, in
respect of notes represented by global certificates in
book-entry, will be made by wire transfer of immediately
available funds to the account of DTC or its nominee.
Principal is payable, and notes may be presented for conversion,
registration of transfer and exchange, without service charge,
at our office or the agency we designate for that purpose.
We may, without the consent of the holders, reopen
the notes and issue additional notes under the indenture with
the same terms and with the same CUSIP numbers as the notes
offered by this prospectus in an unlimited aggregate principal
amount, provided that no such additional notes may be issued
unless fungible with the notes offered hereby for
U.S. federal income tax purposes. We may also from time to
time repurchase the notes in open market purchases or negotiated
transactions without prior notice to holders.
The indenture does not contain any financial covenants or any
restrictions on the payment of dividends, the incurrence of
other indebtedness, or the issuance or repurchase of securities
by us. The indenture does not contain any covenants or other
provisions to protect holders of the notes in the event of a
S-22
highly leveraged transaction or a change of control, except to
the extent described under Make-Whole Premium
Upon a Fundamental Change and Repurchase
at Option of Holders Upon a Fundamental Change below.
Ranking
The notes:
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will be our general, unsecured, senior obligations and will rank
equally in right of payment with our other unsecured senior debt;
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will effectively rank junior in right of payment to any of our
existing and future secured debt, to the extent of the value of
the assets securing such debt; and
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will effectively rank junior in right of payment to any existing
and future debt and other liabilities of our subsidiaries,
including trade payables.
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As of September 30, 2006, after giving effect to this
offering of notes and the use of proceeds therefrom, we would
have had no outstanding secured debt, and our subsidiary would
have had no outstanding liabilities to which the notes would
rank effectively junior.
The terms of the supplemental indenture and the indenture under
which the notes are issued do not limit our ability to incur
additional debt, including secured debt.
Conversion
Rights
Holders may convert their notes into shares of our common stock
at any time prior to the stated maturity, unless the notes have
been previously redeemed or purchased. For each $1,000 principal
amount of the notes surrendered for conversion, a holder may
convert any outstanding notes into our common stock at an
initial conversion rate of 44.5002 shares of our common
stock per note, equal to an initial conversion price of
approximately $22.47. Upon conversion in connection with certain
fundamental changes, we will pay a make-whole premium to holders
of notes upon the conversion of their notes, as described below.
The conversion rate and the equivalent conversion price in
effect at any given time are referred to as the applicable
conversion rate and the applicable conversion
price, respectively, and will be subject to adjustment as
described below. A holder may convert fewer than all of such
holders notes so long as the amount of notes converted is
an integral multiple of $1,000 principal amount.
Upon conversion of a note, a holder will not receive any cash
payment of interest (unless in certain circumstances such
conversion occurs between a regular record date and the interest
payment date to which it relates) and we will not adjust the
conversion rate to account for accrued and unpaid interest. We
will not issue fractional shares of common stock upon conversion
of notes. Instead, we will pay cash in lieu of fractional shares
based on the closing sale price of our common stock on the
business day prior to the conversion date. Our delivery to the
holder of the full number of shares of our common stock into
which the note is convertible, together with any cash payment
for such holders fractional shares, will be deemed to
satisfy our obligation to pay the principal amount of the note
and our obligation to pay accrued and unpaid interest. As a
result, any accrued but unpaid interest to the conversion date
is deemed to be cancelled, extinguished and forfeited upon
conversion. For a discussion of the tax treatment to you of
receiving our common stock upon conversion, see Material
U.S. Federal Income Tax Considerations.
If a holder converts notes, we will pay any documentary, stamp
or similar issue or transfer tax due on the issuance of shares
of our common stock upon the conversion, unless the tax is due
because the holder requests the shares to be issued or delivered
to a person other than the holder, in which case the holder will
pay that tax.
If the holder holds a beneficial interest in a global note, to
convert the holder must comply with DTCs procedures for
converting a beneficial interest in a global note and, if
required, pay funds equal to the
S-23
interest payable on the next interest payment date to which the
holder is not entitled and, if required, pay all taxes or
duties, if any.
If the holder holds a certificated note, to convert the holder
must:
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complete and manually sign the conversion notice on the back of
the note, or facsimile of the conversion notice;
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deliver the conversion notice, which is irrevocable, and the
note to the conversion agent;
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if required, furnish appropriate endorsements and transfer
documents;
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if required, pay all transfer or similar taxes; and
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if required, pay funds equal to interest payable on the next
interest payment date to which the holder is not entitled.
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The date the holder complies with these requirements is the
conversion date under the indenture.
If a holder has already delivered a fundamental change purchase
notice as described under Repurchase at Option
of Holders Upon a Fundamental Change with respect to a
note, however, the holder may not surrender that note for
conversion until the holder has withdrawn the fundamental change
purchase notice in accordance with the indenture.
Holders may surrender their notes for conversion to shares of
our common stock at the applicable conversion rate at any time
prior to the close of business on the business day immediately
preceding the stated maturity date. The notes and the shares
issuable upon conversion of the notes will be registered under
the Securities Act on the date the notes are issued.
Holders of notes at the close of business on a regular record
date will receive payment of interest payable on the
corresponding interest payment date notwithstanding the
conversion of such notes at any time after the close of business
on the applicable regular record date. Notes surrendered for
conversion by a holder during the period from the close of
business on any regular record date to the opening of business
on the next interest payment date must be accompanied by payment
of an amount equal to the interest that the holder is to receive
on the notes; provided, however, that no such
payment need be made (1) if we have specified a purchase
date following a fundamental change that is after a record date
and on or prior to the next interest payment date, (2) only
to the extent of overdue interest, if any overdue interest
exists at the time of conversion with respect to such note, or
(3) if conversion occurs after the last record date prior
to the maturity date.
Adjustment
of Conversion Rate
The applicable conversion rate will be adjusted only as
described below; provided, however, that we will not make any
adjustments to the conversion rate if holders of the notes
participate (as a result of holding the notes, and at the same
time as the common stockholders participate) in any of the
transactions described below as if such holders of the notes
held a number of shares of our common stock equal to the
applicable conversion rate, multiplied by the principal
amount (expressed in thousands) of notes held by such holder,
without having to convert their notes.
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(1)
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If we issue shares of our common stock as a dividend or
distribution on shares of our common stock, or if we effect a
share split or share combination, the conversion rate will be
adjusted based on the following formula:
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where,
CR0
= the conversion rate in effect immediately prior to the
ex-dividend date for such dividend or distribution, or the
effective date of such share split or share combination, as the
case may be;
S-24
CR = the new conversion rate in effect immediately after
the ex-dividend date for such dividend or distribution, or the
effective date of such share split or share combination, as the
case may be;
OS0
= the number of shares of our common stock outstanding
immediately prior to the ex-dividend date for such dividend or
distribution, or the effective date of such share split or share
combination, as the case may be; and
OS = the number of shares of our common stock outstanding
immediately after such dividend or distribution, or the
effective date of such share split or share combination, as the
case may be.
Any adjustment made pursuant to this clause (1) shall
become effective immediately on or after (x) the
ex-dividend date for such dividend or distribution or
(y) the date on which such split or combination becomes
effective, as applicable. If any dividend or distribution
described in this clause (1) is declared but not so paid or
made, the new conversion rate shall be readjusted to the
conversion rate that would then be in effect if such dividend or
distribution had not been declared.
The ex-dividend date is the first date or which
shares of our common stock trade on the applicable exchange or
in the applicable market, regular way, without the right to
receive the issuance, dividend or distribution in question.
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(2)
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If we distribute to all holders of our common stock any rights
or warrants entitling them to purchase, for a period of not more
than 45 days after the ex-dividend date for the
distribution, shares of our common stock at a price per share
less than the average of the last reported sales prices of our
common stock for the 10 consecutive
business-day
period ending on the business day preceding the ex-dividend date
for such distribution, the conversion rate will be adjusted
based on the following formula:
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OS0
+ X
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CR = CR0
x
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OS0
+ Y
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where,
CR0
= the conversion rate in effect immediately prior to the
ex-dividend date for such distribution;
CR = the new conversion rate in effect immediately prior
to the ex-dividend date for such distribution;
OS0
= the number of shares of our common stock outstanding
immediately prior to the ex-dividend date for such distribution;
X = the total number of shares of our common stock issuable
pursuant to such rights or warrants; and
Y = the number of shares of our common stock equal to the
aggregate price payable to exercise such rights or warrants
divided by the average of the last reported sale prices of our
common stock over the 10 consecutive
business-day
period ending on the
business-day
immediately preceding the ex-dividend date for such distribution.
For purposes of this clause (2), in determining whether any
rights or warrants entitled the holders to subscribe for or
purchase our common stock at less than the applicable last
reported sale prices of our common stock, and in determining the
aggregate exercise or conversion price payable for such common
stock, there shall be taken into account any consideration
received by us for such rights or warrants and any amount
payable on exercise or conversion thereof, with the value of
such consideration, if other than cash, to be determined by our
board of directors. If any right or warrant described in this
clause (2) is not exercised or converted prior to the
expiration of the exercisability or convertibility thereof, the
new conversion rate shall be readjusted to the conversion rate
that would then be in effect if such right or warrant had not
S-25
been so issued. Any adjustment made pursuant to this
clause (2) shall become effective immediately after the
ex-dividend date for the applicable distribution.
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(3)
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If we distribute shares of our capital stock, evidences of our
indebtedness or other assets or property of ours to all holders
of our common stock, excluding:
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dividends or distributions referred to in clause (1) or
(2) above;
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dividends or distributions paid exclusively in cash; and
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spin-offs to which the provisions set forth below in this
clause (3) shall apply;
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then the conversion rate will be adjusted based on the following
formula:
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SP0
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CR = CR0 x
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SP0
− FMV
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where,
CR0
= the conversion rate in effect immediately prior to the
ex-dividend date for such distribution;
CR= the new conversion rate in effect immediately after
the ex-dividend date for such distribution;
SP0
= the average of the last reported sale prices of our common
stock over the 10 consecutive
business-day
period ending on the business day immediately preceding the
ex-dividend date for such distribution; and
FMV = the average of the fair market values (as determined by
our board of directors) of the shares of capital stock,
evidences of indebtedness, assets or property distributed with
respect to each outstanding share of our common stock over the
10 consecutive
business-day
period ending on the business day immediately preceding the
ex-dividend date for such distribution.
An adjustment to the conversion rate made pursuant to this
clause (3) shall become effective immediately after the
ex-dividend date for the applicable distribution.
With respect to an adjustment pursuant to this clause (3)
where there has been a payment of a dividend or other
distribution on our common stock or shares of capital stock of
any class or series, or similar equity interest, of or relating
to a subsidiary or other business unit, which we refer to as a
spin-off, the conversion rate in effect immediately
before 5:00 p.m., New York City time, on the tenth business
day immediately following, and including, the effective date of
the spin-off will be increased based on the following formula:
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FMV0
+
MP0
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CR = CR0 x
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MP0
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where,
CR0
= the conversion rate in effect immediately prior to the tenth
business day immediately following, and including, the effective
date of the spin-off;
CR = the new conversion rate in effect immediately after
the tenth business day immediately following, and including, the
effective date of the spin-off;
FMV0
= the average of the last reported sale prices of the capital
stock or similar equity interest distributed to holders of our
common stock applicable to one share of our common stock over
the first 10 consecutive
business-day
period immediately following, and including, the effective date
of the spin-off; and
S-26
MP0
= the average of the last reported sale prices of our common
stock over the first 10 consecutive
business-day
period immediately following, and including, the effective date
of the spin-off.
The adjustment to the conversion rate under this clause (3)
will occur immediately after the tenth business day immediately
following, and including, the effective date of the spin-off
provided that, for purposes of determining the conversion rate,
in respect of any conversion during the ten business days
following the effective date of any spin-off, references within
the portion of this clause (3) related to
spin-offs to 10 business days shall be deemed
replaced with such lesser number of business days as have
elapsed between the effective date of such spin-off and the
relevant conversion date.
If any such dividend or distribution described in this
clause (3) is declared but not paid or made, the new
conversion rate shall be readjusted to be the conversion rate
that would then be in effect if such dividend or distribution
had not been declared.
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(4)
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If any cash dividend or distribution is made to all holders of
our common stock, the conversion rate will be adjusted based on
the following formula:
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where,
CR0
= the conversion rate in effect immediately prior to the
ex-dividend date for such distribution;
CR= the new conversion rate in effect immediately after
the ex-dividend date for such distribution:
SP0
= the last reported sale price of our common stock on the
business day immediately preceding the ex-dividend date for such
distribution; and
C = the amount in cash per share we distribute to holders of our
common stock.
An adjustment to the conversion rate made pursuant to this
clause (4) shall become effective immediately after the
ex-dividend date for the applicable dividend or distribution. If
any dividend or distribution described in this clause (4)
is declared but not so paid or made, the new conversion rate
shall be readjusted to the conversion rate that would then be in
effect if such dividend or distribution had not been declared.
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(5)
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If we or any of our subsidiaries make a payment in respect of a
tender offer or exchange offer for our common stock, to the
extent that the cash and value of any other consideration
included in the payment per share of common stock exceeds the
last reported sale price of our common stock on the business day
next succeeding the last date on which tenders or exchanges may
be made pursuant to such tender or exchange offer, the
conversion rate will be increased based on the following formula:
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AC + (SP x OS)
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CR = CR0 x
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OS0
x SP
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where,
CR0
= the conversion rate in effect at the close of business on the
last business day of the 10 consecutive
business-day
period commencing on the business day next succeeding the date
such tender or exchange offer expires;
S-27
CR = the new conversion rate in effect immediately
following the last business day of the 10 consecutive
business-day
period commencing on the business day next succeeding the date
such tender or exchange offer expires;
AC = the aggregate value of all cash and any other consideration
(as determined by our board of directors) paid or payable for
shares purchased in such tender or exchange offer;
OS0
= the number of shares of our common stock outstanding
immediately prior to the expiration of such tender or exchange
offer;
OS = the number of shares of our common stock outstanding
immediately after the expiration of such tender or exchange
offer (after giving effect to the purchase or exchange of shares
pursuant to such tender or exchange offer); and
SP = the average of the last reported sale prices of our
common stock over the 10 consecutive
business-day
period commencing on the business day next succeeding the date
such tender or exchange offer expires.
The adjustment to the conversion rate under this clause (5)
shall become effective immediately following the tenth business
day next succeeding the date such tender or exchange offer
expires; provided that, for purposes of determining the
conversion rate, in respect of any conversion during the ten
business days following the date that any tender or exchange
offer expires, references within this clause (5) to 10
business days shall be deemed replaced with such lesser number
of business days as have elapsed between the date such tender or
exchange offer expires and the relevant conversion date. If we
or one of our subsidiaries is obligated to purchase our common
stock pursuant to any such tender or exchange offer but are
permanently prevented by applicable law from effecting any such
purchase or all such purchases are rescinded, the new conversion
rate shall he readjusted to be the conversion rate that would be
in effect if such tender or exchange offer had not been made.
Except as stated herein, we will not adjust the conversion rate
for the issuance of shares of our common stock or any securities
convertible into or exchangeable for shares of our common stock
or the right to purchase shares of our common stock or such
convertible or exchangeable securities. If, however, the
application of the foregoing formulas would result in a decrease
in the conversion rate, no adjustment to the conversion rate
will be made (except on account of share combinations).
To the extent that we have a rights plan in effect upon
conversion of the notes into common stock, holders will receive,
upon conversion of notes, the rights under the rights plan,
unless prior to any conversion, the rights have separated from
the common stock, in which case, and only in such case, the
conversion rate will be adjusted at the time of separation as if
we distributed to all holders of our common stock, shares of our
capital stock, evidences of indebtedness or assets as described
in the clause (3) above, subject to readjustment in the
event of the expiration, termination or redemption of such
rights.
We will not make any adjustment to the conversion rate except as
specifically set forth in this Adjustment of Conversion
Rate and in Make-Whole Premium Upon a
Fundamental Change. Without limiting the foregoing, the
applicable conversion rate will not be adjusted:
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upon the issuance of any shares of our common stock pursuant to
any present or future plan providing for the reinvestment of
dividends or interest payable on our securities and the
investment of additional optional amounts in shares of our
common stock under any plan;
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upon the issuance of any shares of our common stock or options
or rights to purchase those shares pursuant to any present or
future employee, director or consultant benefit plan or program
or employee stock purchase plan of or assumed by us or any of
our subsidiaries;
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S-28
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upon the issuance of any shares of our common stock pursuant to
any option, warrant, right or exercisable, exchangeable or
convertible security not described in the preceding bullet and
outstanding as of the date the notes were first issued;
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for a change in the par value of the common stock; or
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for accrued and unpaid interest and additional interest, if any.
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If any adjustment of the conversion rate would be less than 1%
of the then effective rate, such adjustment shall be carried
forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with
the original adjustment shall aggregate at least 1% of the then
effective conversion rate; provided, however, that any carry
forward amount shall be paid to the holder upon conversion
regardless of the 1% threshold.
In the case of:
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any recapitalization, reclassification or change of our common
stock, other than changes resulting from a subdivision or
combination;
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a consolidation, merger or combination involving us;
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a sale, conveyance or lease to another corporation of all or
substantially all of our property and assets; or
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any statutory share exchange,
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in each case as a result of which holders of our common stock
are entitled to receive stock, other securities, other property
or assets (including cash or any combination thereof) (the
reference property) with respect to or in exchange
for our common stock, the holders of the notes then outstanding
will be entitled thereafter to convert those notes into the kind
and amount of shares of stock, other securities or other
property or assets (including cash or any combination thereof)
which they would have owned or been entitled to receive upon
such business combination had such notes been converted into our
common stock immediately prior to such business combination. In
the event holders of our common stock have the opportunity to
elect the form of consideration to be received in such business
combination, the reference property will be deemed to be the
weighted average of the types and amounts of consideration
received by the holders of our common stock that affirmatively
make such election. We will notify the holders of the weighted
average as soon as practicable after such determination is made.
We may not become a party to any such transaction unless its
terms are consistent with the preceding. None of the foregoing
provisions shall affect the right of a holder of notes to
convert its notes into shares of our common stock prior to the
effective date of such transaction.
If we make a distribution of property to holders of our common
stock that would be taxable to them as a dividend for
U.S. federal income tax purposes and the conversion rate is
increased, this increase would generally be deemed to be the
receipt of taxable income by U.S. holders (as defined in
Material U.S. Federal Income Tax Consequences)
of the notes and would generally result in withholding taxes for
non-U.S. holders
(as defined in Material U.S. Federal Income Tax
Consequences). Because this deemed income would not give
rise to any cash from which any applicable withholding tax could
be satisfied, we may offset any such withholding tax applicable
to
non-U.S. holders
against cash payments of interest payable on the notes. See
Material U.S. Federal Income Tax
Consequences Consequences to
U.S. Holders Constructive Dividends and
Consequences to
Non-U.S. Holders
Dividends.
We may from time to time, to the extent permitted by law,
increase the conversion rate of the notes by any amount for any
period of at least 20 days. In that case we will give at
least 15 days notice of such increase. We may make
such increase in the conversion rate, in addition to those set
forth above, as our board of directors deems advisable to avoid
or diminish any income tax to holders of our common stock
resulting from any dividend or distribution of stock (or rights
to acquire stock) or from any event treated as such for income
tax purposes.
S-29
Make-Whole
Premium Upon a Fundamental Change
If a fundamental change, other than a fundamental change
described under the third and fourth bullet points under the
definition of a change of control described below under
Repurchase at Option of Holders Upon a
Fundamental Change, occurs, in certain circumstances, we
will pay a make-whole premium upon the conversion of the notes
in connection with any such transaction by increasing the
conversion rate on such notes. The make-whole premium will be in
addition to, and not in substitution for, any cash, securities
or other assets otherwise due to holders of notes upon
conversion. The make-whole premium will be determined by
reference to the table below and is based on the date on which
the fundamental change becomes effective, referred to as the
effective date, and the price, referred to as the
stock price, paid, or deemed to be paid, per share
of our common stock in the transaction constituting the
fundamental change, subject to adjustment as described below. If
holders of our common stock receive only cash in the fundamental
change, the stock price shall be the cash amount paid per share.
In all other cases, the stock price shall be the average closing
sale price of our common stock for the 10 trading days
immediately prior to but not including the effective date.
The following table shows what the make-whole premium would be
for each hypothetical stock price and effective date set forth
below, expressed as additional shares of common stock per $1,000
principal amount of notes.
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Effective Date
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Stock Price on Effective Date
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12/12/06
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12/15/07
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12/15/08
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12/15/09
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12/15/10
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12/15/11
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12/15/12
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12/15/13
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$ 17.42
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12.9049
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12.9049
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12.9049
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12.9049
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12.9049
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12.9049
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12.9049
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12.9049
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$ 20.00
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10.5921
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10.0069
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9.3784
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8.6947
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7.9346
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7.1036
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6.1242
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5.4998
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$ 25.00
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7.8688
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7.2594
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6.5736
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5.7895
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4.8654
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3.7737
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2.3243
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0.0000
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$ 30.00
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6.2925
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5.7304
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5.0952
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4.3652
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3.5099
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2.5230
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1.3157
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0.0000
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$ 35.00
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5.2673
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4.7642
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4.1968
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3.5483
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2.7979
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1.9646
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1.0142
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0.0000
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$ 40.00
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4.5632
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4.1093
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3.6014
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3.0284
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2.3894
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1.6632
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0.8691
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0.0000
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$ 45.00
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4.0322
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3.6270
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3.1731
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2.6618
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2.0978
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1.4609
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0.7696
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0.0000
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$ 50.00
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3.6152
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3.2495
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2.8408
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2.3810
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1.8772
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1.3090
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0.6922
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0.0000
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$ 75.00
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2.4045
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2.1520
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1.8807
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1.5744
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1.2443
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0.8686
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0.4616
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0.0000
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$100.00
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1.8047
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1.6122
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1.4075
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1.1777
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0.9316
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0.6496
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0.3461
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0.0000
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$150.00
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1.2058
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1.0749
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0.9373
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0.7821
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0.6189
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0.4297
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0.2299
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0.0000
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$200.00
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0.9071
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0.8055
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0.7022
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0.5836
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0.4624
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0.3186
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0.1696
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0.0000
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The hypothetical stock prices and additional share amounts set
forth above are based on a common stock price of $17.42 per
share on December 6, 2006 and an initial conversion price
of $22.47 per share.
The actual stock price and effective date may not be set forth
on the table, in which case:
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if the actual stock price on the effective date is between two
stock prices on the table or the actual effective date is
between two effective dates on the table, the make-whole premium
will be determined by a straight-line interpolation between the
make-whole premiums set forth for the two stock prices and the
two effective dates on the table based on a
365-day
year, as applicable;
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if the stock price on the effective date exceeds $200.00 per
share, subject to adjustment as described below, no make-whole
premium will be paid; and
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if the stock price on the effective date is less than $17.42 per
share, subject to adjustment as described below, no make-whole
premium will be paid.
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The stock prices set forth in the first column of the table
above will be adjusted as of any date on which the conversion
rate of the notes is adjusted. The adjusted stock prices will
equal the stock prices applicable immediately prior to such
adjustment multiplied by a fraction, the numerator of which is
the conversion rate immediately prior to the adjustment giving
rise to the stock price adjustment and the denominator of which
is the conversion rate as so adjusted. The number of additional
shares set forth in the
S-30
table above will be adjusted in the same manner as the
conversion rate as set forth above under
Conversion Rights, other than by
operation of an adjustment to the conversion rate by adding the
make-whole premium as described above.
A conversion of the notes by a holder will be deemed for these
purposes to be in connection with a fundamental
change if the conversion notice is received by the conversion
agent on or subsequent to the date we provide the notice
referred to in the next sentence but before the close of
business on the 10th business day immediately following the
effective date of the fundamental change. We will notify holders
of notes of the anticipated effective date of any fundamental
change as promptly as practicable following the date we publicly
announce such fundamental change, but in no event less than
20 days prior to such date.
Notwithstanding the foregoing, in no event will the conversion
rate exceed 57.4051 per $1,000 principal amount of notes,
subject to adjustments in the same manner as the conversion rate.
The additional shares will be delivered upon the later of the
settlement date for the conversion and promptly following the
effective date of the fundamental change transaction.
If a holder converts its notes prior to the effective date of
any fundamental change, and the fundamental change does not
occur, you will not be entitled to additional shares in
connection with such conversion.
Our obligation to pay the make-whole premium may constitute a
penalty under applicable contract law, and therefore its
enforceability cannot be assured.
Repurchase
at Option of Holders Upon a Fundamental Change
If a fundamental change occurs, each holder of notes will have
the right to require us to repurchase all or any portion of that
holders notes that is equal to $1,000 or a whole multiple
of $1,000, on the fundamental change purchase date, which shall
be a date specified by us, but that shall not be less than
20 days nor more than 35 days after the date we give
notice of the fundamental change, at a purchase price, payable
in cash, equal to 100% of the principal amount of the notes to
be repurchased, together with interest accrued and unpaid to,
but excluding, the fundamental change date.
We will mail to all record holders a notice of a fundamental
change within 10 days after it has occurred. We are also
required to deliver to the trustee a copy of the fundamental
change notice. If a holder elects to require us to repurchase
the holders notes, the holder must deliver to us or our
designated agent, on or before the fundamental change purchase
date, the holders fundamental change purchase notice. Our
notice of the fundamental change (delivered in any manner
permitted by the indenture, including through DTC) will be
provided to all holders of the notes and the trustee and paying
agent and include notice of the occurrence of the fundamental
change and of the resulting repurchase right. Such fundamental
change notice shall state, among other things:
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the events causing a fundamental change;
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the date of the fundamental change;
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the last date on which a holder may exercise the repurchase
right;
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the fundamental change purchase price;
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the fundamental change purchase date;
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the name and address of the paying agent and the conversion
agent, if applicable;
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that the notes with respect to which a fundamental change
purchase notice has been delivered by a holder may be converted
only if the holder withdraws the fundamental change purchase
notice in accordance with the terms of the indenture; and
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the procedures that holders must follow to require us to
purchase their notes.
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S-31
Simultaneously with providing such notice, we will publish a
notice containing this information in a newspaper of general
circulation in The City of New York or publish the information
on our website or through such other public medium as we may use
at that time.
To exercise the repurchase right, a holder must deliver, on or
before the business day immediately preceding the fundamental
change purchase date, subject to extension to comply with
applicable law, the notes to be purchased, duly endorsed for
transfer, together with a written purchase notice and the form
entitled Form of Fundamental Change Purchase Notice
on the reverse side of the notes duly completed, to the paying
agent. The holders fundamental change purchase notice must
state:
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if certificated, the certificate numbers of the holders
notes to be delivered for purchase, or if not certificated, the
holders notice must comply with appropriate DTC procedures;
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the portion of the principal amount of notes to be purchased,
which must be $1,000 or a multiple thereof; and
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that the notes are to be purchased by us pursuant to the
applicable provisions of the notes and the indenture.
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A holder may withdraw any fundamental change purchase notice in
whole or in part by a written notice of withdrawal delivered to
the paying agent prior to the close of business on the business
day prior to the fundamental change purchase date. The notice of
withdrawal must state:
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the principal amount of the withdrawn notes;
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if certificated notes have been issued, the certificate numbers
of the withdrawn notes, or if not certificated, the
holders notice must comply with appropriate DTC
procedures; and
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the principal amount, if any, which remains subject to the
purchase notice.
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We will be required to purchase the notes on the fundamental
change purchase date, subject to extension to comply with the
applicable law. Holders will receive payment of the fundamental
change purchase price promptly following the later of the
fundamental change purchase date or the time of book-entry
transfer or the delivery of the notes. If the paying agent holds
money or securities sufficient to pay the fundamental change
purchase price of the notes on the business day following the
fundamental change purchase date, then:
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the notes will cease to be outstanding and interest, including
any additional interest, if any, will cease to accrue (whether
or not book-entry transfer of the notes is made or whether or
not the note is delivered to the paying agent); and
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all other rights of the holder will terminate (other than the
right to receive the fundamental change purchase price and
previously accrued and unpaid interest (including any additional
interest) upon delivery or transfer of the notes).
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A fundamental change will be deemed to have occurred
upon a change of control or a termination of trading, each as
defined below.
A change of control will be deemed to have occurred
at such time after the original issuance of the notes when the
following has occurred:
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the acquisition by any person, including any syndicate or group
deemed to be a person under Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (Exchange Act),
of beneficial ownership, directly or indirectly, through a
purchase, merger or other acquisition transaction or series of
transactions of shares of our capital stock entitling that
person to exercise 50% or more of the total voting power of all
shares of our capital stock entitled to vote generally in
elections of directors, other than;
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any acquisition by us, any of our subsidiaries or any of our
employee benefit plans,
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S-32
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any acquisition during the lifetime of Alfred E. Mann by
Mr. Mann or his estate, by any trust where Mr. Mann is
the trustee or grantor, by any
not-for-profit
entity where the acquisition is directed by Mr. Mann or by
any entity wholly-owned by Mr. Mann or his estate;
provided that the total beneficial ownership of all such
persons and entities, together with the persons and entities in
the next bullet point, does not exceed 70% or more of the total
voting power of all shares of our capital stock entitled to vote
generally in elections of directors, or
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any acquisition by any person or entity so long as the shares
acquired by such person or entity are acquired directly from one
of the persons or entities listed in the preceding bullet point
and no consideration is paid in connection with such acquisition;
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our consolidation or merger with or into any other person, any
merger of another person into us, or any conveyance, transfer,
sale, lease or other disposition of all or substantially all of
our properties and assets to another person, other than:
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that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of our capital
stock, and
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pursuant to which holders of our capital stock immediately prior
to the transaction have the entitlement to exercise, directly or
indirectly, 50% or more of the total voting power of all shares
of our capital stock entitled to vote generally in the election
of directors of the continuing or surviving person immediately
after the transaction; or
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any merger solely for the purpose of changing our jurisdiction
of incorporation and resulting in a reclassification, conversion
or exchange of outstanding shares of common stock solely into
shares of common stock of the surviving entity;
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during any consecutive two-year period, individuals who at the
beginning of that two-year period constituted our board of
directors, together with any new directors whose election to our
board of directors, or whose nomination for election by our
stockholders, was approved by a vote of a majority of the
directors then still in office who were either directors at the
beginning of such period or whose election or nomination for
election was previously so approved, cease for any reason to
constitute a majority of our board of directors then in
office; or
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our stockholders pass a resolution approving a plan of
liquidation or dissolution.
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However, a change in control will not be deemed to have occurred
if, in the case of a merger or consolidation, at least 90% of
the consideration (excluding cash payments for fractional shares
and cash payments pursuant to dissenters appraisal rights)
in the merger or consolidation constituting the change in
control consists of common stock traded on a U.S. national
securities exchange or quoted on the Nasdaq Global 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 notes become convertible solely
into such common stock.
A termination of trading will be deemed to have
occurred if our common stock or other common stock into which
the notes are convertible is neither listed for trading on a
U.S. national securities exchange nor approved for listing
on Nasdaq or any similar U.S. system of automated
dissemination of quotations of securities prices, or traded in
over-the-counter
securities markets, and no American Depositary Shares or similar
instruments for such common stock are so listed or approved for
listing in the U.S.
The beneficial owner shall be determined in accordance with
Rule 13d-3
promulgated by the SEC under the Exchange Act. The term
person includes any syndicate or group which would
be deemed to be a person under Section 13(d)(3)
of the Exchange Act.
The second bullet of the definition of change of control
includes a phrase relating to the conveyance, transfer, lease,
or other disposition of all or substantially all of
our assets. There is no precise established definition of the
phrase substantially all under applicable law.
Accordingly, the ability of a holder of notes
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to require us to repurchase such notes as a result of a
conveyance, transfer, lease, or other disposition of less than
all of our assets may be uncertain.
In some circumstances, the fundamental change repurchase feature
of the notes may make it more difficult or discourage a
potential acquirer and thus the removal of incumbent management.
The fundamental change repurchase feature, however, is not the
result of managements knowledge of any specific effort to
accumulate shares of common stock or to obtain control of us by
means of a merger, tender offer, solicitation or otherwise, or
part of a plan by management to adopt a series of anti-takeover
provisions. Instead, the fundamental change repurchase feature
is the result of negotiations between us and the underwriters.
In connection with any purchase offer pursuant to a fundamental
change purchase notice, we will, if required:
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comply with the provisions of the tender offer rules under the
Exchange Act that may then be applicable; and
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file a Schedule TO or any other required schedule under the
Exchange Act.
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We may, to the extent permitted by applicable law, at any time
purchase the notes in the open market or by tender at any price
or by private agreement. Any note so purchased by us may, to the
extent permitted by applicable law, be reissued or resold or may
be surrendered to the trustee for cancellation. Any notes
surrendered to the trustee may not be reissued or resold and
will be canceled promptly.
The term fundamental change is limited to specific
transactions and may not include other events that might
adversely affect our financial condition or business operations.
The preceding provisions would not necessarily protect holders
of the notes if highly leveraged or other transactions involving
us occur that may adversely affect holders.
Our ability to repurchase notes upon the occurrence of a
fundamental change is subject to important limitations. The
occurrence of a fundamental change could cause an event of
default under, or be prohibited or limited by, the terms of then
existing indebtedness or financing arrangements. We cannot
assure you that we would have the financial resources, or would
be able to arrange financing, to pay the repurchase price for
all the notes that might be delivered by holders of notes
seeking to exercise the repurchase right. Any failure by us to
repurchase the notes when required following a fundamental
change would result in an event of default under the indenture.
Any such default may, in turn, cause a default under existing or
future senior debt.
No
Stockholder Rights for Holders of Notes
Holders of notes, as such, will not have any rights as our
stockholders (including, without limitation, voting rights and
rights to receive any dividends or other distributions on shares
of our common stock), except in limited circumstances described
above under Adjustment of Conversion
Rate.
Calculations
in Respect of the Notes
Except as explicitly specified otherwise herein, we will be
responsible for making all calculations required under the
notes. These calculations include, but are not limited to,
determinations of the conversion price and conversion rate
applicable to the notes. We will make all these calculations in
good faith and, absent manifest error, our calculations will be
final and binding on holders of the notes. We will provide a
schedule of our calculations to the trustee, and the trustee is
entitled to rely upon the accuracy of our calculations without
responsibility for independent verification thereof. The trustee
will forward our calculations to any holder of notes upon
written request.
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Consolidation,
Merger and Sale of Assets
We may, without the consent of the holders of notes, consolidate
with, merge into or transfer all or substantially all of our
assets to any corporation, limited liability company,
partnership or trust organized under the laws of the
U.S. or any of its political subdivisions provided that:
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the surviving entity assumes all our obligations under the
indenture and the notes, as provided in the indenture;
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at the time of such transaction, no event of default, and no
event which, after notice or lapse of time, would become an
event of default, shall have happened and be continuing; and
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an officers certificate and an opinion of counsel, each
stating that the consolidation, merger or transfer complies with
the provisions of the indenture, have been delivered to the
trustee.
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Events of
Default
Each of the following will constitute an event of default under
the indenture:
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our failure to pay when due the principal of or premium, if any,
on any of the notes at maturity, upon exercise of a repurchase
right or otherwise;
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our failure to pay an installment of interest on any of the
notes for 30 days after the date when due;
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our failure to deliver shares of common stock, together with
cash instead of fractional shares, when those shares of common
stock or cash instead of fractional shares, are required to be
delivered following conversion of a note, and that failure
continues for 10 days;
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our failure to perform or observe any other term, covenant or
agreement contained in the notes or the indenture for a period
of 60 days after written notice of such failure, requiring
us to remedy the same, shall have been given to us by the
trustee or to us and the trustee by the holders of at least 25%
in aggregate principal amount of the notes then outstanding;
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our failure to make any payment by the end of the applicable
grace period, if any, after the maturity of any indebtedness for
borrowed money in an amount in excess of $25.0 million, or
there is an acceleration of indebtedness for borrowed money in
an amount in excess of $25.0 million because of a default
with respect to such indebtedness without such indebtedness
having been discharged or such acceleration having been cured,
waived, rescinded or annulled, in either case, for a period of
30 days after written notice to us by the trustee or to us
and the trustee by holders of at least 25% in aggregate
principal amount of the notes then outstanding;
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our failure to give you notice of your rights to require us to
repurchase your notes upon a fundamental change; and
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certain events of our bankruptcy, insolvency or reorganization.
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If an event of default specified in the seventh bullet point
above occurs and is continuing, then the principal of all the
notes and the interest thereon shall automatically become
immediately due and payable. If an event of default occurs and
is continuing, other than an event of default specified in the
seventh bullet point above, the trustee or the holders, with
written notice to the trustee, of at least 25% in aggregate
principal amount of the notes then outstanding may declare the
notes due and payable at their principal amount together with
accrued interest, and thereupon the trustee may, at its
discretion, proceed to protect and enforce the rights of the
holders of notes by appropriate judicial proceedings. Such
declaration may be rescinded and annulled with the written
consent of the holders of a majority in aggregate principal
amount of the notes then outstanding, subject to the provisions
of the indenture.
Notwithstanding the foregoing, the indenture will provide that,
to the extent elected by us, the sole remedy for an event of
default relating to the failure to comply with the reporting
obligations in the indenture, which are described below under
the caption Reports, and for any failure
to comply with the requirements
S-35
of Section 314(a)(1) of the Trust Indenture Act, will for
the first 60 days after the occurrence of such an event of
default consist exclusively of the right to receive special
interest on the notes at an annual rate equal to 0.25% of the
principal amount of the notes. This special interest will be
paid semi-annually in arrears, with the first semi-annual
payment due on the first interest payment date following the
date on which the special interest began to accrue on any notes.
The special interest will accrue on all outstanding notes from
and including the date on which an event of default relating to
a failure to comply with the reporting obligations in the
indenture first occurs to but not including the 60th day
thereafter (or such earlier date on which the event of default
shall have been cured or waived). On such 60th day (or
earlier, if the event of default relating to the reporting
obligations is cured or waived prior to such 60th day),
such special interest will cease to accrue and, if the event of
default relating to reporting obligations has not been cured or
waived prior to such 60th day, the notes will be subject to
acceleration as provided above. The provisions of the indenture
described in this paragraph will not affect the rights of
holders in the event of the occurrence of any other event of
default. In the event we do not elect to pay special interest
upon an event of default in accordance with this paragraph, the
notes will be subject to acceleration as provided above.
If we elect to pay special interest as the sole remedy for an
event of default relating to the failure to comply with
reporting obligations in the indenture, which are described
below under Reports, and for any failure
to comply with the requirements of Section 314(a)(1) of the
Trust Indenture Act in accordance with the immediately preceding
paragraph, we will notify all holders of notes and the trustee
and paying agent of such election on or before the close of
business on the date on which such event of default first occurs.
The holders of a majority in aggregate principal amount of notes
at the time outstanding through their written consent, or the
holders of a majority in aggregate principal amount of notes
then outstanding represented at a meeting at which a quorum is
present by a written resolution, may waive any existing default
or event of default and its consequences, except any default or
event of default:
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in any payment on the notes;
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in respect of the conversion rights of the notes; or
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in respect of the covenants or provisions in the indenture that
may not be modified or amended without the consent of the holder
of each note affected as described in
Modification, Waiver and Meetings below.
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Holders of a majority in aggregate principal amount of the notes
then outstanding through their written consent, or the holders
of a majority in aggregate principal amount of the notes then
outstanding represented at a meeting at which a quorum is
present by a written resolution, 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 upon the
trustee, subject to the provisions of the indenture. The
indenture contains a provision entitling the trustee, subject to
the duty of the trustee during a default to act with the
required standard of care, to be indemnified by the holders of
notes before proceeding to exercise any right or power under the
indenture at the request of such holders. The rights of holders
of the notes to pursue remedies with respect to the indenture
and the notes are subject to a number of additional requirements
set forth in the indenture.
No holder of the notes may pursue any remedy under the
indenture, except in the case of a default in the payment of
principal, premium, if any, or interest on the notes, unless:
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the holder has given the trustee written notice of an event of
default;
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the holders of at least 25% in principal amount of outstanding
notes make a written request, and offer reasonable indemnity, to
the trustee to pursue the remedy;
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the trustee does not receive an inconsistent direction from the
holders of a majority in principal amount of the notes;
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the holder or holders have offered reasonable security or
indemnity to the trustee against any costs, liability or expense
of the trustee; and
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the trustee fails to comply with the request within 60 days
after receipt of the request and offer of indemnity.
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The indenture will provide that the trustee shall, within
90 days of the occurrence of a default, give to the
registered holders of the notes notice of all uncured defaults
known to it, but the trustee shall be protected in withholding
such notice if it, in good faith, determines that the
withholding of such notice is in the best interest of such
registered holders, except in the case of a default in the
payment of the principal of, or premium, if any, or interest on,
any of the notes when due or in the payment of any repurchase
obligation.
We are required to furnish annually to the trustee a written
statement as to the fulfillment of our obligations under the
indenture. In addition, we are required to file with the trustee
a written notice of the occurrence of any default or event of
default within five business days of our becoming aware of the
occurrence of any default or event of default.
Modification,
Waiver and Meetings
The indenture contains provisions for convening meetings of the
holders of notes to consider matters affecting their interests.
The indenture (including the terms and conditions of the notes)
may be modified or amended by us and the trustee, without the
consent of the holder of any note, for the purposes of, among
other things:
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adding to our covenants for the benefit of the holders of notes;
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surrendering any right or power conferred upon us;
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providing for conversion rights of holders of notes if any
recapitalization, reclassification or change of our common stock
or any consolidation, merger or sale, conveyance or lease of all
or substantially all of our assets or a statutory share exchange
occurs;
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providing for the assumption of our obligations to the holders
of notes in the case of a merger, consolidation, conveyance,
transfer or lease;
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increasing the conversion rate, provided that the increase will
not adversely affect the interests of holders of notes in any
material respect;
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complying with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust
Indenture Act of 1939, as amended;
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curing any ambiguity or correcting or supplementing any
defective provision contained in the indenture, provided that
such modification or amendment does not adversely affect the
interests of the holders of the notes in any material respect;
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adding or modifying any other provisions which we and the
trustee may deem necessary or desirable and which will not
adversely affect the interests of the holders of notes in any
material respect; or
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conforming, as necessary, the indenture and the form or terms of
the notes to the Description of Notes as set forth
in this prospectus supplement.
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Modifications and amendments to the indenture or to the terms
and conditions of the notes may also be made, and non-compliance
by us with any provision of the indenture or the notes may be
waived, either:
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with the written consent of the holders of at least a majority
in aggregate principal amount of the notes at the time
outstanding; or
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by the adoption of a resolution at a meeting of holders at which
a quorum is present by at least a majority in aggregate
principal amount of the notes represented at such meeting.
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S-37
However, no such modification, amendment or waiver may, without
the written consent or the affirmative vote of the holder of
each note affected:
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change the stated maturity date of the principal of, or the time
of payment of any installment of interest on, any note;
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reduce the principal amount of any note;
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reduce the interest rate or interest on any note;
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change the currency of payment of principal of, premium, if any,
or interest on any note;
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impair the right to institute suit for the enforcement of any
payment with respect to, or the conversion of, any note;
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except as otherwise permitted or contemplated by provisions of
the indenture concerning specified reclassifications or
corporate reorganizations, adversely affect the conversion
rights of holders of the notes;
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adversely affect the repurchase option of holders upon a
fundamental change;
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reduce the percentage in aggregate principal amount of notes
outstanding necessary to modify or amend the indenture or to
waive any past default; or
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reduce the percentage in aggregate principal amount of notes
outstanding required for the adoption of a resolution or the
quorum required at any meeting of holders of notes at which a
resolution is adopted.
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The quorum at any meeting called to adopt a resolution will be
persons holding or representing a majority in aggregate
principal amount of the notes at the time outstanding.
Unclaimed
Money
If money deposited with the trustee or paying agent for the
payment of principal of, or accrued and unpaid interest on, the
notes remains unclaimed for two years, the trustee and paying
agent will pay the money back to us upon our written request.
However, the trustee and paying agent have the right to withhold
paying the money back to us until they publish in a newspaper of
general circulation in New York City, or mail to each holder, a
notice stating that the money will be paid back to us if
unclaimed after a date no less than 30 days from the
publication or mailing. After the trustee or paying agent pays
the money back to us, holders of notes entitled to the money
must look to us for payment as general creditors, subject to
applicable law, and all liability of the trustee and the paying
agent with respect to the money will cease.
Book-Entry
System
We will issue the notes in the form of one or more global
securities in denominations of $1,000 principal amount and whole
multiples of $1,000. The global security will be deposited with
the trustee as custodian for DTC and registered in the name of a
nominee of DTC. Except as set forth below, the global security
may be transferred, in whole and not in part, only to DTC or
another nominee of DTC. You will hold your beneficial interests
in the global security directly through DTC if you have an
account with DTC or indirectly through organizations that have
accounts with DTC.
Notes in definitive certificated form (called certificated
securities) will be issued only in certain limited
circumstances described below.
DTC has advised us that it is:
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a limited purpose trust company organized under the laws of the
State of New York;
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a member of the Federal Reserve System;
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a clearing corporation within the meaning of the New
York Uniform Commercial Code; and
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a clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act.
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DTC was created to hold securities of institutions that have
accounts with DTC (called participants) and to facilitate the
clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry
changes in accounts of the participants, thereby eliminating the
need for physical movement of securities certificates.
DTCs participants include securities brokers and dealers,
which may include the initial purchaser, banks, trust companies,
clearing corporations and certain other organizations. Access to
DTCs book-entry system is also available to others such as
banks, brokers, dealers and trust companies (called, the
indirect participants) that clear through or maintain a
custodial relationship with a participant, whether directly or
indirectly.
We expect that pursuant to procedures established by DTC upon
the deposit of the global security with DTC, DTC will credit, on
its book-entry registration and transfer system, the principal
amount of notes represented by such global security to the
accounts of participants. The accounts to be credited shall be
designated by the initial purchaser. Ownership of beneficial
interests in the global security will be limited to participants
or persons that may hold interests through participants.
Ownership of beneficial interests in the global security will be
shown on, and the transfer of those beneficial interests will be
effected only through, records maintained by DTC (with respect
to participants interests), the participants and the
indirect participants.
The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such
securities in definitive form. These limits and laws may impair
the ability to transfer or pledge beneficial interests in the
global security. Accordingly, the ability to transfer beneficial
interests in the notes represented by the global security to
those persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of
persons who hold interests through participants, the ability of
a person having a beneficial interest in notes represented by
the global security to pledge or transfer those interests to
persons or entities that do not participate in DTCs
system, or otherwise to take actions in respect of such
interest, may be affected by the lack of a physical definitive
security in respect of such interest.
Owners of beneficial interests in global securities who desire
to convert their interests for common stock should contact their
brokers or other participants or indirect participants through
whom they hold such beneficial interests to obtain information
on procedures, including proper forms and cut-off times, for
submitting requests for conversion. So long as DTC, or its
nominee, is the registered owner or holder of a global security,
DTC or its nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the global
security for all purposes under the indenture and the notes. In
addition, no owner of a beneficial interest in a global security
will be able to transfer that interest except in accordance with
the applicable procedures of DTC.
Except as set forth below, as an owner of a beneficial interest
in the global security, you will not be entitled to have the
notes represented by the global security registered in your
name, will not receive or be entitled to receive physical
delivery of certificated securities and will not be considered
to be the owner or holder of any notes under the global
security. We understand that under existing industry practice,
if an owner of a beneficial interest in the global security
desires to take any action that DTC, as the holder of the global
security, is entitled to take, DTC would authorize the
participants to take such action. Additionally, in such case,
the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise
act upon the instructions of beneficial owners owning through
them.
We will make payments of principal of, premium, if any, and
interest on the notes represented by the global security
registered in the name of and held by DTC or its nominee to DTC
or its nominee, as the case may be, as the registered owner and
holder of the global security. Neither we, the trustee nor any
paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of
beneficial interests in the global security or for maintaining,
supervising or reviewing any records relating to such beneficial
interests.
S-39
We expect that DTC or its nominee, upon receipt of any payment
of principal of, premium, if any, or interest on the global
security, will credit participants accounts with payments
in amounts proportionate to their respective beneficial
interests in the principal amount of the global security as
shown on the records of DTC or its nominee. We also expect that
payments by participants or indirect participants to owners of
beneficial interests in the global security held through such
participants or indirect participants will be governed by
standing instructions and customary practices and will be the
responsibility of such participants or indirect participants. We
will not have any responsibility or liability for any aspect of
the records relating to, or payments made on account of,
beneficial interests in the global security for any note or for
maintaining, supervising or reviewing any records relating to
such beneficial interests or for any other aspect of the
relationship between DTC and its participants or indirect
participants or the relationship between such participants or
indirect participants and the owners of beneficial interests in
the global security owning through such participants.
Transfers between participants in DTC will be effected in the
ordinary way in accordance with DTC rules and will be settled in
same-day
funds.
DTC has advised us that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more
participants to whose account the DTC interests in the global
security is credited and only in respect of such portion of the
aggregate principal amount of notes as to which such participant
or participants has or have given such direction. However, if
DTC notifies us that it is unwilling to be a depositary for the
global security or ceases to be a clearing agency or there is an
event of default under the notes, DTC will convert global
security for certificated securities which it will distribute to
its participants. Although DTC is expected to follow the
foregoing procedures in order to facilitate transfers of
interests in the global security among participants of DTC, it
is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time.
Neither we nor the trustee will have any responsibility, or
liability for the performance by DTC or the participants or
indirect participants of their respective obligations under the
rules and procedures governing their respective operations.
Because DTC can only act on behalf of participants, who in turn
act on behalf of indirect participants, the ability of a person
having a beneficial interest in the principal amount represented
by the global note to pledge such interest to persons or
entities that do not participate in the DTC system, or otherwise
take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing its interest.
Satisfaction
and Discharge
We may discharge our obligations under the indenture while notes
remain outstanding, subject to certain conditions, if all
outstanding notes will become due and payable at their scheduled
maturity within one year and we have deposited with the trustee
an amount sufficient to pay and discharge all outstanding notes
on the date of their scheduled maturity.
Reports
The Company shall deliver to the trustee, within 15 days
after filing with the Commission, copies of its annual reports
and of the information, documents and other reports (or copies
of such portions of any of the foregoing as the Commission may
by rules and regulations prescribe) which the Company is
required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act. In the event the Company is at any
time no longer subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, it shall continue
to provide the trustee with reports containing substantially the
same information as would have been required to be filed with
the Commission had the Company continued to have been subject to
such reporting requirements. In such event, such reports shall
be provided at the times the Company would have been required to
provide reports had it continued to have been subject to such
reporting requirements. The Company also shall comply with the
other provisions of Section 314(a) of the Trust Indenture
Act.
S-40
Notices
Except as otherwise provided in the indenture, notices to
holders of notes will be given by mail to the addresses of
holders of the notes as they appear in the note register.
Governing
Law
The indenture and the notes will be governed by, and construed
in accordance with, the law of the State of New York.
Information
Regarding the Trustee
Wells Fargo Bank, National Association, as trustee under the
indenture, has been appointed by us as the initial paying agent,
conversion agent, registrar and custodian with regard to the
notes. Mellon Investors Services LLC is the transfer agent and
registrar for our common stock. The trustee or its affiliates
may from time to time in the future provide banking and other
services to us in the ordinary course of their business.
S-41
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material U.S. federal
income tax consequences relating to the purchase, ownership and
disposition of the notes and common stock into which the notes
are convertible, but does not purport to be a complete analysis
of all the potential tax consequences relating thereto. This
summary is based upon the provisions of the Internal Revenue
Code of 1986, as amended, or Code, U.S. Treasury
Regulations promulgated thereunder, administrative rulings and
judicial decisions, all as of the date hereof. These authorities
may be changed, possibly retroactively, so as to result in
U.S. federal income tax consequences different from those
set forth below. We have not sought any ruling from the Internal
Revenue Service, or IRS, with respect to the statements made and
the conclusions reached in the following summary, and there can
be no assurance that the IRS will agree with such statements and
conclusions.
This summary is limited to holders who purchase notes upon their
initial issuance at their initial issue price and who hold the
notes and the common stock into which such notes are convertible
as capital assets. This summary also does not address the tax
considerations arising under the laws of any foreign, state or
local jurisdiction or any federal estate or gift tax rules. In
addition, this discussion does not address tax considerations
applicable to an investors particular circumstances or to
investors that may be subject to special tax rules, including,
without limitation:
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banks, insurance companies or other financial institutions;
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regulated investment companies or real estate investment trusts;
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persons subject to the alternative minimum tax;
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tax-exempt organizations;
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dealers in securities or currencies;
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traders in securities that elect to use a
mark-to-market
method of accounting for their securities holdings;
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persons who hold the notes or common stock through
S-corporations, partnerships or other pass-through entities;
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controlled foreign corporations, passive
foreign investment companies, foreign personal
holding companies, corporations that accumulate earnings
to avoid federal income tax, and individuals who are
U.S. expatriates;
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U.S. holders, as defined below, whose functional currency
is not the U.S. dollar;
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persons who hold the notes or common stock as a position in a
hedging transaction, straddle, conversion transaction or other
risk reduction transaction; or
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persons deemed to sell the notes or common stock under the
constructive sale provisions of the Code.
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You are urged to consult your tax advisor with respect to the
application of the U.S. federal income tax laws to your
particular situation, as well as any tax consequences of the
purchase, ownership and disposition of the notes and common
stock arising under the federal estate or gift tax rules or
under the laws of any state, local, foreign or other taxing
jurisdiction or under any applicable tax treaty.
Consequences
to U.S. Holders
The following is a summary of certain material U.S. federal
income tax consequences that will apply to you if you are a
U.S. holder of the notes or the common stock. Certain
consequences to
non-U.S. holders
of the notes or common stock are described under
Consequences to
Non-U.S. Holders
below. U.S. holder means a beneficial owner of
our notes or our common stock that is:
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an individual citizen or resident of the U.S.;
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S-42
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a corporation or other entity taxable as a corporation for
U.S. federal income tax purposes, created or organized in
the U.S. or under the laws of the U.S., any state thereof,
or the District of Columbia;
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an estate, the income of which is subject to U.S. federal
income taxation regardless of its source; or
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a trust that (i) is subject to the primary supervision of a
U.S. court and the control of one or more U.S. persons
or (ii) has a valid election in effect under applicable
Treasury Regulations to be treated as a U.S. person.
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If a partnership holds our notes or common stock, the tax
treatment of a partner will generally depend upon the status of
the partner and the activities of the partnership. If you are a
partner in a partnership holding the notes, you should consult
your own tax advisor.
Payment
of Interest
Generally, you will be required to include interest paid on the
notes as ordinary income at the time it is paid or accrued,
depending upon your regular method of tax accounting.
We note that, in certain circumstances, additional payments may
be made with respect to the notes in excess of stated principal
and interest. We are taking the position that the possibility of
such payments are remote within the meaning of
applicable U.S. Treasury Regulations and that the notes are
not subject to the contingent payment debt rules. Assuming such
position is respected, U.S. holders would be required to
include in income the amount of any such additional payment at
the time such payment is received or accrued according to each
holders regular method of tax accounting. If the IRS
successfully challenged this position, and the notes were
treated as contingent payment debt instruments,
U.S. holders could be required to accrue interest income on
a constant yield basis at an assumed yield determined at the
time of the issuance of the notes (which is not expected to be
significantly higher than the yield provided by the stated
interest on the notes) and to treat as ordinary income, rather
than capital gain, any gain recognized on a sale or exchange of
a note prior to the resolution of all contingencies. Please note
that the tax consequences of this methodology are uncertain and
subject to challenge by the IRS. You should consult your own tax
advisors with respect to the tax consequences related to such
payments or potential payments and the potential application of
the contingent payment debt rules to the notes and the
consequences thereof.
Sale,
Exchange or Repurchase of the Notes
Upon the sale, exchange, conversion or repurchase of a note, you
generally will recognize capital gain or loss equal to the
difference between the amount you receive (including the amount
of cash and the fair market value of any property) and your
adjusted tax basis in the notes. A portion of the proceeds may
be attributable to accrued interest and should not be taken into
account when computing capital gain or loss. Instead, that
portion should be recognized as ordinary interest income to the
extent such accrued interest has not been previously included in
income. Any gain you recognize generally will be treated as
long-term capital gain or loss if you held the notes for more
than one year. The deductibility of capital losses is subject to
limitations.
Special rules apply in determining the tax basis of a note. Your
basis in a note will generally equal your original purchase
price for the notes, increased by interest you previously
accrued on the notes, before taking into account any
adjustments, and reduced by the amount of any payments made with
respect to such accrued interest.
Conversion
of the Notes
You should not recognize gain or loss upon conversion of the
notes into our common stock, except with respect to any cash
received in lieu of fractional shares.
Your tax basis in the shares of our common stock received upon
conversion of the notes will be equal to your aggregate tax
basis in the notes converted, less any portion allocable to cash
received in lieu of a
S-43
fractional share. The holding period of the shares of our common
stock received by you upon conversion of the notes generally
will include the period during which you held the notes prior to
conversion. The receipt of cash for fractional shares generally
will result in the recognition of gain or loss equal to the
difference between the cash received and your adjusted tax basis
in the fractional share.
Constructive
Dividends
U.S. holders of convertible debt instruments such as the
notes may, in certain circumstances, be deemed to have received
distributions of stock if the conversion price of such
instruments is adjusted. However, adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula
which has the effect of preventing the dilution of the interest
of the holders of the debt instruments will generally not be
deemed to result in a constructive distribution of stock.
Certain of the possible adjustments provided in the notes,
including, without limitation, adjustments in respect of taxable
dividends to our stockholders and the make-whole premium upon a
fundamental change, may not qualify as being pursuant to a bona
fide reasonable adjustment formula. If such adjustments are
made, you will be deemed to have received constructive
distributions includible in your income in the manner described
under Dividends below even though you
have not received any cash or property as a result of such
adjustments. In certain circumstances, the failure to provide
for such an adjustment may also result in a constructive
distribution to you.
Dividends
Distributions, if any, made on our common stock held by you in
connection with the conversion of the notes generally will be
included in your income as ordinary dividend income to the
extent of our current and accumulated earnings and profits as
determined for U.S. federal income tax purposes. With
respect to non-corporate taxpayers for taxable years beginning
before January 1, 2009, such dividends are generally taxed
at the lower applicable capital gains rate provided certain
holding period requirements are satisfied. Distributions in
excess of our current and accumulated earnings and profits will
be treated as a return of capital to the extent of your adjusted
tax basis in the common stock and thereafter as capital gain
from the sale or exchange of such common stock. Dividends
received by a corporate U.S. holder may be eligible for a
dividends received deduction, subject to applicable limitations.
Sale or
Exchange of Common Stock
Upon the sale or exchange of our common stock held by you in
connection with the conversion of the notes, you generally will
recognize capital gain or loss equal to the difference between
(i) the amount of cash and the fair market value of any
property received upon the sale or exchange and (ii) your
adjusted tax basis in the common stock. Such capital gain or
loss will be long-term capital gain or loss if your holding
period in the common stock is more than one year at the time of
the sale or exchange. Your adjusted tax basis and holding period
in common stock received in connection with the conversion of
notes are determined as discussed above under
Conversion of the Notes. Long-term
capital gains recognized by certain non-corporate
U.S. holders, including individuals, will generally be
subject to a reduced rate of U.S. federal income tax. The
deductibility of capital losses is subject to limitations.
Backup
Withholding and Information Reporting
Certain noncorporate U.S. holders may be subject to IRS
information reporting and backup withholding (which is currently
imposed at a 28% rate) on payments of interest on the notes,
dividends on common stock and proceeds from the sale or other
disposition of the notes or common stock. Backup withholding
should only be imposed where the noncorporate U.S. holder
is not otherwise exempt and:
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fails to furnish its taxpayer identification number, or TIN;
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furnishes an incorrect TIN;
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is notified by the IRS that he or she has failed to properly
report payments of interest or dividends;
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S-44
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under certain circumstances, fails to certify, under penalties
of perjury, that he or she has furnished a correct TIN and has
not been notified by the IRS that he or she is subject to backup
withholding; or
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the IRS otherwise requires us to backup withhold.
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You generally will be entitled to credit any amounts withheld
under the backup withholding rules against your
U.S. federal income tax liability provided that the
required information is furnished to the IRS in a timely manner.
Consequences
to
Non-U.S. Holders
The following is a summary of certain material U.S. federal
income tax consequences that will apply to you if you are a
non-U.S. holder
of the notes. For purposes of this discussion, a
non-U.S. holder
means a beneficial owner of our notes that is not a
U.S. holder.
Payments
of Interest
Generally, all payments of interest made to you on the notes
will be subject to a 30% U.S. federal withholding tax.
However, the interest may be exempt from withholding tax if it
qualifies as portfolio interest. You may be entitled
to the exemption if:
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you do not own, actually or constructively, 10% or more of the
total combined voting power of all classes of our stock entitled
to vote;
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you are not a controlled foreign corporation with
respect to which we are, directly or indirectly, a related
person;
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you are not a bank receiving interest pursuant to a loan
agreement entered into in the ordinary course of its trade or
business; and
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you provide your name and address, and certify, under penalties
of perjury, that you are not a U.S. person, which
certification may be made on an IRS
Form W-8BEN
or successor form, or that you hold your notes through certain
intermediaries, and you and the intermediaries satisfy the
certification requirements of applicable U.S. Treasury
Regulations.
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Prospective investors should consult their tax advisors
regarding the certification requirements for
non-U.S. holders.
If you cannot satisfy the requirements described above, you will
be subject to the 30% U.S. federal withholding tax with
respect to payments of interest, or payments treated as
interest, on the notes, unless you provide us with a properly
executed (i) IRS
Form W-8BEN
or successor form claiming an exemption from or reduction in
withholding under the benefit of an applicable U.S. income
tax treaty or (ii) IRS
Form W-8ECI
or successor form stating that interest paid on the note is not
subject to withholding tax because it is effectively connected
with the conduct of a U.S. trade or business.
If you are engaged in a trade or business in the U.S. and
interest on a note is effectively connected with your conduct of
that trade or business, you generally will be subject to
U.S. federal income tax on that interest in the same manner
as if you were a U.S. person as defined under the Code,
although you will be exempt from the 30% withholding tax,
provided the certification requirements described above are
satisfied. In addition, if you are a foreign corporation, you
may be subject to a branch profits tax equal to 30%, or lower
rate as may be prescribed under an applicable U.S. income
tax treaty, of your earnings and profits for the taxable year,
subject to adjustments, that are effectively connected with your
conduct of a trade or business in the U.S. For this
purpose, interest, including original issue discount, will be
included in your earnings and profits.
S-45
Conversion
of the Notes
A
non-U.S. holder
will generally avoid any tax on the conversion of the notes in
the same manner as a U.S. holder. See
Consequences to U.S. Holders
Conversion of the Notes above.
Sale,
Exchange or Other Disposition of Notes or Common Stock
Any gain that a
non-U.S. holder
realizes upon the sale, exchange or other disposition of our
notes (except to the extent a portion is attributable to accrued
interest) or our common stock generally will not be subject to
U.S. federal income tax unless:
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the gain is effectively connected with your conduct of a trade
or business in the U.S.;
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you are an individual who is present in the U.S. for
183 days or more in the taxable year of sale, exchange or
other disposition and certain conditions are met; or
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in the case of common stock, we are or have been a
U.S. real property holding corporation, or USRPHC, for
U.S. federal income tax purposes at any time during the
shorter of the five-year period ending on the date of
disposition or the period that you held our common stock.
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The determination of whether we are a USRPHC depends on the fair
market value of our United States real property interests
relative to the fair market value of our business assets. If we
are or in the future become a USRPHC, then if at such time our
common stock is regularly traded on an established
securities market within the meaning of
Section 897(c)(3) of the Code, such common stock will be
treated as a United States real property interest with respect
to a
non-U.S. holder
only if they own directly or indirectly more than 5% of such
stock at any time during the applicable period. We expect that
our common stock will be regularly traded on an
established securities market. If we are or become a
USRPHC, and a
non-U.S. holder
owned directly or indirectly more than 5% of our common stock at
any time during the applicable period, or our common stock were
not considered to be regularly traded on an established
securities market, then any gain recognized by a
non-U.S. holder
on the sale or other disposition of our common stock would be
treated as effectively connected with a U.S. trade or
business (except for purposes of the branch profits tax) and
would be subject to U.S. federal income tax at regular
graduated U.S. federal income tax rates in much the same
manner as if the
non-U.S. holder
were a U.S. person. In addition, if we are or become a
USRPHC, and our common stock is not regularly traded on an
established securities market, the
non-U.S. holder
would be subject to 10% withholding on the gross proceeds
realized with respect to the sale or other disposition of our
common stock and any amount withheld in excess of the tax owed,
as determined in accordance with the preceding sentence, may be
refundable if the required information is timely furnished to
the IRS.
If your gain is described in the first bullet point above, you
generally will be subject to U.S. federal income tax on the
net gain derived from the sale. If you are a corporation, then
any such effectively connected gain received by you may also,
under certain circumstances, be subject to the branch profits
tax at a 30% rate, or such lower rate as may be prescribed under
an applicable U.S. income tax treaty. If you are an
individual described in the second bullet point above, you will
be subject to a flat 30% U.S. federal income tax on the
gain derived from the sale, which may be offset by
U.S. source capital losses, even though you are not
considered a resident of the U.S. Such holders are urged to
consult their tax advisers regarding the tax consequences of the
acquisition, ownership and disposition of the notes or the
common stock.
Constructive
Dividends
Under certain circumstances, a
non-U.S. holder
may be deemed to have received a constructive dividend. See
Consequences to U.S. Holders
Constructive Dividends above. Any constructive dividend
deemed paid to a
non-U.S. holder
will be subject to withholding tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty. A
non-U.S. holder
who wishes to claim the benefit of an applicable treaty rate is
required to satisfy applicable certification and other
requirements. It is possible that U.S. federal tax on the
constructive dividend would be withheld from interest paid to
the
non-U.S. holder
of the notes. A
non-U.S. holder
who is subject to withholding tax under such circumstances
should consult its own tax advisor as to whether it can obtain a
refund for all or a portion of the withholding tax.
S-46
Dividends
In general, dividends, if any, received by a
non-U.S. holder
with respect to our common stock will be subject to withholding
of U.S. federal income tax at a 30% rate, unless such rate
is reduced by an applicable U.S. income tax treaty.
Dividends that are effectively connected with your conduct of a
trade or business in the U.S. and, where a tax treaty applies,
are attributable to a U.S. permanent establishment or fixed
base, are not subject to the withholding tax, but instead are
subject to U.S. federal income tax on a net income basis at
applicable individual or corporate rates. As discussed above,
certain certification and disclosure requirements must be
complied with in order for effectively connected income to be
exempt from withholding. Any such effectively connected
dividends received by a
non-U.S. holder
that is a corporation may also, under certain circumstances, be
subject to the branch profits tax at a 30% rate or such lower
rate as may be prescribed under an applicable U.S. income
tax treaty.
A
non-U.S. holder
of shares of common stock who wishes to claim the benefit of an
applicable treaty rate is required to satisfy applicable
certification and other requirements. If you are eligible for a
reduced rate of U.S. withholding tax pursuant to an income
tax treaty, you may obtain a refund of any excess amounts
withheld by filing an appropriate claim for refund with the IRS.
Backup
Withholding and Information Reporting
In general, you will not be subject to backup withholding and
information reporting with respect to payments that we make to
you, provided that we do not have actual knowledge or reason to
know that you are a U.S. person and you have given us an
appropriate statement certifying, under penalties of perjury,
that you are not a U.S. person. In addition, you will not
be subject to backup withholding or information reporting with
respect to the proceeds of the sale of a note or of a share of
common stock within the U.S. or conducted through certain
U.S.-related
financial intermediaries, if the payor receives the statement
described above and does not have actual knowledge or reason to
know that you are a U.S. person or you otherwise establish
an exemption. However, we may be required to report annually to
the IRS and to you the amount of, and the tax withheld with
respect to, any dividends paid to you, regardless of whether any
tax was actually withheld. Copies of these information returns
may also be made available under the provisions of a specific
treaty or agreement to the tax authorities of the country in
which you reside.
You generally will be entitled to credit any amounts withheld
under the backup withholding rules against your
U.S. federal income tax liability provided that the
required information is furnished to the IRS in a timely manner.
S-47
UNDERWRITING
Subject to the terms and conditions described in a purchase
agreement among us and the underwriters named below, we have
agreed to sell to the underwriters, and the underwriters have
agreed to purchase from us, the aggregate principal amount of
notes listed opposite their names below:
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Principal
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Underwriter
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Amount
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Merrill Lynch, Pierce,
Fenner & Smith
Incorporated
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$
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50,000,000
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J.P. Morgan Securities
Inc.
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$
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50,000,000
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Total
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$
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100,000,000
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The underwriters have agreed to purchase all of the notes sold
under the purchase agreement if any of the notes are purchased.
If an underwriter defaults, the purchase agreement provides that
the purchase commitments of the nondefaulting underwriters may
be increased or the purchase agreement may be terminated.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, as amended, or to contribute to payments the underwriter
may be required to make in respect of these liabilities.
The underwriters are offering the notes, subject to prior sale,
when, as and if issued to and accepted by them, subject to
approval of legal matters by their counsel, and other conditions
contained in the purchase agreement, such as the receipt by the
representatives of the underwriters of officers
certificates and legal opinions. The underwriters reserve the
right to withdraw, cancel or modify offers to the public and to
reject orders in whole or in part.
Commissions
and Discounts
The underwriters have advised us that they propose initially to
offer the notes to the public at the public offering price on
the cover page of this prospectus supplement and to dealers at
that price less a concession not in excess of 1.8% of the
principal amount of the notes. After the public offering, the
public offering price, concession and discount may be changed.
The following table shows the public offering price,
underwriting discount and proceeds before expenses to us. The
information assumes either no exercise or full exercise by the
underwriters of their overallotment option.
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Per Note
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Without Option
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With Option
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Public offering price
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$
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1,000
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$
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100,000,000
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$
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115,000,000
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Underwriting discount
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$
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30
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$
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3,000,000
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$
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3,450,000
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Proceeds, before expenses, to us
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$
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970
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$
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97,000,000
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$
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111,550,000
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The estimated expenses of this offering, not including the
underwriting discount payable by us, will be approximately
$210,750.
In compliance with the guidelines of the National Association of
Securities Dealers, or NASD, the maximum consideration or
discount to be received by any NASD member may not exceed 8% of
the aggregate amount of the securities offered pursuant to this
prospectus supplement.
Overallotment
Option
We have granted to the underwriters an option to purchase up to
an additional $15,000,000 in aggregate principal amount of notes
at the public offering price less the underwriting discount. The
S-48
underwriters may exercise their option for 13 days from the
date of this prospectus supplement solely to cover any
overallotments.
No Sales
of Similar Securities
We and our executive officers and directors have agreed, with
exceptions, not to sell or transfer any of our common stock for
90 days after the date of this prospectus supplement
without first obtaining the written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated and
J.P. Morgan Securities Inc. Specifically, we and these
individuals have agreed not to directly or indirectly:
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offer, pledge, announce the intention to sell, sell or contract
to sell any of our common stock;
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sell any option or contract to purchase any of our common stock;
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purchase any option or contract to sell any of our common stock;
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grant any option, right or warrant for the sale of any of our
common stock;
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otherwise dispose of or transfer any of our common stock; or
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enter into any swap or other agreement that transfers, in whole
or in part, the economic consequence of ownership of any of our
common stock whether any such swap or transaction is to be
settled by delivery of shares or other securities, in cash or
otherwise.
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The restrictions described in the preceding paragraph do not
apply to:
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shares we issue in the concurrent common stock offering, the
notes we issue in this offering or shares issued upon conversion
of such notes;
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grants of equity awards we make under our existing equity
incentive plans;
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shares we issue upon the exercise of options granted under our
equity incentive plans or under other options, warrants or other
rights outstanding as of the date hereof;
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bona fide gifts by our executive officers and directors;
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transfers by our executive officers and directors to trusts for
the direct or indirect benefit of such individuals or the
immediate family of any such individual (for these purposes
immediate family shall mean any relationship by
blood, marriage or adoption, not more remote than first cousin);
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provided that, in the case of transfers by our executive
officers and directors:
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Merrill Lynch and J.P. Morgan Securities Inc. receive a
signed lockup agreement for the balance of the 90 day
restriction period from each donee, trustee, distributee, or
transferee, as the case may be,
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any such transfer shall not involve a disposition for value,
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such transfers are not required to be reported in any public
report or filing with the SEC, or otherwise, and
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the individual subject to the lockup does not otherwise
voluntarily effect any such public report or filing regarding
such transfers.
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Additionally, the restrictions do not apply to up to
422,987 shares of our common stock held by certain of our
officers and directors that may be sold pursuant to the terms of
10b5-1 trading plans in existence as of the date of this
prospectus supplement or that may be adopted following the
completion of this offering.
S-49
Notwithstanding the foregoing, if:
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during the last 17 days of the
90-day
period, we issue an earnings release or material news or a
material event relating to us occurs; or
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prior to the expiration of the
90-day
period, we announce that we will release earnings results or we
become aware that material news or a material event will occur
during the
16-day
period beginning on the last day of the
90-day
period,
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the lockup restrictions will continue to apply until the
expiration of the
18-day
period beginning on our issuance of the earnings release or the
occurrence of the material news or material event, as
applicable, unless Merrill Lynch and J.P. Morgan Securities
Inc. waive, in writing, such extension.
This lockup provision applies to our common stock and to
securities convertible into or exchangeable or exercisable for
our common stock. It also applies to common stock owned or
acquired during the lockup period by the person executing the
agreement or for which the person executing the agreement later
acquires the power of disposition.
Our executive officers and directors have also agreed during the
lockup period not to make any demand for or exercise any right
with respect to, the registration of any shares of our common
stock or any security convertible into or exercisable or
exchangeable for our common stock.
New Issue
of Notes
The notes are a new issue of securities with no established
trading market. We do not intend to apply for listing of the
notes on any national securities exchange or for quotation of
the notes on any automated dealer quotation system. The
underwriters have advised us that they presently intend to make
a market in the notes after completion of this offering.
However, they are under no obligation to do so and may
discontinue any market-making activities at any time without
notice. We cannot assure the liquidity of the trading market for
the notes or that an active public market for the notes will
develop. If an active public trading market for the notes does
not develop, the market price and liquidity of the notes may be
adversely affected. If the notes are traded, they may trade at a
discount from their initial offering price, depending on
prevailing interest rates, the market for similar securities,
our performance and other factors. Our shares of common stock
are listed on the Nasdaq Global Market under the symbol
MNKD.
Price
Stabilization and Short Positions
In connection with the offering, the underwriters are permitted
to engage in transactions that stabilize the market price of the
notes. Such transactions consist of bids or purchases to peg,
fix or maintain the price of the notes. If the underwriters
create a short position in the notes in connection with the
offering, i.e., if they sell more notes than are on the cover
page of this prospectus, the underwriters may reduce that short
position by purchasing notes in the open market. Purchases of a
security to stabilize the price or to reduce a short position
could cause the price of the security to be higher than it might
be in the absence of such purchases.
Neither we nor the underwriters make any representation or
prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the
notes. In addition, neither we nor the underwriters make any
representation that the underwriters will engage in these
transactions or that these transactions, once commenced, will
not be discontinued without notice.
Other
Relationships
From time to time, the underwriters and certain of their
affiliates may in the future engage in transactions with, and
perform investment banking
and/or
commercial banking services, for us and our affiliates in the
ordinary course of business.
Transfer
Agent
The transfer agent for our common stock is Mellon Investor
Services LLC.
S-50
Electronic
Distribution
A prospectus supplement and an accompanying prospectus in
electronic format may be made available on the websites
maintained by one or more of the underwriters of this offering
or their affiliates. Other than the electronic prospectus
supplement and accompanying prospectus, the information on the
website of the underwriter is not part of this prospectus. The
underwriters may agree to allocate a number of notes to itself
for sale to its online brokerage account holders. Internet
distributions will be allocated to the underwriters that may
make Internet distributions on the same basis as other
allocations.
S-51
LEGAL
MATTERS
Certain legal matters relating to the notes being offered hereby
will be passed upon for us by Cooley Godward Kronish LLP,
San Diego, California. Latham & Watkins LLP, Costa
Mesa, California is representing the underwriters in connection
with this offering.
EXPERTS
The consolidated financial statements and managements
report on the effectiveness of internal control over financial
reporting incorporated in this prospectus by reference from the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2005 have been audited by
Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their reports, which are
incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
S-52
This filing is made pursuant to Rule 424(b)(3)
Under the Securities Act of 1933
In connection with Registration No. 333-138373
PROSPECTUS
$500,000,000
MANNKIND CORPORATION
COMMON STOCK
WARRANTS
DEBT SECURITIES
From time to time, we may sell up to an aggregate of
$500,000,000 of our common stock, warrants or debt securities.
We will specify in any accompanying prospectus supplement the
terms of any offering.
Our common stock is traded on the NASDAQ Global Market under the
trading symbol MNKD. The applicable prospectus
supplement will contain information, where applicable, as to
other listings, if any, on the NASDAQ Global Market or other
securities exchange of the securities covered by the prospectus
supplement.
Our principal executive offices are located at 28903 North
Avenue Paine, Valencia, California 91355, and our telephone
number at that address is
(661) 775-5300.
You should read this prospectus and any prospectus supplement
carefully before you invest.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK.
SEE THE SECTIONS ENTITLED RISK FACTORS IN OUR
MOST RECENT ANNUAL REPORT ON
FORM 10-K
AND IN OUR MOST RECENT QUARTERLY REPORT ON
FORM 10-Q,
BOTH AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, AND
BOTH OF WHICH ARE INCORPORATED HEREIN BY REFERENCE IN THEIR
ENTIRETY.
This prospectus may not be used to offer or sell any
securities unless accompanied by a prospectus supplement.
The securities may be sold directly by us to investors, through
agents designated from time to time or to or through
underwriters or dealers. For additional information on the
methods of sale, you should refer to the section entitled
Plan of Distribution. If any underwriters are
involved in the sale of any securities with respect to which
this prospectus is being delivered, the names of such
underwriters and any applicable discounts or commissions and
over allotment options will be set forth in a prospectus
supplement. The price to the public of such securities and the
net proceeds we expect to receive from such sale will also be
set forth in a prospectus supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this Prospectus is November 7, 2006.
TABLE OF
CONTENTS
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You should rely only on the information contained or
incorporated by reference in this prospectus and any applicable
prospectus supplement. We have not authorized anyone to provide
you with information different from that contained or
incorporated by reference in this prospectus and any applicable
prospectus supplement. No dealer, salesperson or other person is
authorized to give any information or to represent anything not
contained or incorporated by reference in this prospectus and
any applicable prospectus supplement. You must not rely on any
unauthorized information or representation. This prospectus is
an offer to sell and is seeking offers to buy only the
securities offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. You should assume
that the information contained in this prospectus is accurate
only as of the date on the front of this prospectus and that any
information we have incorporated by reference or included in any
prospectus supplement is accurate only as of the date given in
the document incorporated by reference or the prospectus
supplement, as applicable, regardless of the time of delivery of
this prospectus, any applicable prospectus supplement or any
sale of our securities. Our business, financial condition,
results of operations and prospects may have changed since that
date.
Technosphere®
and
MedTone®
are our registered trademark in the United States. We have also
applied for or registered company trademarks in other
jurisdictions, including Europe and Japan. This document also
contains trademarks and service marks owned by other companies
that are the property of their respective owners. Use or display
by us of other parties trademarks, trade dress or products
in this prospectus is not intended to, and does not imply a
relationship with, or endorsements or sponsorship of, us by the
trademark or trade dress owners.
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, or SEC, using
a shelf registration process. Under this shelf
registration process, we may sell common stock, warrants or debt
securities in one or more offerings up to a total dollar amount
of $500,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell
common stock, warrants or debt securities, we will provide a
prospectus supplement that will contain more specific
information about the securities offered. We may also use a
prospectus supplement to add, update or change any of the
information contained in this prospectus or in the documents we
have incorporated by reference into this prospectus. This
prospectus, together with any applicable prospectus supplement
and the materials we have incorporated by reference into this
prospectus and the prospectus supplement, includes all material
information relating to this offering. Please carefully read
both this prospectus and any applicable prospectus supplement
together with the additional information described below under
Where You Can Find More Information before buying
any securities in this offering.
SUMMARY
The following summary provides an overview of selected
information relating to this offering and does not contain all
the information that you should consider before investing in our
securities. You should carefully read this prospectus, all
documents incorporated by reference, any prospectus supplement,
and the additional information described under the caption
WHERE YOU CAN FIND MORE INFORMATION, beginning on
page 21, before buying securities in this offering.
References in this prospectus to MannKind, the
Company, we, us and
our refer to MannKind Corporation and its
subsidiary, on a consolidated basis, unless the context requires
otherwise.
MannKind
Corporation
MannKind Corporation is a biopharmaceutical company focused on
the discovery, development and commercialization of therapeutic
products for diseases such as diabetes and cancer. Our lead
investigational product candidate, the Technosphere Insulin
System, is currently in Phase 3 clinical trials in the
United States, Europe and Latin America to study its safety and
efficacy in the treatment of diabetes. This therapy consists of
a proprietary dry powder formulation of insulin that is inhaled
into the deep lung using our proprietary inhaler. We believe
that the performance characteristics, unique kinetics,
convenience and ease of use of the Technosphere Insulin System
may have the potential to change the way diabetes is treated.
In particular, we have observed in our clinical trials to date
that the Technosphere Insulin System produces a profile of
insulin levels in the bloodstream that approximates the insulin
profile normally seen in healthy individuals immediately
following the beginning of a meal, but which is absent in
patients with diabetes. Specifically, Technosphere Insulin is
rapidly absorbed into the bloodstream following inhalation,
reaching peak levels within 12 to 14 minutes. As a result of
this rapid onset of action, most of the glucose-lowering
activity of Technosphere Insulin occurs within the first three
hours of administration which is generally when
glucose becomes available from a meal instead of the
much longer duration of action observed when insulin is injected
subcutaneously. We believe that the relatively short duration of
action of Technosphere Insulin reduces the need for patients to
snack between meals in order to manage ongoing blood glucose
excursions. Indeed, in our clinical trials, we have observed
that patients using Technosphere Insulin have achieved
significant reductions in post-meal glucose excursions and
significant improvements in overall glucose control, as measured
by decreases in HbA1c levels, without the weight gain typically
associated with insulin therapy.
In our clinical trials to date, we have observed no difference
in pulmonary function between patients treated with Technosphere
Insulin and patients treated with standard diabetes care.
However, the longest study that we have completed so far is a
six-month trial. In September 2006, we completed patient
enrollment in a pivotal, two-year, Phase 3, safety study of
Technosphere Insulin that will compare the pulmonary function of
diabetes patients randomized to either Technosphere Insulin or
standard diabetes care. We are continuing to enroll patients in
three other major Phase 3 clinical trials, two of which are
pivotal efficacy trials. Based on our discussions with the Food
and Drug Administration, we plan to accumulate two years of
controlled safety data before we file a new drug application for
the Technosphere Insulin System. We anticipate that our entire
clinical trial program, including several special population
studies, will involve more than 4,500 patients. Larger
populations and longer durations of exposure may be necessary
depending on the safety profile of our product.
Our Technosphere Insulin System utilizes our proprietary
Technosphere formulation technology, which is based on a class
of organic molecules that are designed to self-assemble into
small particles onto which drug molecules can be loaded. We are
also developing additional Technosphere-based products for the
delivery of other drugs. We plan to initiate Phase 1
clinical trials of a therapeutic cancer vaccine by the end of
2006.
We are a development stage enterprise and have incurred
significant losses since our inception in 1991. As of
September 30, 2006, we have incurred a cumulative net loss
of $716.6 million. To date, we have not generated any
product revenues and have funded our operations primarily
through the sale of equity securities.
We do not anticipate sales of any product prior to regulatory
approval and commercialization of our Technosphere Insulin
System. We currently do not have the required approvals to
market any of our product candidates, and we may not receive any
approvals. We may not be profitable even if we succeed in
commercializing
1
any of our product candidates. We expect to make substantial and
increasing expenditures and to incur additional operating losses
for at least the next several years as we:
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continue the clinical development and commercialization of our
Technosphere Insulin System for the treatment of diabetes;
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expand our manufacturing operations for our Technosphere Insulin
System to meet our currently anticipated commercial production
needs;
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expand our other research, discovery and development programs;
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expand our proprietary Technosphere platform technology and
develop additional applications for the pulmonary delivery of
other drugs; and
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enter into sales and marketing collaborations with other
companies, if available on commercially reasonable terms, or
develop these capabilities ourselves.
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Our business is subject to significant risks, including but not
limited to the risks inherent in our ongoing clinical trials and
the regulatory approval process, the results of our research and
development efforts, competition from other products and
technologies and uncertainties associated with obtaining and
enforcing patent rights.
Risk
Factors
An investment in our securities involves a high degree of risk.
Prior to making a decision about investing in our securities,
you should carefully consider the specific risk factors
discussed in the sections entitled Risk Factors
contained in any applicable prospectus supplement and our
filings with the SEC and incorporated by reference in this
prospectus, together with all of the other information contained
in this prospectus, any applicable prospectus supplement, or
incorporated by reference in this prospectus. These risks and
uncertainties are not the only risks and uncertainties we face.
Additional risks and uncertainties not presently known to us, or
that we currently view as immaterial, may also impair our
business. If any of the risks or uncertainties described in our
SEC filings or any prospectus supplement or any additional risks
and uncertainties actually occur, our business, financial
condition and results of operations could be materially and
adversely affected. In that case, the trading price of our
securities could decline and you might lose all or part of your
investment.
The
Securities We May Offer
We may offer shares of our common stock, various series of debt
securities
and/or
warrants to purchase any of these securities, with a total value
of up to $500,000,000, from time to time under this prospectus
at prices and on terms to be determined by market conditions at
the time of offering. This prospectus provides you with a
general description of the securities we may offer. Each time we
offer a type or series of securities, we will provide a
prospectus supplement that will describe the specific amounts,
prices and other important terms of the securities, including,
to the extent applicable:
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designation or classification;
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aggregate principal amount or aggregate offering price;
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maturity, if applicable;
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original issue discount, if any;
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rates and times of payment of interest, dividends or other
payments, if any;
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redemption, conversion, exercise, exchange or sinking fund
terms, if any;
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ranking;
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restrictive covenants, if any;
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voting or other rights, if any; and
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certain federal income tax considerations.
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A prospectus supplement also may add, update or change
information contained in this prospectus or in documents we have
incorporated by reference. However, no prospectus supplement
shall offer a security that is not registered and described in
this prospectus at the time of its effectiveness.
This prospectus may not be used to offer or sell securities
unless it is accompanied by a prospectus supplement.
We may sell the securities directly to or through agents,
underwriters or dealers. We, and our agents, dealers or
underwriters, reserve the right to accept or reject all or part
of any proposed purchase of securities. If we do offer
securities through agents or underwriters, we will include in
the applicable prospectus supplement:
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the name of those agents or underwriters;
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applicable fees, discounts and commissions to be paid to them;
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details regarding over-allotment options, if any; and
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the net proceeds to us.
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Common Stock. We may issue shares of our
common stock from time to time. Holders of our common stock are
entitled to one vote per share on all matters submitted to a
vote of stockholders. Subject to any preferences of any of our
preferred stock that may be outstanding, holders of our common
stock are entitled to dividends when and if declared by our
board of directors.
Warrants. We may issue warrants for the
purchase of common stock or debt securities in one or more
series, from time to time. We may issue warrants independently
or together with common stock or debt securities, and the
warrants may be attached to or separate from these securities.
In this prospectus, we have summarized certain general features
of the warrants. We urge you, however, to read the prospectus
supplement related to the series of warrants being offered, as
well as the warrant agreements that contain the terms of the
warrants. Forms of the warrant agreements and forms of warrants
containing the terms of the warrants being offered have been
filed as exhibits to the registration statement of which this
prospectus is a part, and supplemental agreements and forms of
warrants containing the terms of the warrants being offered will
be filed as exhibits to the registration statement of which this
prospectus is a part or will be incorporated by reference from
reports we file with the SEC.
We will evidence each series of warrants by warrant certificates
that we will issue under a separate agreement. We will enter
into the warrant agreements with a warrant agent. Each warrant
agent will be a bank that we select. We will state the name and
address of the warrant agent in the applicable prospectus
supplement relating to a particular series of warrants.
Debt Securities. We may offer debt securities
from time to time, in one or more series, as either senior or
subordinated debt or as senior or subordinated convertible debt.
The senior debt securities will rank equally with any other
unsecured and unsubordinated debt. The subordinated debt
securities will be subordinate and junior in right of payment,
to the extent and in the manner described in the instrument
governing the debt, to all of our senior indebtedness.
Convertible debt securities will be convertible into or
exchangeable for our common stock or our other securities.
Conversion may be mandatory or at your option and would be at
prescribed conversion rates.
The debt securities will be issued under one or more documents
called indentures, which are contracts between us and a national
banking association, as trustee. In this prospectus, we have
summarized certain general features of the debt securities. We
urge you, however, to read the prospectus supplement related to
the series of debt securities being offered, as well as the
complete indentures that contain the terms of the debt
securities. Indentures have been filed as exhibits to the
registration statement of which this prospectus is a part, and
supplemental indentures and forms of debt securities containing
the terms of debt securities being offered will be filed as
exhibits to the registration statement of which this prospectus
is a part or will be incorporated by reference from reports we
file with the SEC.
3
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed
charges for the periods indicated:
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Nine Months
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Ended
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Fiscal the Year Ended December 31,
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September 30,
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2001
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2002
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2003
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2004
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2005
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2006
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Ratio of earnings to fixed charges
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For the purpose of this table, earnings consist of
income (loss) from continuing operations before income taxes,
extraordinary items, cumulative effect of accounting changes,
equity in net losses of affiliates and fixed charges and
fixed charges consist of interest expense and the
portion of operating lease expense that represents interest. For
the fiscal years ended December 31, 2001, 2002, 2003, 2004
and 2005, and the nine months ended September 30, 2006, we
had no earnings. Our earnings for those periods were
insufficient to cover fixed charges by $48.2 million,
$206.3 million, $65.9 million, $76.0 million,
$114.3 million and $158.6 million, respectively.
4
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements contained in this prospectus, in the documents
incorporated by reference herein and in any prospectus
supplement that are not strictly historical in nature are
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and within the meaning of Section 21E
of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. These forward-looking statements are subject to
the safe harbor created by Section 27A of the
Securities Act and Section 21E of the Exchange Act and may
include, but are not limited to, statements about:
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the progress or success of our research, development and
clinical programs;
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the timing of completion of enrollment in our clinical trials,
the timing of the interim analyses and the timing or success of
the commercialization of our Technosphere Insulin System, or any
other products or therapies that we may develop;
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our ability to market, commercialize and achieve market
acceptance for our Technosphere Insulin System, or any other
products or therapies that we may develop;
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our ability to protect our intellectual property and operate our
business without infringing upon the intellectual property
rights of others;
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our estimates for future performance; our estimates regarding
anticipated operating losses, future revenues, capital
requirements and our needs for additional financing;
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scientific studies and the conclusions we draw from
them; and
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our ability to successfully enter into strategic business
collaborations.
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In some cases, you can identify forward-looking statements by
terms such as anticipates, believes,
could, estimates, expects,
goal, intends, may,
plans, potential, predicts,
projects, should, will,
would, the negative of these words and words or
similar expressions intended to identify forward-looking
statements. These statements reflect our views as of the date on
which they were made with respect to future events and are based
on assumptions and subject to risks and uncertainties. The
underlying information and expectations are likely to change
over time. Given these uncertainties, you should not place undue
reliance on these forward-looking statements as actual events or
results may differ materially from those projected in the
forward-looking statements due to various factors, including,
but not limited to, those set forth under the heading Risk
Factors in any applicable prospectus supplement and in our
SEC filings. These forward-looking statements represent our
estimates and assumptions only as of the date of the document
containing the applicable statement.
You should rely only on the information contained, or
incorporated by reference, in this prospectus, the registration
statement of which this prospectus is a part, the documents
incorporated by reference herein, and any applicable prospectus
supplement and understand that our actual future results may be
materially different from what we expect. We qualify all of the
forward-looking statements in the foregoing documents by these
cautionary statements. Unless required by law, we undertake no
obligation to update or revise any forward-looking statements to
reflect new information or future events or developments. Thus,
you should not assume that our silence over time means that
actual events are bearing out as expressed or implied in such
forward-looking statements. Before deciding to purchase our
securities, you should carefully consider the risk factors
discussed here or incorporated by reference, in addition to the
other information set forth in this prospectus, any accompanying
prospectus supplement and in the documents incorporated by
reference.
USE OF
PROCEEDS
Except as described in any prospectus supplement, we currently
intend to use the net proceeds from the sale of the securities
offered hereby to fund the costs of our clinical trials program
and other research and development activities and expand our
manufacturing operations, both on-going and planned, and for
general corporate purposes, including working capital and
repayment of outstanding indebtedness. We may also use a portion
of the net proceeds to in-license, invest in or acquire
businesses or technologies that we believe are complementary to
our own, although we have no current plans, commitments or
agreements with respect to any acquisitions as of the date
5
of this prospectus other than our agreement to license certain
technology from the Technion Research and Development Foundation
Ltd, an Israeli corporation affiliated with the Technion-Israel
Institute of Technology. Pending these uses, we intend to invest
the net proceeds in investment-grade, interest-bearing
securities.
DESCRIPTION
OF COMMON STOCK
Our authorized capital stock consists of 90,000,000 shares
of common stock, $0.01 par value, and
10,000,000 shares of preferred stock, $0.01 par value.
As of September 30, 2006, there were 49,895,691 shares
of common stock outstanding and no shares of preferred stock
outstanding.
Voting
Rights
Each holder of our common stock is entitled to one vote for each
share on all matters submitted to a vote of our stockholders,
including the election of our directors. Under our amended and
restated certificate of incorporation and bylaws, our
stockholders will not have cumulative voting rights.
Accordingly, the holders of a majority of our outstanding shares
of common stock entitled to vote in any election of directors
can elect all of the directors standing for election, if they
should so choose. In all other matters, an action by our common
stockholders requires the affirmative vote of the holders of a
majority of our outstanding shares of common stock entitled to
vote.
Dividends
Subject to preferences that may be applicable to any outstanding
shares of our preferred stock, holders of our common stock are
entitled to receive ratably any dividends our board of directors
declares out of funds legally available for that purpose. Any
dividends on our common stock will be non-cumulative.
Liquidation,
Dissolution or Winding Up
If we liquidate, dissolve or wind up, the holders of our common
stock are entitled to share ratably in all assets legally
available for distribution to our stockholders after the payment
of all of our debts and other liabilities and the satisfaction
of any liquidation preference granted to the holders of any
outstanding shares of our preferred stock.
Rights
and Preferences
Our common stock has no preemptive, conversion or subscription
rights. There are no redemption or sinking fund provisions
applicable to our common stock. The rights, preferences and
privileges of the holders of our common stock are subject to,
and may be adversely affected by, the rights of the holders of
any outstanding shares of our of preferred stock, which we may
designate and issue in the future.
Anti-Takeover
Effects of Provisions of Delaware Law and Our Certificate of
Incorporation and Bylaws
Delaware
takeover statute
We are subject to Section 203 of the Delaware General
Corporation Law, or DGCL, which regulates acquisitions of some
Delaware corporations. In general, Section 203 prohibits,
with some exceptions, a publicly held Delaware corporation from
engaging in a business combination with an
interested stockholder for a period of three years
following the date of the transaction in which the person became
an interested stockholder, unless:
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the board of directors of the corporation approved the business
combination or the other transaction in which the person became
an interested stockholder prior to the date of the business
combination or other transaction;
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upon consummation of the transaction that resulted in the person
becoming an interested stockholder, the person owned at least
85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding shares owned by
persons who are directors and also officers of the corporation
and shares issued under employee stock plans under which
employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
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on or subsequent to the date the person became an interested
stockholder, the board of directors of the corporation approved
the business combination and the stockholders of the corporation
authorized the business combination at an annual or special
meeting of stockholders by the affirmative vote of at least
662/3%
of the outstanding stock of the corporation not owned by the
interested stockholder.
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Section 203 of the DGCL generally defines a business
combination to include any of the following:
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any merger or consolidation involving the corporation and the
interested stockholder;
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any sale, transfer, pledge or other disposition of 10% or more
of the corporations assets or outstanding stock involving
the interested stockholder;
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in general, any transaction that results in the issuance or
transfer by the corporation of any of its stock to the
interested stockholder;
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any transaction involving the corporation that has the effect of
increasing the proportionate share of its stock owned by the
interested stockholder; or
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the receipt by the interested stockholder of the benefit of any
loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
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In general, Section 203 defines an interested
stockholder as any person who, together with the
persons affiliates and associates, owns, or within three
years prior to the determination of interested stockholder
status did own, 15% or more of a corporations voting stock.
Section 203 of the DGCL could depress our stock price and
delay, discourage or prohibit transactions not approved in
advance by our board of directors, such as takeover attempts
that might otherwise involve the payment to our stockholders of
a premium over the market price of our common stock.
Amended
and restated certificate of incorporation and bylaw
provisions
Our amended and restated certificate of incorporation and
amended and restated bylaws include a number of provisions that
may have the effect of deterring hostile takeovers or delaying
or preventing changes in our control or our management,
including, but not limited to the following:
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Our board of directors can issue up to 10,000,000 shares of
preferred stock with any rights or preferences, including the
right to approve or not approve an acquisition or other change
in our control.
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Our amended and restated certificate of incorporation provides
that all stockholder actions must be effected at a duly called
meeting of holders and not by written consent.
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Our amended and restated bylaws provide that special meetings of
the stockholders may be called only by the Chairman of our board
of directors, by our Chief Executive Officer, by our board of
directors upon a resolution adopted by a majority of the total
number of authorized directors or, under certain limited
circumstances, by the holders of at least 5% of our outstanding
voting stock.
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Our amended and restated bylaws provide that stockholders
seeking to present proposals before a meeting of stockholders or
to nominate candidates for election as directors at a meeting of
stockholders must provide timely notice in writing and also
specify requirements as to the form and content of a
stockholders notice. These provisions may delay or
preclude stockholders from bringing matters before a meeting of
our stockholders or from making nominations for directors at a
meeting of stockholders, which could delay or deter takeover
attempts or changes in our management.
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Our amended and restated certificate of incorporation provides
that, subject to the rights of the holders of any outstanding
series of preferred stock, all vacancies, including newly
created directorships, may, except as otherwise required by law,
be filled by the affirmative vote of a majority of directors
then in office, even if less than a quorum. In addition, our
amended and restated certificate of incorporation provides that
our board of directors may fix the number of directors by
resolution.
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Our amended and restated certificate of incorporation does not
provide for cumulative voting for directors. The absence of
cumulative voting may make it more difficult for stockholders
who own an aggregate of less than a majority of our voting stock
to elect any directors to our board of directors.
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These and other provisions contained in our amended and restated
certificate of incorporation and amended and restated bylaws are
expected to discourage coercive takeover practices and
inadequate takeover bids. These provisions are also designed to
encourage persons seeking to acquire control of us to first
negotiate with our board of directors. However, these provisions
could delay or discourage transactions involving an actual or
potential change in control of us or our management, including
transactions in which our stockholders might otherwise receive a
premium for their shares over market price of our stock and may
limit the ability of stockholders to remove our current
management or approve transactions that our stockholders may
deem to be in their best interests and, therefore, could
adversely affect the price of our common stock.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is Mellon
Investor Services. Mellon Investor Services address is 400
South Hope Street, Suite 400, Los Angeles, California 90071.
DESCRIPTION
OF WARRANTS
The following description, together with the additional
information we include in any applicable prospectus supplement,
summarizes the material terms and provisions of the warrants
that we may offer under this prospectus, which may consist of
warrants to purchase common stock or debt securities and may be
issued in one or more series. Warrants may be offered
independently or together with common stock or debt securities
offered by any prospectus supplement, and may be attached to or
separate from those securities. While the terms we have
summarized below will generally apply to any future warrants we
may offer under this prospectus, we will describe the particular
terms of any warrants that we may offer in more detail in the
applicable prospectus supplement. The terms of any warrants we
offer under a prospectus supplement may differ from the terms we
describe below.
We will issue the warrants under a warrant agreement which we
will enter into with a warrant agent to be selected by us. We
have filed forms of the warrant agreements and the related
warrant certificates for each type of warrant we may offer under
this prospectus as exhibits to the registration statement of
which this prospectus is a part. We use the term warrant
agreement to refer to any of these warrant agreements. We
use the term warrant agent to refer to the warrant
agent under any of these warrant agreements. The warrant agent
will act solely as an agent of ours in connection with the
warrants and will not act as an agent for the holders or
beneficial owners of the warrants.
The following summaries of material provisions of the warrants
and the warrant agreements are subject to, and qualified in
their entirety by reference to, all the provisions of the
warrant agreement applicable to a particular series of warrants.
We urge you to read the applicable prospectus supplement related
to the warrants that we sell under this prospectus, as well as
the complete warrant agreements that contain the terms of the
warrants.
General
We will describe in the applicable prospectus supplement the
terms relating to a series of warrants.
If warrants for the purchase of common stock are offered, the
applicable prospectus supplement will describe the following
terms, to the extent applicable:
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the offering price and the aggregate number of warrants offered;
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the total number of shares that can be purchased if a holder of
the warrants exercises them;
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the number of shares of common stock that can be purchased if a
holder exercises the warrant and the price at which such common
stock may be purchased upon exercise, including, if applicable,
any provisions for changes to or adjustments in the exercise
price and in the securities or other property receivable upon
exercise;
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the terms of any rights to redeem or call, or accelerate the
expiration of, the warrants;
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the date on which the right to exercise the warrants begins and
the date on which that right expires;
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certain federal income tax consequences of holding or exercising
the warrants; and
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any other specific terms, preferences, rights or limitations of,
or restrictions on, the warrants.
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If warrants for the purchase of debt securities are offered, the
applicable prospectus supplement will describe the following
terms, to the extent applicable:
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the offering price and the aggregate number of warrants offered;
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the currencies in which the warrants are being offered;
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the designation, denominations and terms of the series of debt
securities that can be purchased if a holder exercises a warrant;
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the principal amount of the series of debt securities that can
be purchased if a holder exercises a warrant and the price at
which and currencies in which such principal amount may be
purchased upon exercise;
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the terms of any rights to redeem or call the warrants;
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the date on which the right to exercise the warrants begins and
the date on which such right expires;
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certain federal income tax consequences of holding or exercising
the warrants; and
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any other specific terms, preferences, rights or limitations of,
or restrictions on, the warrants.
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Warrants will be in registered form only.
If the warrants are offered attached to common stock or debt
securities, the applicable prospectus supplement will also
describe the date on and after which the holder of the warrants
can transfer them separately from the related common stock or
debt securities.
A holder of warrant certificates may exchange them for new
certificates of different denominations, present them for
registration of transfer and exercise them at the corporate
trust office of the warrant agent or any other office indicated
in the applicable prospectus supplement. Until any warrants to
purchase common stock are exercised, holders of the warrants
will not have any rights of holders of the underlying common
stock, including any rights to receive dividends or to exercise
any voting rights, except to the extent set forth under
Warrant Adjustments below. Until any warrants to
purchase debt securities are exercised, the holder of the
warrants will not have any of the rights of holders of the debt
securities that can be purchased upon exercise, including any
rights to receive payments of principal, premium or interest on
the underlying debt securities or to enforce covenants in the
applicable indenture.
Exercise
of Warrants
Each holder of a warrant is entitled to purchase the number of
shares of common stock or principal amount of debt securities at
the exercise price described in the applicable prospectus
supplement. After the close of business on the day when the
right to exercise terminates (or a later date if we extend the
time for exercise), unexercised warrants will become void.
A holder of warrants may exercise them by following the general
procedure outlined below:
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delivering to the warrant agent the payment required by the
applicable prospectus supplement to purchase the underlying
security;
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properly completing and signing the reverse side of the warrant
certificate representing the warrants; and
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delivering the warrant certificate representing the warrants to
the warrant agent within five business days of the warrant agent
receiving payment of the exercise price.
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If you comply with the procedures described above, your warrants
will be considered to have been exercised when the warrant agent
receives payment of the exercise price, subject to the transfer
books for the securities issuable upon exercise of the warrant
not being closed on such date. After you have completed those
procedures and subject to the foregoing, we will, as soon as
practicable, issue and deliver to you the common stock or debt
securities that you purchased upon exercise. If you exercise
fewer than all of the warrants represented by a warrant
certificate, a new warrant certificate will be issued to you for
the unexercised amount of warrants. Holders of warrants will be
required to pay any tax or governmental charge that may be
imposed in connection with transferring the underlying
securities in connection with the exercise of the warrants.
Amendments
and Supplements to the Warrant Agreements
We may amend or supplement a warrant agreement without the
consent of the holders of the applicable warrants to cure
ambiguities in the warrant agreement, to cure or correct a
defective provision in the warrant agreement, or to provide for
other matters under the warrant agreement that we and the
warrant agent deem necessary or desirable, so long as, in each
case, such amendments or supplements do not materially adversely
affect the interests of the holders of the warrants.
Warrant
Adjustments
Unless the applicable prospectus supplement states otherwise,
the exercise price of, and the number of securities covered by,
a common stock warrant will be adjusted proportionately if we
subdivide or combine our common stock. In addition, unless the
applicable prospectus supplement states otherwise, if we without
receiving payment:
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issue capital stock or other securities convertible into or
exchangeable for common stock, or any rights to subscribe for,
purchase or otherwise acquire any of the foregoing, as a
dividend or distribution to holders of our common stock;
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issue any evidence of our indebtedness or rights to subscribe
for or purchase our indebtedness to holders of our common
stock; or
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issue common stock or additional stock or other securities or
property to holders of our common stock by way of spinoff,
split-up, reclassification, combination of shares or similar
corporate rearrangement,
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then the holders of common stock warrants will be entitled to
receive upon exercise of the warrants, in addition to the
securities otherwise receivable upon exercise of the warrants
and without paying any additional consideration, the amount of
stock and other securities and property such holders would have
been entitled to receive had they held the common stock issuable
under the warrants on the dates on which holders of those
securities received or became entitled to receive such
additional stock and other securities and property.
Except as stated above, the exercise price and number of
securities covered by a common stock warrant and the amounts of
other securities or property to be received, if any, upon
exercise of those warrants, will not be adjusted or provided for
if we issue those securities or any securities convertible into
or exchangeable for those securities, or securities carrying the
right to purchase those securities or securities convertible
into or exchangeable for those securities.
Holders of common stock warrants may have additional rights
under the following circumstances:
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certain reclassifications, capital reorganizations or changes of
the common stock;
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certain share exchanges, mergers, or similar transactions
involving us and which result in changes of the common
stock; or
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certain sales or dispositions to another entity of all or
substantially all of our property and assets.
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If one of the above transactions occurs and holders of our
common stock are entitled to receive stock, securities or other
property with respect to or in exchange for their securities,
the holders of the common stock warrants then outstanding will
be entitled to receive upon exercise of their warrants the kind
and amount of shares of stock and
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other securities or property that they would have received upon
the applicable transaction if they had exercised their warrants
immediately before the transaction.
DESCRIPTION
OF DEBT SECURITIES
The following description, together with the additional
information we include in any applicable prospectus supplement,
summarizes the material terms and provisions of the debt
securities that we may offer under this prospectus. While the
terms we have summarized below will apply generally to any
future debt securities we may offer under this prospectus, we
will describe the particular terms of any debt securities that
we may offer in more detail in the applicable prospectus
supplement. The terms of any debt securities we offer under a
prospectus supplement may differ from the terms we describe
below. However, no prospectus supplement shall fundamentally
change the terms that are set forth in this prospectus or offer
a security that is not registered and described in this
prospectus at the time of its effectiveness. As of the date of
this prospectus, we have no outstanding registered debt
securities.
We will issue the senior debt securities under the senior
indenture that we will enter into with the trustee named in the
senior indenture. We will issue the subordinated debt securities
under the subordinated indenture that we will enter into with
the trustee named in the subordinated indenture. We have filed
forms of these documents as exhibits to the registration
statement which includes this prospectus. We use the term
indentures in this prospectus to refer to both the
senior indenture and the subordinated indenture.
The indentures will be qualified under the Trust Indenture Act
of 1939, as amended, or Trust Indenture Act. We use the term
debenture trustee to refer to either the trustee
under the senior indenture or the trustee under the subordinated
indenture, as applicable.
The following summaries of material provisions of the senior
debt securities, the subordinated debt securities and the
indentures are subject to, and qualified in their entirety by
reference to, all the provisions of the indenture applicable to
a particular series of debt securities. We urge you to read the
applicable prospectus supplements related to the debt securities
that we sell under this prospectus, as well as the indenture
that contains the terms of the debt securities. Except as we may
otherwise indicate, the terms of the senior indenture and the
subordinated indenture are identical.
General
We will describe in each applicable prospectus supplement the
terms relating to a series of debt securities, including:
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the title;
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the principal amount being offered, and if a series, the total
amount authorized and the total amount outstanding;
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any limit on the amount that may be issued;
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whether or not we will issue the series of debt securities in
global form, the terms and who the depositary will be;
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the maturity date;
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whether and under what circumstances, if any, we will pay
additional amounts on any debt securities held by a person who
is not a United States person for tax purposes, and whether we
can redeem the debt securities if we have to pay such additional
amounts;
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the annual interest rate, which may be fixed or variable, or the
method for determining the rate and the date interest will begin
to accrue, the dates interest will be payable and the regular
record dates for interest payment dates or the method for
determining such dates;
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whether or not the debt securities will be secured or unsecured,
and the terms of any secured debt;
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the terms of the subordination of any series of subordinated
debt;
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the place where payments will be payable;
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restrictions on transfer, sale or other assignment, if any;
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our right, if any, to defer payment of interest and the maximum
length of any such deferral period;
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the date, if any, after which, and the price at which, we may,
at our option, redeem the series of debt securities pursuant to
any optional or provisional redemption provisions and the terms
of those redemptions provisions;
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the date, if any, on which, and the price at which we are
obligated, pursuant to any mandatory sinking fund or analogous
fund provisions or otherwise, to redeem, or at the holders
option to purchase, the series of debt securities and the
currency or currency unit in which the debt securities are
payable;
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whether the indenture will restrict our ability or the ability
of our subsidiaries to:
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incur additional indebtedness;
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issue additional securities;
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create liens;
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pay dividends or make distributions in respect of our capital
stock or the capital stock of our subsidiaries;
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redeem capital stock;
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place restrictions on our subsidiaries ability to pay
dividends, make distributions or transfer assets;
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make investments or other restricted payments;
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sell or otherwise dispose of assets;
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enter into sale-leaseback transactions;
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engage in transactions with stockholders or affiliates;
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issue or sell stock of our subsidiaries; or
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effect a consolidation or merger;
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whether the indenture will require us to maintain any interest
coverage, fixed charge, cash flow-based, asset-based or other
financial ratios;
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a discussion of certain material or special United States
federal income tax considerations applicable to the debt
securities;
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information describing any book-entry features;
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provisions for a sinking fund purchase or other analogous fund,
if any;
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whether the debt securities are to be offered at a price such
that they will be deemed to be offered at an original
issue discount as defined in paragraph (a) of
Section 1273 of the Internal Revenue Code;
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the denominations in which we will issue the series of debt
securities, if other than denominations of $1,000 and any
integral multiple thereof; and
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any other specific terms, preferences, rights or limitations of,
or restrictions on, the debt securities, including any
additional events of default or covenants provided with respect
to the debt securities, and any terms that may be required by us
or advisable under applicable laws or regulations.
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Conversion
or Exchange Rights
We will set forth in the applicable prospectus supplement the
terms on which a series of debt securities may be convertible
into or exchangeable for our common stock or our other
securities. We will include provisions as to
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whether conversion or exchange is mandatory, at the option of
the holder or at our option. We may include provisions pursuant
to which the number of shares of our common stock or our other
securities that the holders of the series of debt securities
receive would be subject to adjustment.
Consolidation,
Merger or Sale
The indentures do not contain any covenant that restricts our
ability to merge or consolidate, or sell, convey, transfer or
otherwise dispose of all or substantially all of our assets.
However, any successor to or acquiror of such assets must assume
all of our obligations under the indentures or the debt
securities, as appropriate. If the debt securities are
convertible for our other securities or securities of other
entities, the person with whom we consolidate or merge or to
whom we sell all of our property must make provisions for the
conversion of the debt securities into securities that the
holders of the debt securities would have received if they had
converted the debt securities before the consolidation, merger
or sale.
Events of
Default Under the Indenture
The following are events of default under the indentures with
respect to any series of debt securities that we may issue:
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if we fail to pay interest when due and payable and our failure
continues for 90 days and the time for payment has not been
extended or deferred;
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if we fail to pay the principal, premium or sinking fund
payment, if any, when due and payable and the time for payment
has not been extended or delayed;
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if we fail to observe or perform any other covenant contained in
the debt securities or the indentures, other than a covenant
specifically relating to another series of debt securities, and
our failure continues for 90 days after we receive notice
from the debenture trustee or holders of at least 25% in
aggregate principal amount of the outstanding debt securities of
the applicable series; and
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if specified events of bankruptcy, insolvency or reorganization
occur.
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If an event of default with respect to debt securities of any
series occurs and is continuing, other than an event of default
specified in the last bullet point above, the debenture trustee
or the holders of at least 25% in aggregate principal amount of
the outstanding debt securities of that series, by notice to us
in writing, and to the debenture trustee if notice is given by
such holders, may declare the unpaid principal of, premium, if
any, and accrued interest, if any, due and payable immediately.
If an event of default specified in the last bullet point above
occurs with respect to us, the principal amount of and accrued
interest, if any, of each issue of debt securities then
outstanding shall be due and payable without any notice or other
action on the part of the debenture trustee or any holder.
The holders of a majority in principal amount of the outstanding
debt securities of an affected series may waive any default or
event of default with respect to the series and its
consequences, except defaults or events of default regarding
payment of principal, premium, if any, or interest, unless we
have cured the default or event of default in accordance with
the indenture. Any waiver shall cure the default or event of
default.
Subject to the terms of the indentures, if an event of default
under an indenture shall occur and be continuing, the debenture
trustee will be under no obligation to exercise any of its
rights or powers under such indenture at the request or
direction of any of the holders of the applicable series of debt
securities, unless such holders have offered the debenture
trustee reasonable indemnity. The holders of a majority in
principal amount of the outstanding debt securities of any
series will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the
debenture trustee, or exercising any trust or power conferred on
the debenture trustee, with respect to the debt securities of
that series, provided that:
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the direction so given by the holder is not in conflict with any
law or the applicable indenture; and
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subject to its duties under the Trust Indenture Act, the
debenture trustee need not take any action that might involve it
in personal liability or might be unduly prejudicial to the
holders not involved in the proceeding.
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A holder of the debt securities of any series will only have the
right to institute a proceeding under the indentures or to
appoint a receiver or trustee, or to seek other remedies if:
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the holder has given written notice to the debenture trustee of
a continuing event of default with respect to that series;
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the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made written
request, and such holders have offered reasonable indemnity to
the debenture trustee to institute the proceeding as
trustee; and
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the debenture trustee does not institute the proceeding, and
does not receive from the holders of a majority in aggregate
principal amount of the outstanding debt securities of that
series other conflicting directions within 90 days after
the notice, request and offer.
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These limitations do not apply to a suit instituted by a holder
of debt securities if we default in the payment of the
principal, premium, if any, or interest on, the debt securities.
We will periodically file statements with the debenture trustee
regarding our compliance with specified covenants in the
indentures.
Modification
of Indenture; Waiver
We and the debenture trustee may change an indenture without the
consent of any holders with respect to specific matters:
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to fix any ambiguity, defect or inconsistency in the indenture;
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to comply with the provisions described above under
Consolidation, Merger or Sale;
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to comply with any requirements of the SEC in connection with
the qualification of any indenture under the Trust Indenture Act;
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to add to, delete from or revise the conditions, limitations,
and restrictions on the authorized amount, terms, or purposes of
issue, authentication and delivery of debt securities, as set
forth in the indenture;
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to provide for the issuance of and establish the form and terms
and conditions of the debt securities of any series as provided
under General to establish the form of any
certifications required to be furnished pursuant to the terms of
the indenture or any series of debt securities, or to add to the
rights of the holders of any series of debt securities;
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to evidence and provide for the acceptance of appointment
hereunder by a successor trustee;
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to provide for uncertificated debt securities and to make all
appropriate changes for such purpose;
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to add to our covenants such new covenants, restrictions,
conditions or provisions for the protection of the holders, and
to make the occurrence, or the occurrence and the continuance,
of a default in any such additional covenants, restrictions,
conditions or provisions an event of default; or
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to change anything that does not materially adversely affect the
interests of any holder of debt securities of any series.
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In addition, under the indentures, the rights of holders of a
series of debt securities may be changed by us and the debenture
trustee with the written consent of the holders of at least a
majority in aggregate principal amount of the outstanding debt
securities of each series that is affected. However, we and the
debenture trustee may only make the following changes with the
consent of each holder of any outstanding debt securities
affected:
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extending the fixed maturity of the series of debt securities;
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reducing the principal amount, reducing the rate of or extending
the time of payment of interest, or reducing any premium payable
upon the redemption of any debt securities; or
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reducing the percentage of debt securities, the holders of which
are required to consent to any amendment, supplement,
modification or waiver.
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Discharge
Each indenture provides that we can elect to be discharged from
our obligations with respect to one or more series of debt
securities, except for specified obligations, including
obligations to:
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register the transfer or exchange of debt securities of the
series;
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replace stolen, lost or mutilated debt securities of the series;
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maintain paying agencies;
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hold monies for payment in trust;
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recover excess money held by the debenture trustee;
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compensate and indemnify the debenture trustee; and
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appoint any successor trustee.
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In order to exercise our rights to be discharged, we must
deposit with the debenture trustee money or government
obligations sufficient to pay all the principal of, any premium
and interest on, the debt securities of the series on the dates
payments are due.
Form,
Exchange and Transfer
We will issue the debt securities of each series only in fully
registered form without coupons and, unless we otherwise specify
in the applicable prospectus supplement, in denominations of
$1,000 and any integral multiple thereof. The indentures provide
that we may issue debt securities of a series in temporary or
permanent global form and as book-entry securities that will be
deposited with, or on behalf of, The Depository Trust Company or
another depositary named by us and identified in a prospectus
supplement with respect to that series. See Legal
Ownership of Securities for a further description of the
terms relating to any book-entry securities.
At the option of the holder, subject to the terms of the
indentures and the limitations applicable to global securities
described in the applicable prospectus supplement, the holder of
the debt securities of any series can exchange the debt
securities for other debt securities of the same series, in any
authorized denomination and of like tenor and aggregate
principal amount.
Subject to the terms of the indentures and the limitations
applicable to global securities set forth in the applicable
prospectus supplement, holders of the debt securities may
present the debt securities for exchange or for registration of
transfer, duly endorsed or with the form of transfer endorsed
thereon duly executed if so required by us or the security
registrar, at the office of the security registrar or at the
office of any transfer agent designated by us for this purpose.
Unless otherwise provided in the debt securities that the holder
presents for transfer or exchange, we will make no service
charge for any registration of transfer or exchange, but we may
require payment of any taxes or other governmental charges.
We will name in the applicable prospectus supplement the
security registrar, and any transfer agent in addition to the
security registrar, that we initially designate for any debt
securities. We may at any time designate additional transfer
agents or rescind the designation of any transfer agent or
approve a change in the office through which any transfer agent
acts, except that we will be required to maintain a transfer
agent in each place of payment for the debt securities of each
series.
If we elect to redeem the debt securities of any series, we will
not be required to:
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issue, register the transfer of, or exchange any debt securities
of that series during a period beginning at the opening of
business 15 days before the day of mailing of a notice of
redemption of any debt securities that may be selected for
redemption and ending at the close of business on the day of the
mailing; or
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register the transfer of or exchange any debt securities so
selected for redemption, in whole or in part, except the
unredeemed portion of any debt securities we are redeeming in
part.
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Information
Concerning the Debenture Trustee
The debenture trustee, other than during the occurrence and
continuance of an event of default under an indenture,
undertakes to perform only those duties as are specifically set
forth in the applicable indenture. Upon an event of default
under an indenture, the debenture trustee must use the same
degree of care as a prudent person would exercise or use in the
conduct of his or her own affairs.
Subject to this provision, the debenture trustee is under no
obligation to exercise any of the powers given it by the
indentures at the request of any holder of debt securities
unless it is offered reasonable security and indemnity against
the costs, expenses and liabilities that it might incur.
Payment
and Paying Agents
Unless we otherwise indicate in the applicable prospectus
supplement, we will make payment of the interest on any debt
securities on any interest payment date to the person in whose
name the debt securities, or one or more predecessor securities,
are registered at the close of business on the regular record
date for the interest.
We will pay principal of and any premium and interest on the
debt securities of a particular series at the office of the
paying agents designated by us, except that unless we otherwise
indicate in the applicable prospectus supplement, we will make
interest payments by check that we will mail to the holder or by
wire transfer to certain holders. Unless we otherwise indicate
in a prospectus supplement, we will designate the corporate
trust office of the debenture trustee in the City of New York as
our sole paying agent for payments with respect to debt
securities of each series. We will name in the applicable
prospectus supplement any other paying agents that we initially
designate for the debt securities of a particular series. We
will maintain a paying agent in each place of payment for the
debt securities of a particular series.
All money we pay to a paying agent or the debenture trustee for
the payment of the principal of or any premium or interest on
any debt securities that remains unclaimed at the end of two
years after such principal, premium or interest has become due
and payable will be repaid to us, and the holder of the debt
security thereafter may look only to us for payment thereof.
Governing
Law
The indentures and the debt securities will be governed by and
construed in accordance with the laws of the State of New York,
except to the extent that the Trust Indenture Act is applicable.
Subordination
of Subordinated Debt Securities
The subordinated debt securities will be unsecured and will be
subordinate and junior in priority of payment to certain of our
other indebtedness to the extent described in a prospectus
supplement. The subordinated indenture does not limit the amount
of subordinated debt securities that we may issue. It also does
not limit us from issuing any other secured or unsecured debt.
LEGAL
OWNERSHIP OF SECURITIES
We can issue securities in registered form or in the form of one
or more global securities. We describe global securities in
greater detail below. We refer to those persons who have
securities registered in their own names on the books that we or
any applicable trustee maintain for this purpose as the
holders of those securities. These persons are the
legal holders of the securities. We refer to those persons who,
indirectly through others, own beneficial interests in
securities that are not registered in their own names, as
indirect holders of those securities.
As we discuss below, indirect holders are not legal holders, and
investors in securities issued in book-entry form or in street
name will be indirect holders.
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Book-Entry
Holders
We may issue securities in book-entry form only, as we will
specify in the applicable prospectus supplement. This means
securities may be represented by one or more global securities
registered in the name of a financial institution that holds
them as depositary on behalf of other financial institutions
that participate in the depositarys book-entry system.
These participating institutions, which are referred to as
participants, in turn hold beneficial interests in the
securities on behalf of themselves or their customers.
Only the person in whose name a security is registered is
recognized as the holder of that security. Securities issued in
global form will be registered in the name of the depositary or
its participants. Consequently, for securities issued in global
form, we will recognize only the depositary as the holder of the
securities, and we will make all payments on the securities to
the depositary. The depositary passes along the payments it
receives to its participants, which in turn pass the payments
along to their customers who are the beneficial owners. The
depositary and its participants do so under agreements they have
made with one another or with their customers; they are not
obligated to do so under the terms of the securities.
As a result, investors in a book-entry security will not own
securities directly. Instead, they will own beneficial interests
in a global security, through a bank, broker or other financial
institution that participates in the depositarys
book-entry system or holds an interest through a participant. As
long as the securities are issued in global form, investors will
be indirect holders, and not legal holders, of the securities.
Street
Name Holders
We may terminate a global security or issue securities in
non-global form. In these cases, investors may choose to hold
their securities in their own names or in street
name. Securities held by an investor in street name would
be registered in the name of a bank, broker or other financial
institution that the investor chooses, and the investor would
hold only a beneficial interest in those securities through an
account he or she maintains at that institution.
For securities held in street name, we will recognize only the
intermediary banks, brokers and other financial institutions in
whose names the securities are registered as the holders of
those securities, and we will make all payments on those
securities to them. These institutions pass along the payments
they receive to their customers who are the beneficial owners,
but only because they agree to do so in their customer
agreements or because they are legally required to do so.
Investors who hold securities in street name will be indirect
holders, not legal holders, of those securities.
Legal
Holders
Our obligations, as well as the obligations of any applicable
trustee and of any third parties employed by us or a trustee,
run only to the legal holders of the securities. We do not have
obligations to investors who hold beneficial interests in global
securities, in street name or by any other indirect means. This
will be the case whether an investor chooses to be an indirect
holder of a security or has no choice because we are issuing the
securities only in global form.
For example, once we make a payment or give a notice to the
holder, we have no further responsibility for the payment or
notice even if that holder is required, under agreements with
depositary participants or customers or by law, to pass it along
to the indirect holders but does not do so. Similarly, we may
want to obtain the approval of the holders to amend an
indenture, to relieve us of the consequences of a default or of
our obligation to comply with a particular provision of the
indenture or for other purposes. In such an event, we would seek
approval only from the legal holders, and not the indirect
holders, of the securities. Whether and how the holders contact
the indirect holders is up to the legal holders.
Special
Considerations for Indirect Holders
If you hold securities through a bank, broker or other financial
institution, either in book-entry form or in street name, you
should check with your own institution to find out:
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how it handles securities payments and notices;
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whether it imposes fees or charges;
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how it would handle a request for the holders consent, if
ever required;
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whether and how you can instruct it to send you securities
registered in your own name so you can be a holder, if that is
permitted in the future;
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how it would exercise rights under the securities if there were
a default or other event triggering the need for holders to act
to protect their interests; and
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if the securities are in book-entry form, how the
depositarys rules and procedures will affect these matters.
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Global
Securities
A global security is a security that represents one or any other
number of individual securities held by a depositary. Generally,
all securities represented by the same global securities will
have the same terms.
Each security issued in book-entry form will be represented by a
global security that we deposit with and register in the name of
a financial institution or its nominee that we select. The
financial institution that we select for this purpose is called
the depositary. Unless we specify otherwise in the applicable
prospectus supplement, The Depository Trust Company, New York,
New York, known as DTC, will be the depositary for all
securities issued in book-entry form.
A global security may not be transferred to or registered in the
name of anyone other than the depositary, its nominee or a
successor depositary, unless special termination situations
arise. We describe those situations below under Special
Situations When a Global Security Will Be Terminated. As a
result of these arrangements, the depositary, or its nominee,
will be the sole registered owner and legal holder of all
securities represented by a global security, and investors will
be permitted to own only beneficial interests in a global
security. Beneficial interests must be held by means of an
account with a broker, bank or other financial institution that
in turn has an account with the depositary or with another
institution that does. Thus, an investor whose security is
represented by a global security will not be a legal holder of
the security, but only an indirect holder of a beneficial
interest in the global security.
If the prospectus supplement for a particular security indicates
that the security will be issued in global form only, then the
security will be represented by a global security at all times
unless and until the global security is terminated. If
termination occurs, we may issue the securities through another
book-entry clearing system or decide that the securities may no
longer be held through any book-entry clearing system.
Special
Considerations for Global Securities
As an indirect holder, an investors rights relating to a
global security will be governed by the account rules of the
investors financial institution and of the depositary, as
well as general laws relating to securities transfers. We do not
recognize an indirect holder as a legal holder of securities and
instead deal only with the depositary that holds the global
security.
If securities are issued only in the form of a global security,
an investor should be aware of the following:
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An investor cannot cause the securities to be registered in his
or her name and cannot obtain non-global certificates for his or
her interest in the securities, except in the special situations
we describe below.
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An investor will be an indirect holder and must look to his or
her own bank or broker for payments on the securities and
protection of his or her legal rights relating to the
securities, as we describe above.
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An investor may not be able to sell interests in the securities
to some insurance companies and to other institutions that are
required by law to own their securities in non-book-entry form.
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An investor may not be able to pledge his or her interest in a
global security in circumstances where certificates representing
the securities must be delivered to the lender or other
beneficiary of the pledge in order for the pledge to be
effective.
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The depositarys policies, which may change from time to
time, will govern payments, transfers, exchanges and other
matters relating to an investors interest in a global
security. We and any applicable trustee have no
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responsibility for any aspect of the depositarys actions
or for its records of ownership interests in a global security.
We and the trustee also do not supervise the depositary in any
way.
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The depositary may, and we understand that DTC will, require
that those who purchase and sell interests in a global security
within its book-entry system use immediately available funds,
and your broker or bank may require you to do so as well.
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Financial institutions that participate in the depositarys
book-entry system, and through which an investor holds its
interest in a global security, may also have their own policies
affecting payments, notices and other matters relating to the
securities. There may be more than one financial intermediary in
the chain of ownership for an investor. We do not monitor and
are not responsible for the actions of any of those
intermediaries.
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Special
Situations when a Global Security Will Be Terminated
In a few special situations described below, the global security
will terminate, and interests in it will be exchanged for
physical certificates representing those interests. After that
exchange, the choice of whether to hold securities directly or
in street name will be up to the investor. Investors must
consult their own banks or brokers to find out how to have their
interests in securities transferred to their own name, so that
they will be direct holders. We have described the rights of
holders and street name investors above.
The global security will terminate when the following special
situations occur:
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if the depositary notifies us that it is unwilling, unable or no
longer qualified to continue as depositary for that global
security and we do not appoint another institution to act as
depositary within 90 days;
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if we notify any applicable trustee that we wish to terminate
that global security; or
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if an event of default has occurred with regard to securities
represented by that global security and has not been cured or
waived.
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The applicable prospectus supplement may also list additional
situations for terminating a global security that would apply
only to the particular series of securities covered by the
prospectus supplement. When a global security terminates, the
depositary, and not we or any applicable trustee, is responsible
for deciding the names of the institutions that will be the
initial direct holders.
PLAN OF
DISTRIBUTION
We may sell the common stock warrants or debt securities to or
through underwriters or dealers, through agents, or directly to
one or more purchasers. A prospectus supplement or supplements
will describe the terms of the offering of the securities,
including:
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the name or names of any underwriters, if any;
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the purchase price of the securities and the proceeds we will
receive from the sale;
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any over-allotment options under which underwriters may purchase
additional securities from us;
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any agency fees or underwriting discounts and other items
constituting agents or underwriters compensation;
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any public offering price;
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any discounts or concessions allowed or reallowed or paid to
dealers; and
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any securities exchange or market on which the securities may be
listed.
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Only underwriters named in the prospectus supplement are
underwriters of the securities offered by the prospectus
supplement.
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If underwriters are used in the sale, they will acquire the
securities for their own account and may resell the securities
from time to time in one or more transactions at a fixed public
offering price or at varying prices determined at the time of
sale. The obligations of the underwriters to purchase the
securities will be subject to the conditions set forth in the
applicable underwriting agreement. We may offer the securities
to the public through underwriting syndicates represented by
managing underwriters or by underwriters without a syndicate.
Subject to certain conditions, the underwriters will be
obligated to purchase all of the securities offered by the
prospectus supplement. Any public offering price and any
discounts or concessions allowed or reallowed or paid to dealers
may change from time to time. We may use underwriters with whom
we have a material relationship. We will describe in the
prospectus supplement, naming the underwriter, the nature of any
such relationship.
We may sell securities directly or through agents we designate
from time to time. We will name any agent involved in the
offering and sale of securities and we will describe any
commissions we will pay the agent in the prospectus supplement.
Unless the prospectus supplement states otherwise, our agent
will act on a best-efforts basis for the period of its
appointment.
We may authorize agents or underwriters to solicit offers by
certain types of institutional investors to purchase securities
from us at the public offering price set forth in the prospectus
supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. We will
describe the conditions to these contracts and the commissions
we must pay for solicitation of these contracts in the
prospectus supplement.
We may provide agents and underwriters with indemnification
against civil liabilities related to this offering, including
liabilities under the Securities Act, or contribution with
respect to payments that the agents or underwriters may make
with respect to these liabilities. Agents and underwriters may
engage in transactions with, or perform services for, us in the
ordinary course of business.
All securities we offer, other than common stock, will be new
issues of securities with no established trading market. Any
underwriters may make a market in these securities, but will not
be obligated to do so and may discontinue any market making at
any time without notice. We cannot guarantee the liquidity of
the trading markets for any securities.
Any underwriter may engage in overallotment, stabilizing
transactions, short covering transactions and penalty bids in
accordance with Regulation M under the Exchange Act.
Overallotment involves sales in excess of the offering size,
which create a short position. Stabilizing transactions permit
bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Short
covering transactions involve purchases of the securities in the
open market after the distribution is completed to cover short
positions. Penalty bids permit the underwriters to reclaim a
selling concession from a dealer when the securities originally
sold by the dealer are purchased in a covering transaction to
cover short positions. Those activities may cause the price of
the securities to be higher than it would otherwise be. If
commenced, the underwriters may discontinue any of the
activities at any time.
Any underwriters who are qualified market makers on the NASDAQ
Global Market may engage in passive market making transactions
in the common stock, warrants and debt securities on the NASDAQ
Global Market in accordance with Rule 103 of
Regulation M, during the business day prior to the pricing
of the offering, before the commencement of offers or sales of
the securities. Passive market makers must comply with
applicable volume and price limitations and must be identified
as passive market makers. In general, a passive market maker
must display its bid at a price not in excess of the highest
independent bid for such security; if all independent bids are
lowered below the passive market makers bid, however, the
passive market makers bid must then be lowered when
certain purchase limits are exceeded.
LEGAL
MATTERS
The validity of the securities being offered hereby will be
passed upon for us by Cooley Godward Kronish LLP,
San Diego, California.
20
EXPERTS
The financial statements and managements report on the
effectiveness of internal control over financial reporting
incorporated in this prospectus by reference from the
Companys Annual Report on
Form 10-K
have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their reports, which are incorporated herein by reference, and
have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and
current reports, proxy statements and other information with the
SEC. We have filed with the SEC a registration statement on
Form S-3
under the Securities Act with respect to the securities we are
offering under this prospectus. This prospectus, which
constitutes a part of the registration statement, does not
contain all of the information set forth in the registration
statement or the exhibits which are part of the registration
statement. For further information with respect to us and the
securities we are offering under this prospectus, we refer you
to the registration statement and the exhibits and schedules
filed as a part of the registration statement. You may read and
copy any document we file with the SEC at the SECs Public
Reference Room at 100 F Street, N.E., Washington, D.C.
20549. Please call the SEC at
1-800-SEC-0330
for more information about the operation of the Public Reference
Room. Our SEC filings are also available at the SECs
website at www.sec.gov. We maintain a website at
www.mannkindcorp.com. Information contained in our website does
not constitute a part of this prospectus.
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference
information that we file with it, which means that we can
disclose important information to you by referring you to those
documents. The information incorporated by reference is an
important part of this prospectus. Information in this
prospectus supersedes information incorporated by reference that
we filed with the SEC prior to the date of this prospectus,
while information that we file later with the SEC will
automatically update and supersede the information in this
prospectus. We incorporate by reference into this registration
statement and prospectus the documents listed below, and any
future filings we will make with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this prospectus but prior to the termination
of the offering of the securities covered by this prospectus
(other than current reports or portions thereof furnished under
Item 2.02 or Item 7.01 of
Form 8-K):
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our Annual Report on
Form 10-K
for the year ended December 31, 2005;
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our Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2006, June 30, 2006
and September 30, 2006;
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our Current Reports on
Form 8-K
filed on February 22, 2006, May 31, 2006 and
October 18, 2006; and
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the description of our common stock set forth in our
registration statement on
Form 8-A,
filed with the SEC on July 23, 2004, including any
amendments or reports filed for the purposes of updating this
description.
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We will furnish without charge to you, on written or oral
request, a copy of any or all of the documents incorporated by
reference, including exhibits to these documents. You should
direct any requests for documents to:
Investor Relations
MannKind Corporation
28903 North Avenue Paine
Valencia, CA 91355
(661) 775-5300
21
$100,000,000
MannKind
Corporation
3.75% Senior Convertible
Notes due 2013
PROSPECTUS SUPPLEMENT
Merrill
Lynch & Co.
JPMorgan
December 7, 2006