SEC Filings

424B5
ARRAY BIOPHARMA INC filed this Form 424B5 on 06/06/2013
Entire Document
 

Table of Contents

 

Filed Pursuant to Rule 424(b)(5)
Registration No. 333-189048

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of
Securities to be registered(1)

 

Amount
to be
Registered

 

Proposed
Maximum
Offering Price

 

Aggregate
Offering Price

 

Registration Fee(2)

 

3.00% Convertible Senior Notes due 2020

 

$

132,250,000

(1)(2)

100

%

$

132,250,000

(1)(2)

$

18,038.90

(2)(3)

Common Stock, par value $0.001 per share

 

(4)

(4)

(4)

(5)

 


(1)         Equals the aggregate principal amount of 3.00% Convertible Senior Notes due 2020 to be registered hereunder. These amounts are estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended (the “Securities Act”).

(2)         Includes $17,250,000 in aggregate principal amount of 3.00% Convertible Senior Notes due 2020 that may be offered and sold pursuant to the exercise in full of the underwriters’ option to purchase additional 3.00% Convertible Senior Notes due 2020.

(3)         Calculated pursuant to Rule 457(o) and Rule 457(r) under the Securities Act.

(4)         An indeterminate number of shares of common stock are being registered as may be issued from time to time upon conversion of the 3.00% Convertible Senior Notes due 2020. Pursuant to Rule 416 under the Securities Act, the Registrant is also registering an indeterminate number of shares of common stock as may become issuable upon conversion by reason of adjustments in the conversion price.

(5)         Pursuant to Rule 457(i) under the Securities Act, no separate registration fee is required for the shares of common stock underlying the 3.00% Convertible Senior Notes due 2020 because no additional consideration is to be received in connection with the exercise of the conversion privilege.

 

Prospectus Supplement to Prospectus dated June 3, 2013

 

$115,000,000

 

 

3.00% Convertible Senior Notes due 2020

 

Array BioPharma Inc. is offering $115,000,000 aggregate principal amount of its 3.00% Convertible Senior Notes due 2020 (the “notes”) under this prospectus supplement. The notes will bear interest at a rate equal to 3.00% per year, payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2013. The notes will mature on June 1, 2020.

 

Holders may convert their notes at their option prior to the close of business on the business day immediately preceding March 1, 2020 but only under the following circumstances: (1) during any fiscal quarter commencing after June 30, 2013 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day; (2) during the five consecutive business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined herein) per $1,000 principal amount of notes for each trading day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such trading day; (3) upon the occurrence of specified corporate events or distributions; or (4) if we call any notes for redemption, at any time until the close of business on the business day immediately preceding the redemption date. On or after March 1, 2020 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances. Upon conversion of a note, we will pay or deliver, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, as described herein.

 

The conversion rate will initially equal 141.8641 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $7.05 per share of common stock). The conversion rate will be subject to adjustment upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest. In addition, following the occurrence of a make-whole fundamental change (as defined herein) or a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that converts its notes in connection with such make-whole fundamental change or a notice of redemption, as the case may be.

 

We may not redeem the notes prior to June 4, 2017.  On or after June 4, 2017, we may redeem for cash all or part of the notes, except for the notes that we are required to repurchase in connection with a fundamental change (as defined herein), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending within seven trading days immediately prior to the date we provide the notice of redemption exceeds 130% of the applicable conversion price for the notes on each applicable trading day. The redemption price for the notes to be redeemed on any redemption date will equal 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.  No sinking fund is provided for the notes.

 

If we undergo a fundamental change, holders may require us to purchase the notes in whole or in part for cash at a fundamental change purchase price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.

 

The notes will be our senior unsecured obligations and will rank equally with all of our existing and future senior unsecured indebtedness and will rank senior in right of payment to any indebtedness that is expressly subordinated to the notes. The notes will be effectively subordinated to all our existing and future secured indebtedness (to the extent of the value of the assets securing such indebtedness) and structurally subordinated to all liabilities (including trade payables) of any subsidiary of ours with operations that may exist in the future.

 

We do not intend to apply for listing of the notes on any securities exchange. Our common stock is listed on the NASDAQ Global Market under the symbol “ARRY”. The last reported sale price of the common stock on June 4, 2013 was $5.32 per share.

 

Investing in the notes and the underlying common stock involves risks. See “Risk Factors” beginning on page S-10 of this prospectus supplement to read about factors you should consider before investing in the notes.

 

 

 

Per Note

 

Total

 

Public offering price(1)

 

100

%

$

115,000,000

 

Underwriting discounts and commissions

 

3

%

$

3,450,000

 

Proceeds, before expenses, to Array BioPharma Inc.

 

97

%

$

111,550,000

 

 


(1)         The public offering price does not include accrued interest, if any, from the date of original issuance, expected to be June 10, 2013.

 

To the extent the underwriters sell more than $115,000,000 principal amount of notes, the underwriters will have the option to purchase within 30 days from the date of this prospectus supplement up to an additional $17,250,000 principal amount of notes from us at the public offering price less the underwriting discount.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

 

The underwriters expect to deliver the notes in book-entry form only through the facilities of The Depository Trust Company on or about June 10, 2013.

 

Joint Book-Running Managers

Goldman, Sachs & Co.

J.P. Morgan

Co-Managers

Piper Jaffray

Stifel

 

The date of this prospectus supplement is June 4, 2013

 



Table of Contents

 

TABLE OF CONTENTS

 

Prospectus Supplement

 

 

Page

About this Prospectus Supplement

S-ii

Industry and Market Data

S-ii

Special Note Regarding Forward-Looking Statements

S-iii

Prospectus Supplement Summary

S-1

Risk Factors

S-10

Use of Proceeds

S-36

Ratio of Earnings to Fixed Charges

S-37

Capitalization

S-38

Price Range of our Common Stock

S-40

Dividend Policy

S-41

Description of the Notes

S-42

Description of Certain Other Indebtedness

S-73

Underwriting

S-75

Material U.S. Federal Income Tax Considerations

S-79

Legal Matters

S-86

Experts

S-86

Where You Can Find More Information

S-86

Incorporation of Certain Information by Reference

S-86

 

Prospectus

 

 

PAGE

About This Prospectus

ii

Special Note Regarding Forward-Looking Statements

ii

About Array BioPharma

1

Summary of the Securities

1

Risk Factors

2

Use of Proceeds

2

Ratio of Earnings to Fixed Charges

2

Description of Capital Stock

3

Description of Depositary Shares

8

Description of Debt Securities

11

Description of Warrants

20

Description of Units

21

Legal Ownership of Securities

23

Plan of Distribution

26

Legal Matters

28

Experts

29

Where You Can Find More Information

29

Incorporation of Certain Information by Reference

29

 

S-i



Table of Contents

 

ABOUT THIS PROSPECTUS SUPPLEMENT

 

This document is in two parts. The first part is this prospectus supplement, which describes the specific terms of the notes we are offering. The second part, the accompanying prospectus dated June 3, 2013, gives more general information about the notes. You should read this prospectus supplement and the accompanying prospectus, including the information incorporated by reference and any free writing prospectus we have authorized for use in connection with this offering, in their entirety before making an investment decision.

 

We have not authorized anyone to provide you with any information other than information contained in or incorporated by reference in this prospectus supplement and the accompanying prospectus or any free writing prospectus prepared by or on behalf of us or to which we have referred you. If the description of the offering varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.

 

The information in this prospectus supplement and the accompanying prospectus is accurate only as of the respective dates of such documents, and any information we have incorporated by reference is accurate only as of the date of the document incorporated by reference, regardless of the time of delivery of this prospectus supplement or any sale of the notes. Any statement made in this prospectus supplement or in a document incorporated or deemed to be incorporated by reference in this prospectus supplement will be deemed to be modified or superseded for purposes of this prospectus supplement to the extent that a statement contained in this prospectus supplement or in any other subsequently filed document that is also incorporated or deemed to be incorporated by reference in this prospectus supplement modifies or supersedes that statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus supplement. See “Incorporation by Reference” in this prospectus supplement.

 

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 and in any free writing prospectus we have authorized for use in connection with this offering is accurate only as of the respective dates of those documents in which such information is contained. Our business, financial condition, results of operations and prospects may have changed since those dates.

 

References in this prospectus to “Array,” “the company,” “we,” “our” or “us” refer to Array BioPharma Inc.  Our trademarks include the Array BioPharma logo and the terms “ARRAY BIOPHARMA”.  Other trademarks and trade names appearing in this prospectus supplement are the property of the holders of such trademarks and trade names.

 

INDUSTRY AND MARKET DATA

 

Industry and market data contained or incorporated by reference in this prospectus supplement were obtained through company research, surveys and studies conducted by third parties and industry and general publications or based on our experience in the industry. We have not independently verified market and industry data from third-party sources. While we believe internal company surveys and assumptions are reliable and market definitions are appropriate, neither these surveys and assumptions nor these definitions have been verified by any independent sources and we cannot assure that they are accurate.

 

S-ii



Table of Contents

 

SPECIAL NOTE REGARDING

FORWARD-LOOKING STATEMENTS

 

This prospectus supplement contains and incorporates by reference certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements that are not descriptions of historical facts, including statements regarding the future research and development plans of Array and our partners, the timing of planned clinical trials and of the announcement of results of clinical trials being conducted by Array and our partners, the likelihood that clinical trial results will support the future approval or marketing success of a drug, the receipt and timing of milestone, royalty payments under our partnering agreements, our future capital requirements, and our ability to sell the notes in this offering are forward-looking statements, based on management’s estimates, assumptions and projections that are subject to risks and uncertainties.  These statements can generally be identified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “may,” “will,” “should,” or “anticipates” or similar terminology.

 

These statements involve significant risks and uncertainties, including those discussed below and those described more fully in other reports filed by Array with the Securities and Exchange Commission (the “SEC”). Because these statements reflect our current expectations concerning future events, our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors. These factors include, but are not limited to:

 

·                  our ability to continue to fund and successfully progress internal research and development efforts and to create effective, commercially viable drugs;

·                  risks associated with our dependence on our partners for the clinical development and commercialization of our out-licensed drug candidates;

·                  the ability of our partners and of Array to meet objectives tied to milestones and royalties;

·                  our ability to effectively and timely conduct clinical trials in light of increasing costs and difficulties in locating appropriate trial sites and in enrolling patients who meet the criteria for certain clinical trials;

·                  risks associated with our dependence on third-party service providers to successfully conduct clinical trials within and outside the United States;

·                  our ability to achieve and maintain profitability and maintain sufficient cash resources;

·                  the extent to which the pharmaceutical and biotechnology industries are willing to in-license drug candidates for their product pipelines and to collaborate with and fund third parties on their drug discovery activities;

·                  our ability to out-license our proprietary candidates on favorable terms;

·                  our ability to attract and retain experienced scientists and management; and

·                  the risk factors set forth under the caption “Risk Factors” below and in our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q, and any amendments thereto we file with the SEC.

 

The forward-looking statements contained herein represent our judgment as of the date of this prospectus supplement. We undertake no duty or obligation to update any forward-looking statements to reflect the occurrence of events or circumstances after the date of such statements or of anticipated or unanticipated events that alter any assumptions underlying such statements.

 

S-iii



Table of Contents

 

PROSPECTUS SUPPLEMENT SUMMARY

 

This summary highlights selected information appearing elsewhere or incorporated by reference in this prospectus supplement and accompanying prospectus and may not contain all of the information that is important to you. This prospectus supplement and the accompanying prospectus include information about the notes we are offering as well as information regarding our business and financial data. You should read this prospectus supplement and the accompanying prospectus, including the information incorporated by reference and any free writing prospectus we have authorized for use in connection with this offering, in their entirety. Investors should carefully consider the information set forth under “Risk Factors” in this prospectus supplement.

 

About Array BioPharma

 

We are a biopharmaceutical company focused on the discovery, development and commercialization of targeted small molecule drugs to treat patients afflicted with cancer. Array is evolving into a late-stage development company and currently expects significant progress toward generating data to support our upcoming Phase 3 / pivotal trial decisions. Novartis International Pharmaceutical Ltd. expects to begin Phase 3 trials evaluating Array-invented MEK162 in NRAS-mutant melanoma and in BRAF-mutant melanoma in 2013. In addition, we are in ongoing discussions with the U.S. Food and Drug Administration (the “FDA”), regarding the design of a Phase 3 trial to evaluate MEK162 in low-grade serous ovarian cancer under our license agreement with Novartis and we expect to commence the trial in 2013. AstraZeneca PLC expects to begin a Phase 3 trial with selumetinib, an Array-invented drug, in KRAS-mutant non-small cell lung cancer in October 2013 and recently initiated a registration trial in thyroid cancer. Three other Array-invented drugs are also approaching Phase 3 or pivotal trial decisions, and we expect to make decisions on future study designs for these drugs by the end of 2013. These include Array’s wholly-owned drug candidates, ARRY-520 and ARRY-614, and one partnered program, danoprevir with InterMune/Roche Holding AG.

 

 

Proprietary Programs

 

ARRY-520 — Multiple Myeloma

 

ARRY-520 is a potent, selective KSP inhibitor with a mechanism of action distinct from other drugs used to treat multiple myeloma (MM). ARRY-520 acts preferentially on MM cells over terminally differentiated and epithelial cells due to the reliance of MM cells on the MCL-1 protein for survival. As predicted from its targeted mechanism, ARRY-520 has exhibited no neuropathy, alopecia or serious gastrointestinal effects at its recommended dose.

 

At the International Myeloma Workshop in April 2013, Array presented interim results from an ongoing ARRY-520 plus Velcade® (bortezomib) combination trial, as well as results from a Phase 2 ARRY-520 single agent trial. For patients in the combination trial, the treatment was generally well-tolerated. Neutropenia was the most common adverse event, but was transient, non-cumulative, predominantly asymptomatic and well managed with use of growth factor support. Incidence of non-hematologic grade 3/4 toxicity was infrequent. Initial signs of activity, including responses and prolonged stable disease, were observed in this heavily pretreated population, the majority (72%) of whom were refractory to prior Velcade treatment. This study will further investigate the addition of low-dose dexamethasone and an alternative dosing schedule of ARRY-520.

 

In the final results from the Phase 2 single agent trial, ARRY-520 demonstrated single agent activity in heavily pretreated patients, with 19 months median overall survival and a 16% overall response rate. These results are similar to those for recently approved products Kyprolis® (carfilzomib) and Pomalyst® (pomalidomide) as single agents in a similar patient population. ARRY-520 was generally well tolerated, with the most-common adverse events being transient and non-cumulative neutropenia and thrombocytopenia that were readily managed with growth factors and supportive care. In addition, there were infrequent reports of serious adverse events such as febrile neutropenia or sepsis. Consistent with other reported ARRY-520 study results, there was a low incidence of non-hematologic adverse events with no treatment-related neuropathy observed. Further data on a potential patient selection marker was also presented. Patients with normal levels of alpha-1-acid glycoprotein (AAG) had a longer median overall survival (20.2 months vs. 4.5 months), an improved median event free survival (5.3 months vs. 2.4 months) and a greater overall response rate (24% vs. 0%) compared to patients with elevated AAG. These results may enable more precise targeting of patient populations who will benefit from ARRY-520.

 

S-1



Table of Contents

 

ARRY-520 is currently advancing in three clinical trials. Continued positive results in these trials will define a clear path to late stage development:

 

·                  Phase 2 trial in combination with dexamethasone in patients with MM refractory to Revlimid® (lenalidomide), Velcade® and dexamethasone therapy.

·                  Dose escalation trial in combination with Velcade® plus dexamethasone in patients with relapsed or refractory MM.

·                  Investigator-sponsored dose escalation trial in combination with Kyprolis® in patients with relapsed or refractory MM who are refractory or intolerant to Velcade® therapy.

 

ARRY-614 — Myelodysplastic Syndromes

 

ARRY-614 is a dual p38/Tie2 kinase inhibitor offering a unique mechanism of action for the treatment of myelodysplastic syndromes (MDS). In an initial Phase 1 dose-escalation trial in patients with low or intermediate-1 risk MDS, ARRY-614 achieved a response rate of 38% hematologic improvement at the highest dose evaluated. Array continues to evaluate an optimized formulation of ARRY-614 in a clinical trial with a similar patient population. This Phase 1 dose-escalation trial, currently in an expansion phase after reaching the maximum tolerated dose, has the goal of identifying the recommended dose for future clinical trials. As presented at the 2012 American Society of Hematology (“ASH”) Annual Meeting, this new formulation has demonstrated improved bioavailability and target coverage, including higher peak plasma concentrations and overall exposures, when compared to the original formulation.

 

At the end of 2012, the FDA provided guidance on future development for this program, including a discussion of endpoints other than overall survival that could be used as the basis for approval. The FDA also agreed that low / int-1 patients who have failed a hypomethylating agent, such as Vidaza, can be considered a high unmet medical need population. Array now has guidance on a potential path to registration and, pending additional data from the ongoing study, plans to make decisions on future study designs by the end of 2013.

 

ARRY-502 — Asthma

 

Array has completed recruitment of a 182-patient Phase 2a trial with ARRY-502, a CRTh2 antagonist, in mild to moderate persistent asthma. Array expects top-line results from this trial during the summer of 2013 and intends to seek a partner for further development of ARRY-502 in this large market disease indication, which may provide Array with additional non-dilutive financing.

 

Partnered Programs

 

MEK162 — Novartis Partnership in Cancer

 

Array invented MEK162 and licensed worldwide rights to develop and commercialize the drug to Novartis in April 2010, under which co-development costs are capped annually and in total for Array. Array plans to initiate a global Phase 3 clinical trial with MEK162 in patients with recurrent low-grade serous ovarian cancer during the summer of 2013 under this co-development partnership. The study, called MILO (MEK Inhibitor in Low Grade Serous Ovarian Cancer), will evaluate the efficacy and safety of MEK162 compared to standard chemotherapy treatments and is designed for worldwide regulatory submissions, including the FDA and the European Medicines Agency.

 

The MILO study follows the recent announcement by Novartis to initiate Phase 3 trials of MEK162 in both NRAS- and BRAF-mutant melanoma.

 

Selumetinib — AstraZeneca Partnership in Cancer

 

Under our out-licensing and collaboration agreement with AstraZeneca, AstraZeneca acquired exclusive worldwide rights to our clinical development candidate, selumetinib (previously known as AZD6244, or ARRY-142886), together with two other compounds for oncology indications, including AZD8330, which we invented during the collaboration.

 

S-2



Table of Contents

 

AstraZeneca announced that they expect to initiate a Phase 3 trial with selumetinib in KRAS-mutant non-small cell lung cancer in October 2013 and recently initiated a registration trial in thyroid cancer. The first trial will be with selumetinib in combination with docetaxel based on the strength of the Phase 2 data AstraZeneca presented at the American Society of Clinical Oncology Annual Meeting in 2012. The second registration trial, called ASTRA, is a pivotal trial with selumetinib in thyroid cancer based on the strength of that clinical data also presented at the ASCO 2012 Annual Meeting. AstraZeneca has projected selumetinib peak annual sales to exceed $1 billion and suggested selumetinib may have potential application in high unmet need indications such as uveal melanoma, neurofibromatosis and gastrointestinal cancers. In addition, AstraZeneca showed the advantages of selumetinib over GlaxoSmithKline’s MEK inhibitor, trametinib, when combining with standard chemotherapy.

 

At the 2013 ASCO Annual Meeting, data presented by Memorial Sloan-Kettering Cancer Center on selumetinib showed it to be the first targeted therapy to demonstrate significant clinical benefit of more than doubling of progression free survival for patients with metastatic uveal melanoma.  Based on results from this study, Memorial Sloan-Kettering has announced plans to initiate a 100-patient confirmatory, randomized trial with selumetinib.

 

Our Corporate Information

 

Our principal executive offices are located at 3200 Walnut Street, Boulder, Colorado 80301 and our phone number is (303) 381-6600. We were founded in 1998 and became a public company in November 2000. We also maintain a web site at http://www.arraybiopharma.com, which provides additional information about our company and through which you can also access our SEC filings. The information set forth on our web site is not part of this prospectus supplement. Our stock is listed on the NASDAQ Global Market under the symbol “ARRY”.

 

S-3



Table of Contents

 

The Offering

 

The following summary is provided solely for your convenience and is not intended to be complete. You should read the full text and more specific details of this offering contained elsewhere in this prospectus supplement and the accompanying prospectus. For a more detailed description of the notes, see “Description of the Notes” in this prospectus supplement and “Description of Debt Securities” in the accompanying prospectus.

 

Issuer

Array Biopharma Inc., a Delaware corporation

 

 

Securities Offered

$115,000,000 principal amount of 3.00% Convertible Senior Notes due 2020 (plus up to an additional $17,250,000 principal amount if the underwriters exercise their option to purchase additional notes).

 

 

Maturity Date

June 1, 2020 unless earlier purchased, redeemed or converted.

 

 

Issue Price

100%

 

 

Interest

3.00% per year. Interest will accrue from June 10, 2013, which is the expected date of initial issuance of the notes, or from the most recent date to which interest has been paid or duly provided for, and will be payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2013.

 

 

 

We will pay additional interest, if any, at our election as the sole remedy relating to the failure to comply with our reporting obligations as described below under the heading “Description of the Notes — Events of Default”.

 

 

Optional Redemption

We may not redeem the notes prior to June 4, 2017 and no sinking fund is provided for the notes. On or after June 4, 2017, we may redeem for cash all or part of the notes, except for the notes that we are required to repurchase as described below under the heading “Description of the Notes — Repurchase at the Option of the Holder — Fundamental Change Permits Holders to Require Us to Purchase Notes”, but only if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending within seven trading days immediately prior to the date we provide the notice of redemption exceeds 130% of the applicable conversion price for the notes on each applicable trading day. The redemption price for the notes to be redeemed on any redemption date will equal 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

 

 

Conversion Rights

Holders may convert their notes at their option prior to the close of business on the business day immediately preceding March 1, 2020, but only under the following circumstances:

 

 

 

·                  during any fiscal quarter commencing after June 30, 2013 (and only during such fiscal quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day;

 

 

 

·                  during the five consecutive business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of notes for each trading day of such measurement period was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each such trading day;

 

 

 

·                  upon the occurrence of specified corporate events or distributions described under “Description of the Notes — Conversion Rights — Conversion Upon Specified Corporate Events”; or

 

 

 

·                  if we call any notes for redemption, at any time until the close of business on the business day immediately preceding the redemption date.

 

S-4



Table of Contents

 

 

On or after March 1, 2020, until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the foregoing circumstances.

 

 

 

The conversion rate will initially equal 141.8641 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $7.05 per share of common stock), subject to adjustment as described in this prospectus supplement.

 

 

 

In addition, following the occurrence of certain corporate events or if we call any notes for redemption, we will, in certain circumstances, increase the conversion rate for a holder that converts its notes in connection with such corporate event or such redemption notice, as the case may be. See “Description of the Notes — Adjustment to Conversion Rate Upon Conversions in Connection with a Make-Whole Fundamental Change or a Notice of Redemption”.

 

 

 

You will not receive any additional cash payment or additional shares representing accrued and unpaid interest, if any, upon conversion of a note, except in limited circumstances. Instead, interest will be deemed paid by our payment of the amount of cash or the amount of cash and the number of shares of our common stock, if any, as the case may be, into which your note is convertible. See “Description of the Notes — Conversion Rights — General”.

 

 

Settlement Upon Conversion

We may elect to pay or deliver, as the case may be, to holders in full satisfaction of our conversion obligation:

 

 

 

·                  solely shares of our common stock, together with cash in lieu of fractional shares, which we refer to as a “physical settlement”;

 

 

 

·                  solely cash without any delivery of shares of our common stock, which we refer to as a “cash settlement”; or

 

 

 

·                  a combination of cash and shares of our common stock, which we refer to as a “combination settlement”.

 

 

 

The amount of cash, if we elect cash settlement, or the amount of cash and the number of shares of our common stock, if any, if we elect a combination settlement, will be based on a daily conversion value (as defined herein) for each of the 60 consecutive trading days during the observation period (as defined herein).

 

 

 

All conversions occurring on or after March 1, 2020 will be settled using the same settlement method. Prior to March 1, 2020, we will use the same settlement method for all conversions occurring on the same conversion date, but we will not have any obligation to use the same settlement method with respect to conversions that occur on different trading days. That is, we may choose on one trading day to settle conversions in physical settlement, and choose on another trading day cash settlement or combination settlement. If we elect a settlement method, we will inform holders so converting through the trustee of such settlement method we have selected no later than the close of business on the trading day immediately following the related conversion date (or, in the case of any conversions occurring on or after March 1, 2020, no later than March 1, 2020). See “Description of the Notes — Conversion Rights — Settlement Upon Conversion”.

 

 

Fundamental Change

If we undergo a “fundamental change” (as defined under “Description of the Notes — Repurchase at the Option of the Holder — Fundamental Change Permits Holders to Require Us to Purchase Notes”), subject to certain conditions, you may require us to purchase for cash all or part of your notes. The fundamental change purchase price will equal 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.

 

 

Ranking

The notes will be our senior unsecured obligations and will rank:

 

S-5



Table of Contents

 

 

·                  senior in right of payment to any of our existing and future indebtedness that is expressly subordinated to the notes;

 

 

 

·                  equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated;

 

 

 

·                  effectively subordinated to any of our existing and future secured indebtedness, including $14.6 million in outstanding debt as of May 31, 2013 under our loan and security agreement with Comerica Bank, to the extent of the value of the assets securing such indebtedness; and

 

 

 

·                  structurally subordinated to all liabilities (including trade payables) of any subsidiary of ours that may exist in the future, as well as to any of our existing or future indebtedness that may be guaranteed by such subsidiary to the extent of any such guarantee.

 

 

 

As of March 31, 2013, our total consolidated indebtedness was approximately $107.1 million, all of which was secured indebtedness. After giving effect to the issuance of the notes (assuming no exercise of the underwriters’ option to purchase additional notes) and the use of net proceeds therefrom, including the repayment of all of our outstanding indebtedness under the Deerfield Facility Agreements (as defined herein), our total consolidated indebtedness at such date would have been $129.6 million. See “Capitalization”.

 

 

 

The indenture governing the notes will not limit the amount of debt that we or any subsidiary of ours that may exist in the future may incur.

 

 

Events of Default

Except as described under “Description of the Notes — Events of Default”, if an event of default with respect to the notes occurs, holders may, upon satisfaction of certain conditions, accelerate the principal amount of the notes plus premium, if any, and accrued and unpaid interest, if any. In addition, the principal amount of the notes plus premium, if any, and accrued and unpaid interest, if any, will automatically become due and payable in the case of certain types of bankruptcy or insolvency events of default involving us.

 

 

Book-Entry Form

The notes will be issued in book-entry form and will be represented by one or more permanent global certificates deposited with, or on behalf of, The Depository Trust Company (“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.

 

 

Absence of a Public Market for the Notes

Prior to this offering, there was no public market for the notes, and we do not intend to list the notes on any national securities exchange. If no active trading market develops, you may not be able to resell your notes at their fair market value or at all. Future trading prices of the notes will depend on many factors, including the market price of our common stock, prevailing interest rates, our operating results and the market for similar securities. We have been informed by the representatives of the underwriters that certain underwriters currently intend to make a market in the notes after this offering is completed. However, such underwriters are not obligated to do so, and they may cease their market-making at any time and without notice.

 

 

No Listing

We do not intend to apply for listing of the notes on any securities exchange. Our common stock is listed on the NASDAQ Global Market under the symbol “ARRY”.

 

 

Material U.S. Federal Income Tax Considerations

For certain material United States federal income tax considerations relating to the purchase, ownership and disposition of the notes and the shares of our common stock into which the notes are convertible, see “Material U.S. Federal Income Tax Considerations”.

 

S-6



Table of Contents

 

Trustee, Paying Agent, Conversion Agent and Bid Solicitation Agent

Wells Fargo Bank, National Association

 

 

Use of Proceeds

We estimate that the net proceeds from this offering will be approximately $111.31 million (or approximately $128.04 million if the underwriters exercise their option to purchase additional notes in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

 

We intend to use approximately $92.6 million of the net proceeds from this offering to repay the loans outstanding under the Facility Agreement dated April 29, 2008 between us and Deerfield Private Design Fund, L.P. and Deerfield Private Design International, L.P., as amended, and the Facility Agreement dated May 15, 2009 between us and Deerfield Private Design Fund, L.P. and Deerfield Private Design International, L.P. (collectively, the “Deerfield Facility Agreements”). We intend to use the remaining net proceeds from this offering for general corporate purposes. See “Use of Proceeds” on page S-36.

 

 

Risk Factors

Investing in the notes and the underlying common stock involves risks. We urge you to carefully consider all of the information described in the section entitled “Risk Factors” beginning on page S-10.

 

S-7



Table of Contents

 

Summary Condensed Financial Data

 

We derived the information presented below for each of the three years ended June 30, 2010, 2011 and 2012, from our audited condensed financial statements. We derived the information presented below as of March 31, 2013, and for the nine months ended March 31, 2012 and 2013, from our unaudited condensed financial statements. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the unaudited financial data as of March 31, 2013, and for each of the nine months ended March 31, 2012 and 2013, have been reflected therein. Financial results for the nine months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the full year. The following information should be read in conjunction with our condensed financial statements and related notes incorporated by reference in this prospectus supplement and the accompanying prospectus from our Annual Report on Form 10-K for the fiscal year ended June 30, 2012, and our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2013.

 

Our fiscal year ends on June 30.  When we refer to a fiscal year or quarter, we are referring to the year in which the fiscal year ends and the quarters during that fiscal year.  Therefore, fiscal 2013 refers to the fiscal year ended June 30, 2013.

 

For more details on how you can obtain our SEC reports and other information, you should read the section entitled “Where You Can Find More Information”.

 

 

 

Year Ended June 30,

 

Nine Months Ended
March 31,

 

 

 

2010

 

2011

 

2012

 

2012

 

2013

 

 

 

(Audited)

 

(Unaudited)

 

 

 

(In thousands, except per share data)

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

License and milestone revenue

 

$

32,485

 

$

53,426

 

$

71,249

 

$

53,627

 

$

33,340

 

Collaboration revenue

 

21,395

 

18,475

 

13,886

 

10,844

 

10,825

 

Total revenue

 

53,880

 

71,901

 

85,135

 

64,471

 

44,165

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

28,322

 

28,916

 

24,261

 

18,002

 

23,072

 

Research and development for proprietary programs

 

72,488

 

63,498

 

56,719

 

41,842

 

42,580

 

General and administrative

 

17,121

 

16,261

 

15,202

 

10,728

 

14,390

 

Total operating expenses

 

117,931

 

108,675

 

96,182

 

70,572

 

80,042

 

Loss from operations

 

(64,051

)

(36,774

)

(11,047

)

(6,101

)

(35,877

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

Realized gains on auction rate securities, net

 

1,305

 

1,891

 

 

 

 

Loss on early repayment of long-term debt, net

 

 

(6,340

)

(942

)

 

 

Interest income

 

864

 

406

 

32

 

17

 

42

 

Interest expense

 

(15,749

)

(15,507

)

(11,624

)

(9,470

)

(8,456

)

Total other expenses, net

 

(13,580

)

(19,550

)

(12,534

)

(9,453

)

(8,414

)

Net loss

 

$

(77,631

)

$

(56,324

)

$

(23,581

)

$

(15,554

)

$

(44,291

)

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding — basic and diluted

 

50,216

 

55,447

 

70,619

 

63,909

 

104,806

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share — basic and diluted

 

$

(1.55

)

$

(1.02

)

$

(0.33

)

$

(0.24

)

$

(0.42

)

 

S-8



Table of Contents

 

 

 

As of March 31, 2013

 

 

 

Actual

 

 

 

(Unaudited)

 

 

 

(In thousands)

 

Balance Sheet Data

 

 

 

Cash, cash equivalents and marketable securities

 

$

87,047

 

Working capital

 

$

40,026

 

Total assets

 

$

107,431

 

Long-term debt, net:

 

 

 

Comerica Loan and Security Agreement

 

$

14,550

 

Deerfield Facility Agreements (1)

 

$

80,799

 

Total long-term debt, net (1)

 

$

95,349

 

Total stockholders’ deficit

 

$

(52,415

)

 


(1)                                 Net of unamortized debt discount of $11.8 million.

 

S-9



Table of Contents

 

RISK FACTORS

 

An investment in the notes and the underlying common stock involves a high degree of risk. You should carefully consider the risks described below, as well as the other information included or incorporated by reference in this prospectus supplement, before making an investment decision. Our business, financial condition, results of operations and cash flows could be materially adversely affected by any of these risks. The market or trading price of our securities could decline due to any of these risks. In addition, please read “Special Note Regarding Forward-Looking Statements” in this prospectus supplement, where we describe additional uncertainties associated with our business and the forward-looking statements included or incorporated by reference in this prospectus supplement. Please note that additional risks not presently known to us or that we currently deem immaterial may also impair our business and operations.

 

Risks Related to Our Business

 

If we need but are unable to obtain additional funding to support our operations, we could be required to reduce our research and development activities or curtail our operations and it may lead to uncertainty about our ability to continue to operate as a going concern.

 

We have expended substantial funds to discover and develop our drug candidates and additional substantial funds will be required for further development, including preclinical testing and clinical trials, of any product candidates we develop internally. Additional funds will be required to manufacture and market any products we own or retain rights to that are approved for commercial sale. Because the successful development of our products is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them.

 

We have historically funded our operations from up-front fees and milestone payments received under our partnerships, the issuance and sale of equity securities and through debt financing provided by our credit facilities. We believe that the cash, cash equivalents and marketable securities as of March 31, 2013, and the anticipated receipt of up-front and milestone payments under existing partnerships and the proceeds of this offering, will enable us to continue to fund operations in the normal course of business for at least the next 12 months. However, we will continue to depend on funding our operations from these sources for the foreseeable future. Our ability to obtain additional funding when needed, changes to our operating plans, our existing and anticipated working capital needs, the acceleration or modification of our planned research and development activities or expenditures, increased expenses or other events may affect our need for additional capital in the future and may require us to seek additional funding sooner than anticipated.

 

Our ability to successfully raise sufficient funds through the sale of debt or equity securities or from debt financing from lenders when needed is subject to many risks and uncertainties and, even if we are successful, future equity issuances would result in dilution to our existing stockholders. We also may not successfully consummate new partnerships that provide for additional up-front fees or milestone payments or we may not earn milestone payments under such partnerships when anticipated or at all. Our ability to realize milestone or royalty payments under existing partnership agreements and to enter into new partnering arrangements that generate additional revenue through up-front fees and milestone or royalty payments is subject to a number of risks, many of which are beyond our control. If we are unable to generate enough revenue from our existing or new partnerships when needed or secure additional sources of funding, we may be forced to reduce our current rate of research and development spending, reduce our headcount or to curtail our operations significantly. These events may result in an inability to maintain a level of liquidity necessary to continue operating our business and the loss of all or a part of the investment of our stockholders in our common stock and may result in a reduction in the value of the notes. In addition, if we are unable to maintain certain levels of cash and marketable securities, our obligations under our loan agreement with Comerica Bank may be accelerated.

 

S-10



Table of Contents

 

We have a history of operating losses and may not achieve or sustain profitability.

 

We have incurred significant operating and net losses and negative cash flows from operations since our inception. As of March 31, 2013, we had an accumulated deficit of $615.0 million. We had net losses of $21.6 million and $44.3 million for the three and nine months ended March 31, 2013, respectively, and of $23.6 million, $56.3 million, and $77.6 million for the fiscal years ended June 30, 2012, 2011 and 2010, respectively. We expect to incur additional losses and negative cash flows in the future, and these losses may continue or increase in part due to anticipated levels of expenses for research and development, particularly clinical development and expansion of our clinical and scientific capabilities to support ongoing development of our programs. As a result, we may not be able to achieve or maintain profitability.

 

We may not receive royalty or milestone revenue under our partnership agreements for several years, or at all.

 

Much of our current revenue is non-recurring in nature and unpredictable as to timing and amount. Several of our partnership agreements provide for royalties on product sales. However, because none of our drug candidates have been approved for commercial sale, our drug candidates are at early stages of development and drug development entails a high risk of failure, we may never realize much of the milestone revenue provided for in our partnership agreements and we do not expect to receive any royalty revenue for several years, if at all. Similarly, drugs we select to commercialize ourselves or partner for later-stage co-development and commercialization may not generate revenue for several years, or at all.

 

We or our partners may choose not to commercialize a drug candidate at any time during development, which would reduce or eliminate our potential return on investment for that drug.

 

At any time, we or our partners may decide to discontinue the development of a drug candidate or not to commercialize a candidate. If we terminate a program in which we have invested significant resources, we will not receive any return on our investment and we will have missed the opportunity to have allocated those resources to potentially more productive uses. If one of our partners terminates a program, we will not receive any future milestone payments or royalties relating to that program under our partnership agreement with that party. Even if one of our drug candidates receives regulatory approval for marketing, physicians or consumers may not find that its effectiveness, ease of use, side effect profile, cost or other factors make it effective in treating disease or more beneficial than or preferable to other drugs on the market. Additionally, third-party payors, such as government health plans and health insurance plans or maintenance organizations, may choose not to include our drugs on their formulary lists for reimbursement. As a result, our drugs may not be used or may be used only for restricted applications.

 

Our partners have substantial control and discretion over the timing and the continued development and marketing of drug candidates we have licensed to them and, therefore, over the timing and whether we receive anticipated milestone payments and/or royalties.

 

Our partners have significant discretion in determining the efforts and amount of resources that they dedicate to our partnerships. Our partners may decide not to proceed with clinical development or commercialization of a particular drug candidate for any number of reasons that are beyond our control, even under circumstances where we might have continued such a program. In addition, our ability to receive milestone payments and royalties from our partners depends on our partners’ abilities to establish the safety and efficacy of our drug candidates, obtain regulatory approvals and achieve market acceptance of products developed from our drug candidates. We also depend on our partners to manufacture clinical scale quantities of some of our drug candidates and would depend on them in the future for commercial scale manufacture, distribution and direct sales. Our partners may not be successful in manufacturing our drug candidates on a commercial scale or in commercializing them.

 

We face additional risks in connection with our partnerships, including the following:

 

·                  partners may develop and commercialize, either alone or with others, products and services that are similar to, or competitive with, the products that are the subject of the partnership with us;

 

S-11



Table of Contents

 

·                  partners may not commit sufficient resources to the testing, marketing, distribution or other development of our drug candidates;

·                  partners may not properly maintain or defend our intellectual property rights or they may utilize our proprietary information in such a way as to invite litigation that could jeopardize or potentially invalidate our intellectual property or proprietary information or expose us to potential liability;

·                  partners may encounter conflicts of interest, changes in business strategy or other business issues which could adversely affect their willingness or ability to fulfill their obligations to us (for example, pharmaceutical and biotechnology companies historically have re-evaluated their priorities following mergers and consolidations, which have been common in recent years in these industries); and

·                  disputes may arise between us and our partners delaying or terminating the research, development or commercialization of our drug candidates, resulting in significant litigation or arbitration that could be time-consuming and expensive, or causing partners to act in their own self-interest and not in the interest of holders of our securities.

 

We may not be successful in entering into additional out-license agreements on favorable terms, which may adversely affect our liquidity or require us to change our spending priorities on our proprietary programs.

 

We are committing significant resources to create our own proprietary drug candidates and to build a commercial-stage biopharmaceutical company. We have built our clinical and discovery programs through spending $563.4 million from our inception through March 31, 2013. During the nine months ended March 31, 2013, we spent $42.6 million in research and development for proprietary programs. In fiscal 2012, we spent $56.7 million in research and development for proprietary programs, compared to $63.5 million and $72.5 million for fiscal years 2011 and 2010, respectively. Our proprietary drug discovery programs are in their early stage of development and are unproven. Our ability to continue to fund our planned spending on our proprietary drug programs and in building our commercial capabilities depends to a large degree on up-front fees, milestone payments and other revenue we receive as a result of our partnered programs. To date, we have nine active partner-funded clinical programs, and we plan to continue initiatives during calendar 2013 to partner select clinical candidates to obtain additional capital.

 

We may not be successful, however, in entering into additional out-licensing agreements with favorable terms, including up-front, milestone, royalty and/or license payments and the retention of certain valuable commercialization or co-promotion rights, as a result of factors, many of which are outside of our control. These factors include:

 

·                  our ability to create valuable proprietary drugs targeting large market opportunities;

·                  research and spending priorities of potential licensing partners;

·                  willingness of and the resources available to pharmaceutical and biotechnology companies to in-license drug candidates to fill their clinical pipelines;

·                  the success or failure, and timing, of pre-clinical and clinical trials for our proprietary programs we intend to out-license; or

·                  our ability or inability to generate proof-of-concept data and to agree with a potential partner on the value of proprietary drug candidates we are seeking to out-license, or on the related terms.

 

If we are unable to enter into out-licensing agreements and realize milestone, license and/or up-front fees when anticipated, it may adversely affect our liquidity and we may be forced to curtail or delay development of all or some of our proprietary programs, which in turn may harm our business and the value of our stock. In addition, insufficient funds may require us to relinquish greater rights to product candidates at an earlier stage of development or on less favorable terms to us or holders of our securities than we would otherwise choose to obtain funding for our operations.

 

S-12



Table of Contents

 

We may not out-license our proprietary programs at the most appropriate time to maximize the total value or return of these programs to us.

 

A critical aspect of our business strategy is to out-license drug candidates for further development, co-development and/or commercialization to obtain the highest possible value while also evaluating earlier out-licensing opportunities to maximize our risk-adjusted return on our investment in proprietary research. Because the costs and risk of failure of bringing a drug to market are high, the value of out-licensing a drug candidate generally increases as it successfully progresses through clinical trials.

 

We may choose or be forced to out-license a drug candidate or program on terms that require us to relinquish commercial or market rights or at a point in the research and development process that does not provide as great a value or return than what might have been obtained if we had further developed the candidate or program internally. Likewise, we may decline, or be unable to obtain favorable, early out-licensing opportunities in programs that do not result in a commercially viable drug, which could leave the resulting program with little or no value even though significant resources were invested in its development. Our inability to successfully out-license our programs on favorable terms could materially adversely affect our results of operations and cash flows.

 

Our drug candidates are at early stages of development and we may not successfully develop a drug candidate that becomes a commercially viable drug.

 

The drug discovery and development process is highly uncertain and we have not developed, and may never develop, a drug candidate that ultimately leads to a commercially viable drug. All of our most advanced drug candidates are in the early stages of development, and we do not have any drugs approved for commercial sale. Before a drug product is approved by the FDA, for commercial marketing, it is tested for safety and effectiveness in clinical trials that can take up to six years or longer. Promising results in preclinical development or early clinical trials may not be predictive of results obtained in later clinical trials. A number of pharmaceutical companies have experienced significant setbacks in advanced clinical trials, even after obtaining promising results in earlier preclinical and clinical trials. At any time, we, the FDA or an Institutional Review Board (“IRB”) may place a clinical trial on clinical hold, or temporarily or permanently stop the trial, for a variety of reasons, principally for safety concerns. We or our partners may experience numerous unforeseen events during, or as a result of, the clinical development process that could delay or prevent our drug candidates from being approved, including:

 

·                  failure to achieve clinical trial results that indicate a candidate is effective in treating a specified condition or illness in humans;

·                  presence of harmful side effects;

·                  determination by the FDA that the submitted data do not satisfy the criteria for approval;

·                  lack of commercial viability of the drug;

·                  failure to acquire, on reasonable terms, intellectual property rights necessary for commercialization; and

·                  existence of alternative therapeutics that are more effective.

 

Our capital requirements could significantly increase if we choose to develop more of our proprietary programs internally.

 

We believe that the maximum value for certain proprietary drug candidates is best achieved by retaining the rights to develop and commercialize the candidate and not seeking a partner or by waiting until later in the development process to seek a partner to co-develop and commercialize or co-promote a product. It is difficult to predict which of our proprietary programs are likely to yield higher returns if we elect to develop them further before seeking a partner or to not seek a partner at all as a result of many factors, including the competitive position of the product, our capital resources, the perceived value among potential partners of the product and other factors outside of our control. Therefore, we may undertake and fund, solely at our expense, further development, clinical trials, manufacturing and marketing activities for a greater number of proprietary candidates than we planned which may not result in a greater return to Array than if we had chosen to out-license those programs. In addition, we may choose not to out-license certain of our proprietary programs if we are unable to do so on terms that are favorable to us. As a result, our requirements for capital could increase significantly. We may be unable to raise additional required capital to fund this additional development on favorable terms, or at all, however, or we may be required to substantially

 

S-13



Table of Contents

 

reduce our development efforts, which would delay, limit or prevent our ability to commercialize and realize revenue from our drug candidates.

 

Because we rely on a small number of partners for a significant portion of our revenue, if one or more of our major partners terminates or reduces the scope of its agreement with us, our revenue may significantly decrease.

 

A relatively small number of partners account for a significant portion of our revenue. Novartis, Celgene and Genentech accounted for 35%, 32% and 14%, respectively, of our total revenue for the three months ended March 31, 2013, and Amgen, Novartis, Celgene and Genentech accounted for 25%, 24%, 22% and 13%, respectively, of our total revenue for the nine months ended March 31, 2013. We expect that revenue from a limited number of partners, including Genentech, Novartis and Celgene, will account for a large portion of our revenue in future quarters. In general, our partners may terminate their contracts with us upon 60 to 180 days’ notice for a number of reasons or no reason. In addition, some of our major partners can determine the amount of products delivered and research or development performed under these agreements. As a result, if any one of our major partners cancels, declines to renew or reduces the scope of its contract with us, our revenue may significantly decrease.

 

If our drug discovery and development programs do not progress as anticipated, our revenue, stock price and the value of the notes could be negatively impacted.

 

We estimate the timing of a variety of preclinical, clinical, regulatory and other milestones for planning purposes, including when a drug candidate is expected to enter clinical trials, when a clinical trial will be completed, when and if additional clinical trials will commence, or when an application for regulatory approval will be filed. We base our estimates on facts that are currently known to us and on a variety of assumptions that may prove not to be correct for a variety of reasons, many of which are beyond our control. For example, delays in the development of drugs by Array or our partners may be caused by regulatory or patent issues, negative or inconclusive interim or final results of on-going clinical trials, scheduling conflicts with participating clinics and the availability of patients who meet the criteria for and the rate of patient enrollment in, clinical trials and the development priorities of our partners. In addition, in preparing these estimates we rely on the timeliness and accuracy of information and estimates reported or provided to us by our partners concerning the timing, progress and results of clinical trials or other development activities they conduct under our collaborations with them. If we or our partners do not achieve milestones when anticipated, or if our partners choose to terminate a program, we may not achieve our planned revenue and our stock price could decline. In addition, any delays in obtaining approvals to market and sell drugs may result in the loss of competitive advantages in being on the market sooner than, or in advance of, competing products, which may reduce the value of these products and the potential revenue we receive from the eventual sale of these products, either directly or under agreements with our partners.

 

We may not be able to recruit and retain the experienced scientists and management we need to compete in the drug research and development industry.

 

We have 265 employees as of March 31, 2013 and our future success depends upon our ability to attract, retain and motivate highly skilled scientists and management. Our ability to achieve our business strategies, including progressing drug candidates through later stage development or commercialization, attracting new partners and retaining, renewing and expanding existing partnerships, depends on our ability to hire and retain high caliber scientists and other qualified experts, particularly in clinical development and commercialization. We compete with pharmaceutical and biotechnology companies, contract research companies and academic and research institutions to recruit personnel and face significant competition for qualified personnel, particularly clinical development personnel. We may incur greater costs than anticipated, or may not be successful, in attracting new scientists or management or in retaining or motivating our existing personnel.  In addition, we periodically review our existing workforce in light of the current and anticipated needs of our business and may make strategic changes to its size and scope in an effort to use our capital more efficiently.

 

Our future success also depends on the personal efforts and abilities of the principal members of our senior management and scientific staff to provide strategic direction, manage our operations and maintain a cohesive and

 

S-14



Table of Contents

 

stable environment. In particular, we rely on the services of Ron Squarer, our Chief Executive Officer; Dr. Mike Needle, our Chief Medical Officer; Dr. Kevin Koch, our President and Chief Scientific Officer; Dr. David L. Snitman, our Chief Operating Officer and Vice President, Business Development; R. Michael Carruthers, our Chief Financial Officer; and John R. Moore, our Vice President and General Counsel. We have employment agreements with each of these employees that are terminable upon 30 days’ prior notice.

 

Risks Related to Our Clinical Development Activities and Obtaining Regulatory Approval for Our Programs

 

We have limited clinical development and commercialization experience.

 

One of our business strategies is to develop select drug candidates through later stage clinical trials before out-licensing them to a pharmaceutical or biotechnology partner for further clinical development and commercialization and to commercialize select drug candidates ourselves. We intend to begin a Phase 3 trial during the summer of 2013 on MEK162 in low-grade serous ovarian cancer, but we have not yet conducted a Phase 3 or later stage clinical trial ourselves, nor have we commercialized a drug. We have limited experience conducting clinical trials and obtaining regulatory approvals and we may not be successful in some or all of these activities. In addition, in deciding to pursue development of ovarian cancer in the Phase 3 MILO study, we relied on broad based activity that has been shown for MEK162 in other indications and known prior results with other inhibitors, including MEK inhibitors, that have shown activity in ovarian cancer. Consequently, we do not have direct clinical information that MEK162 will be effective in treating the proposed patient population. We have no experience as a company in the sales, marketing and distribution of pharmaceutical products and do not currently have a sales and marketing organization. We expect to expend significant amounts to recruit and retain high quality personnel with clinical development experience. Developing commercialization capabilities would be expensive and time-consuming and could delay any product launch, and we may never be able to develop this capacity. To the extent we are unable to or determine not to develop these resources internally, we may be forced to rely on third-party clinical investigators, or clinical research or marketing organizations, which could subject us to costs and to delays that are outside our control. If we are unable to establish adequate capabilities independently or with others, we may be unable to generate product revenues for certain candidates.

 

If we or our partners fail to adequately conduct clinical trials, regulatory approvals necessary for the sale of drugs may not be obtained when anticipated, or at all, which would reduce or eliminate our potential return on that program.

 

Before any of our drug candidates can be sold commercially, we or our partners must conduct clinical trials that demonstrate that the drug is safe and effective for use in humans for the indications sought. The results of these clinical trials are used as the basis to obtain regulatory approval from government authorities such as the FDA. Conducting clinical trials is a complex, time-consuming and expensive process that requires an appropriate number of trial sites and patients to support the product label claims being sought. The length of time, number of trial sites and number of patients required for clinical trials vary substantially according to their type, complexity, novelty and the drug candidate’s intended use and therefore, we may spend as much as several years completing certain trials. Further, the time within which we or our partners can complete our clinical trials depends in large part on the ability to enroll eligible patients who meet the enrollment criteria and who are in proximity to the trial sites. We and our partners also face competition with other clinical trials for eligible patients. As a consequence, there may be limited availability of eligible patients, which can result in increased development costs, delays in regulatory approvals and associated delays in drug candidates reaching the market. Patients may also suffer adverse medical events or side effects in the course of clinical trials that may delay or prohibit regulatory approval of our drug candidates. Even if we or our partners successfully conduct clinical trials, we or our partners may not obtain favorable clinical trial results and may not be able to obtain regulatory approval on this basis.

 

In addition, we plan to conduct further clinical trial activities in territories outside the U.S. through third-party clinical trial service providers that contract with clinical sites and enroll patients in foreign jurisdictions, including Eastern Europe and South America, and may do so in new geographic locations where our experience conducting clinical trials is more limited. Some of these foreign jurisdictions may impose requirements on us or our third-party clinical trial service providers or contract manufacturers that are more stringent than those imposed by the FDA, which may delay the development and approval of our drug candidates.

 

S-15



Table of Contents

 

If we or our partners fail to adequately manage the increasing number, size and complexity of clinical trials, the clinical trials and corresponding regulatory approvals may be delayed or we or our partners may fail to gain approval for our drug candidates altogether. If we or our partners are unable to market and sell our drug candidates or are unable to obtain approvals in the timeframe needed to execute our product strategies, our business and results of operations would be materially adversely affected.

 

Delays in the commencement or completion of clinical testing could result in increased costs to us and delay or limit our ability to generate revenues.

 

Delays in the commencement or completion of clinical testing of our products or products of our partners, including any Phase 3 or pivotal trials for MEK162 (partnered with Novartis), ARRY-520, ARRY-614, selumetinib (partnered with AstraZeneca) and danoprevir (partnered with Intermune/Roche Holding AG), could significantly affect our product development costs and our ability to generate revenue from our partnered programs. We do not know whether the FDA will approve the trial designs for ongoing and planned clinical trials or whether planned clinical trials will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to the ability of Array or our partners to do the following:

 

·                  provide sufficient safety, efficacy or other data regarding a drug candidate to support the commencement of a Phase 3 or other clinical trial;

·                  reach agreement on acceptable terms with prospective drug manufacturers, clinical research organizations (each, a “CRO”), and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

·                  select CROs, trial sites and, where necessary, contract manufacturers that do not encounter any regulatory compliance problems;

·                  manufacture sufficient quantities of a product candidate for use in clinical trials;

·                  obtain IRB approval to conduct a clinical trial at a prospective site;

·                  recruit and enroll patients to participate in clinical trials, which can be impacted by many factors outside our or our partners’ control, including competition from other clinical trial programs for the same or similar indications; and

·                  retain patients who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues.

 

Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us or our partner, the FDA, the IRB overseeing the clinical trial at issue, any of our clinical trial sites with respect to that site, or other regulatory authorities due to a number of factors, including:

 

·                  failure to conduct the clinical trial in accordance with regulatory requirements, including Good Clinical Practices (“GCP”) or our clinical protocols;

·                  inspection of the clinical trial operations, trial sites or manufacturing facility by the FDA or other regulatory authorities resulting in findings of non-compliance and the imposition of a clinical hold;

·                  unforeseen safety issues or results that do not demonstrate efficacy; and

·                  lack of adequate funding to continue the clinical trial.

 

S-16



Table of Contents

 

Additionally, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our clinical trials, the commercial prospects for our product candidates may be harmed and our ability to generate product revenues will be delayed and/or reduced. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate.

 

Drug candidates that we develop with our partners or on our own may not receive regulatory approval.

 

The development and commercialization of drug candidates for our partners and our own internal drug discovery efforts are subject to regulation. Pharmaceutical products require lengthy and costly testing in animals and humans and regulatory approval by governmental agencies prior to commercialization. It takes several years to complete testing and failure can occur at any stage of the testing. Results attained in preclinical testing and early clinical trials for any of our drug candidates may not be indicative of results that are obtained in later studies and significant setbacks in advanced clinical trials may arise, even after promising results in earlier studies. Clinical trials may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals or result in marketable products. Furthermore, data obtained from preclinical and clinical studies are susceptible to varying interpretations that may delay, limit or prevent regulatory approval. In addition, the administration of any drug candidate we develop may produce undesirable side effects or safety issues that could result in the interruption, delay or suspension of clinical trials, or the failure to obtain FDA or other regulatory approval for any or all targeted indications. Based on results at any stage of testing, we or our partners may decide to repeat or redesign a trial or discontinue development of a drug candidate.

 

Approval of a drug candidate as safe and effective for use in humans is never certain and regulatory agencies may delay or deny approval of drug candidates for commercialization. These agencies may also delay or deny approval based on additional government regulation or administrative action, on changes in regulatory policy during the period of clinical trials in humans and regulatory review or on the availability of alternative treatments. Similar delays and denials may be encountered in foreign countries. None of our partners have obtained regulatory approval to manufacture and sell drug candidates owned by us or identified or developed under an agreement with us. If we or our partners cannot obtain this approval, we will not realize milestone or royalty payments based on commercialization goals for these drug candidates.

 

In light of widely publicized events concerning the safety of certain drug products, such as Avandia® (rosiglitazone), regulatory authorities, members of Congress, the Government Accountability Office, medical professionals and the general public have raised concerns about potential post-marketing drug safety issues. These events have resulted in the withdrawal of drug products, revisions to drug labeling that further limit use of the drug products and establishment of risk evaluations and mitigation strategies (“REMS”) that may, for instance, restrict distribution of drug products and impose burdensome implementation requirements on the company. Although drug safety concerns have occurred over time, the increased attention to this issue may result in a more cautious approach by the FDA. As a result, data from clinical trials may receive greater scrutiny with respect to safety than in years past. Safety concerns may result in the FDA or other regulatory authorities terminating clinical trials before completion or requiring longer or additional clinical trials that may result in substantial additional expense and a delay or failure in obtaining approval or approval for a more limited indication than originally sought.

 

Even if our drug candidates obtain regulatory approval, we and our partners will be subject to ongoing government regulation.

 

Even if regulatory authorities approve any of our drug candidates, the manufacture, labeling, storage, recordkeeping, distribution, marketing and sale of these drugs will be subject to strict and ongoing regulation. Compliance with this regulation consumes substantial financial and management resources and may expose us and our partners to the potential for other adverse circumstances. For example, approval for a drug may be conditioned on costly post-marketing follow-up studies. Based on these studies, if a regulatory authority does not believe that the drug demonstrates a clinical benefit to patients, it could limit the indications for which a drug may be sold or revoke the drug’s marketing approval. In addition, identification of certain side effects after a drug is on the market may result in

 

S-17



Table of Contents

 

the subsequent withdrawal of approval, reformulation of a drug, additional preclinical and clinical trials, changes in labeling or distribution, or we may be required by the FDA to develop and implement a REMS to ensure the safe use of our products. Any of these events could delay or prevent us from generating revenue from the commercialization of these drugs and cause us to incur significant additional costs.

 

Given the number of high profile safety events with certain drug products, the FDA may require, as a condition of approval, a REMS that includes costly risk management programs with components including safety surveillance, restricted distribution and use, patient education, enhanced labeling, special packaging or labeling, expedited reporting of certain adverse events, pre-approval of promotional materials and restrictions on direct-to-consumer advertising. Furthermore, heightened Congressional scrutiny on the adequacy of the FDA’s drug approval process and the agency’s efforts to assure the safety of marketed drugs has resulted in the proposal of new legislation addressing drug safety issues. If enacted, any new legislation could result in delays or increased costs for manufacturers and drug sponsors during the period of product development, clinical trials and regulatory review and approval, as well as increased costs to assure compliance with any new post-approval regulatory requirements.

 

In addition, the marketing of these drugs by us or our partners will be regulated by federal and state laws pertaining to health care “fraud and abuse,” such as the federal anti-kickback law prohibiting bribes, kickbacks or other remuneration for the order, purchase or recommendation of items or services reimbursed by federal health care programs. Many states have similar laws applicable to items or services reimbursed by commercial insurers. Violations of fraud and abuse laws can result in fines and/or imprisonment or exclusion from participation in federal health care programs.

 

If our drug candidates do not gain market acceptance, we may be unable to generate significant revenue.

 

Even if our drug candidates are approved for sale, they may not be successful in the marketplace. Market acceptance of any of our drug candidates will depend on a number of factors including:

 

·                  demonstration of clinical effectiveness and safety;

·                  potential advantages of our drug candidates over alternative treatments;

·                  ability to offer our drug candidates for sale at competitive prices;

·                  availability of adequate third-party reimbursement; and

·                  effectiveness of marketing and distribution methods for the products.

 

If our drug candidates do not gain market acceptance among physicians, patients and others in the medical community, our ability to generate meaningful revenues from our drug candidates would be limited.

 

Our cGMP and pharmacology facilities and practices may fail to comply with government regulations.

 

All facilities and manufacturing processes used in the production of active pharmaceutical ingredients (“API”) and drug products for clinical use in the U.S. must be operated in conformity with current Good Manufacturing Practices (“cGMP”) as established by the FDA. Similar requirements in other countries exist for manufacture of drug products for clinical use. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. If we or any contract manufacturers we use fail to comply with these requirements, we may not be able to continue the production of our products and we could be subject to civil and criminal fines and penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. We operate a clinical-scale manufacturing facility that we believe conforms to cGMP requirements. This facility and our cGMP practices may be subject to periodic regulatory inspections to ensure compliance with cGMP requirements. In addition, we could be required to comply with specific requirements or specifications of other countries and/or of our partners, which may exceed applicable regulatory requirements. Failure on our part to comply with applicable regulations and specific requirements or specifications of other countries and/or our collaborators could result in the termination of ongoing research, disqualification of data for submission to regulatory authorities, delays or denials of new product approvals, warning letters, fines, consent decrees restricting or suspending manufacturing operations, injunctions, civil penalties, recall or seizure of products

 

S-18



Table of Contents

 

and criminal prosecution. Material violations of cGMP requirements could result in regulatory sanctions and, in severe cases, could result in a mandated closing of our cGMP facility.

 

In connection with our application for commercial approvals and, if any drug candidate is approved by the FDA or other regulatory agencies for commercial sale, a significant scale-up in manufacturing may require additional validation studies. If we are unable to successfully increase the manufacturing capacity for a drug candidate, the regulatory approval or commercial launch of that drug candidate may be delayed, or there may be a shortage of supply, which could limit our ability to develop or commercialize the drug.

 

In addition, our pharmacology facility may be subject to FDA Good Laboratory Practices (“GLP”) and United States Department of Agriculture (“USDA”) regulations for certain animal species. Failure on our part to comply with applicable regulations and specific requirements of our partners could result in the termination of ongoing pharmacology research. Material violations of GLP and USDA requirements could result in additional regulatory sanctions and, in severe cases, could result in a mandated closing of our pharmacology facility for certain species.

 

We or third party manufacturers we rely on may encounter failures or difficulties in manufacturing or formulating clinical commercial supplies of drugs, which could delay the clinical development or regulatory approval of our drug candidates, or their ultimate commercial production if approved.

 

We and third parties manufacture our drug candidates. We also from time to time manufacture drug candidates for our partners. We do not have manufacturing facilities that can produce sufficient quantities of API and finished drug product for large-scale clinical trials. Accordingly, we must either develop such facilities, which will require substantial additional funds, or rely, at least to some extent, on third-party manufacturers for the production of drug candidates. Furthermore, should we obtain FDA approval for any of our drug candidates, we expect to rely, at least to some extent, on third-party manufacturers for commercial production. Our dependence on others for the manufacture of our drug candidates may adversely affect our ability to develop and deliver such drug candidates on a timely and competitive basis.

 

Any performance failure on the part of us or a third-party manufacturer could delay clinical development, regulatory approval or, ultimately, sales of our or our partners’ drug candidates. We or third-party manufacturers may encounter difficulties involving production yields, regulatory compliance, lot release, quality control and quality assurance, as well as shortages of qualified personnel. Approval of our drug candidates could be delayed, limited or denied if the FDA does not approve our or a third-party manufacturer’s processes or facilities. Moreover, the ability to adequately and timely manufacture and supply drug candidates is dependent on the uninterrupted and efficient operation of the manufacturing facilities, which is impacted by many manufacturing variables including:

 

·                  availability or contamination of raw materials and components used in the manufacturing process, particularly those for which we have no other source or supplier;

 

·                  capacity of our facilities or those of our contract manufacturers;

 

·                  facility contamination by microorganisms or viruses or cross contamination;

 

·                  compliance with regulatory requirements, including Form 483 notices and Warning Letters;

 

·                  changes in forecasts of future demand;

 

·                  timing and actual number of production runs;

 

·                  production success rates and bulk drug yields; and

 

·                  timing and outcome of product quality testing.

 

S-19



Table of Contents

 

In addition, we or our third-party manufacturers may encounter delays and problems in manufacturing our drug candidates or drugs for a variety of reasons, including accidents during operation, failure of equipment, delays in receiving materials, natural or other disasters, political or governmental changes, or other factors inherent in operating complex manufacturing facilities. Supply chain management is complex, and involves sourcing from a number of different companies and foreign countries. Commercially available starting materials, reagents and excipients may become scarce or more expensive to procure, and we may not be able to obtain favorable terms in agreements with subcontractors. We or our third-party manufacturers may not be able to operate our respective manufacturing facilities in a cost-effective manner or in a time frame that is consistent with our expected future manufacturing needs. If we or our third- party manufacturers cease or interrupt production or if our third-party manufacturers and other service providers fail to supply materials, products or services to us for any reason, such interruption could delay progress on our programs, or interrupt the commercial supply, with the potential for additional costs and lost revenues. If this were to occur, we may also need to seek alternative means to fulfill our manufacturing needs.

 

We may not be able to enter into agreements for the manufacture of our drug candidates with manufacturers whose facilities and procedures comply with applicable law. Manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the Drug Enforcement Agency (“DEA”) and corresponding state and foreign authorities to ensure strict compliance with cGMP and other applicable government regulations and corresponding foreign standards. We do not have control over a third-party manufacturer’s compliance with these regulations and standards. If we or one of our manufacturers fail to maintain compliance, we or they could be subject to civil or criminal penalties, the production of our drug candidates could be interrupted or suspended, or our product could be recalled or withdrawn, resulting in delays, additional costs and potentially lost revenues.

 

Our development, testing and manufacture of drug candidates may expose us to product liability and other lawsuits.

 

We develop, test and manufacture drug candidates that are generally intended for use in humans. Our drug discovery and development activities, including clinical trials we or our partners conduct, that result in the future manufacture and sale of drugs by us or our partners expose us to the risk of liability for personal injury or death to persons using these drug candidates. We may be required to pay substantial damages or incur legal costs in connection with defending any of these product liability claims, or we may not receive revenue from expected royalty or milestone payments if the commercialization of a drug is limited or ceases as a result of such claims. We have product liability insurance that contains customary exclusions and provides coverage up to $10 million per occurrence and in the aggregate, which we believe is customary in our industry for our current operations. However, our product liability insurance does not cover every type of product liability claim that we may face or loss we may incur and may not adequately compensate us for the entire amount of covered claims or losses or for the harm to our business reputation. We may be unable to acquire or maintain additional or maintain our current insurance policies at acceptable costs or at all.

 

Due to our reliance on contract research organizations and other third parties to conduct our clinical trials, we are unable to directly control the timing, conduct and expense of our clinical trials.

 

We rely primarily on third parties to manufacture API and drug product and to conduct our clinical trials. As a result, we have had and will continue to have less control over the conduct of our clinical trials, the timing and completion of the trials, the required reporting of adverse events and the management of data developed through the trial than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may have staffing difficulties, may undergo changes in priorities or may become financially distressed, adversely affecting their willingness or ability to conduct our trials. We may experience unexpected cost increases that are beyond our control. Problems with the timeliness or quality of the work of a contract manufacturing or contract research organization may lead us to seek to terminate the relationship and use an alternative service provider. However, making this change may be costly and may delay our trials and contractual restrictions may make such a change difficult or impossible. Additionally, it may be impossible to find a replacement organization that can conduct our trials in an acceptable manner and at an acceptable cost.

 

S-20



Table of Contents

 

Controls we or our third-party service providers have in place to ensure compliance with laws may not be effective to ensure compliance with all applicable laws and regulations.

 

The discovery and development of our products, together with our general operations, are subject to extensive regulation in the U.S. by state and federal agencies and, as we begin to conduct clinical trials and other activities outside the U.S., in foreign countries. Due to escalating costs and difficulties associated with conducting certain types of clinical trials in the U.S., we conduct certain clinical trials in foreign locations where we have little experience, including countries in Eastern Europe and South America. We expect that we typically will conduct these trials through third-party clinical trial service providers. In addition, we purchase from third-party suppliers and manufacturers that are located outside the U.S., principally countries in Europe, intermediate and bulk API that are used in our development efforts and we contract with third party service providers to prepare finished drug product, including packaging and labeling. As a result, we and our contractors are subject to regulations in the U.S. and in the foreign countries in which the API is sourced and manufactured relating to the cross-border shipment of pharmaceutical ingredients. Although we have developed and instituted controls, we, our employees, our consultants or our contractors may not be in compliance with all potentially applicable U.S. federal and state regulations and/or laws or all potentially applicable foreign regulations and/or laws. Further, we have a limited ability to monitor and control the activities of third-party service providers, suppliers and manufacturers to ensure compliance by such parties with all applicable regulations and/or laws. We may be subject to direct liabilities or be required to indemnify such parties against certain liabilities arising out of any failure by them to comply with such regulations and/or laws. If we or our employees, consultants or contractors fail to comply with any of these regulations and/or laws a range of actions could result, including, but not limited to, the termination of clinical trials, the failure to approve a product candidate, restrictions on our products or manufacturing processes, including withdrawal of our products from the market, significant fines, exclusion from government healthcare programs or other sanctions or litigation.

 

If our use of chemical and hazardous materials violates applicable laws or regulations or causes personal injury we may be liable for damages.

 

Our drug discovery activities, including the analysis and synthesis of chemical compounds, involve the controlled use of chemicals, including flammable, combustible, toxic and radioactive materials that are potentially hazardous. Our use, storage, handling and disposal of these materials is subject to federal, state and local laws and regulations, including the Resource Conservation and Recovery Act, the Occupational Safety and Health Act and local fire codes and regulations promulgated by the Department of Transportation, the DEA, the Department of Energy, the Colorado Department of Public Health and Environment and the Colorado Department of Human Services, Alcohol and Drug Abuse Division. We may incur significant costs to comply with these laws and regulations in the future. In addition, we cannot completely eliminate the risk of accidental contamination or injury from these materials, which could result in material unanticipated expenses, such as substantial fines or penalties, remediation costs or damages, or the loss of a permit or other authorization to operate or engage in our business. Those expenses could exceed our net worth and limit our ability to raise additional capital.

 

Our operations could be interrupted by damage to our specialized laboratory facilities.

 

Our operations depend on the continued use of our highly specialized laboratories and equipment in Boulder and Longmont, Colorado. Catastrophic events, including fires or explosions, could damage our laboratories, equipment, scientific data, work in progress or inventories of chemical compounds and may materially interrupt our business. We employ safety precautions in our laboratory activities in order to reduce the likelihood of the occurrence of these catastrophic events; however, we cannot eliminate the chance that such an event will occur. The availability of laboratory space in these locations is limited and rebuilding our facilities could be time consuming and result in substantial delays in fulfilling our agreements with our partners. We maintain business interruption insurance in the amount of $15 million to cover continuing expenses and lost revenue caused by such occurrences. However, this insurance does not compensate us for the loss of opportunity and potential harm to customer relations that our inability to meet our partners’ needs in a timely manner could create.

 

S-21



Table of Contents

 

Risks Related to Our Drug Discovery Activities

 

Revenue from collaborations depends on the extent to which the pharmaceutical and biotechnology industries collaborate with other companies for one or more aspects of their drug discovery process.

 

Our capabilities include aspects of the drug discovery process that pharmaceutical and biotechnology companies have traditionally performed internally. The willingness of these companies to expand or continue drug discovery collaborations to enhance their research and development process is based on several factors that are beyond our control, any of which could cause our revenue to decline. These include their ability to hire and retain qualified scientists, the resources available for entering into drug discovery collaborations and the spending priorities among various types of research activities. In addition, our ability to convince these companies to use our drug discovery capabilities, rather than develop them internally, depends on many factors, including our ability to:

 

·                  develop and implement drug discovery technologies that will result in the identification of higher-quality drug candidates;

·                  attract and retain experienced, high caliber scientists;

·                  achieve timely, high-quality results at an acceptable cost; and

·                  design, create and manufacture our chemical compounds in quantities, at purity levels and at costs that are acceptable to our partners.

 

The importance of these factors varies depending on the company and type of discovery program and we may be unable to meet any or all of them in the future. Even if we are able to address these factors, these companies may still decide to perform these activities internally or retain other companies that provide drug research and development expertise similar to ours.

 

Our research and development capabilities may not produce viable drug candidates.

 

We have entered into several research and development collaborations under which we provide drug discovery and development services to identify drug candidates for our partners. We also seek to identify and develop drug candidates for our proprietary programs. It is uncertain whether we will be able to provide drug discovery more efficiently or create high quality drug candidates that are suitable for our or our partners’ purposes, which may result in delayed or lost revenue, loss of partners or failure to expand our existing relationships. Our ability to create viable drug candidates for ourselves and our partners depends on many factors, including the implementation of appropriate technologies, the development of effective new research tools, the complexity of the chemistry and biology, the lack of predictability in the scientific process and the performance and decision-making capabilities of our scientists. Our information-driven technology platform, which we believe allows our scientists to make better decisions, may not enable our scientists to make correct decisions or develop viable drug candidates.

 

Risks Related to Our Industry

 

The concentration of the pharmaceutical and biotechnology industry and any further consolidation could reduce the number of our potential partners.

 

There are a limited number of pharmaceutical and biotechnology companies and these companies represent a significant portion of the market for our capabilities. The number of our potential partners could decline even further through consolidation among these companies. If the number of our potential partners declines even further, they may be able to negotiate greater rights to the intellectual property they license from us, price discounts or other terms that are unfavorable to us.

 

S-22



Table of Contents

 

Capital market conditions may reduce our biotechnology partners’ ability to fund research and development.

 

Traditionally, many unprofitable biotechnology companies have funded their research and development expenditures through raising capital in the debt and equity markets. Declines and uncertainties in these markets have severely restricted their ability to raise new capital and to continue to expand or fund existing research and development efforts. If our current or future biotechnology partners are unable to raise sufficient capital to fund research and development expenditures, we may not be able to expand or maintain current revenue.

 

Health care reform, including those based on recently enacted legislation and cost control initiatives by third-party payors, could reduce the prices that can be charged for drugs, which could limit the commercial success of our drug candidates.

 

In March 2010, the President signed the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, together the “Healthcare Reform Act.” These laws substantially change the way health care is financed by both governmental and private insurers and significantly impacts the pharmaceutical industry. The Healthcare Reform Act contains a number of provisions that will be expected to impact our business and operations, in some cases in ways we cannot currently predict. Changes that may affect our business include those governing enrollment in federal healthcare programs, mandatory discounts on pharmaceuticals under federal health care programs, reimbursement changes and fraud and abuse enforcement. These changes will impact existing government healthcare programs and will result in the development of new programs, including Medicare payment for performance initiatives and improvements to the physician quality reporting system and feedback program.

 

Additional provisions of the Healthcare Reform Act, some of which became effective in 2011, may negatively affect any associated product revenues and prospects for continued profitability in the future. For example, the Healthcare Reform Act imposes a non-deductible annual fee on pharmaceutical manufacturers or importers that sell branded prescription drugs to U.S. government programs that may impact any associated product revenue and therefore revenue we are entitled to receive from royalties on product sales. In addition, as part of the Healthcare Reform Act’s provisions closing a funding gap that currently exists in the Medicare Part D prescription drug program (commonly known as the “donut hole”), manufacturers of branded prescription drugs will be required to provide a 50% discount on drugs dispensed to beneficiaries within this donut hole. In 2012, the Supreme Court of the United States heard challenges to the constitutionality of the individual mandate and the viability of certain provisions of the Healthcare Reform Act. The Supreme Court’s decision in Nat’l Federation of Independent Business v. Sebelius upheld most of the Healthcare Reform Act and determined that requiring individuals to maintain “minimum essential” health insurance coverage or pay a penalty to the Internal Revenue Service was within Congress’s constitutional taxing authority. However, the Supreme Court struck down a provision in the Healthcare Reform Act that penalized states which chose not to expand their Medicaid programs through an increase in the Medicaid eligibility income limit from a state’s current eligibility levels to 133% of the federal poverty limit. As a result of the Supreme Court’s ruling, it is unclear whether states will expand their Medicaid programs by raising the income limit to 133% of the federal poverty level and whether there will be more uninsured patients in 2014 than anticipated when Congress passed the Healthcare Reform Act. An increase in the proportion of uninsured patients who are prescribed products resulting from our proprietary or partnered programs could impact our business. We expect that the Healthcare Reform Act and other healthcare reform measures that may be adopted in the future could have a material adverse effect on our industry generally and on the ability of Array or our partners to successfully commercialize product candidates or could limit or eliminate our future spending on development projects.

 

In addition to the Healthcare Reform Act, there will continue to be proposals by legislators at both the federal and state levels, regulators and third-party payors to keep healthcare costs down while expanding individual healthcare benefits. Certain of these changes could limit the prices that can be charged for drugs we develop or the amounts of reimbursement available for these products from governmental agencies or third-party payors, or may increase the tax obligations on pharmaceutical companies, increase our rebate liability and discount obligations and so may limit our commercial opportunity and reduce any associated revenue and profits. For example, federal laws require drug manufacturers to pay specified rebates to each state Medicaid program for medicines reimbursed by Medicaid and to provide discounts for out-patient medicines purchased by certain safety net providers and “disproportionate share” hospitals and for purchases by some federal governmental departments such as the Department of Veterans Affairs

 

S-23



Table of Contents

 

and the Department of Defense. The rebates paid to state Medicaid programs are based on pricing data reported by manufacturers on a monthly and quarterly basis to the Centers for Medicare and Medicaid Services, the federal agency which administers the Medicaid drug rebate program. These data include the average manufacturer price (“AMP”), and in the case of innovator products, the best price for each drug. As a result of the enactment of the Healthcare Reform Act, rebates also are due on the utilization of Medicaid managed care organizations, effective March 23, 2010.

 

Pursuant to the Healthcare Reform Act, the amount of the Medicaid rebate for each unit of a drug has been increased. For most innovator products, in general a drug marketed under a new drug application, or NDA, the minimum rebate has been increased from 15.1% to 23.1% of the AMP for that product, or if it is greater, the difference between the AMP and the best price for the drug. The Medicaid rebate for innovator products also includes an additional rebate amount if price increases for the drug exceed the rate of inflation since the product’s launch, and in the case of certain line extension products, the additional rebate can be tied to the price of the original version of the product. The Healthcare Reform Act also caps the total rebate amount for innovator drugs at 100% of the AMP for the drug. In addition, the Healthcare Reform Act and subsequent legislation enacted in August of 2010 changed the definition of AMP. Regulations have been proposed to implement the Medicaid prescription drug provisions of the enacted statutory changes. There may be additional increases in rebates or other costs and charges from government agencies. Regulations continue to be issued and coverage expanded by various governmental agencies relating to these programs, increasing the cost and complexity of compliance.

 

Health reform also expanded the number of safety net providers and hospitals that receive discounted pricing on out-patient medicines. In some countries other than the U.S., reimbursement, pricing and profitability of prescription pharmaceuticals and biopharmaceuticals are subject to government control. We are unable to predict what additional legislation or regulation, if any, relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on our business.

 

Also, we expect managed care plans will continue to put pressure on the pricing of pharmaceutical and biopharmaceutical products due to a trend toward managed health care, the increasing influence of health maintenance organizations and additional legislative proposals. Cost control initiatives could decrease the price that we, or any potential partners, receive for any of our future products, which could adversely affect our profitability. These initiatives may also have the effect of reducing the resources that pharmaceutical and biotechnology companies can devote to in-licensing drug candidates and the research and development of new drugs, which could reduce our resulting revenue. Any cost containment measures or other reforms that are adopted could have a negative impact on our ability to commercialize successfully our products or could limit or eliminate our spending on development of new drugs and affect our profitability.

 

Other legislation affecting government expenditures more broadly have the potential to affect negatively our product revenues and prospects for continued profitability. For example, the Budget Control Act of 2011 that was signed into law on August 2, 2011 to reduce federal government expenditures may result in reduced payment rates for drugs under different government health care programs. The implementation of this law could decrease the price that we and our potential partners receive for our future products.

 

We, or our partners, may not obtain favorable reimbursement rates for our drug candidates.

 

The commercial success of our drug candidates will depend on the availability and adequacy of coverage and reimbursement from third-party payors, including government and private insurance plans. Third-party payors are increasingly challenging the prices charged for pharmaceuticals and other medical products. Our products may be considered less cost-effective than existing products and, as such, coverage and reimbursement to the patient may not be available or be sufficient to allow the sale of our products on a competitive basis or on a profitable basis.

 

In addition, the market for our drug candidates will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors provide coverage and reimbursement. Industry competition to be included in such formularies can result in downward pricing pressures on pharmaceutical companies. As such, we cannot provide assurances that our products will be placed on third-party payors’ formularies. To the extent that our products are listed on third-party payors’ formularies, we or our partners may not be able to

 

S-24



Table of Contents

 

negotiate favorable reimbursement rates for our products. If we, or our partners, fail to obtain an adequate level of reimbursement for our products by third-party payors, sales of the drugs would be adversely affected or there may be no commercially viable market for the products.

 

The drug research and development industry has a history of patent and other intellectual property litigation and we may be involved in costly intellectual property lawsuits.

 

The drug research and development industry has a history of patent and other intellectual property litigation and we believe these lawsuits are likely to continue. Legal proceedings relating to intellectual property would be expensive, take significant time and divert management’s attention from other business concerns. Because we produce drug candidates for a broad range of therapeutic areas and provide many different capabilities in this industry, we face potential patent infringement suits by companies that control patents for similar drug candidates or capabilities or other suits alleging infringement of their intellectual property rights. There could be issued patents of which we are not aware that our products infringe or patents that we believe we do not infringe that we are ultimately found to infringe. Moreover, patent applications are in many cases maintained in secrecy for 18 months after filing or even until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patent applications can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that we infringe with our products. In addition, technology created under our research and development collaborations may infringe the intellectual property rights of third parties, in which case we may not receive milestone or royalty revenue from those collaborations.

 

If we do not prevail in an infringement lawsuit brought against us, we might have to pay substantial damages, including triple damages, and we could be required to stop the infringing activity or obtain a license to use the patented technology or redesign our products so as not to infringe the patent. We may not be able to enter into licensing arrangements at a reasonable cost or effectively redesign our products. Any inability to secure licenses or alternative technology could delay the introduction of our products or prevent us from manufacturing or selling products.

 

The intellectual property rights we rely on to protect our proprietary drug candidates and the technology underlying our tools and techniques may be inadequate to prevent third parties from using our technology or developing competing capabilities or to protect our interests in our proprietary drug candidates.

 

Our success depends in part on our ability to protect patents and maintain the secrecy of proprietary processes and other technologies we develop for the testing and synthesis of chemical compounds in the drug discovery process. We currently have numerous U.S. patents and patent applications on file with the U.S. Patent and Trademark Office as well as around the world.

 

Any patents that we may own or license now or in the future may not afford meaningful protection for our drug candidates or our technology and tools. In order to protect or enforce our intellectual property rights, we may have to initiate legal proceedings against third parties. Our efforts to enforce and maintain our intellectual property rights may not be successful and may result in substantial costs and diversion of management time. In addition, other companies may challenge our patents and, as a result, these patents could be narrowed, invalidated or deemed unenforceable, or we may be forced to stop using the technology covered by these patents or to license the technology from third parties. In addition, current and future patent applications on which we depend may not result in the issuance of patents in the U.S. or foreign countries. Even if our rights are valid, enforceable and broad in scope, competitors may develop drug candidates or other products based on similar research or technology that is not covered by our patents.

 

Patent applications relating to or affecting our business may have been filed by a number of pharmaceutical and biopharmaceutical companies and academic institutions. A number of the technologies in these applications or patents may conflict with our technologies, patents or patent applications, which could reduce the scope of patent protection we could otherwise obtain. We could also become involved in interference proceedings in connection with one or more of our patents or patent applications to determine priority of inventions. We cannot be certain that we are

 

S-25



Table of Contents

 

the first creator of inventions covered by pending patent applications, or that we were the first to file patent applications for any such inventions.

 

Drug candidates we develop that are approved for commercial marketing by the FDA would be eligible for market exclusivity for varying time periods during which generic versions of a drug may not be marketed and we could apply to extend patent protection for up to five additional years under the provisions of the Hatch-Waxman Act. The Hatch-Waxman Act provides a means for approving generic versions of a drug once the marketing exclusivity period has ended and all relevant patents have expired. The period of exclusive marketing, however, may be shortened if a patent is successfully challenged and defeated, which could reduce the amount of royalties we receive on the product.

 

Agreements we have with our employees, consultants and partners may not afford adequate protection for our trade secrets, confidential information and other proprietary information.

 

In addition to patent protection, we also rely on copyright and trademark protection, trade secrets, know-how, continuing technological innovation and licensing opportunities. In an effort to maintain the confidentiality and ownership of our trade secrets and proprietary information, we require our employees, consultants and advisors to execute confidentiality and proprietary information agreements. However, these agreements may not provide us with adequate protection against improper use or disclosure of confidential information and there may not be adequate remedies in the event of unauthorized use or disclosure. The failure by employees, consultants or advisors to maintain the secrecy of our confidential information may compromise or prevent our ability to obtain needed or meaningful patent protection. Furthermore, we may from time to time hire scientific personnel formerly employed by other companies involved in one or more areas similar to the activities we conduct. In some situations, our confidentiality and proprietary information agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants or advisors have prior employment or consulting relationships. Although we require our employees and consultants to maintain the confidentiality of all proprietary information of their previous employers, these individuals, or we, may be subject to allegations of trade secret misappropriation or other similar claims as a result of their prior affiliations. Finally, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. Our failure or inability to protect our proprietary information and techniques may inhibit or limit our ability to compete effectively, or exclude certain competitors from the market.

 

The drug research and development industry is highly competitive and we compete with some companies that offer a broader range of capabilities and have better access to resources than we do.

 

The pharmaceutical and biotechnology industries are characterized by rapid and continuous technological innovation. We compete with many companies worldwide that are engaged in the research and discovery, licensing, development and commercialization of drug candidates. Some of our competitors have a broader range of capabilities and have greater access to financial, technical, scientific, regulatory, business development, recruiting and other resources than we do. Their access to greater resources may allow them to develop processes or products that are more effective, safer or less costly, or gain greater market acceptance, than products we develop or for which they obtain FDA approval more rapidly than we do. We anticipate that we will face increased competition in the future as new companies enter the market and advanced technologies become available.

 

We face potential liability related to the privacy of health information we obtain from research institutions.

 

Most health care providers, including research institutions from which we or our partners obtain patient information, are subject to privacy and security regulations promulgated under the Health Insurance Portability and Accountability Act (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act. Our clinical research efforts are not directly regulated by HIPAA. However, conduct by a person that may not be prosecuted directly under HIPAA’s criminal provisions could potentially be prosecuted under aiding and abetting or conspiracy laws. Consequently, depending on the facts and circumstances, we could face substantial criminal penalties if we knowingly receive individually identifiable health information from a health care provider or research

 

S-26



Table of Contents

 

institution that has not satisfied HIPAA’s disclosure standards. In addition, international data protection laws including the EU Data Protection Directive and member state implementing legislation may apply to some or all of the clinical data obtained outside of the U.S. Furthermore, certain privacy laws and genetic testing laws may apply directly to our operations and/or those of our partners and may impose restrictions on our use and dissemination of individuals’ health information. Moreover, patients about whom we or our partners obtain information, as well as the providers who share this information with us, may have contractual rights that limit our ability to use and disclose the information. Claims that we have violated individuals’ privacy rights or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming to defend and could result in adverse publicity that could harm our business.

 

Risks Related to Our Stock

 

Our quarterly operating results could fluctuate significantly, which could cause our stock price and the value of the notes to decline.

 

Our quarterly operating results have fluctuated in the past and are likely to fluctuate in the future. Entering into partnerships typically involves significant technical evaluation and/or commitment of capital by our partners. Accordingly, negotiation can be lengthy and is subject to a number of significant risks, including partners’ budgetary constraints and internal acceptance reviews and a significant portion of our revenue from these partnerships is attributable to up-front payments and milestones that are non-recurring. Further, some of our partners can influence when we deliver products and perform services and therefore receive revenue, under their contracts with us. Due to these factors, our operating results could fluctuate significantly from quarter to quarter. In addition, we may experience significant fluctuations in quarterly operating results due to factors such as general and industry-specific economic conditions that may affect the research and development expenditures of pharmaceutical and biotechnology companies.

 

Due to the possibility of fluctuations in our revenue and expenses, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. Our operating results in some quarters may not meet the expectations of stock market analysts and investors. If we do not meet analysts’ and/or investors’ expectations, our stock price and the value of the notes offered hereby could decline.

 

Because our stock price may be volatile, our stock price and the value of the notes could experience substantial declines.

 

The market price of our common stock has historically experienced and may continue to experience volatility. The high and low closing bids for our common stock were $4.98 and $3.71, respectively, during the third quarter of fiscal 2013; $5.96 and $3.30, respectively, during the second quarter of fiscal 2013; $5.94 and $3.39, respectively, during the first quarter of 2013; $3.72 and $1.77, respectively, during fiscal 2012; and $3.58 and $2.06, respectively, during fiscal 2011. Our quarterly operating results, the success or failure of our internal drug discovery efforts, decisions to delay, modify or cease one or more of our development programs, negative data or adverse events reported on programs in clinical trials we or our partners are conducting, uncertainties about our ability to continue to fund our operating plan, changes in general conditions in the economy or the financial markets and other developments affecting our partners, our competitors or us could cause the market price of our common stock to fluctuate substantially. This volatility coupled with market declines in our industry over the past several years have affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance, and may adversely affect the price of our common stock and the value of the notes. In the past, securities class action litigation has often been instituted following periods of volatility in the market price of a company’s securities. A securities class action suit against us could result in potential liabilities, substantial costs and the diversion of management’s attention and resources, regardless of whether we win or lose.

 

S-27



Table of Contents

 

Because we do not intend to pay dividends, stockholders will benefit from an investment in our common stock only if it appreciates in value.

 

We have never declared or paid any cash dividends on our common stock and are restricted in our ability to do so under our current credit agreement. We currently intend to retain our future earnings, if any, to finance the expansion of our business and do not expect to pay any cash dividends in the foreseeable future. As a result, the success of an investment in our common stock, including any common stock issued upon conversion of the notes, will depend entirely upon any future appreciation. There is no guarantee that our common stock will appreciate in value or even maintain the price at which stockholders have purchased their shares.

 

Risks Related to the Notes and to this Offering

 

We expect that the trading price of the notes will be significantly affected by changes in the market price of our common stock, the interest rate environment and our credit quality, each of which could change substantially at any time.

 

We expect that the trading price of the notes will depend on a variety of factors, including, without limitation, the market price of our common stock, the interest rate environment and our credit quality. Each of these factors may be volatile, and may or may not be within our control.

 

For example, the trading price of the notes will increase with the market price and volatility of our common stock. We cannot, however, predict whether the market price of our common stock will rise or fall or whether the volatility of our common stock will continue at its historical level. In addition, general market conditions, including the level of, and fluctuations in, the market price of stocks generally, may affect the market price and the volatility of our common stock. Moreover, we may or may not choose to take actions that could influence the volatility of our common stock.

 

Likewise, if interest rates, or expected future interest rates, rise during the term of the notes, the yield of the notes will likely decrease, but the value of the convertibility option embedded in the notes will likely increase. Because interest rates and interest rate expectations are influenced by a wide variety of factors that are beyond our control, we cannot assure you that changes in interest rates or interest rate expectations will not adversely affect the trading price of the notes.

 

Furthermore, the trading price of the notes will likely be significantly affected by any change in our credit quality. Because our credit quality is influenced by a variety of factors, some of which are beyond our control, we cannot guarantee that we will maintain or improve our credit quality during the term of the notes. In addition, because we may choose to take actions that adversely affect our credit quality, such as incurring additional debt, there can be no guarantee that our credit quality will not decline during the term of the notes, which would likely negatively impact the trading price of the notes.

 

The claims of holders of the notes will be structurally subordinated to claims of creditors of any subsidiary of ours that may exist in the future because such subsidiary will not guarantee the notes.

 

The notes will not be guaranteed by any subsidiary of ours that may exist in the future. Accordingly, any such subsidiary is not obligated to pay any amounts due pursuant to the notes, or to make any funds available therefor. Consequently, claims of holders of the notes will be structurally subordinated to the claims of creditors of any such subsidiary, including trade creditors. As a result, in the event of a bankruptcy, liquidation or reorganization of any such subsidiary, such subsidiary will pay the holders of its debt and its trade creditors before it will be able to distribute any of its assets to us.

 

We have incurred indebtedness in connection with our business and could incur additional indebtedness that could have adverse effects on our business and prevent us from fulfilling our obligations under the notes.

 

As of March 31, 2013, we had $14.6 million of outstanding indebtedness with Comerica Bank and $92.6 million of outstanding indebtedness under our Deerfield Facility Agreements. We intend to use the proceeds from this offering to repay the entire amount outstanding under the Deerfield Facility Agreements. We may incur additional

 

S-28



Table of Contents

 

indebtedness in connection with financing acquisitions, strategic transactions or for other purposes, which indebtedness may rank senior to the notes. The indenture does not limit the amount of debt that we or any subsidiary of ours that may exist in the future may incur.  Our indebtedness increases the risk that we may be unable to generate enough cash to pay amounts due in respect of our indebtedness, including the notes.

 

In the future, if we are unable to generate cash from operations sufficient to meet our debt obligations, we will need to obtain additional funds from other sources, which may include one or more debt or equity financings or the license or sale of certain of our assets, or we may be forced to cease development of one or more of our programs or curtail our other operations. However, we may be unable to obtain sufficient additional funds when we need them on favorable terms or at all. In addition, if we are unable to obtain financing when needed, or to fund our operations from funds received through partnership agreements, our level of cash, cash equivalents and marketable securities may fall below thresholds specified in our debt agreements, requiring us to pay interest at a higher interest rate.

 

Our indebtedness could have important other consequences to you and significant effects on our business. For example, it could:

 

·                  make it more difficult for us to satisfy our debt obligations, including the notes;

 

·                  increase our vulnerability to general adverse economic and industry conditions;

 

·                  require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund drug discovery and further development of our drug candidates, working capital and other general corporate purposes;

 

·                  limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

·                  restrict us from exploiting business opportunities;

 

·                  place us at a competitive disadvantage compared to our competitors that have less indebtedness; and

 

·                  limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.

 

In addition, our existing loan with Comerica Bank contains, and the agreements that may govern any future indebtedness that we may incur may contain, financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Among other restrictions, our existing loan with Comerica Bank contains covenants requiring us to maintain certain balances of cash and cash equivalents and limiting our ability to make certain investments, consummate certain mergers, incur certain debt or liens, dispose of assets and pay dividends or make distributions. Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration of all of our debt.

 

Upon any conversion of the notes in connection with a redemption notice, the additional shares by which the applicable conversion rate is increased may not fully compensate you for future interest payments or lost time value of your notes.

 

On or after June 4, 2017, if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the trading day immediately prior to the date we provide the notice of redemption exceeds 130% of the applicable conversion price on each applicable trading day, subject to certain limited exceptions, we may redeem any or all of the notes. The redemption price for the notes to be redeemed on any such redemption date will equal 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If we call any notes for redemption, you may convert your notes at any time until the close of business on the business day immediately preceding the redemption date. Upon any such conversion, the additional shares by which the applicable conversion

 

S-29



Table of Contents

 

rate is increased, may not fully compensate you for any future interest payments that you would have otherwise received or any other lost time value of your notes.

 

The notes are not protected by restrictive covenants, which in turn may allow us to engage in a variety of transactions that may impair our ability to fulfill our obligations under the notes.

 

The indenture governing the notes will not contain any financial covenants and will not restrict us from paying dividends, incurring debt or issuing or repurchasing our other securities. Because the indenture will not contain any covenants or other provisions designed to afford holders of the notes protection in the event of a highly leveraged transaction involving us or in the event of a decline in our credit rating for any reason, including as a result of a takeover, recapitalization, highly leveraged transaction or similar restructuring involving us, except to the extent described under “Description of the Notes — Repurchase at the Option of the Holder — Fundamental Change Permits Holders to Require Us to Purchase Notes”, “Description of the Notes — Consolidation, Merger and Sale of Assets” and “Description of the Notes — Adjustment to Conversion Rate Upon Conversions in Connection with a Make-Whole Fundamental Change or a Notice of Redemption”, we may engage in transactions that could impair our ability to fulfill our obligations under the notes. Other than the repurchase right afforded to holders in connection with certain fundamental changes, the restrictions provided by the merger covenant and our obligation to increase the conversion rate with respect to the notes in certain circumstances upon the occurrence of certain events, we generally have no duty to consider the interests of holders of the notes in determining whether to engage in such transactions.

 

Recent and future regulatory actions and other events may adversely affect the trading price and liquidity of the notes.

 

We expect that many investors in, and potential purchasers of, the notes will employ, or seek to employ, a convertible arbitrage strategy with respect to the notes.  Investors would typically implement such a strategy by selling short the common stock underlying the notes and dynamically adjusting their short position while continuing to  hold the notes.  Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of or in addition to short selling the common stock.

 

The SEC and other regulatory and self-regulatory authorities have implemented various rules and taken certain actions, and may in the future adopt additional rules and take other actions,  that may impact those engaging in short selling activity involving equity securities (including our common stock).  Such rules and actions include Rule 201 of Regulation SHO, the adoption by the Financial Industry Regulatory Authority, Inc. of a “Limit Up-Limit Down” program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain regulatory reforms required by  the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  Any governmental or regulatory action that restricts the ability of investors in, or potential purchasers of, the notes to effect short sales of our common stock or enter into swaps on our common stock could adversely affect the trading price and the liquidity of the notes.

 

In addition, if investors and potential purchasers seeking to employ a convertible arbitrage strategy are unable to borrow or enter into swaps on our common stock, in each case on commercially reasonable terms, the trading price and liquidity of the notes may be adversely affected.

 

Some significant restructuring transactions that may adversely affect you may not constitute a “fundamental change” under the indenture, in which case we would not be obligated to offer to repurchase the notes.

 

Upon the occurrence of a “fundamental change” (as defined under “Description of the Notes — Repurchase at the Option of the Holder — Fundamental Change Permits Holders to Require Us to Purchase Notes”), you have the right, at your option, to require us to repurchase your notes for cash. However, the definition of fundamental change contained in the indenture is limited to certain enumerated transactions. As a result, the fundamental change provision of the indenture will not afford protection to holders of notes in the event of other transactions that could adversely affect the notes. For example, transactions such as leveraged recapitalizations, refinancings, restructurings or acquisitions initiated by us may not constitute a fundamental change requiring us to repurchase the notes. In the event of any such transaction, holders of the notes would not have the right to require us to repurchase their notes, even

 

S-30



Table of Contents

 

though each of these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting the holders of notes.

 

The adjustment to the conversion rate for notes converted in connection with a make-whole fundamental change or a notice of redemption may not adequately compensate you for any lost option value of your notes as a result of such transaction or a redemption. In addition, the definition of a make-whole fundamental change is limited and may not protect you from losing some of the option value of your notes in the event of a variety of transactions that do not constitute a make-whole fundamental change.

 

Upon the occurrence of a make-whole fundamental change or a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that converts its notes in connection with such make-whole fundamental change or such redemption notice. The increase in the conversion rate will be determined based on the date on which the make-whole fundamental change becomes effective or the date of the redemption notice, as the case may be, and the price per share of our common stock paid (or deemed paid) in such make-whole fundamental change or on the date of the redemption notice, as the case may be, all as described below under “Description of the Notes — Adjustment to Conversion Rate Upon Conversions in Connection with a Make-Whole Fundamental Change or a Notice of Redemption”.

 

Although the adjustment to the conversion rate for notes converted in connection with a make-whole fundamental change or a notice of redemption is designed to compensate you for the option value of your notes that you lose as a result of a make-whole fundamental change or the redemption, as the case may be, it is only an estimate of such value and may not adequately compensate you for such lost option value. In addition, if the stock price is greater than $50.00 per share or less than $5.32 per share (in each case, subject to adjustment in accordance with the indenture), then we will not be required to adjust the conversion rate if you convert your notes in connection with such make-whole fundamental change or a notice of redemption. Moreover, in no event will we increase the conversion rate solely because of such an adjustment to a rate that exceeds 187.9699 shares of common stock per $1,000 principal amount of notes, subject to adjustments in accordance with the indenture.

 

Furthermore, the definition of make-whole fundamental change contained in the indenture is limited to certain enumerated transactions. As a result, the make-whole fundamental change provisions of the indenture will not afford protection to holders of the notes in the event that other transactions occur that could adversely affect the option value of the notes. For example, transactions, such as a spin-off or sale of a subsidiary of ours that may exist in the future with volatile earnings, or a change in our line of business, could significantly affect the trading characteristics of our common stock and thereby reduce the option value embedded in the notes without triggering a make-whole fundamental change.

 

In addition, our obligation to increase the conversion rate upon the occurrence of a make-whole fundamental change or a notice of redemption could be considered a penalty, in which case the enforceability thereof could be subject to general equity principles such as the reasonableness of economic remedies.

 

S-31



Table of Contents

 

Adjustments to the conversion rate do not cover all dilutive events that may adversely affect the value of the notes. In addition, such adjustments to the conversion rate may not adequately compensate you for any loss of value of the notes as a result of such dilutive events.

 

The conversion rate of the notes is subject to adjustment for certain events, including, but not limited to, the issuance of stock dividends on our common stock, the issuance of certain rights, options or warrants, subdivisions, combinations, distributions of our capital stock, indebtedness, or assets, cash dividends above a certain threshold and certain issuer tender or exchange offers as described under “Description of the Notes — Conversion Rights — Conversion Rate Adjustments”. However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash or in connection with an acquisition, that may adversely affect the trading price of the notes or our common stock. An event that adversely affects the value of the notes may occur and that event may not result in an adjustment to the conversion rate.  In addition, although the adjustment to the conversion rate for such dilutive events is designed to compensate you for the value of your notes that you lose as a result of such dilutive events, it is only an estimate of such value and may not adequately compensate you for such lost value.

 

We may not have the ability to raise funds necessary to settle conversions of the notes or to purchase the notes upon a fundamental change.

 

If a fundamental change occurs, you will have the right, at your option, to require us to purchase for cash any or all of your notes, or any portion of the principal amount thereof such that the principal amount that remains outstanding of each note purchased in part equals $1,000 or an integral multiple of $1,000 in excess thereof. The fundamental change purchase price will equal 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date. In addition, upon conversion of the notes, we may be required to make cash payments in respect of the notes being converted depending on the settlement method we elect or are deemed to have elected. However, we may not have sufficient funds at the time we are required to purchase the notes surrendered therefor or notes being converted and we may not be able to arrange necessary financing on acceptable terms, if at all. In addition, our ability to purchase the notes may be limited by law, by regulatory authority or by the agreements governing our other indebtedness outstanding at the time. If we fail to pay the fundamental change purchase price when due or fail to pay any amount of cash due upon conversion, we will be in default under the indenture governing the notes. A default under the indenture or the fundamental change itself could also lead to a default under the agreements governing our other indebtedness.

 

If an active trading market does not develop for the notes, you may not be able to resell them.

 

Prior to this offering, there was no public market for the notes, and we do not currently plan to list the notes on any securities exchange. If no active trading market develops, you may not be able to resell your notes at their fair market value or at all. The liquidity of the trading market in the notes and future trading prices of the notes will depend on many factors, including prevailing interest rates, our operating results and the market for similar securities. We have been informed by the representatives of the underwriters that certain underwriters currently intend to make a market in the notes after this offering is completed. However, such underwriters may cease their market-making at any time.

 

The conditional conversion feature of the notes could result in your receiving less than the value of the cash or the cash and shares of common stock, if any, as the case may be, into which your notes would otherwise be convertible.

 

Prior to March 1, 2020, you may convert your notes only if specified conditions are met. If the specific conditions for conversion are not met, you will not be able to convert your notes, and you may not be able to receive the value of the cash or combination of cash and shares of common stock, if any, as the case may be, into which your notes would otherwise be convertible. Therefore, you may not be able to realize the appreciation, if any, in the value of our common stock after the issuance of the notes in this offering and prior to such date. In addition, the inability to freely convert your notes may also adversely affect the trading price of the notes and your ability to resell the notes.

 

S-32



Table of Contents

 

Upon conversion of the notes, you may receive less valuable consideration than expected because the value of our common stock may decline after you exercise your conversion right.

 

Under the notes, a converting holder will be exposed to fluctuations in the value of our common stock during the period from the date such holder surrenders notes for conversion until the date we settle our conversion obligation.

 

We have the option to pay or deliver, as the case may be, cash, shares of our common stock, or a combination of cash and shares of our common stock to satisfy our conversion obligation under the notes (if any). If we elect to satisfy our conversion obligation solely in cash or a combination of cash and shares of our common stock, the amount of consideration that you will receive upon conversion will be based upon the volume weighted average prices of our common stock for each of the 60 trading days during the observation period. Accordingly, if the price of our common stock decreases during this period, the amount and/or value of consideration you receive will be adversely affected. In addition, if the market price of our common stock at the end of such period is below the average of the volume weighed average prices of our common stock during such period, the value of any shares of our common stock that you will receive in satisfaction of our conversion obligation will be less than the value used to determine the number of shares that you will receive. See “Description of the Notes — Conversion Rights — Settlement Upon Conversion” in this prospectus supplement.

 

If we elect to satisfy our conversion obligation solely in shares of our common stock upon conversion of the notes, we will be required to deliver the shares of our common stock, together with cash for any fractional shares, on the third business day following the relevant conversion date. Accordingly, if the price of our common stock decreases during this period, the value of the shares that you receive will be adversely affected and would be less than the conversion value of the notes on the conversion date.

 

We may elect to deliver cash or a combination of cash and shares of our common stock upon conversion. Therefore, holders of the notes may receive no shares of our common stock or fewer shares than the number of shares underlying their notes.

 

Because we have the right to elect cash settlement or combination settlement, upon conversion, holders may not receive any shares of our common stock or they may receive fewer shares of our common stock relative to the applicable conversion rate of the notes. In addition, in the event of our bankruptcy, insolvency or certain similar proceedings during the observation period, if any, for any notes, there is a risk that a bankruptcy court may decide a holder’s claim to receive such cash and/or shares of our common stock could be subordinated further to the claims of our other creditors or treated as an equity interest in bankruptcy.

 

We may issue additional shares of common stock or instruments convertible into common stock and thereby materially and adversely affect the price of our common stock.

 

We are not restricted from issuing additional common stock or other instruments convertible into common stock during the term of the notes. In addition, we may issue shares of common stock, or options to acquire common stock, under our existing or future stock option plans, employee stock purchase plans or other employee or director compensation plans. We may also increase the shares available for issuance under such plans subject to stockholder approval. The issuance of additional shares of common stock or instruments convertible into common stock, or the perception that such issuances may occur, may materially and adversely affect the price of our common stock and, in turn, the price of the notes.

 

Conversion of the notes may dilute the ownership interest of existing shareholders, including holders who had previously converted their notes.

 

At our election, we may settle notes tendered for conversion entirely or partly in shares of our common stock. As a result, the conversion of some or all of the notes may dilute the ownership interests of existing shareholders. Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock and, in turn, the price of the notes. 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.

 

S-33



Table of Contents

 

The accounting method for convertible debt securities that may be settled in cash, such as the notes, could have a material effect on our reported financial results.

 

In May 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), which has subsequently been codified as Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”). Under ASC 470-20, an entity must separately account for the liability and equity components of the convertible debt instruments (such as the notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our condensed balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of the notes to their face amount over the term of the notes. We will report lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our reported or future financial results, the market price of our common stock and the trading price of the notes.

 

In addition, under certain circumstances, convertible debt instruments (such as the notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share would be adversely affected.

 

Holders of notes will not be entitled to any rights with respect to our common stock, but will be subject to all changes made with respect to our common stock to the extent our conversion obligations include shares of our common stock.

 

Holders of notes will not be 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), until the time at which they are deemed to become record holders of our common stock, which will generally be as of the close of business on the last trading day of the applicable observation period in a combination settlement and as of the close of business on the conversion date in a physical settlement, but will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our certificate of incorporation or bylaws requiring stockholder approval and the record date for determining the stockholders of record entitled to vote on the amendment occurs prior to the date you are deemed to be a record holder of our common stock, you generally will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes affecting our common stock. In addition, because of the conditions to conversion, and the settlement features of the notes, which would permit us to satisfy our obligation upon conversion solely in cash, should we elect to do so, you may not be able to convert your notes until March 1, 2020, and you may not receive any shares upon conversion.

 

You may be subject to tax if we make or fail to make certain adjustments to the conversion rate of the notes even though you do not receive a corresponding cash distribution.

 

The conversion rate of the notes is subject to adjustment in certain circumstances. If the conversion rate is adjusted as a result of a distribution that is taxable to our common stockholders, you may be deemed to have received a dividend subject to U.S. federal income tax even though you did not receive a corresponding cash distribution. In addition, if we fail to adjust (or to adjust adequately) the conversion rate after an event that increases your proportionate interest in us, you may be deemed to have received a taxable dividend. Further, if a make-whole fundamental change occurs on or prior to the maturity date of the notes or if we give notice to the holders of our intent to redeem any or all notes in cash and the holder elects to convert its notes in connection with such notice, and we increase the conversion rate for the notes converted in connection with the make-whole fundamental change or the redemption notice, as the case may be, you may be deemed to have received a taxable dividend. If you are a non-U.S. holder (as defined in the section of this prospectus supplement under the caption “Material U.S. Federal Income Tax Considerations”), any deemed dividend may be subject to U.S. federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, which may be set off against subsequent payments of cash

 

S-34



Table of Contents

 

and common stock payable on the notes (or, in certain circumstances, against any payments on our common stock). See “Material U.S. Federal Income Tax Considerations” in this prospectus supplement.

 

In addition, Section 871(m) of the Internal Revenue Code of 1986, as amended (the “Code”), imposes a 30%  (or a lower rate under an applicable income tax treaty) withholding tax on “dividend equivalents” paid to non-U.S. holders. The U.S. Treasury Department and the Internal Revenue Service (the “IRS”) have released proposed U.S. Treasury regulations (“Treasury Regulations”) that potentially apply the withholding requirements of Section 871(m) to instruments such as the notes. It is possible that we (or other withholding agents) will be required to withhold on amounts with respect to the notes to the extent the conversion rate is adjusted as a result of a dividend being paid on our common stock, or potentially in the absence of an adjustment. The amount and timing of any withholding tax imposed under Section 871(m) may differ from the general withholding required on deemed dividends described above. If withholding under Section 871(m) is so required, we will not be required to pay any additional amounts with respect to amounts so withheld. See “Material U.S. Federal Income Tax Considerations” in this prospectus supplement.

 

Certain provisions in the notes and the indenture as well as Delaware law and our organizational documents could delay or prevent an otherwise beneficial takeover or takeover attempt of us and, therefore, the ability of holders to exercise their rights associated with a potential fundamental change or a make-whole fundamental change.

 

Certain provisions in the notes and the indenture as well as certain provisions of Delaware law and our organizational documents could make it more difficult or more expensive for a third party to acquire us. For example, if an acquisition event constitutes a fundamental change, holders of the notes will have the right to require us to purchase their notes in cash. In addition, if an acquisition event constitutes a make-whole fundamental change, we may be required to increase the conversion rate for holders who convert their notes in connection with such make-whole fundamental change.

 

Delaware law prohibits, subject to certain exceptions, a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder. Additionally, our certificate of incorporation and bylaws contain provisions that could similarly delay, defer or discourage a change in control of us or management. These provisions could also discourage a proxy contest and make it more difficult for stockholders to elect directors and take other corporate actions. Such provisions provide for the following, among other things: (i) the ability of our Board of Directors to issue shares of common stock and preferred stock without stockholder approval, (ii) the ability of our Board of Directors to establish the rights and preferences of authorized and unissued preferred stock, (iii) a Board of Directors divided into three classes of directors serving staggered three year terms, (iv) permitting only the Chairman of the Board of Directors, the Chief Executive Officer, the president or the Board of Directors to call a special meeting of stockholders and (v) requiring advance notice of stockholder proposals and related information. In any of these cases, and in other cases, our obligations under the notes and the indenture as well as provisions of Delaware law and our organizational documents and other agreements could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management. For additional information about our organizational documents and other agreements and their potential effect on transactions involving a change of control, see “Description of Capital Stock — Anti-Takeover Provisions” in the accompanying prospectus.

 

S-35



Table of Contents

 

USE OF PROCEEDS

 

We estimate that the net proceeds from this notes offering will be approximately $111.31 million, or $128.04 million if the underwriters exercise in full their option to purchase additional notes, after deducting the estimated underwriting discounts and estimated offering expenses payable by us.

 

We currently intend to use approximately $92.6 million of the net proceeds from this offering to repay all the outstanding debt under the Deerfield Facility Agreements. As of March 31, 2013, approximately $92.6 million was outstanding under the Deerfield Facility Agreements. The current interest rate under the Deerfield Facility Agreements is 7.5% per annum, and we are required to pay on June 30, 2015, the outstanding principal plus accrued interest for two of the notes associated with the Deerfield Facility Agreements, which have an aggregate balance of $73.0 million as of May 31, 2013, and we are required to pay on June 30, 2016, the outstanding principal plus accrued interest for the remaining two notes associated with the Deerfield Facility Agreements, which have an aggregate balance of $19.6 million as of May 31, 2013.

 

The remaining proceeds will be used to fund our research and development efforts, including clinical trials for our proprietary candidates, and for general corporate purposes, including general working capital purposes. The amounts and timing of our use of the remaining net proceeds from the sale of notes under this prospectus supplement will depend on a number of factors, such as the timing and progress of our research and development efforts, the timing and progress of any partnering and commercialization efforts and the competitive environment for our products. As of the date of this prospectus supplement, except as provided in the preceding paragraph and this paragraph, we have no current plans, commitments or agreements with respect to any other particular use of any net proceeds and we cannot specify with certainty all of the particular uses for the remaining net proceeds to us from the sale of the notes under this prospectus supplement. Accordingly, our management will have broad discretion in the timing and application of such remaining proceeds.

 

S-36



Table of Contents

 

RATIO OF EARNINGS TO FIXED CHARGES

 

The following table sets forth our ratio of earnings to fixed charges for each of the periods indicated. You should read this table in conjunction with the financial statements and notes to the financial statements that are incorporated by reference in this prospectus supplement.

 

 

 

Nine Months
Ended
March 31,

 

Year Ended June 30,

 

 

 

2013

 

2012

 

2011

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of earnings to fixed charges

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

 

We did not record earnings for the nine months ended March 31, 2013 or for any of the fiscal years in the five-year period ended June 30, 2012. Accordingly, our earnings were insufficient to cover fixed charges for such periods and we are unable to disclose a ratio of earnings to fixed charges for such periods. The dollar amount of the deficiency in earnings available for fixed charges was $44.3 million for the nine months ended March 31, 2013 and $23.6 million, $56.3 million, $77.6 million, $127.8 million and $96.3 million for the years ended June 30, 2012, 2011, 2010, 2009 and 2008, respectively. Our ratio of combined fixed charges and preference dividends to earnings for any of the foregoing periods was equivalent to our ratio of earnings to fixed charges.

 

S-37



Table of Contents

 

CAPITALIZATION

 

The following table sets forth our capitalization as of March 31, 2013:

 

·                  on an actual basis; and

·                  on an as adjusted basis to give effect to our issuance and sale of $115 million aggregate principal amount of notes, assuming no exercise of the underwriters’ option to purchase additional notes, after deducting the estimated underwriting discounts and estimated offering expenses payable by us, and the application of the net proceeds as described in this prospectus supplement in the section “Use of Proceeds”.

 

The following information should be read in conjunction with our condensed financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2012 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, which are incorporated by reference in this prospectus supplement and the accompanying prospectus.

 

 

 

As of March 31, 2013

 

(In thousands, except share and per share amounts)

 

Actual

 

As Adjusted

 

 

 

(Unaudited)

 

Cash and cash equivalents and marketable securities

 

$

87,047

 

$

105,790

 

 

 

 

 

 

 

Long-term debt, net:

 

 

 

 

 

Comerica Loan and Security Agreement

 

14,550

 

14,550

 

Deerfield Facility Agreements (1)

 

80,799

 

 

3.00% convertible senior notes due 2020 offered hereby(2)

 

 

115,000

 

 

 

 

 

 

 

Total long-term debt

 

$

95,349

 

$

129,550

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Preferred stock, par value of $0.001 per share, 10,000,000 shares authorized; no shares issued and outstanding, actual and as adjusted

 

 

 

Common stock, par value of $0.001 per share, 220,000,000 shares authorized; 116,688,159 shares issued and outstanding, actual and as adjusted (3)

 

117

 

117

 

Additional paid-in capital (2)

 

523,109

 

523,109

 

Warrants

 

39,385

 

39,385

 

Accumulated other comprehensive income

 

2

 

2

 

Accumulated deficit

 

(615,028

)

(626,791

)

 

 

 

 

 

 

Total stockholders’ deficit

 

(52,415

)

(64,178

)

 

 

 

 

 

 

Total capitalization

 

$

42,934

 

$

65,372

 

 


(1)                    Net of unamortized debt discount of $11.8 million.

 

(2)                    In accordance with ASC 470-20, convertible debt that may be wholly or partially settled in cash is required to be separated into a liability and an equity component, such that interest expense reflects the issuer’s nonconvertible debt interest rate.  Upon issuance, a debt discount will be recognized as a decrease in debt and an increase in equity.  The debt component will accrete up to the principal amount over the expected term of the debt.  ASC 470-20 does not affect the actual amount that we are required to repay, and the amount shown in the table above for the notes is the aggregate principal amount of the notes and does not reflect the debt discount, fees and expenses that we will be required to recognize.

 

S-38



Table of Contents

 

(3)                    The common stock shown as issued and outstanding in the table above is based on 116,688,159 shares of common stock outstanding as of March 31, 2013, and excludes the shares of common stock reserved for issuance upon conversion of the notes, and also excludes, as of March 31, 2013: (i) 9,845,153 shares of common stock issuable upon the exercise of outstanding stock options, having a weighted average exercise price of $5.89 per share; (ii) 12,000,000 shares of common stock issuable upon the exercise of outstanding warrants, having a weighted average exercise price of $3.92 per share; (iii) 800,936 shares of common stock issuable under the Array BioPharma Amended and Restated Employee Stock Purchase Plan; and (iv) an aggregate of up to 24,494,351 shares of common stock reserved for future issuance under our equity incentive plans.

 

S-39



Table of Contents

 

PRICE RANGE OF OUR COMMON STOCK

 

Our common stock has been quoted on The NASDAQ Global Market under the symbol “ARRY” since our initial public offering on November 17, 2000. The following table sets forth, for the periods indicated, the reported high and low closing sales prices per share of our common stock as reported by The NASDAQ Global Market:

 

Fiscal Year Ending June 30, 2013

 

High

 

Low

 

First Quarter

 

$

5.94

 

$

3.39

 

Second Quarter

 

$

5.96

 

$

3.30

 

Third Quarter

 

$

4.98

 

$

3.71

 

Fourth Quarter (through June 4, 2013)

 

$

6.23

 

$

4.84

 

 

Fiscal Year Ended June 30, 2012

 

High

 

Low

 

First Quarter

 

$

2.62

 

$

1.95

 

Second Quarter

 

$

2.83

 

$

1.77

 

Third Quarter

 

$

3.41

 

$

2.02

 

Fourth Quarter

 

$

3.72

 

$

3.09

 

 

Fiscal Year Ended June 30, 2011

 

High

 

Low

 

First Quarter

 

$

3.44

 

$

2.67

 

Second Quarter

 

$

3.58

 

$

2.98

 

Third Quarter

 

$

3.29

 

$

2.70

 

Fourth Quarter

 

$

3.21

 

$

2.06

 

 

On June 4, 2013, the closing price of our common stock as reported by The NASDAQ Global Market was $5.32 per share. As of June 4, 2013, there were approximately 56 stockholders of record of our common stock. This does not include the number of persons whose stock is held in nominee or “street name” accounts through brokers.

 

S-40



Table of Contents

 

DIVIDEND POLICY

 

We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings to finance the growth and development of our business. Additionally, we are currently restricted from paying any dividends under our credit facilities. Therefore, we do not anticipate that we will declare or pay any cash dividends on our common stock in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, restrictions under any existing indebtedness and other factors the Board of Directors deems relevant.

 

S-41



Table of Contents

 

DESCRIPTION OF THE NOTES

 

We will issue the notes under an indenture, which we refer to as the base indenture, to be dated as of June 10, 2013 between us and Wells Fargo Bank, National Association, as trustee, which we refer to as the trustee, as supplemented by a supplemental indenture with respect to the notes, which we refer to as the supplemental indenture. We refer to the base indenture and the supplemental indenture, collectively, as the indenture. The terms of the notes include those expressly set forth in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended, which we refer to as the Trust Indenture Act.

 

The following description is a summary of the material provisions of the notes and the indenture and 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 terms used in the indenture. We urge you to carefully read the entire indenture because it, and not this description, defines your rights as a holder of the notes. You may request a copy of the indenture from us. A copy of the indenture will be filed by us with the SEC and will be available as described under the heading “Where You Can Find More Information”.

 

This description of the notes supplements and, to the extent it is inconsistent with, replaces the description of the general provisions of the notes and the base indenture in the accompanying prospectus. For purposes of this description, references to the “Company”, “Array”, “we”, “our” and “us” refer only to Array BioPharma Inc.

 

General

 

The notes:

 

·                  will be our general unsecured, senior obligations;

 

·                  will initially be limited to an aggregate principal amount of $115,000,000 (or $132,250,000 if the underwriters exercise their option to purchase additional notes in full);

 

·                  will bear cash interest from June 10, 2013 (which is expected to be the date of issuance) at an annual rate of 3.00% payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2013;

 

·                  may be redeemed by us, subject to the satisfaction of certain conditions, on or after June 4, 2017 at the redemption price described below under “— Optional Redemption”;

 

·                  will be subject to purchase by us at the option of the holders following a fundamental change (as defined below under “—Repurchase at the Option of the Holder—Fundamental Change Permits Holders to Require Us to Purchase Notes”), at a price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date;

 

·                  will mature on June 1, 2020 unless earlier converted, redeemed or repurchased;

 

·                  will be issued in denominations of $1,000 and integral multiples of $1,000 in excess thereof; and

 

·                  will be represented by one or more registered notes in global form, but in certain limited circumstances may be represented by notes in definitive form. See “— Book-Entry, Settlement and Clearance”.

 

Subject to fulfillment of certain conditions and during the periods described below, the notes may be converted at a conversion rate initially equal to 141.8641 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $7.05 per share of common stock). The conversion rate is subject to adjustment if certain events occur. See “— Conversion Rights — Conversion Rate Adjustments” and “— Adjustment to Conversion Rate Upon Conversions in Connection with a Make-Whole Fundamental Change or a Notice of Redemption”.

 

S-42



Table of Contents

 

We will settle the conversions of notes by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, as described under “— Conversion Rights — Settlement Upon Conversion”. You will not be entitled to receive any separate cash payment for interest, if any, accrued and unpaid to the conversion date except under the limited circumstances described below.

 

The indenture does not limit the amount of debt which may be issued by us or any of our future subsidiaries under the indenture or otherwise. The indenture, as it relates to the notes, will not contain any financial covenants and will not restrict us from paying dividends or issuing or repurchasing our other securities. Other than the restrictions described under “— Consolidation, Merger and Sale of Assets” below and except for the provisions set forth under “— Repurchase at the Option of the Holder—Fundamental Change Permits Holders to Require Us to Purchase Notes” and “— Adjustment to Conversion Rate Upon Conversions in Connection with a Make-Whole Fundamental Change or a Notice of Redemption”, the indenture does not contain any covenants or other provisions designed to afford holders of the notes protection in the event we subsequently increase our borrowings substantially or engage in a transaction that substantially increases our debt to equity ratio (each of which would be an example of a highly leveraged transaction) or in the event of a decline in our credit rating for any reason, including as a result of a takeover, recapitalization, highly leveraged transaction or similar restructuring involving us that could adversely affect such holders.

 

We may, without notice to or the consent of the holders, issue additional notes under the indenture with the same terms and with the same CUSIP number as the notes offered hereby in an unlimited aggregate principal amount; provided that such additional notes must be part of the same issue (and part of the same series) as the notes offered hereby so that they will be fungible with the notes offered hereby for U.S. federal income tax and securities law purposes. We may also from time to time repurchase notes in open market purchases or negotiated transactions without giving prior notice to holders. Any notes purchased by us will be retired and no longer outstanding under the indenture.

 

We do not intend to list the notes on a national securities exchange or an interdealer quotation system.

 

The notes will not have the benefit of a sinking fund.

 

Except to the extent the context otherwise requires, we use the term “notes” in this prospectus supplement to refer to each $1,000 principal amount of notes. We use the term “common stock” in this prospectus supplement to refer to our common stock, par value $0.001 per share. References in this prospectus supplement to a “holder” or “holders” of notes that are held through DTC are references to owners of beneficial interests in such notes, unless the context otherwise requires. However, we and the trustee will treat the person in whose name the notes are registered (Cede & Co., in the case of notes held through DTC) as the owner of such notes for all purposes.

 

Payments on the Notes; Paying Agent and Registrar; Transfer and Exchange

 

We will pay, or cause the paying agent to pay, principal of, premium, if any, and interest on notes in global form registered in the name of or held by DTC or its nominee in immediately available funds to DTC or its nominee, as the case may be, as the registered holder of such global note. We will pay principal of and premium, if any, on any certificated notes at the office or agency designated by us for that purpose. We will pay interest on any certificated note by check mailed to the address of the registered holder of such note; provided, however, that we will pay interest to any holder of more than $2,000,000 aggregate principal amount of certificated notes by wire transfer in immediately available funds to an account within the United States designated by such holder in a written application delivered by such person to the trustee and the paying agent not later than the record date for the relevant interest payment, which application will remain in effect until such holder notifies the trustee and paying agent, in writing, to the contrary.

 

We have initially designated the trustee as our paying agent and registrar and its agency in Minneapolis, Minnesota as a place where notes may be presented for payment or for registration of transfer. We may, however, change the paying agent or registrar without prior notice to the holders of the notes, and we may act as paying agent or registrar.

 

S-43



Table of Contents

 

A holder of notes in global form may transfer its notes in accordance with the applicable procedures of the depositary and the indenture. A holder of certificated notes may transfer or exchange notes at the office of the registrar in accordance with the indenture. The registrar and the trustee may require a holder, among other things, to furnish appropriate endorsements and transfer documents. No service charge will be imposed by us, the trustee or the registrar for any registration of transfer or exchange of notes, but we may require a holder to pay a sum sufficient to cover any transfer tax or other similar governmental charge required by law or permitted by the indenture. We are not required to transfer or exchange any note surrendered for conversion or repurchase upon a fundamental change.

 

Interest

 

The notes will bear cash interest at a rate of 3.00% per year until maturity. Interest on the notes will accrue from the most recent date on which interest has been paid or duly provided for, or if no interest has been paid or duly provided for, June 10, 2013 (which is expected to be the initial date of issuance). Interest will be payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2013.

 

Interest will be paid to the person in whose name a note is registered at the close of business on the May 15 or November 15, as the case may be (whether or not a business day), immediately preceding the relevant interest payment date. Interest on the notes will be computed on the basis of a 360-day year composed of twelve 30-day months.

 

If any interest payment date, the maturity date or any fundamental change purchase date of a note falls on a day that is not a business day, the required payment will be made on the next succeeding business day and no interest on such payment will accrue in respect of the delay. The term “business day” means any day other than a Saturday, a Sunday or a day on which the Federal Reserve Bank of New York is authorized or required by law or executive order to close or be closed.

 

Unless the context otherwise requires, all references to interest in this prospectus supplement include additional interest, if any, payable at our election as the sole remedy relating to the failure to comply with our reporting obligations as described under “— Events of Default”.

 

Ranking

 

The notes will be our direct unsecured obligations. The notes will rank equal in right of payment with all of our other existing and future unsecured and unsubordinated indebtedness. The notes will be effectively subordinated to any of our existing and future secured indebtedness, including our indebtedness under our loan and security agreement with Comerica Bank, to the extent of the value of our assets that secure such indebtedness.  As of March 31, 2013, we had approximately $14.6 million of outstanding indebtedness under such loan and security agreement with Comerica Bank.

 

We currently have one subsidiary, which conducts no operations and holds no assets or liabilities, and the notes will not be guaranteed by that subsidiary or any other person. If we were to form or acquire subsidiaries with operations or assets or liabilities in the future, or if our existing subsidiary were to conduct operations or hold assets or liabilities in the future, the notes will be structurally subordinated to all existing and future indebtedness (including trade payables) incurred by such subsidiaries and to any of our existing and future indebtedness that may be guaranteed by such subsidiaries, to the extent of any such guarantees.

 

Holders of the notes will participate ratably with all holders of our unsecured senior indebtedness, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor, in our remaining assets. Other than restrictions described under “— Consolidation, Merger and Sale of Assets” below and except for the provisions set forth under “— Repurchase at the Option of the Holder—Fundamental Change Permits Holders to Require Us to Purchase Notes” and “— Adjustment to Conversion Rate Upon Conversions in Connection with a Make-Whole Fundamental Change or a Notice of Redemption”, the indenture does not contain any covenants or other provisions designed to afford holders of the notes protection in the event of a highly leveraged transaction involving us or in the event of a decline in our credit rating as the result of a takeover, recapitalization, highly leveraged transaction or similar restructuring involving us that could adversely affect such holders.

 

S-44



Table of Contents

 

As of March 31, 2013, after giving effect to the issuance of the notes offered hereby and the use of the proceeds therefrom, our total consolidated indebtedness would have been $129.6 million (or $146.8 million if the underwriters exercise their option to purchase additional notes in full).

 

Optional Redemption

 

We may not redeem the notes prior to June 4, 2017, and no sinking fund is provided for the notes. On or after June 4, 2017, and except for the notes that we are required to repurchase as provided under “— Repurchase at the Option of the Holder—Fundamental Change Permits Holders to Require Us to Purchase Notes”, we may redeem any or all of the notes in cash at the applicable redemption price, provided that the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending within 7 trading days immediately prior to the date of the redemption notice exceeds 130% of the applicable conversion price for the notes on each applicable trading day. Neither the trustee nor the conversion agent will have any responsibility for monitoring sale price conditions. The redemption price for the notes to be redeemed on any redemption date will equal:

 

·                  100% of the principal amount of the notes being redeemed; plus

 

·                  accrued and unpaid interest, if any, to, but excluding, the redemption date.

 

Any notes redeemed by us will be paid for in cash.

 

“Trading day” means a scheduled trading day on which (i) trading in our common stock generally occurs on the NASDAQ Global Market or, if our common stock is not then listed on the NASDAQ Global Market, on the principal other U.S. national or regional securities exchange on which our common stock is then listed or, if our common stock is not then listed on a U.S. national or regional securities exchange, on the principal other market on which our common stock is then traded and (ii) there is no market disruption event. If our common stock is not so listed or traded, “trading day” means a “business day”.

 

“Scheduled trading day” means a day that is scheduled to be a trading day on the principal U.S. national or regional securities exchange or market on which our common stock is listed or admitted for trading.  If our common stock is not so listed or admitted for trading, “scheduled trading day” means a “business day”.

 

“Market disruption event” means, if our common stock is listed for trading on the NASDAQ Global Market or listed on another U.S. national or regional securities exchange, the occurrence or existence during the one-half hour period ending on the scheduled close of trading on any trading day of any material suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) in our common stock or in any options, contracts or futures contracts relating to our common stock.

 

We will give written notice of redemption not more than 60 days but not less than 30 days prior to the redemption date to each record holder of notes to be redeemed at their addresses set forth in the register of the registrar. This notice will state, among other things:

 

·                  that you have a right to convert the notes called for redemption upon satisfaction of the requirements therefor set forth in the indenture, and the conversion rate applicable to such conversion; and

 

·                  the time at which your right to convert the notes called for redemption will expire, which will be the close of business on the business day immediately preceding the redemption date.

 

Simultaneously with providing such notice, we will issue a press release, which will also be available on our website.

 

If less than all of the outstanding notes are to be redeemed, the trustee will select the notes to be redeemed in principal amounts of $1,000 or multiples of $1,000 by lot or by another method the trustee considers reasonable, fair and appropriate in accordance with DTC procedures. If a portion of your notes is selected for redemption and you convert a portion of your notes, the converted portion will be deemed to be of the portion selected for redemption to the extent that the converted portion does not exceed the portion selected for redemption.

 

S-45



Table of Contents

 

If notes are redeemed on a date that is after a regular record date for the payment of interest and on or prior to the corresponding interest payment date, we will not pay accrued and unpaid interest to the holder of notes being redeemed, and will instead pay the full amount of the relevant interest payment on such interest payment date to the holder of record on such regular record date.

 

In the event of any redemption in part, we shall not be required to (i) issue, register the transfer of or exchange any notes during a period beginning at the open of business 15 days before the mailing of a notice of redemption and ending at the close of business on the earliest date on which the relevant notice of redemption is deemed to have been given to all holders of notes to be redeemed or (ii) register the transfer of or exchange any notes so selected for redemption, in whole or in part, except the unredeemed portion of any notes being redeemed in part.

 

No notes may be redeemed if the principal amount of the notes has been accelerated, and such acceleration has not been rescinded, on or prior to the redemption date (except in the case of an acceleration resulting from a default by us in the payment of the applicable redemption price with respect to such notes).

 

Conversion Rights

 

General

 

Prior to the close of business on the business day immediately preceding March 1, 2020, the notes will be convertible only upon satisfaction of one or more of the conditions described under the headings “— Conversion Upon Satisfaction of Sale Price Condition”, “— Conversion Upon Satisfaction of Trading Price Condition”, “— Conversion Upon Specified Corporate Events” and “— Conversions Upon Notice of Redemption”. On or after March 1, 2020, holders may convert each of their notes at the applicable conversion rate at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date irrespective of the foregoing conditions.

 

The conversion rate will initially equal 141.8641 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $7.05 per share of common stock). We will settle the conversions of notes by paying or delivering, as the case may be, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, as described under “— Settlement Upon Conversion”. If we satisfy our conversion obligation solely in cash or through payment and delivery, as the case may be, of a combination of cash and shares of our common stock, the amount of cash and shares of common stock, if any, due upon conversion will be based on a “daily conversion value” (as defined below under “— Settlement Upon Conversion”) calculated by us on a proportionate basis for each trading day in a 60-trading day “observation period” (as defined below under “— Settlement Upon Conversion”). The trustee will initially act as the conversion agent.

 

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 less than the entire principal amount of its notes so long as the principal amount that remains outstanding of each note that is not converted in full equals $1,000 or an integral multiple of $1,000 in excess thereof.

 

If a holder of notes has submitted notes for purchase upon a fundamental change, the holder may convert those notes only if that holder first withdraws its purchase notice.  Upon conversion, you will not receive any separate cash payment for accrued and unpaid interest, if any (or dividends, if we declare any), except as described below. We will not issue fractional shares of our common stock upon conversion of notes. Instead, we will pay cash in lieu of fractional shares as described under “— Settlement Upon Conversion”. Our payment or delivery to you, as the case may be, of the amount of cash, the number of shares of our common stock or a combination of cash and shares of our common stock, at our election, together with any cash payment for any fractional share, as the case may be, into which your note is convertible, will be deemed to satisfy in full our obligation to pay:

 

·                  the principal amount of and any premium on the note; and

 

·                  accrued and unpaid interest, if any, on the note, to, but not including, the conversion date.

 

S-46



Table of Contents

 

As a result, accrued and unpaid interest, if any, to, but not including, the conversion date will be deemed to be paid in full rather than cancelled, extinguished or forfeited. Upon conversion of a note into a combination of cash and shares of our common stock, accrued and unpaid interest will be deemed to be paid first out of any cash paid upon such conversion.

 

Notwithstanding the preceding paragraph, if notes are converted after 5:00 p.m., New York City time, on a regular record date for the payment of interest, holders of such notes at 5:00 p.m., New York City time, on such regular record date will receive the interest payable on such notes on the corresponding interest payment date notwithstanding the conversion. Notes, upon surrender for conversion during the period from 5:00 p.m., New York City time, on any regular record date to 9:00 a.m., New York City time, on the immediately following interest payment date, must be accompanied by funds equal to the amount of interest payable on the notes so converted; provided that no such payment need be made:

 

·                  for conversions following the regular record date immediately preceding the maturity date;

 

·                  if we have specified a fundamental change purchase date or redemption date that is after a regular record date and on or prior to the business day immediately following the corresponding interest payment date; or

 

·                  to the extent of any overdue interest, if any overdue interest exists at the time of conversion with respect to such note.

 

If a holder converts notes, we will pay any documentary, stamp or similar issue or transfer tax due on the issue of any shares of our common stock upon the conversion, unless the tax is due because the holder requests any shares to be issued in a name other than the holder’s name, in which case the holder will pay that tax.

 

Holders may surrender their notes for conversion under the following circumstances:

 

Conversion Upon Satisfaction of Sale Price Condition

 

Prior to the close of business on the business day immediately preceding March 1, 2020, a holder of notes may surrender all or a portion of its notes for conversion during any fiscal quarter commencing after June 30, 2013 (and only during such fiscal quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the applicable conversion price on each applicable trading day.

 

The “last reported sale price” of our common stock on any trading day means the closing sale price per share (or if no closing sale price is reported, the average of the last bid and last ask prices or, if more than one in either case, the average of the average last bid and the average last ask prices) on that trading day as reported in composite transactions for the principal U.S. national or regional securities exchange on which our common stock is traded. If our common stock is not listed for trading on a U.S. national or regional securities exchange on the relevant trading day, the “last reported sale price” will be the last quoted bid price for our common stock in the over-the-counter market on the relevant date as reported by OTC Markets Group Inc. or a similar organization. If our common stock is not so quoted, the “last reported sale price” will be the average of the mid-point of the last bid and last ask prices for our common stock on the relevant trading day from each of at least three nationally recognized independent investment banking firms selected by us for this purpose, which may include one or more of the underwriters. Any such determination will be conclusive absent manifest error.

 

Conversion Upon Satisfaction of Trading Price Condition

 

Prior to the close of business on the business day immediately preceding March 1, 2020, a holder of notes may surrender all or a portion of its notes for conversion during the five consecutive business day period after any five consecutive trading day period, which we refer to as the measurement period, in which the “trading price” per $1,000 principal amount of notes, as determined following a request by a holder of notes in accordance with the procedures described below, for each trading day of that measurement period was less than 98% of the product of the last reported

 

S-47



Table of Contents

 

sale price of our common stock and the applicable conversion rate on such trading day.

 

The “trading price” of the notes on any date of determination means the average of the secondary market bid quotations obtained by the bid solicitation agent for $2,000,000 principal amount of the notes at approximately 3:30 p.m., New York City time, on such determination date from three independent nationally recognized securities dealers we select and provide to the bid solicitation agent in writing, which may include one or more of the underwriters; provided that, if three such bids cannot reasonably be obtained by the bid solicitation agent but two such bids are obtained, then the average of the two bids shall be used, and if only one such bid can reasonably be obtained by the bid solicitation agent, that one bid shall be used. If the bid solicitation agent cannot reasonably obtain at least one bid for $2,000,000 principal amount of the notes from a nationally recognized securities dealer, then the trading price per $1,000 principal amount of notes will be deemed to be less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate. Any such determination will be conclusive absent manifest error. If we do not so instruct the bid solicitation agent to obtain bids when required, or the bid solicitation agent fails to solicit bids when required, the trading price per $1,000 principal amount of the notes will be deemed to be less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on each day we or it fails to do so. The trustee will be the initial bid solicitation agent.

 

The bid solicitation agent shall have no obligation to determine the trading price of the notes unless we have requested such determination in writing; and we shall have no obligation to make such request unless a holder of a note provides us with reasonable evidence that the trading price per $1,000 principal amount of notes would be less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate. At such time, we shall instruct the bid solicitation agent in writing to determine the trading price per $1,000 principal amount of the notes beginning on the next trading day and on each successive trading day until the trading price per $1,000 principal amount of notes is greater than or equal to 98% of the product of the last reported sale price of our common stock and the applicable conversion rate. If the trading price condition has been met, we will so notify the holders and the trustee and the conversion agent (if other than the trustee) in writing.  If, at any time after the trading price condition has been met, the trading price per $1,000 principal amount of notes is greater than or equal to 98% of the product of the last reported sale price of our common stock and the conversion rate for such date, we will so notify the holders and the trustee and the conversion agent (if other than the trustee) in writing. The trustee shall have no obligation to determine the trading price of the notes.

 

Conversion Upon Specified Corporate Events

 

Certain Distributions

 

If we elect to:

 

·                  issue to all or substantially all holders of our common stock any rights, options or warrants entitling them for a period of not more than 60 days after the date of such issuance, to subscribe for or purchase shares of our common stock, at a price per share less than the average of the last reported sale prices of our common stock for the ten consecutive trading day period ending on, and including, the trading day immediately preceding the date of announcement of such issuance; or

 

·                  distribute to all or substantially all holders of our common stock our assets, debt securities or rights to purchase our securities, which distribution has a per share value, as reasonably determined by our board of directors or a committee thereof, exceeding 10% of the last reported sale price of our common stock on the trading day preceding the date of announcement for such distribution;

 

then in either case, we must notify the holders of the notes and the trustee in writing at least 80 scheduled trading days prior to the ex-dividend date (as defined herein) for such issuance or distribution. Once we have given such notice, holders may surrender their notes for conversion at any time until the earlier of (i) 5:00 p.m., New York City time, on the business day immediately preceding such ex-dividend date and (ii) our announcement that such issuance or distribution will not take place, even if the notes are not otherwise convertible at such time. A holder may not convert any of its notes based on this conversion contingency if we provide that holders of the notes shall participate, at the same time and upon the same terms as holders of our common stock and as a result of holding the notes, in the relevant transaction described above without having to convert their notes as if they held a number of shares of common stock equal to the applicable conversion rate multiplied by the principal amount (expressed in thousands) of notes held by such holder.

 

S-48



Table of Contents

 

Certain Corporate Events

 

If, prior to the close of business on the business day immediately preceding March 1, 2020, (i) a transaction or event that constitutes a “make-whole fundamental change” (as defined under “— Adjustment to Conversion Rate Upon Conversion in Connections with a Make-Whole Fundamental Change or a Notice of Redemption”) occurs or (ii) we are a party to (a) a consolidation, merger, binding share exchange, pursuant to which our common stock would be converted into cash, securities or other assets or (b) a sale, conveyance, transfer or lease of all or substantially all of our assets, the notes may be surrendered for conversion at any time from and after the date which is 80 scheduled trading days prior to the anticipated effective date of the transaction (or, if later, the business day after we give notice of such transaction) until the close of business, (i) if such transaction or event is a fundamental change, on the business day immediately preceding the related fundamental change purchase date and (ii) otherwise, on the 35th business day immediately following the effective date of such transaction or event. We will notify holders, the trustee and the conversion agent of such a transaction in writing:

 

·                  as promptly as practicable following the date we publicly announce such transaction but in no event less than 80 scheduled trading days prior to the anticipated effective date of such transaction; or

 

·                  if we do not have knowledge of such transaction at least 80 scheduled trading days prior to the anticipated effective date of such transaction, within two business day of the date upon which we receive notice, or otherwise become aware, of such transaction, but in no event later than the actual effective date of such transaction.

 

Conversions Upon Notice of Redemption

 

If we call any or all of the notes for redemption, holders of the notes will have the right to convert their notes at any time until the close of business on the business day preceding the redemption date, after which time holders will no longer have the right to convert their notes on account of our delivery of notice of such redemption, unless we default in the payment of the redemption price. If a holder elects to convert its notes in connection with our redemption notice, we will, under certain circumstances, increase the conversion rate for the notes as described in “— Adjustment to Conversion Rate Upon Conversions in Connection with a Make-Whole Fundamental Change or a Notice of Redemption”. Any instruction provided to DTC shall be irrevocable.

 

Conversions on or After March 1, 2020

 

On or after March 1, 2020, a holder may convert any of its notes at any time prior to the close of business on the scheduled trading day immediately preceding the maturity date regardless of the foregoing conditions.

 

Conversion Procedures

 

If you hold a beneficial interest in a global note, to convert you must comply with DTC’s procedures for converting a beneficial interest in a global note and, if required, pay funds equal to interest payable on the next interest payment date to which you are not entitled and, if required, pay all taxes or duties, if any. As such, if you are a beneficial owner of the notes, you must allow for sufficient time to comply with DTC’s procedures if you wish to exercise your conversion rights.

 

If you hold a certificated note, to convert you must:

 

·                  complete and manually sign the conversion notice on the back of the note, or a facsimile of the conversion notice;

 

·                  deliver the conversion notice, which is irrevocable, and the note to the conversion agent;

 

·                  if required, furnish appropriate endorsements and transfer documents;

 

·                  if required, pay all transfer or similar taxes; and

 

S-49



Table of Contents

 

·                  if required, pay funds equal to interest payable on the next interest payment date to which you are not entitled.

 

We refer to the date you comply with the relevant procedures for conversion described above and any other procedures for conversion set forth in the indenture as the “conversion date”.

 

If a holder has already delivered a purchase notice as described under “— Repurchase at the Option of the Holder—Repurchase Procedures” with respect to a note, the holder may not surrender that note for conversion until the holder has withdrawn the notice in accordance with the indenture, except to the extent that a portion of the holder’s note is not subject to such fundamental change purchase notice.

 

Settlement Upon Conversion

 

Upon conversion, we will pay or deliver, or cause to be paid or delivered, as the case may be, to converting holders in respect of each $1,000 principal amount of notes being converted, a settlement amount consisting of, at our election, solely cash (“cash settlement”), solely shares of our common stock (together with cash in lieu of any fractional share of our common stock) (“physical settlement”) or a combination of cash and shares of our common stock (“combination settlement”), all as described below. We refer to each of these settlement methods as a “settlement method”.

 

All conversions occurring on or after March 1, 2020 will be settled using the same settlement method. Prior to March 1, 2020, we will use the same settlement method for all conversions occurring on the same conversion date, but we will not have any obligation to use the same settlement method with respect to conversions that occur on different trading days. That is, we may choose on one trading day to settle conversions in physical settlement, and choose on another trading day cash settlement or combination settlement. If we elect a settlement method, we will inform holders so converting through the trustee and instruct the trustee in writing to send a notice to the holders of such settlement method we have selected no later than the close of business on the trading day immediately following the related conversion date (or, in the case of any conversions occurring on or after March 1, 2020, no later than March 1, 2020). If we do not timely elect a settlement method, we will no longer have the right to elect cash settlement or physical settlement and we will be deemed to have elected combination settlement in respect of our conversion obligation, as described below, and the specified dollar amount (as defined below) per $1,000 principal amount of notes will be deemed to be $1,000. If we elect combination settlement, but we do not timely notify converting holders of the specified dollar amount per $1,000 principal amount of notes, such specified dollar amount will be deemed to be $1,000.

 

Settlement amounts will be computed as follows:

 

·                  If we elect physical settlement, on the third business day after the relevant conversion date, we will deliver to the converting holder in respect of each $1,000 principal amount of notes being converted a number of shares of common stock equal to the applicable conversion rate, together with cash in lieu of any fractional shares, if any, as described below.

 

·                  If we elect cash settlement, on the third business day immediately following the last day of the related observation period, we will pay to the converting holder in respect of each $1,000 principal amount of notes being converted cash in an amount equal to the sum of the daily conversion values for each of the 60 consecutive trading days during the related observation period.

 

·                  If we elect (or are deemed to have elected) combination settlement, we will pay or deliver, as the case may be, to the converting holder in respect of each $1,000 principal amount of notes being converted a “settlement amount” equal to the sum of the “daily settlement amounts” (as defined below) for each of the 60 consecutive trading days during the relevant observation period. We will settle each $1,000 principal amount of notes being converted by delivering, on the third business day immediately following the last day of the related observation period, cash and shares of our common stock, if applicable, equal to the settlement amount.

 

S-50



Table of Contents

 

The “daily settlement amount”, for each of the 60 consecutive trading days during the observation period, shall consist of:

 

·                  cash equal to the lesser of (i) the maximum cash amount per $1,000 principal amount of notes to be received by the holder upon conversion as specified in the notice specifying our chosen settlement method (the “specified dollar amount”), if any, divided by 60 (such quotient, the “daily measurement value”) and (ii) the daily conversion value; and

 

·                  if the daily conversion value exceeds the daily measurement value, a number of shares of our common stock equal to (i) the difference between the daily conversion value and the daily measurement value, divided by (ii) the daily VWAP for such trading day.

 

The “daily conversion value” means, for each of the 60 consecutive trading days during the observation period, 1.6666% for the first 40 trading days in the observation period and 1.6667% for the next 20 trading days in the observation period of the product of (i) the applicable conversion rate on such trading day and (ii) the daily VWAP of our common stock on such trading day.

 

“Daily VWAP” means, for each of the 60 consecutive trading days during the applicable observation period, the per share volume-weighted average price as displayed under the heading “Bloomberg VWAP” on Bloomberg page “ARRY <equity> AQR” (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such trading day (or if such volume-weighted average price is unavailable, the market value of one share of our common stock on such trading day determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained for this purpose by us). The “daily VWAP” will be determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.

 

The “observation period” with respect to any note surrendered for conversion means:

 

·                  if the relevant conversion date occurs prior to the 65th scheduled trading day immediately preceding the maturity date, the 60 consecutive trading days beginning on, and including, the second trading day after such conversion date; and

 

·                  if the relevant conversion date occurs on or after the 65th scheduled trading day immediately preceding the maturity date, the 60 consecutive trading days beginning on, and including, the 62nd scheduled trading day immediately preceding the maturity date.

 

For the purposes of determining amounts due upon conversion only, “trading day” means a day on which (i) there is no “market disruption event” (as defined below) and (ii) trading in our common stock generally occurs on the NASDAQ Global Market or, if our common stock is not then listed on the NASDAQ Global Market, on the principal other U.S. national or regional securities exchange on which our common stock is then listed or, if our common stock is not then listed on a U.S. national or regional securities exchange, on the principal other market on which our common stock is then listed or admitted for trading. If our common stock is not so listed or admitted for trading, “trading day” means a “business day”.

 

For the purposes of determining amounts due upon conversion only, “market disruption event” means (i) a failure by the primary U.S. national or regional securities exchange or market on which our common stock is listed or admitted for trading to open for trading during its regular trading session or (ii) the occurrence or existence prior to 1:00 p.m., New York City time, on any scheduled trading day for our common stock for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant stock exchange or otherwise) in our common stock or in any options, contracts or future contracts relating to our common stock.

 

We will deliver cash in lieu of any fractional share of common stock issuable upon conversion based on the (i) daily VWAP on the relevant conversion date or, if such conversion date is not a trading day, the immediately preceding trading day (if we elect physical settlement) or (ii) daily VWAP on the last trading day of the relevant observation period (in the case of any other settlement method). We will calculate the whole number of shares and the amount of any fractional share due upon conversion of a note based on the entire principal amount of such note that is converted.

 

S-51



Table of Contents

 

Each conversion will be deemed to have been effected as to any notes surrendered for conversion at the close of business on the conversion date; provided, however, that, except to the extent provided below under “— Conversion Rate Adjustments”, the person in whose name any shares of our common stock shall be issuable upon such conversion, if any, will be deemed to become the holder of record of such shares (i) as of the close of business on the last trading day of the applicable observation period in a combination settlement and (ii) as of the close of business on the conversion date in a physical settlement.  For the avoidance of doubt, until a holder of the notes is deemed to become the holder of record of shares of our common stock issuable upon conversion of such holder’s notes as contemplated in the immediately preceding sentence, such holder of the notes shall not have any rights as a holder of our common stock with respect to the shares of our common stock issuable upon conversion of such notes.

 

Conversion Rate Adjustments

 

The conversion rate will be adjusted as described below, except that we will not make any adjustments to the conversion rate if holders of the notes participate (other than in the case of a share split or share combination), at the same time and upon the same terms as holders of our common stock and as a result of holding the notes, in any of the transactions described below without having to convert their notes as if they 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.

 

(1)                                 If we exclusively issue shares of our common stock as a dividend or distribution on all or substantially all 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:

 

CR1 = CR0 ×

 

OS1

 

 

OS0

 

 

where,

 

CR0 = the conversion rate in effect immediately prior to the open of business on the ex-dividend date of such dividend or distribution, or immediately prior to the open of business on the effective date of such share split or combination, as applicable;

 

CR1 = the conversion rate in effect immediately after the open of business on such ex-dividend date or effective date, as applicable;

 

OS0 = the number of shares of our common stock outstanding immediately prior to the open of business on such ex-dividend date or effective date, as applicable; and

 

OS1 = the number of shares of our common stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination, as applicable.

 

Any adjustment made under this clause (1) shall become effective immediately after the open of business on the ex-dividend date for such dividend or distribution, or immediately after the open of business on the effective date for such share split or share combination. If any dividend or distribution of the type described in this clause (1) is declared but not so paid or made, the conversion rate shall be immediately readjusted, effective as of the date our board of directors, or a committee thereof, determines not to pay such dividend or distribution, to the conversion rate that would then be in effect if such dividend or distribution had not been declared.

 

(2)                                 If we issue to all or substantially all holders of our common stock any rights, options or warrants entitling them, for a period of not more than 60 days after the date of such issuance, to subscribe for or purchase shares of our common stock, at a price per share less than the average of the last reported sale prices of our common stock for the ten consecutive trading-day period ending on, and including, the trading day immediately preceding the date of announcement of such issuance, the conversion rate will be increased based on the following formula:

 

CR1 = CR0 ×

 

OS0 + X

 

 

OS0 + Y

 

 

S-52



Table of Contents

 

where,

 

CR0 = the conversion rate in effect immediately prior to the open of business on the ex-dividend date for such issuance;

 

CR1 = the conversion rate in effect immediately after the open of business on such ex-dividend date;

 

OS0 = the number of shares of our common stock outstanding immediately prior to the open of business on such ex-dividend date;

 

X = the total number of shares of our common stock issuable pursuant to such rights, options or warrants; and

 

Y = the number of shares of our common stock equal to the aggregate price payable to exercise such rights, options or warrants divided by the average of the last reported sale prices of our common stock over the ten consecutive trading-day period ending on the trading day immediately preceding the date of announcement of the issuance of such rights, options or warrants.

 

Any increase made under this clause (2) will be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the open of business on the ex-dividend date for such issuance. To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of common stock are not delivered upon the expiration of such rights, options or warrants, the conversion rate shall be readjusted to the conversion rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of common stock actually delivered. If such rights, options or warrants are not so issued, or if no such rights, options or warrants are exercised prior to their expiration, the conversion rate shall be decreased to be the conversion rate that would then be in effect if such issuance had not occurred.

 

For purposes of this clause (2) and for purposes of the provisions set forth above under “— Conversion Upon Specified Corporate Events”, in determining whether any rights, options or warrants entitle the holders to subscribe for or purchase shares of common stock at a price per share less than such average of the last reported sale prices of our common stock for the ten consecutive trading day period ending on the trading day immediately preceding the date of announcement for such issuance, and in determining the aggregate offering price of such shares of the common stock, there shall be taken into account any consideration received by us for such rights, options or warrants and any amount payable on exercise thereof, the value of such consideration, if other than cash, to be determined by our board of directors, or a committee thereof.

 

(3)                                 If we distribute shares of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities, to all or substantially all holders of our common stock, excluding:

 

·                  dividends, distributions, rights, options or warrants as to which an adjustment was effected pursuant to clause (1) or (2) above;

 

·                  dividends or distributions paid exclusively in cash as to which an adjustment was effected pursuant to clause (4) below; and

 

·                  spin-offs as to which the provisions set forth below in this clause (3) shall apply;

 

then the conversion rate will be increased based on the following formula:

 

CR1 = CR0 ×

 

SP0

 

 

SP0 - FMV

 

 

where,

 

CR0 = the conversion rate in effect immediately prior to the open of business on the ex-dividend date for such

 

S-53



Table of Contents

 

distribution;

 

CR1 = the conversion rate in effect immediately after the open of business on such ex-dividend date;

 

SP0 = the average of the last reported sale prices of our common stock over the ten consecutive trading day period ending on, and including, the trading day immediately preceding the ex-dividend date for such distribution; and

 

FMV = the fair market value (as determined by our board of directors, or a committee thereof) of the shares of capital stock, evidences of indebtedness, other assets, or property of ours or rights, options or warrants to acquire our capital stock or other securities distributed with respect to each outstanding share of our common stock as of the open of business on the ex-dividend date for such distribution.

 

If “FMV” (as defined above) is equal to or greater than the “SP0” (as defined above), in lieu of the foregoing increase to the conversion rate, each holder of a note shall receive, in respect of each $1,000 principal amount of notes it holds, at the same time and upon the same terms as holders of our common stock, the amount and kind of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities that such holder would have received as if such holder owned a number of shares of common stock equal to the conversion rate in effect immediately prior to the record date for the distribution.

 

Any increase made under the portion of this clause (3) above will become effective immediately after the open of business on the ex-dividend date for such distribution. If such distribution (including a spin-off below) is not so paid or made, the conversion rate shall be decreased to be the conversion rate that would then be in effect if such dividend or distribution had not been declared.

 

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 of shares of capital stock of any class or series, or similar equity interest, of or relating to any of our business units or any of our future subsidiaries, and such capital stock or similar equity interest is listed or quoted (or will be listed or quoted upon the consummation of the distribution) on a U.S. national securities exchange or a reasonably comparable non-U.S. equivalent, which we refer to as a “spin-off”, the conversion rate will be increased based on the following formula:

 

CR1 = CR0 ×

 

FMV0 + MP0

 

 

MP0

 

 

where,

 

CR0 = the conversion rate in effect immediately prior to the open of business on the ex-dividend date for such spin-off;

 

CR1 = the conversion rate in effect immediately after the open of business on the ex-dividend date for such 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 ten consecutive trading-day period after, and including, the effective date of the spin-off (the “valuation period”); and

 

MP0 = the average of the last reported sale prices of our common stock over the valuation period.

 

If a holder converts a note, cash settlement or combination settlement is applicable to such note and the first trading day of the observation period occurs after the first trading day of the valuation period for a spin-off, but on or before the last trading day of the valuation period for such spin-off, the reference in the above definition of “FMV0” to ten trading days shall be deemed replaced with such lesser number of trading days as have elapsed since, and including, the effective date of such spin-off but before the first trading day of the observation period. If a holder converts a note, cash settlement or combination settlement is applicable to such note and one or more trading days of the observation period for such note occurs on or after the ex-dividend date for a spin-off but on or prior to the first trading day of the valuation period for such spin-off, such observation period will be suspended from, and including, the first such trading day to, and including, the first trading day of the valuation period for such spin-off and will

 

S-54



Table of Contents

 

resume immediately after the first trading day of the valuation period for such spin-off, with the reference in the above definition of “FMV0” to ten trading days deemed replaced with a reference to one trading day.

 

(4)                                 If any cash dividend or distribution is made to all or substantially all holders of our common stock and subject to adjustment as provided below, the conversion rate will be adjusted based on the following formula:

 

CR1 = CR0 ×

 

SP0

 

 

SP0 - C

 

 

where,

 

CR0 = the conversion rate in effect immediately prior to the open of business on the ex-dividend date for such dividend or distribution;

 

CR1 = the conversion rate in effect immediately after the open of business on the ex-dividend date for such dividend or distribution;

 

SP0 = the last reported sale price of our common stock on the trading day immediately preceding the ex-dividend date for such dividend or distribution; and

 

C = the amount in cash per share that we distribute to holders of our common stock.

 

If “C” (as defined above) is equal to or greater than “SP0” (as defined above), in lieu of the foregoing increase, each holder of a note shall receive, for each $1,000 principal amount of notes it holds, at the same time and upon the same terms as holders of shares of our common stock, the amount of cash that such holder would have received as if such holder owned a number of shares of our common stock equal to the conversion rate in effect immediately prior to the record date for such cash dividend or distribution.

 

Such increase shall become effective immediately after the open of business on the ex-dividend date for such dividend or distribution. If such dividend or distribution is not so paid, the conversion rate shall be decreased to be the conversion rate that would then be in effect if such dividend or distribution had not been declared.

 

(5)                                 If we or any of our future 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 trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the “expiration date”), the conversion rate will be increased based on the following formula:

 

CR1 = CR0 ×

 

AC + (SP1 × OS1)

 

 

OS0 × SP1

 

 

where,

 

CR0 = the conversion rate in effect immediately prior to the close of business on the expiration date;

 

CR1 = the conversion rate in effect immediately after the close of business on the expiration date;

 

AC = the aggregate value of all cash and any other consideration (as determined by our board of directors, or a committee thereof) 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 time of the tender or exchange offer on the expiration date (prior to giving effect to the purchase of all shares accepted for purchase or exchange in such tender offer or exchange offer);

 

S-55



Table of Contents

 

OS1 = the number of shares of our common stock outstanding immediately after the expiration time of the tender or exchange offer on the expiration date (after giving effect to the purchase of all shares accepted for purchase or exchange in such tender or exchange offer); and

 

SP1 = the average of the last reported sale prices of our common stock over the ten consecutive trading-day period commencing on, and including, the trading day next succeeding the expiration date (the “averaging period”).

 

If a holder converts a note, cash settlement or combination settlement is applicable to such note, and the first trading day of the observation period for such note occurs after the first trading day of the averaging period for a tender or exchange offer, but on or before the last trading day of the averaging period for such tender or exchange offer, then the reference in the above definition of “SP1” to “ten” shall be deemed replaced with such lesser number of trading days as have elapsed from, and including, the first trading day of the averaging period for such tender or exchange offer to, but excluding, the first trading day of such observation period. If a holder converts a note, cash settlement or combination settlement is applicable to such note and one or more trading days of the observation period for such note occurs on or after the expiration date for a tender or exchange offer, but on or prior to the first trading day in the averaging period for such tender or exchange offer, then such observation period will be suspended on the first such trading day and will resume immediately after the first trading day of the averaging period for such tender or exchange offer and the reference in the above definition of “SP1” to “ten” shall be deemed replaced with a reference to “one”.

 

Notwithstanding anything to the contrary herein, if a holder converts a note, combination settlement is applicable to such note and the daily settlement amount for any trading day during the observation period applicable to such note:

 

·                  is calculated based on a conversion rate adjusted on account of any event described in clauses (1) through (5) above; and

 

·                  includes any shares of our common stock that, but for this provision, would entitle their holder to participate in such event;

 

then, although we will otherwise treat such holder as the holder of record of such shares of our common stock on the last trading day of such observation period, we will not permit such holder to participate in such event on account of such shares of our common stock.

 

In addition, if a holder converts a note and:

 

·                  combination settlement is applicable to such note;

 

·                  the record date, effective date or expiration date for any event that requires an adjustment to the conversion rate under any of clauses (1) through (5) above occurs:

 

·                  on or after the first trading day of such observation period; and

 

·                  on or prior to the last trading day of such observation period; and

 

·                  the daily settlement amount for any trading day in such observation period that occurs on or prior to such record date, effective date or expiration date:

 

·                  includes shares of the common stock that do not entitle their holder to participate in such event; and

 

·                  is calculated based on a conversion rate that is not adjusted on account of such event;

 

then, on account of such conversion, we will, on such record date, effective date or expiration date, treat such holder, as a result of having converted such notes, as though it were the record holder of a number of shares of common stock equal to the total number of shares of common stock that:

 

S-56



Table of Contents

 

·                  are deliverable as part of the daily settlement amount:

 

·                  for a trading day in such observation period that occurs on or prior to such record date, effective date or expiration date; and

 

·                  is calculated based on a conversion rate that is not adjusted for such event; and

 

·                  if not for this provision, would not entitle such holder to participate in such event.

 

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, except to the extent of any readjustment to the conversion rate, no adjustment to the conversion rate will be made (other than as a result of a reverse share split or share combination).

 

“Ex-dividend date” means the first date on which the 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.

 

To the extent permitted by applicable law and applicable requirements of the NASDAQ Global Market, we are permitted to increase the conversion rate of the notes by any amount for a period of at least 20 business days if our board of directors, or a committee thereof, determines that such increase would be in our best interest. We may also (but are not required to) increase the conversion rate to avoid or diminish income tax to holders of our common stock or rights to purchase shares of our common stock in connection with a dividend or distribution of shares (or rights to acquire shares) or similar event.

 

A holder may, in some circumstances, including a distribution of cash dividends to holders of our shares of common stock, be deemed to have received a dividend or dividend equivalent subject to U.S. federal income or withholding tax as a result of an adjustment or the nonoccurrence of an adjustment to the conversion rate. For a discussion of the U.S. federal income tax treatment of an adjustment or failure to make certain adjustments to the conversion rate, see “Material U.S. Federal Income Tax Considerations”.

 

We do not currently have a stockholders rights plan in effect.  If you convert a note, to the extent that we have a rights plan in effect, if physical settlement applies to your note, on the conversion date for your note, and, if combination settlement applies to your note, on any trading day in the observation period applicable to your note, you will receive, in addition to any shares of common stock received in connection with such conversion on such conversion date or on such trading day, as the case may be, the rights under the rights plan, unless prior to such conversion date or such trading day, as the case may be, 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, assets, property, rights, options or warrants as described in clause (3) above, subject to readjustment in the event of the expiration, termination or redemption of such rights.

 

Notwithstanding any of the foregoing, the applicable conversion rate will not be adjusted:

 

·                  on account of stock repurchases that are not tender offers referred to in clause (5) above, including structured or derivative transactions, or transactions pursuant to a stock repurchase program approved by our board of directors, or a committee thereof, or otherwise;

 

·                  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;

 

·                  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, program or agreement of or assumed by us or any of our future subsidiaries;

 

S-57



Table of Contents

 

·                  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;

 

·                  for a change in the par value of the common stock;

 

·                  for accrued and unpaid interest, if any; or

 

·                  for an event otherwise requiring an adjustment, as described herein, if such event is not consummated.

 

In addition, we will not undertake any transaction that would result in our being required, pursuant to the indenture, to adjust the conversion rate such that the conversion price per share of our common stock will be less than the par value of our common stock.

 

Notwithstanding anything to the contrary herein, except on and after the first trading day of any observation period with respect to a note and on or prior to the last trading day of such observation period and on the conversion date in a cash settlement following a replacement of common stock by the reference property consisting solely of cash or a physical settlement, we will not be required to adjust the conversion rate unless such adjustment would require an increase or decrease of at least one percent; provided, however, that any such minor adjustments that are not required to be made will be carried forward and taken into account in any subsequent adjustment, and provided, further, that any such adjustment of less than one percent that has not been made shall be made upon the occurrence of (i) the effective date for any make-whole fundamental change or redemption and (ii) in the case of any note to which physical settlement applies, on the conversion date, and, in the case of any note to which cash settlement or combination settlement applies, the first trading day of the applicable observation period. In addition, we shall not account for such deferrals when determining whether any of the conditions to conversion have been satisfied or what number of shares of our common stock a holder would have held on a given day had it converted its notes.

 

Adjustments to the applicable conversion rate will be calculated to the nearest 1/10,000th of a share.

 

Neither the conversion agent nor the trustee shall be responsible for or shall make any representation as to the validity or value of any common stock, securities or assets issued upon conversion of the notes or as to the accuracy of any calculation made hereunder.

 

Recapitalizations, Reclassifications and Changes of Our Common Stock

 

In the case of:

 

·                  any recapitalization, reclassification or change of our common stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a split, subdivision or combination for which an adjustment is made pursuant to clause (1) above under “— Conversion Rights — Conversion Rate Adjustments”);

 

·                  any consolidation, merger or combination involving us;

 

·                  any sale, lease or other transfer to a third party of the consolidated assets of ours and any of our future subsidiaries substantially as an entirety; or

 

·                  any binding share exchange;

 

and, in each case, as a result of which our common stock would be converted into, or exchanged for, common stock, other securities, other property or assets (including cash or any combination thereof), then, at the effective time of the transaction, the right to convert each $1,000 principal amount of notes based on a number of shares of common stock equal to the conversion rate will be changed into a right to convert such principal amount of notes based on the kind and amount of shares of common stock, other securities or other property or assets (including cash or any combination thereof), which common stock, other securities or other property or assets we refer to as the reference property, that a holder of a number of shares of common stock equal to the conversion rate immediately prior to such transaction

 

S-58



Table of Contents

 

would have owned or been entitled to receive upon such transaction. However, at and after the effective time of the transaction, (i) we will continue to have the right to determine the settlement method upon conversion of the notes, as described above under “— Conversion Rights — Settlement Upon Conversion”, and (ii) (x) any amount payable in cash upon conversion of the notes as set forth under “— Conversion Rights — Settlement Upon Conversion” will continue to be payable in cash, (y) any shares of our common stock that we would have been required to deliver upon conversion of the notes as set forth under “— Conversion Rights — Settlement Upon Conversion” will instead be deliverable in the amount and type of reference property that a holder of that number of shares of our common stock would have received in such transaction and (z) the daily VWAP will be calculated based on the value of the amount and kind of reference property that a holder of one share of our common stock would have received in such transaction. If the transaction causes our common stock to be converted into, or exchanged for, the right to receive more than a single type of consideration (determined based in part upon any form of stockholder election), the amount and type of reference property that a holder of one or more shares would have been entitled to receive in such transaction (and into which the notes will be convertible) will be deemed to be based on the weighted average of the types and amounts of consideration received by the holders of our common stock that affirmatively make such an election. We will notify holders of the weighted average as soon as practicable after such determination is made. We will agree in the indenture not to become a party to any such transaction unless its terms are consistent with the foregoing.

 

Adjustments of Prices

 

Whenever any provision of the indenture requires us to calculate the last reported sale prices, the daily VWAPs or any function thereof over a span of multiple days (including during an observation period), we will make appropriate adjustments to each to account for any adjustment to the conversion rate that becomes effective, or any event requiring an adjustment to the conversion rate where the effective date, ex-dividend date or expiration date of the event occurs, at any time during the period when the last reported sale prices, the daily VWAPs or functions thereof are to be calculated.

 

Adjustment to Conversion Rate Upon Conversions in Connection with a Make-Whole Fundamental Change or a Notice of Redemption

 

If (i) a make whole fundamental change (as defined below) occurs or (ii) on or after June 4, 2017, we gave notice to the holders of our intent to redeem any or all of the notes in cash as provided under “— Optional Redemption”, and a holder elects to convert its notes in connection with such make-whole fundamental change or redemption notice, as the case may be, we will, under certain circumstances, increase the conversion rate for the notes so surrendered for conversion by a number of additional shares of common stock, which we refer to as the additional shares, as described below.

 

A “make-whole fundamental change” shall mean an event that (i) is a fundamental change under clause (1) or (2) of the definition of fundamental change as described under “— Repurchase at the Option of the Holder—Fundamental Change Permits Holders to Require Us to Purchase Notes” (subject to any exceptions or exclusions to such definition) or (ii) would be a fundamental change, but for the exclusion in section (i) of clause (2) of the definition thereof.  A conversion of notes will be deemed for these purposes to be “in connection with” a make-whole fundamental change if the notice of conversion of the notes is received by the conversion agent from, and including, the effective date of the make-whole fundamental change up to, and including, the close of business on the business day immediately prior to the related fundamental change purchase date, or, if such make-whole fundamental change is not also a fundamental change, the 35th business day immediately following the effective date for such make-whole fundamental change (such period, the “make-whole fundamental change period”). A conversion of notes will be deemed for these purposes to be “in connection with” a redemption notice if the notice of conversion of the notes is received by the conversion agent from, and including, the date of the redemption notice until the close of business on the business day preceding the redemption date.

 

Notwithstanding anything to the contrary herein, if the consideration paid for our common stock in any make-whole fundamental change described in clause (2) of the definition of fundamental change is comprised entirely of cash, for any conversion of notes following the effective date of such make-whole fundamental change, the conversion obligation will be calculated based solely on the “stock price” (as defined below) for the transaction and will be deemed to be an amount equal to the applicable conversion rate (including any adjustment as described in this section), multiplied by such stock price. In such event, the conversion obligation will be determined and paid to holders in cash on the third business day following the conversion date. Otherwise, we will settle any conversion of

 

S-59



Table of Contents

 

notes following the effective date of a make-whole fundamental change as described above under “— Conversion Rights — Settlement Upon Conversion”. We will notify holders of the effective date of any make-whole fundamental change and issue a press release announcing such effective date no later than five business days after such effective date.

 

The number of additional shares, if any, by which the conversion rate will be increased will be determined by reference to the table below, based on the date on which the make-whole fundamental change occurs or becomes effective, which we refer to as the effective date, or the date of the redemption notice, as the case may be, and the price per share of our common stock, which we refer to as the stock price, paid (or deemed paid) in the make-whole fundamental change as determined under the two immediately following sentences or on the date of the redemption notice, as the case may be. If the holders of our common stock receive only cash in a make-whole fundamental change described in clause (2) of the definition of fundamental change, the stock price shall be the cash amount paid per share of our common stock. Otherwise, the stock price shall be the average of the last reported sale prices of our common stock over the ten trading day period ending on, and including, the trading day immediately preceding the effective date of the make-whole fundamental change or the date of the redemption notice, as the case may be.

 

The stock prices set forth in the column headings of the table below will be adjusted as of any date on which the conversion rate of the notes is otherwise required to be adjusted. The adjusted stock prices will equal the stock prices 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 will be adjusted in the same manner and at the same time as the conversion rate is required to be adjusted as set forth under “— Conversion Rights — Conversion Rate Adjustments”.

 

The following table sets forth the number of additional shares by which we will increase the conversion rate for a holder that converts its notes in connection with a make-whole fundamental change or the redemption notice, as the case may be, having the stock price and effective date or the date of the redemption notice, as the case may be, set forth below:

 

Effective
Date/

Date of the
Redemption

 

Stock Price

 

Notice

 

$5.32

 

$6.00

 

$6.50

 

$7.05

 

$7.50

 

$8.00

 

$9.17

 

$10.00

 

$11.00

 

$12.50

 

$15.00

 

$20.00

 

$30.00

 

$50.00

 

4-Jun-13

 

46.1058

 

38.1489

 

32.8055

 

28.0557

 

24.8495

 

21.8435

 

16.4389

 

13.4817

 

10.6638

 

7.5541

 

4.3805

 

1.8060

 

0.3586

 

0.0000

 

1-Jun-14

 

46.1058

 

36.6566

 

31.2816

 

26.5426

 

23.3816

 

20.4524

 

15.3605

 

12.6321

 

10.0322

 

7.1453

 

4.1802

 

1.7699

 

0.3713

 

0.0000

 

1-Jun-15

 

46.1058

 

35.2484

 

29.8099

 

25.0417

 

21.8808

 

18.9738

 

14.0020

 

11.4982

 

9.1617

 

6.5672

 

3.8926

 

1.7064

 

0.3859

 

0.0000

 

1-Jun-16

 

46.1058

 

33.9688

 

28.3425

 

23.4572

 

20.2465

 

17.3313

 

12.4809

 

10.1649

 

8.1333

 

5.8842

 

3.5591

 

1.6380

 

0.4192

 

0.0000

 

1-Jun-17

 

46.1058

 

33.1038

 

27.1721

 

22.0655

 

18.7470

 

15.7598

 

10.8914

 

8.6448

 

6.8296

 

4.9967

 

3.1104

 

1.5467

 

0.4938

 

0.0000

 

1-Jun-18

 

46.1058

 

32.3230

 

25.8572

 

20.3646

 

16.8481

 

13.7396

 

8.8523

 

6.7483

 

5.2159

 

3.8701

 

2.5103

 

1.3901

 

0.6067

 

0.0000

 

1-Jun-19

 

46.1058

 

30.6025

 

23.2690

 

17.1990

 

13.4266

 

10.2079

 

5.5145

 

3.7677

 

2.7899

 

2.0553

 

1.3396

 

0.7723

 

0.3368

 

0.0000

 

1-Jun-20

 

46.1058

 

24.8025

 

11.9820

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

0.0000

 

 

The exact stock prices and effective dates or dates of the redemption notice may not be set forth in the table above, in which case:

 

·                  if the stock price is between two stock prices in the table or the date is between two dates in the table, the number of additional shares will be determined by a straight-line interpolation between the number of additional shares set forth for the higher and lower stock prices and the earlier and later dates, as applicable, based on a 365-day year;

 

·                  if the stock price is greater than $50.00 per share (subject to adjustment in the same manner as the stock prices set forth in the column headings of the table above), no additional shares will be added to the conversion rate; and

 

·                  if the stock price is less than $5.32 per share (subject to adjustment in the same manner as the stock prices set forth in the column headings of the table above), no additional shares will be added to the conversion rate.

 

Notwithstanding the foregoing, in no event will the conversion rate be increased on account of a make-whole

 

S-60



Table of Contents

 

fundamental change or a redemption notice to exceed 187.9699 shares of common stock per $1,000 principal amount of notes, subject to adjustments in the same manner as the conversion rate is required to be adjusted as set forth under “— Conversion Rights — Conversion Rate Adjustments”.

 

Our obligation to satisfy the additional shares requirement could be considered a penalty, in which case the enforceability thereof could be subject to general equity principles including principles of reasonableness and equitable remedies.

 

Repurchase at the Option of the Holder

 

Fundamental Change Permits Holders to Require Us to Purchase Notes

 

If a “fundamental change” (as defined below in this section) occurs at any time, you will have the right, at your option, to require us to purchase for cash any or all of your notes, or any portion thereof such that the principal amount that remains outstanding of each note that is not purchased in full equals $1,000 or an integral multiple of $1,000 in excess thereof. The price we are required to pay, which we refer to as the fundamental change purchase price, will be equal to 100% of the principal amount of the notes to be purchased plus accrued and unpaid interest, if any, to but excluding the fundamental change purchase date (unless the fundamental change purchase date is after a regular record date and on or prior to the interest payment date to which such record date relates, in which case we will instead pay the full amount of accrued and unpaid interest to the holder of record on such record date and the fundamental change purchase price will be equal to 100% of the principal amount of the notes to be purchased). The fundamental change purchase date will be a date specified by us that is not less than 20 or more than 35 business days following the date of our fundamental change notice as described below. Any notes purchased by us will be paid for in cash.

 

A “fundamental change” will be deemed to have occurred at the time after the notes are originally issued if any of the following occurs:

 

(1)                                 any “person” or “group” (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act), other than us or any of our future subsidiaries, files a Schedule TO or any schedule, form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate “beneficial owner”, as defined in Rule 13d-3 under the Exchange Act, of our common equity representing more than 50% of the voting power of our common equity;

 

(2)                                 the consummation of (x) any consolidation, merger, amalgamation, scheme of arrangement or other binding share exchange or reclassification or similar transaction between us and another person (other than any of our future subsidiaries), in each case pursuant to which our common stock shall be converted into cash, securities or other property, other than a transaction (i) that results in the holders of all classes of our common equity immediately prior to such transaction owning, directly or indirectly, as a result of such transaction, more than 50% of the surviving corporation or transferee or the parent thereof immediately after such event or (ii) effected solely to change our jurisdiction of incorporation or to form a holding company for us and that results in a share exchange or reclassification or similar exchange of the outstanding common stock solely into common shares of the surviving entity or (y) any sale or other disposition in one transaction or a series of transactions of all or substantially all of our assets and any of our future subsidiaries, on a consolidated basis, to another person (other than any of our future subsidiaries);

 

(3)                                 our stockholders approve any plan or proposal for the liquidation or dissolution of us (other than in a transaction described in clause (2) above);

 

(4)                                 our common stock (or other common stock into which the notes are then convertible) ceases to be listed on any of The New York Stock Exchange, the NASDAQ Global Market, the NASDAQ Global Select Market or the NASDAQ Capital Market (or their respective successors); or

 

(5)                                 the first day on which continuing directors cease to constitute at least a majority of our board of directors;

 

provided, however, that in the case of a transaction or event described in clause (1) or (2) above, if at least 90% of the

 

S-61



Table of Contents

 

consideration received or to be received by holders of the common stock (excluding cash payments for fractional shares) in the transaction or transactions that would otherwise constitute a “fundamental change” consists of shares of common stock or common equity interests that are traded on any of The New York Stock Exchange, the NASDAQ Global Market, the NASDAQ Global Select Market or the NASDAQ Capital Market (or their respective successors) or that will be so traded when issued or exchanged in connection with the transaction that would otherwise constitute a fundamental change under clause (1) or (2) of the definition thereof, which we refer to as publicly traded securities, and as a result of such transaction or transactions, the notes become convertible into such publicly traded securities, excluding cash payments for fractional shares (subject to settlement in accordance with the provisions of “— Conversion Rights — Settlement Upon Conversion”, “— Conversion Rights — Conversion Rate Adjustments” and “— Adjustment to Conversion Rate Upon Conversions in Connection with a Make-Whole Fundamental Change or a Notice of Redemption”), such event shall not be a fundamental change and, for the avoidance of doubt, an event that is not considered a fundamental change pursuant to this proviso shall not be a fundamental change solely because such event could also be described by clause (1) or (2) above.

 

If any transaction in which our common stock is replaced by the securities of another entity occurs, following completion of any related make-whole fundamental change period and any related fundamental change purchase date, references to us in the definition of “fundamental change” above will apply to such other entity instead.

 

“Continuing director” means a director who either was a member of our board of directors on the date of original issuance of the notes or who becomes a member of our board of directors subsequent to that date and whose election, appointment or nomination for election by our stockholders, is duly approved by a majority of the continuing directors on our board of directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued by us on behalf of our entire board of directors in which such individual is named as nominee for director.

 

On or before the 20th day after the occurrence of a fundamental change, we will provide to all holders of the notes and the trustee and paying agent a written notice of the occurrence of the fundamental change and of the resulting purchase right. Such notice shall state, among other things:

 

·                  the events causing a fundamental change;

 

·                  the effective date of the fundamental change, and whether the fundamental change is a make-whole fundamental change, in which case the effective date of the make-whole fundamental change;

 

·                  the last date on which a holder may exercise the purchase right;

 

·                  the fundamental change purchase price;

 

·                  the fundamental change purchase date;

 

·                  if applicable, the name and address of the paying agent and the conversion agent;

 

·                  if applicable, the applicable conversion rate and any adjustments to the applicable conversion rate resulting from the fundamental change;

 

·                  if applicable, 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

 

·                  the procedures that holders must follow to require us to purchase their notes.

 

Simultaneously with providing such notice, we will issue a press release, which will also be available on our website.

 

Repurchase Procedures

 

To exercise the fundamental change purchase right, you must deliver, on or before the business day

 

S-62



Table of Contents

 

immediately preceding the fundamental change purchase date, 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 if the notes are certificated. If the notes are not in certificated form, you must comply with DTC’s procedures for tendering interests in global notes. Your purchase notice must state:

 

·                  if certificated, the certificate numbers of your notes to be delivered for purchase;

 

·                  the portion of the principal amount of notes to be purchased, which must be such that the principal amount that remains outstanding of each note that is not to be purchased in full equals $1,000 or an integral multiple of $1,000 in excess thereof; and

 

·                  that the notes are to be purchased by us pursuant to the applicable provisions of the notes and the indenture.

 

You may withdraw any purchase notice (in whole or in part) by a written notice of withdrawal delivered to the paying agent prior to 5:00 p.m., New York City time, on the business day immediately preceding the fundamental change purchase date. The notice of withdrawal shall state:

 

·                  the principal amount of the withdrawn notes;

 

·                  if certificated, the certificate numbers of the withdrawn notes, or if not certificated, your notice must comply with appropriate DTC procedures; and

 

·                  the principal amount, if any, of each note that remains subject to the purchase notice, which must be such that the principal amount not to be purchased equals $1,000 or an integral multiple of $1,000 in excess thereof.

 

We will be required to purchase the notes that have been validly surrendered for purchase and not withdrawn on the fundamental change purchase date, subject to extensions to comply with applicable law. You will receive payment of the fundamental change purchase price promptly on the later of (i) the fundamental change purchase date or (ii) the time of book-entry transfer or the delivery of your notes. If the paying agent holds money sufficient to pay the fundamental change purchase price of the notes on the fundamental change purchase date, then:

 

·                  the notes will cease to be outstanding and interest will cease to accrue (whether or not book-entry transfer of your notes is made or whether or not your notes are delivered to the paying agent); and

 

·                  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 upon book-entry transfer or delivery of your notes).

 

In connection with any purchase offer pursuant to a fundamental change purchase notice, we will, if required:

 

·                  comply with the provisions of the tender offer rules under the Exchange Act that may then be applicable;

 

·                  file a Schedule TO or any other required schedule under the Exchange Act; and

 

·                  comply with any other U.S. federal or state securities laws applicable to us in connection with such purchase offer.

 

No notes may be purchased at the option of holders upon a fundamental change if the principal amount of the notes has been accelerated, and such acceleration has not been rescinded, on or prior to such date (except in the case of an acceleration resulting from a default by us in the payment of the fundamental change purchase price with respect to such notes).

 

S-63



Table of Contents

 

The purchase rights of the holders could discourage a potential acquirer of us. The fundamental change purchase feature, however, is not the result of management’s knowledge of any specific effort to obtain control of us by any means or part of a plan by management to adopt a series of anti-takeover provisions.

 

The term fundamental change is limited to specified transactions and may not include other events that might adversely affect our financial condition. In addition, the requirement that we offer to purchase the notes upon a fundamental change may not protect holders in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us.

 

The definition of fundamental change includes a phrase relating to the conveyance, transfer, sale, lease or disposition of “all or substantially all” of our consolidated assets. There is no precise, established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of the notes to require us to purchase its notes as a result of the conveyance, transfer, sale, lease or other disposition of less than all of our assets may be uncertain.

 

We may not have enough funds to pay the fundamental change purchase price. Our ability to purchase the notes for cash may be limited by restrictions on our ability to obtain funds for such purchase through dividends from our future subsidiaries, the terms of our then existing borrowing arrangements or otherwise. See “Risk Factors — Risks Related to the Notes and to this Offering — We may not have the ability to raise funds necessary to settle conversions of the notes or to purchase the notes upon a fundamental change”. If we fail to purchase the notes when required following a fundamental change, we will be in default under the indenture. In addition, we have, and may in the future incur, other indebtedness with similar change in control provisions permitting our debt holders to accelerate or to require us to purchase our indebtedness upon the occurrence of similar events or on some specific dates.

 

Consolidation, Merger and Sale of Assets

 

The following description replaces the descriptions set forth under “Description of Debt Securities — Consolidation, Merger or Sale” in the accompanying prospectus in its entirety.

 

The indenture provides that we shall not amalgamate or consolidate with, merge with or into, or convey, transfer or lease our properties and assets substantially as an entirety to another person, unless (i) the resulting, surviving, transferee or successor person (if not us) is a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and such corporation (if not us) shall expressly assume, by supplemental indenture, executed and delivered to the trustee, in form satisfactory to the trustee, all of our obligations under the notes and the indenture; (ii) immediately after giving effect to such transaction, no default or event of default has occurred and is continuing under the indenture with respect to the notes; (iii) we shall have undertaken commercially reasonable efforts to restructure the notes so that, after any such transaction is given effect, any conversion of the notes would be exempt from the registration requirements of the Securities Act of 1933 pursuant to Section 3(a)(9) thereof; (iv) we shall have delivered to the trustee an officers’ certificate and an opinion of counsel, each stating that such transaction and such supplemental indenture (if any) comply with the indenture; and (v) other conditions specified in the indenture are met.  Upon any such amalgamation, consolidation, merger, conveyance, transfer or lease, the resulting, surviving, transferee or successor person (if not us) shall succeed to, and may exercise every right and power of ours under the indenture, and we shall be discharged from our obligations under the notes and the indenture except in the case of any such lease.  Following any conveyance, transfer or lease of our properties and assets substantially as an entirety to one or more of our future subsidiaries, the notes will remain convertible based on the common stock of Array subject to the provisions described under the heading “— Recapitalizations, Reclassifications and Changes of Our Common Stock”.

 

Under the indenture, the conveyance, transfer or lease of the properties and assets of one or more of our future subsidiaries substantially as an entirety to another person, which properties and assets, if held by us instead of such subsidiary or subsidiaries, would constitute the properties and assets of the company substantially as an entirety on a consolidated basis, shall be deemed to be the transfer of our properties and assets substantially as an entirety to another person.

 

Although these types of transactions are permitted under the indenture, certain of the foregoing transactions could constitute a fundamental change permitting each holder to require us to purchase the notes of such holder as

 

S-64



Table of Contents

 

described above.

 

Events of Default

 

The following description replaces the descriptions set forth under “Description of Debt Securities — Events of Default” in the accompanying prospectus in its entirety.

 

Each of the following is an event of default with respect to the notes:

 

(1)                                 default in any payment of interest on any note when due and payable, and the default continues for a period of 30 days;

 

(2)                                 default in the payment of principal of or premium, if any, on any note (including the fundamental change purchase price and redemption price) when due and payable on the maturity date, upon required repurchase, upon any redemption, upon declaration of acceleration or otherwise;

 

(3)                                 failure by us to comply with our obligation to convert the notes in accordance with the indenture upon exercise of a holder’s conversion right and that failure continues for five business days;

 

(4)                                 failure by us to comply with our obligations under “— Consolidation, Merger and Sale of Assets” above;

 

(5)                                 failure by us to issue a notice in accordance with the provisions of “— Repurchase at the Option of the Holder—Fundamental Change Permits Holders to Require Us to Purchase Notes” or “— Conversion Rights — Conversion Upon Specified Corporate Events” above for a period of ten days after such notice becomes due in accordance with the terms of the indenture;

 

(6)                                 failure by us for 60 days after written notice from the trustee or the holders of at least 25% in principal amount of the notes then outstanding (a copy of which notice, if given by holders, must also be given to the trustee) has been received by us to comply with any of our agreements contained in the notes or the indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this section specifically provided for or which does not apply to the notes), which notice shall state that it is a “Notice of Default” under the indenture;

 

(7)                                 default by us or any of our future subsidiaries with respect to any mortgage, agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in an aggregate amount greater than $10,000,000 (or its foreign currency equivalent at the time), whether such indebtedness now exists or shall hereafter be created, (i) resulting in such indebtedness becoming or being declared due and payable, and such debt has not been discharged in full or such declaration rescinded or annulled within 30 days, or (ii) constituting a failure to pay the principal of any such indebtedness when due and payable at its stated maturity, upon redemption, upon required repurchase, upon declaration of acceleration or otherwise, and such defaulted payment shall not have been made, waived or extended within 30 days;

 

(8)                                 a final judgment for the payment of $10,000,000 (or its foreign currency equivalent at the time) or more (excluding any amounts covered by insurance or bond) rendered against us or any of our subsidiaries by a court of competent jurisdiction, which judgment is not discharged, stayed, vacated, paid or otherwise satisfied within 45 days after (i) the date on which the right to appeal thereof has expired if no such appeal has commenced, or (ii) the date on which all rights to appeal have been extinguished; or

 

(9)                                 certain events of bankruptcy, insolvency or reorganization of us or any of our significant subsidiaries (as defined in Article 1, Rule 1-02 of Regulation S-X).

 

S-65



Table of Contents

 

If an event of default other than an event of default arising under clause (9) above with respect to us occurs and is continuing, the trustee by notice to us, or the holders of at least 25% in principal amount of then outstanding notes by written notice to us and the trustee, may, and the trustee at the request of such holders shall, declare 100% of the principal of, premium, if any, and accrued and unpaid interest, if any, on, all then outstanding notes to be due and payable. Upon such a declaration, such principal, premium, if any, and accrued and unpaid interest, if any, will be due and payable immediately. In addition, upon an event of default arising under clause (9) above with respect to us, 100% of the principal of, premium, if any, and accrued and unpaid interest on the notes will automatically become due and payable.

 

Notwithstanding anything to the contrary here, the indenture will provide that the provisions of the indenture described in the paragraph above, however, will be subject to the condition that if, at any time after the principal of, and accrued and unpaid interest, if any, on the notes shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained as provided in the indenture, we pay or deliver, as the case may be, or deposit with the trustee an amount of cash and the number of shares of common stock, if any (solely to settle outstanding conversions), sufficient to pay all matured installments of interest upon all the notes, all cash and shares of common stock, if any, due upon the conversion of any and all converted notes, and the principal of, and accrued and unpaid interest, if any, on all notes which shall have become due otherwise than by acceleration (with interest upon such principal and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the rate or rates, if any, specified in the notes to the date of such payment or deposit) and such amount as shall be sufficient to cover all amounts owing under the indenture to the trustee and its agents and counsel, and if rescission would not conflict with any judgment or decree of a court of competent jurisdiction and any and all events of default under the indenture, other than the non-payment of the principal of the notes that became due because of the acceleration, shall have been cured, waived or otherwise remedied as provided in the indenture, then the holders of a majority of the aggregate principal amount of notes then outstanding, by written notice to us and to the trustee, may waive all defaults and events of default with respect to the notes (other than a default or an event of default resulting from the failure to pay the fundamental change purchase price of a note, to pay or deliver, as the case may be, the amount of cash, shares of our common stock or combination of cash and shares of our common stock due upon conversion of a note, or with respect to another covenant or provision of the indenture that cannot be modified or amended without the consent of each affected holder) and may rescind and annul the declaration of acceleration resulting from such defaults or events of default (other than those resulting from the failure to pay the fundamental change purchase price of a note, to pay or deliver, as the case may be, the amount of cash, shares of our common stock or combination of cash and shares of our common stock due upon conversion of a note, or with respect to another covenant or provision of the indenture that cannot be modified or amended without the consent of each affected holder) and their consequences; provided, that no such rescission or annulment will extend to or will affect any subsequent default or shall impair any right consequent on such default.

 

Notwithstanding the foregoing, the indenture will provide that, to the extent we elect, the sole remedy for an event of default under clause (6) above relating to our failure to comply with our obligations as set forth under “— Reports” below, including with respect to our obligations under Section 314(a) of the Trust Indenture Act, will, for the first 90 days after the occurrence of such an event of default consist exclusively of the right to receive additional interest on the notes at a rate equal to 0.25% per annum of the principal amount of the notes outstanding for each day and for the second 90 days after the occurrence of such an event of default, consist exclusively of the right to receive additional interest on the notes at a rate equal to 0.50% per annum of the principal amount of the notes outstanding for each day, during the 180-day period beginning on, and including, the day on which such an event of default occurs during which such event of default is continuing (and neither waived nor cured). Additional interest that is payable pursuant to the foregoing provisions will be payable in arrears on each interest payment date following accrual in the same manner as regular interest on the notes.  On the 181st day after the date on which such event of default occurred (if such event of default has not been cured or waived prior to such 181st 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 of notes in the event of the occurrence of any other event of default. In the event we do not elect to pay additional interest following an event of default in accordance with this paragraph or we elected to make such payment but do not pay the additional interest when due, the notes will be subject to acceleration upon an event of default with regard thereto as provided above. In no event shall additional interest accrue at a rate per year in excess of 0.25% or 0.50%, as the case may be, pursuant to the indenture, regardless of the number of events or circumstances giving rise to requirements to pay such additional interest pursuant to this paragraph. With regard to any violation specified in this paragraph, no additional interest shall accrue, and no right to declare the principal or other amounts

 

S-66



Table of Contents

 

due and payable in respect of the notes shall exist, after such violation has been cured.

 

In order to elect to pay the additional interest as the sole remedy during the first 180 days after the occurrence of an event of default relating to the failure to comply with the reporting obligations in accordance with the immediately preceding paragraph, we must notify all holders of notes, the trustee and the paying agent of such election prior to the beginning of such 180-day period. Upon our failure to timely give such notice, the notes will be immediately subject to acceleration as provided above.

 

If any portion of the amount payable on the notes upon acceleration is considered by a court to be unearned interest (through the allocation of the value of the instrument to the embedded warrant or otherwise), the court could disallow recovery of any such portion.

 

The holders of a majority in principal amount of the outstanding notes may waive all past defaults (except with respect to nonpayment of the principal of, premium, if any, or interest on, or fundamental change purchase price or redemption price with respect to, any notes when due, or the failure to pay or deliver, as the case may be, the amount of cash, number of shares of our common stock or combination of cash and shares of common stock due upon conversion of any notes) and rescind any such acceleration with respect to the notes and its consequences if (1) rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (2) all existing events of default, other than the nonpayment of the principal of and interest on the notes that have become due solely by such declaration of acceleration, have been cured or waived.

 

Subject to the provisions of the indenture relating to the duties of the trustee, if an event of default occurs and is continuing, the trustee will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any of the holders unless such holders have offered to the trustee reasonable indemnity or security reasonably satisfactory to it against any loss, liability or expense. In addition, except to enforce the right to receive payment of the principal of, premium, if any, or interest on, or fundamental change purchase price with respect to, its notes when due, or the right to receive payment or delivery, as the case may be, of the amount of cash, number of shares of our common stock or combination of cash and shares of common stock due upon conversion of its notes, no holder may pursue any remedy with respect to the indenture or the notes unless:

 

(1)                                 such holder has previously given the trustee written notice that an event of default is continuing;

 

(2)                                 holders of at least 25% in principal amount of then outstanding notes have requested the trustee to pursue the remedy;

 

(3)                                 such holders have offered the trustee indemnity or security satisfactory to it against any loss, liability or expense;

 

(4)                                 the trustee has not complied with such request within 60 days after the receipt of the request and the offer of indemnity; and

 

(5)                                 the holders of a majority in principal amount of the outstanding notes have not given the trustee a written direction that is inconsistent with such request within such 60-day period.

 

However, each holder shall have the right, which is absolute and unconditional, to receive the principal of, premium, if any, and interest on, fundamental change purchase price or redemption price with respect to, and the amount of cash, number of shares of common stock or combination of cash and shares of common stock, as the case may be, due upon conversion of its notes and to institute suit for the enforcement of any such payment or delivery, as the case may be, and such rights shall not be impaired without the consent of such holder. In addition, subject to certain restrictions, the holders of a majority in principal amount of the outstanding notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or of exercising any trust or power conferred on the trustee.

 

The indenture provides that in the event an event of default has occurred and is continuing, the trustee will be required in the exercise of its powers to use the degree of care that a prudent person would use in the conduct of its own

 

S-67



Table of Contents

 

affairs. The trustee, however, may refuse to follow any direction that conflicts with law or the indenture or that the trustee determines is unduly prejudicial to the rights of any other holder or that would involve the trustee in personal liability. Prior to taking any action under the indenture, the trustee will be entitled to indemnification and security satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.

 

If a default occurs and is continuing and is actually known to a responsible officer of the trustee, the trustee must transmit notice of the default to each holder within 90 days after it occurs. Except in the case of a default in the payment of principal (including the fundamental change purchase price and the redemption price) of, premium, if any, or interest on any note or a default in the payment or delivery, as the case may be, of the amount of cash, the number of shares of common stock or the combination of cash and shares of common stock due upon conversion, the trustee shall be protected in withholding such notice if and so long as it in good faith determines that the withholding of such notice is in the interests of the holders of the notes. In addition, we are required to deliver to the trustee, within 120 days after the end of each fiscal year, an officers’ certificate, stating whether or not to the knowledge of the signers thereof we are in default in the performance and observance of any of the terms, provisions and conditions of the indenture (without regard to any period of grace or requirement of notice provided under the indenture) and, if we are in default, specifying all such defaults and the nature and the status thereof of which they may have knowledge. We also are required to deliver to the trustee, as soon as possible, and in any event within 30 days after we become aware of the occurrence of any default or event of default, an officers’ certificate setting forth such defaults or events of default, as applicable, their status and what action we are taking or propose to take in respect thereof.

 

Modification and Amendment

 

The following description replaces the description set forth under “Description of Debt Securities — Modification of the Indenture” in the accompanying prospectus in its entirety.

 

Subject to certain exceptions, the indenture or the notes may be amended with the consent of the holders of at least a majority of the principal amount of the notes then outstanding (including without limitation, consents obtained in connection with a repurchase of, or tender or exchange offer for, notes) and, subject to certain exceptions, any past default or compliance with any provisions may be waived with the consent of the holders of a majority of the principal amount of the notes then outstanding (including, without limitation, consents obtained in connection with a repurchase of, or tender offer or exchange offer for, notes). However, without the consent of each holder of a then outstanding note affected, no amendment may, among other things:

 

(1)                                 reduce the percentage in aggregate principal amount of notes outstanding necessary to waive any past default or event of default;

 

(2)                                 reduce the rate of interest on any note or change the time for payment of interest on any note;

 

(3)                                 reduce the principal of or premium, if any, on any note or change the maturity date of any note;

 

(4)                                 change the place or currency of payment on any note;

 

(5)                                 make any change that impairs or adversely affects the conversion rights of any notes;

 

(6)                                 reduce the fundamental change purchase price of any note or amend or modify in any manner adverse to the rights of the holders of the notes our obligation to pay the fundamental change purchase price, whether through an amendment or waiver of provisions in the covenants, definitions or otherwise;

 

(7)                                 impair the right of any holder to receive payment of principal of, premium, if any, and interest, if any, on, its notes, or the right to receive payment or delivery, as the case may be, of the amount of cash, the number of shares of our common stock or the combination of cash and shares of our common stock due upon conversion of its notes on or after the due dates therefor or to institute suit for the enforcement of any such payment or delivery, as the case may be, with respect to such holder’s notes;

 

S-68



Table of Contents

 

(8)                                 modify the provisions with respect to our redemption rights as described under “— Optional Redemption” above in a manner adverse to holders of notes;

 

(9)                                 modify the ranking provisions of the indenture in a manner that is adverse to the rights of the holders of the notes; or

 

(10)                          make any change in the provisions described in this “Modification and Amendment” section that requires each holder’s consent or in the waiver provisions if such change is adverse to the rights of the holders of the notes.

 

Without the consent of any holder of the notes, we and the trustee may amend the indenture or the notes:

 

(1)                                 to cure any ambiguity, omission, defect or inconsistency in the indenture or the notes, including to eliminate any conflict with the terms of the Trust Indenture Act, that does not adversely affect the rights of the holders of the notes;

 

(2)                                 to conform the terms of the indenture or the notes to the description thereof in the preliminary prospectus supplement, as supplemented by the issuer free writing prospectus related to the offering of the notes, as evidenced by an officer’s certificate;

 

(3)                                 to evidence the succession by a successor corporation and to provide for the assumption by a successor corporation of our obligations under the indenture;

 

(4)                                 to add guarantees with respect to the notes;

 

(5)                                 to secure the notes;

 

(6)                                 to add to our covenants such further covenants, restrictions or conditions for the benefit of the holders or to surrender any right or power conferred upon us;

 

(7)                                 to make any other change that does not materially adversely affect the rights of any holder of the notes (other than any holder that consents to such change);

 

(8)                                 to provide for a successor trustee;

 

(9)                                 to comply with the applicable procedures of the depositary; or

 

(10)                          to comply with any requirements of the SEC in connection with the qualification of the indenture under the Trust Indenture Act.

 

Holders do not need to approve the particular form of any proposed amendment. It will be sufficient if such holders approve the substance of the proposed amendment. After an amendment under the indenture becomes effective, we are required to provide to the holders a notice briefly describing such amendment. However, the failure to give such notice to all the holders, or any defect in the notice, will not impair or affect the validity of the amendment.

 

Discharge; Defeasance

 

The following description replaces the description set forth under “Description of Debt Securities — Discharge, Defeasance and Covenant Defeasance” in the accompanying prospectus in its entirety.

 

We may satisfy and discharge our obligations under the indenture by delivering to the registrar for cancellation all outstanding notes or by depositing with the trustee or delivering to the holders, as applicable, after the notes have become due and payable, whether at the maturity date, any fundamental change purchase date, any redemption date or upon conversion or otherwise, cash or cash and shares of common stock, if any (solely to satisfy outstanding conversions, if applicable), sufficient to pay all of the outstanding notes and paying all other sums payable

 

S-69



Table of Contents

 

under the indenture by us. Such discharge is subject to terms contained in the indenture.

 

The provisions relating to legal defeasance and covenant defeasance set forth under “Description of the Debt Securities — Discharge, Defeasance and Covenant Defeasance” in the accompanying prospectus will not apply with respect to the notes.

 

Calculations in Respect of Notes

 

Except as otherwise provided above, we will be responsible for making all calculations called for under the indenture and the notes. These calculations include, but are not limited to, determinations of the last reported sale prices and daily VWAPs of our common stock, accrued interest payable on the notes and the conversion rate of 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 notes. We will provide a schedule of our calculations to each of the trustee and the conversion agent, and each of the trustee and the conversion agent is entitled to rely conclusively upon the accuracy of our calculations without independent verification and shall not be responsible for such calculations. The trustee will forward our calculations to any holder of notes upon the written request of that holder.

 

Reports

 

The indenture requires us to file with the trustee, within 15 days after we are required to file the same with the SEC, copies of the quarterly and annual reports and of the information, documents and other reports, if any, that we are required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and to otherwise comply with Section 314(a) of the Trust Indenture Act. Any such report, information or document that we file with the SEC through the EDGAR system (or any successor thereto) will be deemed to be delivered to the trustee for the purposes of this covenant at the time of such filing through the EDGAR system (or such successor thereto); provided, however, that the trustee shall have no responsibility to determine whether such filings have been made.

 

Delivery of any such reports, information and documents to the trustee shall be for informational purposes only, and the trustee’s receipt of such reports, information and documents shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including our compliance with any of our covenants hereunder.

 

Trustee

 

Wells Fargo Bank, National Association will be the trustee, registrar, paying agent, conversion agent and bid solicitation agent. Wells Fargo Bank, National Association, in each of its capacities, including without limitation as trustee, registrar, paying agent, conversion agent and bid solicitation agent assumes no responsibility for the accuracy or completeness of the information concerning us or our affiliates or any other party contained in this document or the related documents or for any failure by us or any other party to disclose events that may have occurred and may affect the significance or accuracy of such information.

 

Governing Law

 

The indenture and the notes, and any claim, controversy or dispute arising under or related to the indenture or the notes, will be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to conflicts of laws principles thereof.

 

Book-Entry, Settlement and Clearance

 

The Global Notes

 

The notes will be initially issued in the form of one or more registered notes in global form, without interest coupons, which we refer to as the global notes. Upon issuance, each of the global notes will be deposited with the trustee as custodian for DTC, which will serve as the initial securities depositary, and registered in the name of Cede & Co., as nominee of DTC.

 

S-70



Table of Contents

 

Ownership of beneficial interests in a global note will be limited to persons who have accounts with DTC, which we refer to as DTC participants, or persons who hold interests through DTC participants. We expect that under procedures established by DTC:

 

·                  upon deposit of a global note with DTC’s custodian, DTC will credit portions of the principal amount of the global note to the accounts of the DTC participants designated by the underwriters; and

 

·                  ownership of beneficial interests in a global note will be shown on, and transfer of ownership of those interests will be effected only through, records maintained by DTC (with respect to interests of DTC participants) and the records of DTC participants (with respect to other owners of beneficial interests in the global note).

 

Beneficial interests in global notes may not be exchanged for notes in physical, fully-registered certificated form except in the limited circumstances described below. We will not issue the notes in bearer form.

 

Book-Entry Procedures for the Global Notes

 

All interests in the global notes will be subject to the operations and procedures of DTC and, therefore, you must allow for sufficient time in order to comply with these procedures if you wish to exercise any of your rights with respect to the notes. We provide the following summary of those operations and procedures solely for the convenience of investors. The operations and procedures of DTC are controlled by that settlement system and may be changed at any time. Neither we nor the underwriters are responsible for those operations or procedures.

 

DTC has advised us that it is:

 

·                  a limited purpose trust company organized under the laws of the State of New York;

 

·                  a “banking organization” within the meaning of the New York State banking law;

 

·                  a member of the Federal Reserve System;

 

·                  a “clearing corporation” within the meaning of the Uniform Commercial Code; and

 

·                  a “clearing agency” registered under Section 17A of the Exchange Act.

 

DTC was created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its participants. DTC’s participants include securities brokers and dealers, including the underwriters; banks and trust companies; clearing corporations and other organizations. Indirect access to DTC’s system is also available to others such as banks, brokers, dealers and trust companies; these indirect participants clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. Investors who are not DTC participants may beneficially own securities held by or on behalf of DTC only through DTC participants or indirect participants in DTC.

 

So long as DTC’s nominee is the registered owner of a global note, that nominee will be considered the sole owner or holder of the notes represented by that global note for all purposes under the indenture. Except as provided below, owners of beneficial interests in a global note:

 

·                  will not be entitled to have notes represented by the global note registered in their names;

 

·                  will not receive or be entitled to receive physical, certificated notes; and

 

·                  will not be considered the owners or holders of the notes under the indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the trustee under the indenture.

 

S-71



Table of Contents

 

As a result, each investor who owns a beneficial interest in a global note must rely on the procedures of DTC to exercise any rights of a holder of notes under the indenture (and, if the investor is not a participant or an indirect participant in DTC, on the procedures of the DTC participant through which the investor owns its interest). Neither DTC nor any nominee of DTC nominee will consent or vote with respect to the notes unless authorized by a DTC participant in accordance with DTC’s procedures.

 

Payments of principal, premium, if any, and interest with respect to the notes represented by a global note will be made by the paying agent to DTC’s nominee as the registered holder of the global note. Neither we nor the paying agent will have any responsibility or liability for the payment of amounts to owners of beneficial interests in a global note, for any aspect of the records relating to or payments made on account of those interests by DTC, or for maintaining, supervising or reviewing any records of DTC relating to those interests.

 

Payments by participants and indirect participants in DTC to the owners of beneficial interests in a global note will be governed by standing instructions and customary industry practice and will be the responsibility of those participants or indirect participants and DTC.

 

Transfers between participants in DTC will be effected under DTC’s procedures 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 applicable global note 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 notes or ceases to be a clearing agency or there is an event of default under the notes, DTC will exchange the global notes 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 notes 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.

 

Certificated Notes

 

Notes in physical, fully-registered certificated form will be issued, registered in the name of, and delivered to each person that the depositary identifies as a beneficial owner of the related notes only if:

 

·                  the depositary notifies us that it is unwilling, unable or no longer permitted under applicable law to continue as depositary for that global note and we do not appoint another institution to act as depositary within 90 days;

 

·                  we notify the trustee that we wish to terminate that global note (or reduce the principal amount of that global note) and the beneficial owners of the majority of the principal amount of that global note (or of the majority of the principal amount of that global note to be reduced) consent to such termination; or

 

·                  an event of default has occurred with regard to the notes represented by the relevant global note, such event of default has not been cured or waived and the owner of beneficial interest in the global note requests that its notes be issued in physical, certificated form.

 

S-72



Table of Contents

 

DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS

 

Comerica Term Loan and Equipment Line of Credit

 

We entered into a Loan and Security Agreement with Comerica Bank dated June 28, 2005, which has been subsequently amended (as amended, the “Loan and Security Agreement”). The Loan and Security Agreement provides for a term loan, equipment advances and a revolving line of credit, all of which are secured by a first priority security interest in our assets, other than our intellectual property. The full $10 million term loan was advanced to Array on June 30, 2005. We received the total $5 million of equipment advances by June 30, 2007.

 

On March 31, 2010, the term and interest rate structure of the Loan and Security Agreement were amended. The term loan and equipment advances were also combined into one instrument referred to as the term loan. The outstanding balances under the term loan and the equipment advances bear interest on a monthly basis at the Prime Rate, as quoted by Comerica Bank, but will not be less than the sum of Comerica Bank’s daily adjusting LIBOR rate plus an incremental contractually predetermined rate. This rate is variable, ranging from the Prime Rate to the Prime Rate plus 4%, based on the total dollar amount we have invested at Comerica and in what investment option those funds are invested. As of March 31, 2013, the term loan had an interest rate of 3.25% per annum.

 

In December 2012, the Loan and Security Agreement with Comerica was further amended to extend the maturity date of the term loan to October 2014 and the maturity date of the revolving line of credit to June 2014.

 

In addition, revolving lines of credit of $6.8 million have been established to support standby letters of credit in relation to our facilities leases. These standby letters of credit expire on January 31, 2014 and August 31, 2016.

 

The Loan and Security Agreement contains representations and warranties and affirmative and negative covenants that are customary for credit facilities of this type. The Loan and Security Agreement restricts our ability to, among other things, sell certain assets, engage in a merger or change in control transaction, incur debt, pay cash dividends and make investments. The Loan and Security Agreement also contains events of default that are customary for credit facilities of this type, including payment defaults, covenant defaults, insolvency type defaults and events of default relating to liens, judgments, material misrepresentations and the occurrence of certain material adverse events. In addition, if our total cash, cash equivalents and marketable securities at the end of a fiscal quarter falls below $22 million, all amounts outstanding under the Loan and Security Agreement become immediately due and payable.

 

Deerfield Credit Facilities

 

We have two outstanding credit facilities with Deerfield Private Design Fund, L.P. and Deerfield Private Design International, L.P. Under the Facility Agreement entered into in April 2008, we borrowed a total of $80 million (the “2008 Loan”), which was funded in two $40 million payments in June 2008 and December 2008. Terms of the 2008 Loan, including the interest rate and minimum cash and cash equivalent balances we must maintain, were amended in May 2009 when we entered into a new Facility Agreement with Deerfield. We borrowed an additional $40 million under this Facility Agreement on July 31, 2009.

 

As of March 31, 2013, we had $92.6 million in principal outstanding under the Deerfield Facility Agreements, comprised of $85.8 million in principal, which bears interest at the applicable rate, and $6.8 million of interest that had accrued under the 2008 Loan and is outstanding but does not bear interest. Interest and principal may be repaid at our option at any time with cash or shares of our common stock that have been registered under the Securities Act of 1933, as amended, with certain restrictions. We are also required, subject to certain exceptions and conditions, to make payments of principal equal to 15% of certain amounts we receive under new licensing, partnering and other similar arrangements entered into after January 1, 2011 limited to the principal and accrued interest outstanding. We are required to pay on June 30, 2015, the outstanding principal plus accrued interest for two of the notes associated with the Deerfield Facility Agreements, which have a balance of $73.0 million as of May 31, 2013, and we are required to pay on June 30, 2016, the outstanding principal plus accrued interest for the remaining two notes associated with the Deerfield Facility Agreements, which have a balance of $19.6 million as of May 31, 2013.

 

S-73



Table of Contents

 

Interest is payable on the outstanding principal balance monthly at a rate of 7.5% per annum, subject to adjustments based on our total cash and cash equivalents and marketable securities balance. If our total cash, cash equivalents and marketable securities at the end of a fiscal quarter falls below $20 million, all amounts outstanding under the credit facilities become immediately due and payable.

 

The credit facilities are secured by a second priority security interest in our assets, including accounts receivable, equipment, inventory, investment property and general intangible assets, excluding copyrights, patents, trademarks, service marks and certain related intangible assets. This security interest and our obligations under the Facility Agreements are subordinate to our obligations to Comerica Bank and to Comerica’s security interest under the Loan and Security Agreement.

 

The Deerfield Facility Agreements contain representations, warranties and affirmative and negative covenants that are customary for credit facilities of this type. The Deerfield Facility Agreements restrict our ability to, among other things, sell certain assets, engage in a merger or change in control transaction, incur debt, pay cash dividends and make investments. The Deerfield Facility Agreements also contain events of default that are customary for credit facilities of this type, including payment defaults, covenant defaults, insolvency type defaults and events of default relating to liens, judgments, material misrepresentations and the occurrence of certain material adverse events.

 

S-74



Table of Contents

 

UNDERWRITING

 

We and the underwriters named below have entered into an underwriting agreement with respect to the sale and issuance of the notes.  Goldman, Sachs & Co. and J.P. Morgan Securities LLC are acting as the representatives of the underwriters named below.  Subject to certain conditions, each underwriter has severally agreed to purchase the principal amount of notes indicated in the following table.

 

Underwriters

 

Principal Amount of Notes

 

Goldman, Sachs & Co.

 

$

57,500,000

 

J.P. Morgan Securities LLC

 

46,000,000

 

Piper Jaffray & Co.

 

 

5,750,000

 

Stifel, Nicolaus & Company, Incorporated

 

 

5,750,000

 

Total

 

$

115,000,000

 

 

The underwriters are committed to take and pay for all of the notes being offered, if any are taken, including the notes covered by the option to purchase additional notes described below if and when this option is exercised.

 

The underwriters have an option to buy up to an additional $17,250,000 in aggregate principal amount of the notes from us. They may exercise this option to purchase additional notes for 30 days from the date of this prospectus supplement. If any notes are purchased pursuant to this option, the underwriters will severally purchase the notes in approximately the same proportion as set forth in the table above.

 

The following table shows the public offering price, underwriting discounts and commissions and proceeds, before estimated offering expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional notes.

 

 

 

Per Note

 

No Exercise

 

Full Exercise

 

Public offering price

 

100

%

$

115,000,000

 

$

132,250,000

 

 

 

 

 

 

 

 

 

 

 

Underwriting discounts and commissions

 

3

%

$

3,450,000

 

$

3,967,500

 

 

 

 

 

 

 

 

 

 

 

Proceeds, before expenses, to us

 

97

%

$

111,550,000

 

$

128,282,500

 

 

We estimate that our share of the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $245,000.

 

We have agreed in the underwriting agreement to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.

 

Subject to certain exceptions, each of our directors and executive officers have entered into a lock-up agreement with the underwriters pursuant to which they have agreed not to dispose of or hedge any of their shares of our common stock or securities convertible into or exchangeable for shares of our common stock during the period from the date of this prospectus supplement continuing through the date 90 days after the date of this prospectus supplement, or the lock-up period. This agreement does not apply to any transfer (i) as a bona fide gift or gifts, provided that the donee or donees thereof agree to be bound in writing by the restrictions of the lock-up agreement, (ii) to a any trust for the direct or indirect benefit of the individual subject to the lock-up agreement or his or her immediate family, provided that the trustee of the trust agrees to be bound in writing by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, (iii) to us for the purpose of satisfying the exercise price and any associated withholding obligations of any outstanding options that will expire during the lock-up period and that were

 

S-75



Table of Contents

 

granted pursuant to our existing employee benefit plans or equity compensation plans, provided that such shares of common stock received upon such exercise shall be subject to the terms of the lock-up agreement; (iv) made pursuant to a written contract, instruction or plan complying with Rule 10b5-1 under the Exchange Act, provided the plan has been entered into prior to the date of the lock-up agreement and is not amended or modified during the lock-up period; and (v) made with the prior written consent of the representatives on behalf of the underwriters. Further, if (1) during the last 17 days of the lock-up period, we issue an earnings release or material news or a material event relating to us occurs; or (2) prior to the expiration of the lock-up period, we announce that we will release earnings results during the 16-day period beginning on the last day of the lock-up period, the restrictions imposed by the lock-up agreements shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

 

We have similarly agreed with the underwriters, for the 90-day period following the date of the underwriting agreement, not to issue shares of our common stock or securities convertible into or exchangeable for shares of our common stock, or enter into swap or other arrangements that transfer economic ownership of shares of our common stock, without the prior written consent of the underwriters, other than (x) pursuant to existing employee stock option or stock purchase plans described in the prospectus, or pursuant to the exercise of stock options granted thereunder, (y) under our annual employee performance bonus program, or (z) upon the conversion or exchange of outstanding convertible or exchangeable securities described in the prospectus.

 

The representatives, in their discretion, may release any of the securities subject to these lock-up agreements at any time without notice.

 

Notes sold by the underwriters to the public will initially be offered at the public offering price set forth on the cover of this prospectus supplement. Any notes sold by the underwriters to securities dealers may be sold at a discount from the public offering price of up to 1.8% of the principal amount of notes.  If all the notes are not sold at the public offering price, the underwriters may change the offering price and the other selling terms. The offering of the notes by the underwriters is subject to receipt and acceptance and subject to the underwriters’ right to reject any order in whole or in part.

 

The notes are a new issue of securities with no established trading market.  We have been advised by the representatives that certain of the underwriters intend to make a market in the notes but are not obligated to do so and may discontinue market making at any time without notice.  No assurance can be given as to the liquidity of the trading market for the notes.

 

In connection with this offering, the underwriters may purchase and sell notes in the open market.  These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales.  Short sales involve the sale by the underwriters of a greater number of notes than they are required to purchase in the offering.  Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the notes while the offering is in progress.

 

The underwriters may also impose a penalty bid.  This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased notes sold by or for the account of such underwriter in stabilizing or short covering transactions.

 

These activities by the underwriters, as well as other purchases by the underwriters for their own accounts, may stabilize, maintain or otherwise affect the market price of the notes.  As a result, the price of the notes may be higher than the price that otherwise might exist in the open market.  If these activities are commenced, they may be discontinued by the underwriters at any time.  These transactions may be effected in the over-the-counter market or otherwise.

 

European Economic Area

 

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant

 

S-76



Table of Contents

 

Implementation Date) it has not made and will not make an offer of notes which are the subject of the offering contemplated by this prospectus to the public in that Relevant Member State other than:

 

(a)                                 to any legal entity which is a qualified investor as defined in the Prospectus Directive;

 

(b)                                 to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives of the several underwriters; or

 

(c)                                  in any other circumstances falling within Article 3(2) of the Prospectus Directive,

 

provided that no such offer of notes shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

 

For the purposes of this provision, the expression an “offer of the notes to the public” in relation to any of the notes in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the notes to be offered so as to enable an investor to decide to purchase or subscribe to the notes, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. The expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

 

United Kingdom

 

Each underwriter has represented and agreed that, in connection with the distribution of the notes:

 

(a)                                 it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000, or the FSMA, with respect to anything done by it in relation to the notes in, from or otherwise involving the United Kingdom; and

 

(b)                                 it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the notes in circumstances in which Section 21(1) of the FSMA does not apply to us.

 

Hong Kong

 

The notes may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the notes may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

 

Japan

 

The notes have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an

 

S-77



Table of Contents

 

exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

 

Singapore

 

This prospectus supplement and the accompanying prospectus have not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the notes may not be circulated or distributed, nor may the notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

 

Where the notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the notes under Section 275 of the SFA except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A) of the SFA and in accordance with the conditions specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.

 

Affiliations

 

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships with us, for which they received or will receive customary fees and expenses.

 

In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively trade securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers. These investment and trading activities may involve or relate to assets, securities and/or instruments of ours (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with us. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.

 

S-78



Table of Contents

 

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

The following is a summary of material U.S. federal income tax considerations of the ownership, conversion and disposition of the notes and of the ownership and disposition of common stock into which the notes are convertible. This summary is based upon provisions of the Code, applicable Treasury Regulations, administrative rulings and judicial decisions in effect as of the date of this prospectus supplement, any of which may subsequently be changed, possibly retroactively, or interpreted differently by the IRS, so as to result in U.S. federal income tax consequences different from those discussed below. Except where noted, this summary deals only with a note or share of our common stock held as a capital asset by a beneficial owner who purchases the note on original issuance at the first price, which we refer to as the issue price, at which a substantial portion of the notes is sold for cash to persons other than bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. This summary does not address all aspects of U.S. federal income taxes and does not deal with all tax consequences that may be relevant to holders in light of their personal circumstances or particular situations, such as:

 

·                  tax consequences to dealers in securities or currencies, financial institutions, regulated investment companies, real estate investment trusts, tax-exempt entities, insurance companies and traders in securities that elect to use a mark-to-market method of tax accounting for their securities;

 

·                  tax consequences to persons holding notes or shares of our common stock as a part of a hedging, integrated, conversion or constructive sale transaction or a straddle;

 

·                  tax consequences to U.S. holders, as defined below, whose “functional currency” is not the U.S. dollar;

 

·                  tax consequences to entities treated as partnerships for U.S. federal income tax purposes and investors therein;

 

·                  tax consequences to certain former citizens or residents of the United States;

 

·                  alternative minimum tax consequences, if any;

 

·                  any state, local or foreign tax consequences; and

 

·                  estate or gift taxes.

 

If an entity that is treated as a partnership for U.S. federal income tax purposes holds notes or our common stock, the tax treatment of a partner or member generally will depend upon the status of the partner or member and the activities of the entity. If you are a partner or member in such an entity, you should consult your tax advisors.

 

If you are considering the purchase of notes, you should consult your tax advisors concerning the U.S. federal income tax consequences to you in light of your own specific situation, as well as consequences arising under the U.S. federal estate or gift tax laws or under the laws of any other taxing jurisdiction.

 

In this discussion, we use the term “U.S. holder” to refer to a beneficial owner of notes or common stock that is, for U.S. federal income tax purposes:

 

·                  an individual citizen or resident of the United States;

 

·                  a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

·                  an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

·                  a trust, if it (i) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

 

We use the term “non-U.S. holder” to describe a beneficial owner of notes or common stock that is neither a U.S. holder nor a partnership or other entity that is treated as a partnership for U.S. federal income tax purposes.

 

S-79



Table of Contents

 

YOU SHOULD CONSULT WITH YOUR TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN INCOME, FRANCHISE, PERSONAL PROPERTY AND ANY OTHER TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF THE NOTES AND COMMON STOCK.

 

Taxation of U.S. Holders

 

The Notes

 

Interest Income

 

It is anticipated, and this discussion assumes, that the notes will be issued with less than a de minimis amount (as set forth in the applicable Treasury Regulations) of original issue discount. In such case, interest paid on the notes generally will be taxable to a U.S. holder as ordinary interest income at the time such payments are accrued or received (in accordance with the holder’s regular method of tax accounting). If, however, the notes are issued for an amount less than the principal amount and the difference is at least the de minimis amount, a U.S. holder will be required to include the difference in income as original issue discount as it accrues in accordance with a constant-yield method, based on compounding of interest before the receipt of cash attributable to this income.

 

Receipt of Common Stock, Cash or a Combination Thereof Upon Conversion of the Notes

 

A U.S. holder will generally not recognize gain or loss upon the conversion of a note solely into our common stock (except with respect to cash received in lieu of a fractional share, which will be treated as described below, and with respect to the fair market value of common stock, if any, attributable to accrued interest, which will be treated as a payment of interest described above). A U.S. holder’s tax basis in our common stock received on conversion of a note (other than common stock attributable to accrued interest, the tax basis of which would equal the fair market value of the common stock received but including any tax basis allocable to a fractional share) will be the same as the U.S. holder’s adjusted tax basis in the note at the time of conversion. The holding period for our common stock received on conversion will include the holding period of the converted note, except that the holding period of any common stock received with respect to accrued interest would commence on the day after the date of receipt. Cash received in lieu of a fractional share upon conversion of a note will be treated as a payment in exchange for the fractional share. The amount of gain or loss recognized on the receipt of cash in lieu of a fractional share is equal to the difference between the amount of cash the U.S. holder receives in respect of the fractional share and the portion of the U.S. holder’s tax basis in the note that is allocable to the fractional share based on the relative fair market values of the common stock received upon the conversion and the fractional share.

 

In the event a note is converted solely into cash, a U.S. holder will recognize gain or loss in the same manner as if the U.S. holder had disposed of the note in a taxable disposition (as described below under “— Taxation of U.S. Holders — Sale, Exchange, Redemption, Repurchase of the Notes or Conversion of the Notes for Cash”).

 

The U.S. federal income tax treatment of a U.S. holder’s conversion of a note into a combination of our common stock and cash is uncertain.  If the notes are treated as securities for U.S. federal income tax purposes, it is possible that the receipt of cash and our common stock upon a conversion of a note may be treated as a recapitalization for U.S. federal income tax purposes.  In such case, a U.S. holder of a note will recognize gain to the extent of the lesser of (i) the cash received (other than cash attributable to accrued interest, which will be treated as described under “— Taxation of U.S. Holders — Interest Income” above, or cash received in lieu of a fractional share) and (ii) the amount of gain realized (i.e., the fair market value of the common stock and cash received (other than amounts attributable to accrued interest) minus the U.S. holder’s adjusted tax basis in the converted note), and no loss will be allowed. In such case, the U.S. holder’s aggregate tax basis in the common stock received (other than any stock received with respect to accrued interest but including any basis allocable to a fractional share) will equal the holder’s adjusted tax basis in the note converted, increased by the amount of any gain recognized (other than with respect to a fractional share) and decreased by the amount of any cash received (other than any cash received in respect of accrued interest or a fractional share). The amount of gain or loss recognized on the receipt of cash in lieu of a fractional share is equal to the difference between the amount of cash the U.S. holder receives in respect of the fractional share and the portion of the U.S. holder’s tax basis in the note that is allocable to the fractional share based on the relative fair market values of the c