-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PMBL2XVyTEsAnRGn24z5kB93T+75Ik45MGFLNicYS4D6zFhbs5uq0S+ntxJqJkON crab+Vvb5qjbEP9K1OM8UQ== 0000950168-02-002537.txt : 20020826 0000950168-02-002537.hdr.sgml : 20020826 20020826162527 ACCESSION NUMBER: 0000950168-02-002537 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 20020826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHARMING SHOPPES INC CENTRAL INDEX KEY: 0000019353 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-WOMEN'S CLOTHING STORES [5621] IRS NUMBER: 231721355 STATE OF INCORPORATION: PA FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-98741 FILM NUMBER: 02748490 BUSINESS ADDRESS: STREET 1: 450 WINKS LANE CITY: BENSALEM STATE: PA ZIP: 19020 BUSINESS PHONE: 2152459100 MAIL ADDRESS: STREET 1: 450 WINKS LANE CITY: BENSALEM STATE: PA ZIP: 19020 S-3 1 ds3.txt CHARMING SHOPPE, INC. FORM S-3 As filed with the Securities and Exchange Commission on August 26, 2002 Registration No. 333- ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ----------------- FORM S-3 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ----------------- CHARMING SHOPPES, INC. (Exact Name of Registrant as Specified in Its Charter) ----------------- Pennsylvania 23-1721355 (State or Other (I.R.S. Employer Jurisdiction of Identification Number) Incorporation or Organization) Colin D. Stern, Esq. Charming Shoppes, Inc. 450 Winks Lane 450 Winks Lane Bensalem, Pennsylvania Bensalem, Pennsylvania 19020 19020 (215) 245-9100 (215) 245-9100 (Address, Including Zip (Name, Address, Including Code, and Telephone Zip Code, Number, Including Area and Telephone Number, Code, of Registrant's Including Principal Executive Area Code, of Agent for Offices) Service) ----------------- Copy to: F. Douglas Raymond, Esq. Drinker Biddle & Reath LLP One Logan Square, 18th & Cherry Streets Philadelphia, Pennsylvania 19103-6996 (215) 988-2700 Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. [_] ------------- If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. [_] ------------- If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ----------------- CALCULATION OF REGISTRATION FEE ================================================================================
Proposed Proposed Amount Maximum Maximum Title of Securities to be Offering Price Aggregate Amount of to be Registered Registered Per Security Offering Price Registration Fee - --------------------------------------------------------------------------------------------------- 4.75% Senior Convertible Notes Due 2012.................................. $150,000,000 100% $150,000,000 $13,800 - --------------------------------------------------------------------------------------------------- Common Stock, par value $0.10 per share (and the associated stock purchase rights)............................... (1) (1) (1) (2) - ---------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Includes 15,182,186 shares of common stock initially issuable upon conversion of the notes at the conversion price of $9.88 per share. Pursuant to Rule 416 under the Securities Act, such number of shares of common stock registered hereby shall include an indeterminate number of shares of common stock that may be issued in connection with a stock split, stock divided, recapitalization or similar event. (2) Pursuant to Rule 457(i), there is no additional filing fee with respect to the shares of common stock issuable upon conversion of the notes because no additional consideration will be received in connection with the exercise of the conversion privilege. ----------------- The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED AUGUST 26, 2002 $150,000,000 Charming Shoppes, Inc. 4.75% Senior Convertible Notes Due 2012 and the Common Stock issuable upon conversion of the Notes ----------------- This prospectus covers $150,000,000 of our 4.75% Senior Convertible Notes due 2012 and the common stock issuable upon conversion of the notes. We issued the notes in a private placement in May, 2002. This prospectus will be used by selling securityholders to resell their notes and the common stock issuable upon conversion of their notes. The notes are convertible before maturity into our common stock at an initial conversion price of $9.88 per share, subject to adjustment for specified events. We will pay interest on the notes on June 1 and December 1 of each year, beginning December 1, 2002. The notes will mature on June 1, 2012 unless earlier converted or redeemed. We may redeem all or a portion of the notes on or after June 4, 2007. In addition, the holders may require us to repurchase the notes upon a repurchase event in cash or, at our option, common stock, at 100% of the principal amount of the notes plus accrued and unpaid interest. Our common stock is listed on the Nasdaq National Market under the symbol "CHRS." The reported last sale price of our common stock on the Nasdaq National Market on August 23, 2002 was $6.77 per share. ----------------- Investing in the securities offered involves risks. See "Risk Factors" beginning on page 3. ----------------- These securities have not been approved or disapproved by the Securities and Exchange Commission or any state securities commission nor has the Securities and Exchange Commission or any state securities commission passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense. This prospectus is dated , 2002 Table of Contents SUMMARY.......................................... 1 THE OFFERING..................................... 2 RISK FACTORS..................................... 3 SELECTED FINANCIAL DATA.......................... 9 USE OF PROCEEDS.................................. 11 RATIO OF EARNINGS TO FIXED CHARGES............... 11 DESCRIPTION OF NOTES............................. 12 DESCRIPTION OF OTHER INDEBTEDNESS................ 22 DESCRIPTION OF CAPITAL STOCK..................... 23 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES... 28 SELLING SECURITYHOLDERS.......................... 33 PLAN OF DISTRIBUTION............................. 37 LEGAL MATTERS.................................... 38 EXPERTS.......................................... 38 WHERE YOU CAN FIND MORE INFORMATION.............. 39 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 41
SUMMARY This summary contains basic information about us and this prospectus. Because it is a summary, it does not contain all the information you should consider before investing. You should read this entire prospectus, including "Risk Factors" below and the documents incorporated by reference into this prospectus, carefully before making an investment decision. We are the leading specialty apparel retailer primarily focused on plus-size women's apparel through our three distinct brands: Lane Bryant, Fashion Bug, and Catherine's Plus Sizes. As a result of our Lane Bryant acquisition in August 2001, our sales of plus-size apparel increased to approximately 66% of our total net sales during Fiscal 2002 and now exceed 70% of our total net sales. Through our fashion content, store layouts, and broad merchandise assortments, we seek to appeal to customers from a broad range of demographic and cultural profiles. As of August 3, 2002, we operated 2,334 stores in 48 states. Our principal brands are each designed to attract a distinct customer: . Lane Bryant. Lane Bryant is a leader in plus-size fashion. Through private labels, such as Venezia Jeans Clothing Co.(R) and Cacique(TM), Lane Bryant offers fashionable and sophisticated casual, career and intimate apparel in plus sizes 14-28 and targets customers ranging in age from 25 to 45 years old. Lane Bryant has a loyal customer base, that shops for fashionable merchandise in the moderate price range. Lane Bryant seeks to differentiate itself through its innovative product design. Primarily a mall-based destination store, Lane Bryant currently operates 650 stores in 46 states that average approximately 6,100 square feet. . Fashion Bug and Fashion Bug Plus. Fashion Bug and Fashion Bug Plus stores specialize in selling a wide variety of plus-size, misses, and junior sportswear, dresses, coats, lingerie, accessories, and casual footwear. Fashion Bug target customers range in age from 20 to 49 years old and shop in the low-moderate price range. The majority of our 1,208 Fashion Bug stores are located in strip shopping centers across the United States and average approximately 8,900 square feet. . Catherine's Plus Sizes. Catherine's specializes in plus-sizes with an emphasis on extended sizes (over size 28) and petite plus-sizes. Catherine's has developed a proprietary body basics fit program, which is designed to help a woman choose merchandise styles that most flatter her figure. Catherine's offers classic apparel and accessories for career and casual lifestyles to target customers who range in age from 40 to 65 years old, shop in the moderate price range, and are concerned with fit and value when purchasing apparel. Catherine's seeks to differentiate itself through customer service and by emphasizing a one-on-one selling environment. Our 467 Catherine's stores are located in 44 states, primarily in strip shopping centers in the Southeast, Mid-Atlantic, and Eastern Central regions of the United States, and average approximately 4,100 square feet. Charming Shoppes, Inc. was incorporated in Pennsylvania in 1969. Our principal offices are located at 450 Winks Lane, Bensalem, Pennsylvania 19020. Our telephone number is (215) 245-9100. 1 THE OFFERING Securities Offered.......... $150,000,000 aggregate principal amount of 4.75% senior convertible notes due 2012 and the common stock issuable upon conversion of the notes. Interest.................... 4.75% per annum on the principal amount, payable semi-annually in arrears in cash on June 1 and December 1 of each year, commencing December 1, 2002. The first interest payment will include interest from the original date of issuance. Maturity.................... June 1, 2012. Conversion.................. The notes are convertible into our common stock at the option of the holder at any time after the date of original issuance of the notes and before redemption, repurchase, or maturity at a conversion price of $9.88 per share, subject to adjustment upon specified events. See "Description of Notes--Conversion of the Notes." The right to convert notes that have been called for redemption will terminate at the close of business on the trading day immediately preceding the date of redemption. Ranking..................... The notes are our senior unsecured obligations and rank equally with all of our existing and future senior unsecured indebtedness. However, the notes are effectively subordinated to all existing and future obligations of our subsidiaries and any of our secured indebtedness. Optional Redemption......... At any time on or after June 4, 2007, we may redeem some or all of the notes at the declining redemption prices listed within this prospectus, plus accrued interest. See "Description of Notes--Optional Redemption by Us." Repurchase at Holder's Option upon a Repurchase Event..................... You may require us to repurchase your notes upon a repurchase event in cash or, at our option, in common stock, at 100% of the principal amount of the notes, plus accrued and unpaid interest. Sinking Fund................ None. Use of Proceeds............. We will not receive any of the proceeds from the sale by any selling securityholder of the notes or the underlying common stock. Risk Factors................ You should read "Risk Factors" beginning on page 3 of this prospectus to understand the risks associated with an investment in the notes. 2 RISK FACTORS You should carefully consider and evaluate all of the information in this prospectus and the documents incorporated by reference into this prospectus, including the risk factors listed below. Any of these risks could materially and adversely affect our business, financial condition and operating results. This, in turn, could materially and adversely affect the price of our common stock and the value of the notes. Risks Related to Our Business And Industry Our business is dependent upon our being able to accurately predict fashion trends, customer preferences, and other fashion-related factors. Customer tastes and fashion trends are volatile and tend to change rapidly, particularly for women's apparel. Our success depends in part on our ability to effectively predict and respond to quickly changing fashion tastes and consumer demands, and to translate market trends into appropriate, saleable product offerings. If we are unable to successfully predict or respond to changing styles or trends and misjudge the market for our products or any new product lines, our sales will be lower and we may be faced with a substantial amount of unsold inventory or missed sales opportunities. In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess, or slow-moving inventory, which could have a material adverse effect on our business, financial condition, and results of operations. Existing and increased competition in the women's retail apparel industry may reduce our net revenues, profits, and market share. The women's specialty retail apparel industry is highly competitive. Our competitors include individual and chain fashion specialty stores, department stores, discount stores, and Internet-based retailers. As a result of this competition, we may experience pricing pressures, increased marketing expenditures, and loss of market share, which could have a material adverse effect on our business, financial condition, and results of operations. We believe that the principal bases upon which we compete are merchandise style, size, selection, quality, and price, as well as store location, design, advertising, promotion, and personalized service to the customers. Other women's apparel companies with greater financial resources, marketing capabilities or brand recognition may enter the plus-size business. We cannot assure you that we will be able to compete successfully against existing or future competitors. The decline in general economic conditions has led to reduced consumer demand for our apparel and accessories and may continue to do so in the future. Consumer spending habits, including spending for our apparel and accessories, are affected by, among other things, prevailing economic conditions, levels of employment, salaries, wage rates, the availability of consumer credit, consumer confidence, and consumer perception of economic conditions. The general slowdown in the United States economy and the uncertain economic outlook have adversely affected consumer spending habits and mall traffic, which have resulted in, and may continue to result in, lower net sales by us. A prolonged economic downturn could have a material adverse effect on our business, financial condition, and results of operations. Our operating results fluctuate from season to season. Our stores experience seasonal fluctuations in net sales and consequently in operating income, with peak sales occurring during the Easter, Labor Day, and Christmas seasons. In addition, extreme or unseasonable weather can affect our sales. Any decrease in net sales or margins during our peak selling periods, or in the availability of working capital needed in the months before these periods, could have a material adverse effect on our business, financial condition, and results of operations. We usually order merchandise in advance of peak selling periods and sometimes before new fashion trends are confirmed by customer purchases. We must carry a 3 significant amount of inventory, especially before the peak selling periods. If we are not successful in selling our inventory, especially during our peak selling periods, we may be forced to rely on markdowns or promotional sales to dispose of the inventory or we may not be able to sell the inventory at all, which could have a material adverse effect on our business, financial condition, and results of operations. We may not be able to obtain sufficient working capital financing. Our business requires substantial investment in our inventory for a long period before sales occur and consequently we require significant working capital financing. We depend on the availability of credit to fund our working capital, including credit we receive from our suppliers and their agents, on our credit card securitization program, and on our revolving credit facility. If we are unable to obtain sufficient financing at an affordable cost, we might be unable to adequately merchandise our stores, which could have a material adverse effect on our business, financial condition, and results of operations. We face challenges in managing our recent growth. Our operating challenges and management responsibilities are increasing as we continue to grow. Successful growth will require that we continue to expand and improve our internal systems and our operations, including our distribution infrastructure. Our business plan depends on our ability to open and operate new retail stores and to convert, where applicable, the formats of existing stores on a profitable basis. In addition, we will need to identify, hire and retain a sufficient number of qualified personnel to work in our new stores. We are also seeking to complete the integration of Lane Bryant into our current operating structure, and to transition away from certain services being provided to our Lane Bryant operations by Limited Brands (formerly The Limited, Inc.), from which we acquired Lane Bryant. These objectives have created and may continue to create additional pressure on our staff and on our operating systems. We cannot assure you that our business plan will be successful, or that we will achieve our objectives as quickly or as effectively as we hope. We depend on key personnel and may not be able to retain or replace these employees or recruit additional qualified personnel. Our success and our ability to execute our business strategy depend largely on the efforts and abilities of our Chief Executive Officer, Dorrit J. Bern, and her management team. The loss of services of one or more of our key personnel could have a material adverse effect on our business, as we may not be able to find suitable management personnel to replace departing executives on a timely basis. We do not maintain key-person life insurance policies with respect to any of our employees. We could be materially and adversely affected if any of our distribution centers are shut down. We operate distribution facilities in Greencastle, Indiana, Memphis, Tennessee, and Columbus, Ohio. Most of the merchandise we purchase is shipped directly to our distribution centers, where it is prepared for shipment to the appropriate stores. If any of our distribution centers were to shut down or lose significant capacity for any reason, the other distribution centers may not be able to support the resulting additional distribution demands, in part because of capacity constraints and in part because each distribution center services a particular brand. As a result, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores during the time it takes for us to reopen or replace the center. War, acts of terrorism, or the threat of either may negatively impact the availability of merchandise and otherwise adversely impact our business. In the event of war or acts of terrorism, or if either are threatened, our ability to obtain merchandise for sale in our stores may be negatively impacted. A substantial portion of our merchandise is imported from other countries. If imported goods become difficult or impossible to bring into the United States, and if we cannot 4 obtain such merchandise from other sources at similar costs, our net sales and profit margins may be adversely affected. If commercial transportation is curtailed or substantially delayed, our business may be adversely impacted, as we may have difficulty shipping merchandise to our distribution centers and stores. On September 11, 2001, in response to terrorist attacks on the United States, a majority of our retail stores either did not open or were closed early. Since then, the government has reported threats of further attacks against United States locations, including malls. In the event of war or additional acts of terrorism, or the threat of either, we may be required to suspend operations in some or all of our stores, which could have a material adverse impact on our business, financial condition, and results of operations. We rely on foreign sources of production. We purchase a significant portion of our apparel directly in foreign markets and indirectly through domestic vendors with foreign sources. We face a variety of risks generally associated with doing business in foreign markets and importing merchandise from abroad, including: . political instability; . increased security requirements applicable to imported goods; . imposition of duties, taxes, and other charges on imports; . currency and exchange risks; . delays in shipping; and . increased costs of transportation. New initiatives may be proposed that may have an impact on the trading status of certain countries and may include retaliatory duties or other trade sanctions that, if enacted, could increase the cost of products purchased from suppliers in such countries or restrict the importation of products from such countries. The future performance of our business will depend on our foreign suppliers and may be adversely affected by the factors listed above, all of which are beyond our control. Issues of global workplace conditions may adversely affect our business. If any one of our manufacturers or vendors: . fails to operate in compliance with applicable laws and regulations; . is perceived by the public as failing to meet certain labor standards in the United States; or . employs unfair labor practices, our business could be adversely affected. Current global workplace concerns of the public include perceived low wages, poor working conditions, age of employees, and various other employment standards. These globalization issues may affect the available supply of certain manufacturers' products, which may result in increased costs to us. Furthermore, a negative customer perception of any of our key vendors or their products may result in a lower customer demand for our apparel. We depend on strip shopping center and mall traffic and our ability to identify suitable store locations. Our sales are dependent in part on a high volume of strip shopping center and mall traffic. Strip shopping center and mall traffic may be adversely affected by, among other things, economic downturns, the closing of anchor stores or changes in customer shopping preferences. A decline in the popularity of strip shopping center or mall shopping among our target customers could have a material adverse effect on our business. 5 To take advantage of customer traffic and the shopping preferences of our customers, we need to maintain or acquire stores in desirable locations. We cannot assure you that desirable store locations will continue to be available. We may be unable to protect our trademarks and other intellectual property rights. We believe that our trademarks and service marks are important to our success and our competitive position due to their name recognition with our customers. We devote substantial resources to the establishment and protection of our trademarks and service marks on a worldwide basis. We are not aware of any claims of infringement or challenges to our right to use any of our trademarks and service marks in the United States. Nevertheless, there can be no assurance that the actions we have taken to establish and protect our trademarks and service marks will be adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our products as a violation of the trademarks, service marks and proprietary rights of others. Also, others may assert rights in, or ownership of, our trademarks and other proprietary rights, and we may not be able to successfully resolve these types of conflicts to our satisfaction. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the United States. Risks of Investing in These Notes The notes rank below our secured debt and the liabilities of our subsidiaries. The notes are our senior unsecured obligations and rank equally with all of our existing and future unsecured, unsubordinated indebtedness. However, the notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the collateral securing such indebtedness. As a result, our assets that have been pledged to our secured creditors will be available to pay obligations on the notes only after such secured indebtedness has been paid in full, and we may not have sufficient assets remaining to repay in full all of the notes then outstanding, if any of the following occur: . we become insolvent or are forced to liquidate our assets; . we default on our secured indebtedness; or . the notes are accelerated due to any other event of default. The notes are also effectively subordinated in right of payment to all of our subsidiaries' indebtedness and other liabilities, including trade payables. The notes are exclusively obligations of Charming Shoppes. Substantially all of our operations are conducted through our subsidiaries. As a result, our cash flow and our ability to service our debt, including the notes, depends upon dividends, distributions, loans or other payments by our subsidiaries to us, which, in turn, depends on the earnings of our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts due on the notes, whether by dividends, distributions, loans or other payments. In addition, any payment of dividends, distributions, loans or advances by our subsidiaries to us could be subject to statutory or contractual restrictions, and are also subject to certain restrictions in our existing credit agreements. The incurrence of additional indebtedness and other liabilities could materially and adversely affect our ability to pay our obligations on the notes. The indenture governing the notes does not limit our ability to incur any indebtedness, including secured indebtedness, and does not limit the ability of our subsidiaries to incur indebtedness or other liabilities. As of August 3, 2002, we had outstanding letters of credit totaling $75.7 million under our revolving credit facility. There were no cash borrowings outstanding under the facility as of August 3, 2002. As of that date, we had unused availability under the revolving credit facility of $166.5 million. See "Description of Notes--Ranking." 6 We may be unable to repay or repurchase the notes. At maturity, the entire outstanding principal amount of the notes will become due and payable by us. In addition, if we experience a repurchase event upon a change in control, you will be entitled to require us to repurchase all or a portion of your notes. We may elect, subject to certain conditions, to pay the repurchase price in shares of our common stock. We may not have enough funds to pay the redemption price in cash for all tendered notes. The credit agreements or other agreements relating to our indebtedness may: . contain provisions requiring payment of that indebtedness after a repurchase event; or . expressly prohibit our repurchase of the notes after a repurchase event. If we are prohibited from repurchasing the notes, we could seek consent from our lenders to repurchase the notes. If we were unable to obtain their consent, we could attempt to refinance the notes. If we were unable to obtain a consent or refinance, we would be prohibited from repurchasing the notes. If we were unable to repurchase the notes upon a repurchase event, it would result in an event of default under the indenture. An event of default under the indenture could also result in an event of default with respect to our other debt. The fact that a change in control is a repurchase event may not necessarily afford you protection in the event of a highly leveraged transaction. The term "change in control" is limited to certain specified transactions and may not include other events that might harm our financial condition. Our obligation to offer to purchase the notes upon a repurchase event may not preserve the value of the notes in the event of a highly leveraged transaction, reorganization, merger or similar transaction involving us. See "Description of Notes--Repurchase at Option of Holders." You may have difficulty selling the notes because no trading market exists for the notes. Currently, there is no existing trading market for the notes, and we cannot assure you that a trading market will develop or that any trading market that develops will continue or allow you to sell your notes quickly. We also cannot assure you of the price at which you will be able to sell your notes, if you are able to sell them at all. The initial purchasers have advised us that they intend to make a market in the notes, but they are not obligated to do so, and their market making may be interrupted or discontinued without notice. If the initial purchasers were to make a market, the notes could trade at prices that are higher or lower than the principal amount of the notes depending on many factors, including: . prevailing interest rates; . the market for similar securities; . our operating results; and . our common stock's trading price. The notes are eligible for trading on The PORTAL Market of the National Association of Securities Dealers, Inc., but we do not intend to apply for listing of the notes on any securities exchange or for inclusion of the notes in any automated quotation system. We expect that the trading value of the notes will be significantly affected by the price of our common stock. The market price of the notes is expected to be significantly affected by the market price of our common stock. The stock market has from time to time experienced extreme price and volume fluctuations which have often been unrelated to the operating performance of particular companies. Our common stock has also experienced significant price fluctuations. This may result in greater volatility in the value of the notes than would be expected for nonconvertible debt securities we issue. 7 Changes in our credit rating or the credit markets could adversely affect the trading price of the notes. The trading price for the notes will be based on a number of factors, including: . our rating with major credit rating agencies; . the prevailing interest rates being paid by other companies similar to us; and . the overall condition of the financial markets. The condition of the credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. Fluctuations in these factors could have an adverse effect on the price of the notes. In addition, credit rating agencies continually revise their ratings for the companies that they follow, including us. The credit rating agencies also evaluate the specialty retail or apparel industries as a whole and may change their credit rating for us based on their overall view of our industry. We cannot be sure that credit rating agencies will maintain their ratings on the notes. A negative change in our rating could have an adverse effect on the price of the notes. The market price of our common stock could be affected by the substantial number of shares that are eligible for future sale. As of August 3, 2002, we had 122,342,213 shares of common stock outstanding. Also as of that date, we had outstanding options to purchase 12,397,999 shares of our common stock. In addition, Limited Brands, currently owns 9,525,993 shares of our common stock. We have filed a registration statement with respect to these shares, which Limited Brands may sell at anytime. We cannot predict the effect, if any, that future sales of our debt securities or shares of common stock or the notes, or the availability of the notes or shares of common stock for future sale, will have on the market price of our common stock prevailing from time to time. Other Risks Anti-takeover provisions in our governing documents and Pennsylvania law may discourage other companies from attempting to acquire us. Some provisions of our articles of incorporation and bylaws and of Pennsylvania law may discourage some transactions where we would otherwise experience a change in control. For example, our articles of incorporation and bylaws contain provisions that: . classify our board into three classes, with one class being elected each year; . do not permit cumulative voting; . permit our board to issue "blank check" preferred stock without shareholder approval; . require certain advance notice procedures with regard to the nomination of candidates for election as directors, other than nominations by or at the direction of our board; . prohibit us from engaging in some types of business combinations with a holder of 10% or more of our voting securities without super-majority shareholder or board approval; . prevent our directors from being removed without cause except upon super-majority shareholder approval; and . prevent a holder of 20% or more of our common stock from taking certain actions without certain approvals. We also have adopted a Shareholder Rights Plan. This plan may make it more difficult and more expensive to acquire us, and may discourage open market purchases of our common stock or a non-negotiated tender or exchange offer for such stock, and, accordingly, may limit a shareholder's ability to realize a premium over the market price of our common stock in connection with any such transaction. 8 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with our financial statements and related notes incorporated in this prospectus by reference. In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires the use of the purchase method of accounting for business combinations initiated after June 30, 2001, and expands the definition of intangible assets that are to be recorded separately from goodwill. For business combinations accounted for under the purchase method that were completed prior to July 1, 2001, previously recorded goodwill and intangibles are to be evaluated against the criteria in SFAS No. 141, which may result in the reclassification of certain intangible assets into or out of recorded goodwill. SFAS No. 142 requires that goodwill and intangible assets with an indefinite useful life not be amortized, but reviewed for impairment at least annually and written down in periods in which the recorded value of the goodwill or intangible asset exceeds its fair value. The transition provisions of SFAS No. 142 require the continuation of amortization of goodwill acquired prior to June 30, 2001, and require non-amortization of goodwill and indefinite-lived intangible assets acquired subsequent to June 30, 2001, until the provisions of SFAS No. 142 are adopted in full. We adopted the provisions of SFAS No. 142 in full as of February 3, 2002. Our consolidated balance sheet as of February 2, 2002 included $87,205,000 of goodwill related to the acquisition of Catherine's Stores Corporation ("Catherine's"). We recognized $4,885,000 of amortization of the Catherine's goodwill during each of the fiscal years ended February 2, 2002 and February 3, 2001. Commencing February 3, 2002, we are no longer amortizing goodwill. However, the goodwill will be subject to periodic impairment reviews in accordance with the provisions of SFAS No. 142. Consequently, in accordance with the transition provisions of SFAS No. 142, we tested the Catherine's goodwill for impairment during the thirteen weeks ended August 3, 2002. We have determined that the carrying value of the Catherine's goodwill (including the value of the intangible assets not separately accounted for) exceeded the estimated fair value of the Catherine's goodwill under SFAS No. 142. We have determined the estimated fair value of the Catherine's goodwill using the present value of expected future cash flows associated with the Catherine's assets and we recorded a write-down, which is not deductible for income tax purposes, of $43,975,000 to reduce the carrying value of the goodwill to its estimated fair value. The write-down will be presented as the cumulative effect of an accounting change as of February 3, 2002 in our Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended February 1, 2003. The calculation required estimates, assumptions and judgments, and results might have been materially different if different estimates, assumptions and judgments had been used. We have evaluated our recorded trademarks and Lane Bryant goodwill in accordance with the provisions of SFAS No. 142 as of February 3, 2002, and have determined that there has been no impairment. 9 The pro forma effect of applying the non-amortization provisions of SFAS No. 142 for the fiscal years ended February 2, 2002, February 3, 2001, and January 29, 2000 is as follows:
Year Ended ----------------------------------- February 2, February 3, January 29, 2002 2001 2000 ----------- ----------- ----------- (In thousands, except per share data) Income (loss) before cumulative effect of accounting change, as reported(1)....................................................... $(4,406) $51,638 $45,059 Pro forma effect of excluding goodwill amortization(2).............. 4,885 4,885 0 ------- ------- ------- Pro forma income before cumulative effect of accounting change...... 479 56,523 45,059 Cumulative effect of accounting change, net of income tax benefit of $334.............................................................. 0 (540) 0 ------- ------- ------- Pro forma net income................................................ $ 479 $55,983 $45,059 ======= ======= ======= Basic net income (loss) per share: Income (loss) before cumulative effect of accounting change, as reported(1).................................................... $ (.04) $ .51 $ .46 Pro forma effect of excluding goodwill amortization(2)........... .04 .05 .00 ------- ------- ------- Pro forma income before cumulative effect of accounting change... .00 .56 .46 Cumulative effect of accounting change, net of income taxes...... $ .00 (.01) .00 ------- ------- ------- Pro forma net income............................................. $ .00 $ .55 $ .46 ======= ======= ======= Fully diluted net income (loss) per share........................... Income (loss) before cumulative effect of accounting change, as reported(1).................................................... $ (.04) $ .49 $ .43 Pro forma effect of excluding goodwill amortization(2)........... .04 .05 .00 ------- ------- ------- Pro forma income before cumulative effect of accounting change... .00 .54 .43 Cumulative effect of accounting change, net of income taxes...... .00 (.01) .00 ------- ------- ------- Pro forma net income per share................................... $ .00 $ .53 $ .43 ======= ======= =======
- -------- (1) During the quarter ended August 3, 2002, the Company adopted FAS 145, "Rescission of FAS Statements No. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections," which requires that prior period financial statements be reclassified consistent with the new rule. During the year ended January 29, 2000, the Company had reported a $1.2 million after-tax gain on the early retirement of debt as an extraordinary item in accordance with the accounting rules in effect at that time. This item does not qualify as an extraordinary item pursuant to FAS 145; accordingly it has been reclassified to income before the cumulative effect of accounting change. (2) The goodwill amortization is not deductible for tax purposes and therefore has no related tax effect. 10 USE OF PROCEEDS We will not receive any proceeds from the sale by any selling securityholder of the notes or the underlying common stock. RATIO OF EARNINGS TO FIXED CHARGES The unaudited ratio of earnings to fixed changes for each of the periods indicated is as follows:
Three Months Fiscal Years Ended Ended --------------------------------------------- ------------- Jan. 31, Jan. 30, Jan. 29, Feb. 3, Feb. 2 May 5, May 4, 1998 1999 2000(2) 2001(1)(2) 2002(2) 2001 2002 -------- -------- -------- ---------- ------- ------ ------ Ratio of earnings to fixed charges(3).......... 1.86x .09x 3.16x 2.91x .93x 2.20x 2.20x Adjusted ratio of earnings to fixed charges(4). 1.48x 1.68x 2.86x 2.91x 1.50x 2.20x 2.20x Pro forma ratio of earnings to fixed charges(5) NA NA NA NA 1.08x NA 2.55x
- -------- (1) Fiscal year ended February 3, 2001 consisted of 53 weeks. (2) Results for fiscal year ended February 2, 2002 and the three months ended May 4, 2002 include the results of Lane Bryant, Inc., acquired August 16, 2001, from the date of acquisition. Results for fiscal years ended February 2, 2002, February 3, 2001, and January 29, 2000 and the three months ended May 4, 2002 and May 5, 2001 include the results of Catherines Stores Corporation, acquired January 7, 2000, and Modern Woman Holdings, Inc., acquired August 2, 1999, from the dates of their respective acquisitions. (3) In accordance with the rules and regulations of the SEC, for purposes of computing the ratios of earnings to fixed charges, earnings represent income from operations before fixed charges and income taxes, and fixed charges represent gross interest expense, including capitalized interest, and a share of rental expense, which is deemed to be representative of the interest factor. We would have had to generate additional earnings of $4,526,000 in the fiscal year ended February 2, 2002 and $30,989,000 in the fiscal year ended January 30, 1999 to achieve a ratio of 1:1. (4) For purposes of this adjusted ratio of earnings to fixed charges, earnings represent income (loss) before cumulative effect of accounting change, restructuring charge (credit), non-recurring gain from demutualization of insurance company, nonrecurring gain from asset securitization, fixed charges and income taxes, and fixed charges represent gross interest expense, including capitalized interest, and a share of rental expense, which is deemed to be representative of the interest factor. (5) All proceeds from the offering of the notes to be registered will be received by the selling noteholders. The net proceeds received by the Company from the sales of notes to the initial purchasers were used to retire $67.5 million of term notes, redeem $6.9 million of convertible notes called for redemption, paydown $3.5 million of revolving credit debt, purchase $18.3 million of treasury stock, and the balance of $49.3 million was invested in short-term securities. In connection with the sale of notes to the initial purchasers, the Company called for redemption all of its $96.0 million of 7.5% convertible notes due 2006. $89.1 million of those notes were converted to common stock. The pro forma ratio of earnings to fixed charges adjusts the historical ratio for the elimination of all interest expense associated with the Company's 7.5% convertible notes that were either converted or redeemed, the elimination of interest expense associated with the term-debt and revolving credit borrowings which were paid, and the addition of interest expense related to $77.8 million of the 4.75% Senior Convertible Notes, which were used to redeem the 7.5% convertible notes and pay the term debt and revolving credit borrowings. Borrowings used to pay the term debt were assumed to be outstanding from August 16, 2001, when the term debt was issued. The pro forma adjustments do not include any assumed earnings on the amount of proceeds ($49.3 million) invested in short-term investments. The pro forma ratio of earnings to fixed charges is not necessarily indicative of what the future ratio of earnings to fixed charges will be. 11 DESCRIPTION OF NOTES We issued the notes under an indenture dated as of May 28, 2002 between Charming Shoppes and Wachovia Bank, National Association, as trustee. The following summarizes some, but not all, of the provisions of the notes and the indenture. We urge you to read the indenture and the notes in their entirety because they, and not this description, define your rights as a holder of the notes. A copy of the form of indenture and the form of certificate evidencing the notes has been filed as an exhibit to the registration statement of which this prospectus is a part and is available to you upon request. In this "Description of Notes," when we refer to "Charming Shoppes," "we," "our," or "us," we are referring to Charming Shoppes, Inc., and not to any of its subsidiaries. General The notes are our unsecured general obligations and are ranked in right of payment as described under "--Ranking." The notes are convertible into our common stock as described under "--Conversion of the Notes." The notes were issued only in denominations of $1,000 or in integral multiples of $1,000. The notes bear interest at the annual rate of 4.75% from the date of original issuance or from the most recent payment date to which interest has been paid or duly provided for. Interest is payable semi-annually in arrears on June 1 and December 1, commencing on December 1, 2002 to holders of record at the close of business on the preceding May 15 and November 15, respectively, except: . that the interest payable upon redemption or repurchase, unless the date of redemption or repurchase is an interest payment date, will be payable to the person to whom principal is payable; and . as set forth in the next succeeding paragraph. In the case of any note, or portion of any note, that is converted into our common stock during the period from, but excluding, a record date for any interest payment date to, but excluding, that interest payment date, either: . if the note, or portion of the note, has been called for redemption on a redemption date that occurs during that period, or is to be repurchased on a repurchase date, as defined below, that occurs during that period, then we will not be required to pay interest on that interest payment date in respect of any note, or portion of any note, that is so redeemed or repurchased; or . if otherwise, any note or portion of any note that is not called for redemption that is submitted for conversion during that period, must be accompanied by funds equal to the interest payable on that interest payment date on the principal amount so converted. See "--Conversion of the Notes." Interest will be paid, at our option, either: . by check mailed to the address of the person entitled to the interest as it appears in the note register; provided that a holder of notes with an aggregate principal amount in excess of $10 million will, at the written election of the holder, be paid by wire transfer in immediately available funds; or . by transfer to an account maintained by that person located in the United States. Payments to The Depository Trust Company, New York, New York ("DTC"), will be made by wire transfer of immediately available funds to the account of DTC or its nominee. Interest will be computed on the basis of a 360-day year composed of twelve 30-day months. The notes will mature on June 1, 2012 unless earlier converted, redeemed or repurchased as described below. The indenture does not contain any financial covenants or restrictions on the payment of dividends, the 12 incurrence of indebtedness or our issuance or repurchase of securities. The indenture contains no covenants or other provisions to protect holders of the notes in the event of a highly leveraged transaction or a change in control of Charming Shoppes except to the extent described below under "--Repurchase at Option of Holders." Conversion of the Notes Any registered holder of notes may, at any time before the close of business on the business day before the date of repurchase, redemption or final maturity of the notes, as appropriate, convert the principal amount of any notes or portions thereof, in denominations of $1,000 or integral multiples of $1,000, into our common stock, at the conversion price set forth on the cover page of this prospectus, subject to adjustment as described below. Except as described below, no payment or adjustment will be made on conversion of any notes for interest accrued thereon or for dividends on any common stock issued upon conversion. If any notes not called for redemption are converted between a record date and the next interest payment date, those notes must be accompanied by funds equal to the interest payable on the next interest payment date on the principal amount so converted. We are not required to issue fractional shares of common stock upon conversion of the notes and, instead, will pay a cash adjustment based upon the market price of common stock on the last trading day before the date of conversion. In the case of notes called for redemption or tendered for repurchase, conversion rights will expire at the close of business on the business day preceding the day fixed for redemption or repurchase unless we default in the payment of the redemption or repurchase price. A note that the holder has elected to be repurchased may be converted only if the holder withdraws its election to have its notes repurchased in accordance with the terms of the indenture. The initial conversion price set forth on the cover page of this prospectus is subject to adjustment upon specified events, including: (1) the issuance of our common stock as a dividend or distribution on our common stock; (2) the issuance to all holders of common stock of rights or warrants to purchase common stock at a price per share less than the current market price; (3) specified subdivisions and combinations of our common stock; (4) the distribution to all holders of common stock of capital stock, other than common stock, or evidences of our indebtedness or of assets, including securities, but excluding those rights, warrants, dividends, and distributions referred to above or paid in cash; (5) a dividend or distribution consisting exclusively of cash to all holders of our common stock if the aggregate amount of these distributions combined together with (A) all other all-cash distributions made within the preceding 12 months in respect of which no adjustment has been made plus (B) any cash and the fair market value of other consideration payable in any tender offer by us for common stock concluded within the preceding 12 months in respect of which no adjustment has been made, exceeds 15% of our market capitalization; or (6) the purchase of our common stock pursuant to a tender offer made by us to the extent that the same involves an aggregate consideration that, together with (A) any cash and the fair market value of any other consideration payable in any other tender offer by us for our common stock expiring within the 12 months preceding such tender offer in respect of which no adjustment has been made plus (B) the aggregate amount of any such all-cash distributions referred to in (5) above to all holders of our common stock within the 12 months preceding the expiration of the tender offer for which no adjustment has been made, exceeds 15% of our market capitalization on the expiration of such tender offer. We may, instead of making any required adjustment in the conversion price under clause (4), (5) or (6), make proper provision so that each holder of notes who converts a note shall be entitled to receive upon 13 conversion, in addition to shares of common stock, the amount and kind of distributions that the holder would have been entitled to receive if the holder had converted the note immediately prior to the date fixed for determining the shareholders entitled to receive the distribution and, in the case of clauses (5) and (6), interest accrued as a consequence of the investment of the cash amount that the holder would have been so entitled to receive in U.S. Government obligations with a maturity of not more than three months. In the case of: . any reclassification or change of the outstanding shares of our common stock; . a consolidation, merger or combination involving us; or . a sale or conveyance to another person of our property and assets as an entirety or substantially as an entirety in which holders of common stock would be entitled to receive stock, other securities, other property or assets, including cash, in respect of or in exchange for all shares of our common stock. Then the holders of the notes then outstanding will generally be entitled thereafter to convert the notes into the same type of consideration that they would have owned or been entitled to receive upon such event had the notes been converted into common stock immediately before that event, assuming that a holder of notes would not have exercised any rights of election as to the consideration receivable in connection with that transaction. If we make a taxable distribution to holders of our common stock or in specified other circumstances requiring an adjustment to the conversion price, the holders of notes may, in some circumstances, be deemed to have received a distribution subject to U.S. income tax as a dividend. In some other circumstances, the absence of an adjustment to the conversion price may result in a taxable dividend to the holders of our common stock. See "Certain United States Federal Tax Considerations." We may from time to time, to the extent permitted by law, reduce the conversion price by any amount for any period of at least 20 days, in which case we will give at least 15 days' notice of the reduction. We may, at our option, make reductions to the conversion price, in addition to those described above, as our board deems advisable to avoid or diminish any income tax to holders of our common stock resulting from any dividend or distribution of stock, or rights to acquire stock, or from any event treated as dividends or distributions of, or rights to acquire, stock for income tax purposes. No adjustment in the conversion price will be required unless that adjustment would require an increase or decrease of at least 1% in the conversion price then in effect; however, any adjustment that would otherwise be required to be made will be carried forward and taken into account in any subsequent adjustment. Except as stated above, the conversion price will not be adjusted for the issuance of common stock or any securities convertible into or exchangeable for common stock or carrying the right to purchase any of the foregoing. Optional Redemption by Us The notes are not entitled to any sinking fund. At any time on or after June 4, 2007, we may redeem the notes on at least 20 days' notice as a whole or, from time to time, in part at the following prices, expressed as a percentage of the principal amount, together with accrued interest to, but excluding, the date fixed for redemption:
Redemption Period Price ------ ---------- Beginning June 4, 2007 and ending on May 31, 2008 102.38% Beginning June 1, 2008 and ending on May 31, 2009 101.90% Beginning June 1, 2009 and ending on May 31, 2010 101.43% Beginning June 1, 2010 and ending on May 31, 2011 100.95% Beginning June 1, 2011 and ending on May 31, 2012 100.48%
14 Any accrued interest becoming due on the date fixed for redemption will be payable to the holders of record on the relevant record date of the notes being redeemed. 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 integral multiples of $1,000 by lot, pro rata or by another method the trustee considers fair and appropriate. If a portion of a holder's notes is selected for partial redemption and that holder converts a portion of that holder's notes, the converted portion will be deemed to be of the portion selected for redemption. On and after the redemption date, unless we default in the payment of the redemption price, interest will cease to accrue on the principal amount of the notes or portions of notes called for redemption and for which funds have been set apart for payment. In the case of notes or portions of notes redeemed on a redemption date which is also a regularly scheduled interest payment date, the interest payment due on such date will be paid to the person in whose name the note is registered at the close of business on the relevant record date. Repurchase at Option of Holders You will have the right, at your option, to require us to repurchase all or any portion of your notes following the occurrence of a repurchase event. The repurchase price will be 100% of the principal amount of the notes submitted for repurchase, plus accrued and unpaid interest to, but excluding, the repurchase date. If a repurchase date is an interest payment date, then the interest payable on that date will be paid to the holder of record on the preceding record date. At our option, instead of paying the repurchase price in cash, we may pay the repurchase price in shares of our common stock, valued at 95% of the average of the closing prices for the five trading days immediately before and including the third trading day preceding the repurchase date. The repurchase price may be paid in shares of common stock only if the following conditions are satisfied: . such shares have been registered under the Securities Act or are freely transferable without such registration; . the issuance of such common stock does not require registration with or approval of any governmental authority under any state law or any other federal law, which registration or approval has not been made or obtained; . such shares have been approved for quotation on the Nasdaq National Market or listing on a national securities exchange; and . such shares will be issued out of our authorized but unissued common stock and, upon issuance, will be duly and validly issued and fully paid and non-assessable and free of any preemptive rights. A repurchase event will be considered to have occurred if one of the following "change in control" events occurs: . any person or group is or becomes the beneficial owner of more than 50% of the voting power of our outstanding securities entitled to generally vote for directors; . we consolidate with or merge into any other person or any other person merges into us and, as a result, our outstanding common stock is changed or exchanged for other assets or securities, unless our shareholders immediately before the transaction own, directly or indirectly, immediately following the transaction more than 50% of the combined voting power of the person resulting from the transaction, or unless such transaction is effected solely to change our jurisdiction of incorporation; . we convey, transfer or lease all or substantially all of our assets to any person other than our subsidiaries, unless our shareholders immediately before the transaction own, directly or indirectly, 15 immediately following the transaction more than 50% of the combined voting power of the transferee person; or . we are liquidated or dissolved or adopt a plan of liquidation or dissolution other than in a transaction which complies with the provisions described under "--Consolidation, Merger and Sale of Assets." However, a change in control will not be deemed to have occurred if either: . the last sale price of our common stock for any five trading days within (A) the period of ten consecutive trading days immediately after the later of the change in control or the public announcement of the change in control, in the case of a change in control resulting solely from a change in control under the first bullet point above; or (B) the period of ten consecutive trading days immediately preceding the change in control, in the case of a change in control under the second and third bullet points above, is at least equal to 105% of the conversion price in effect on such day; or . in the case of a merger or consolidation, at least 90% of the consideration excluding cash payments for fractional shares in the merger or consolidation constituting the change in control consists of common stock traded on a United States national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted when issued or exchanged in connection with such change in control) and as a result of such transaction or transactions the notes become convertible solely into such common stock. We are required to mail you a notice no later than 10 business days after the occurrence of a repurchase event. The notice must describe, among other things, the repurchase event, your right to elect repurchase of the notes, and the repurchase date. We must deliver a copy of the notice to the trustee. You may exercise your repurchase rights by delivering written notice to the trustee. The notice must be accompanied by the notes duly endorsed for transfer to us. You must deliver the exercise notice on or before the 30th day after the date of our notice of such repurchase event (the "Repurchase Date"). Any repurchase notice may be withdrawn by the holder by a written notice of withdrawal delivered to us and the trustee before the close of business on the business day prior to the Repurchase Date. The interpretation of the phrase "all or substantially all" used in the definition of change in control would likely depend on the facts and circumstances existing at such time. As a result, there may be uncertainty as to whether or not a sale or transfer of "all or substantially all" assets has occurred. As a result, we cannot assure you how a court would interpret this phrase under applicable law if you elect to exercise your rights following the occurrence of a transaction which you believe constitutes a transfer of "all or substantially all" of our assets. We may not have sufficient cash funds to repurchase the notes upon a repurchase event. We may elect, subject to certain conditions, to pay the repurchase price in common stock. Our debt agreements may prohibit us from paying the repurchase price in either cash or common stock. If we are prohibited from repurchasing the notes, we could seek consent from our lenders to repurchase the notes. If we are unable to obtain their consent, we could attempt to refinance the notes. If we were unable to obtain a consent or refinance, we would be prohibited from repurchasing the notes. If we were unable to repurchase the notes upon a repurchase event, it would result in an event of default under the indenture. An event of default under the indenture could result in a further event of default under our other then-existing debt. In addition, the occurrence of the repurchase event may be an event of default under our other debt. The change in control feature may not necessarily afford you protection in the event of a highly leveraged transaction, a change in control or similar transactions involving us. We could, in the future, enter into transactions, including recapitalizations, that would not constitute a change in control but that would increase the amount of our senior indebtedness or other debt. We are not prohibited from incurring senior indebtedness or debt under the indenture. If we incur significant amounts of additional debt, this could have an adverse effect on 16 our ability to make payments on the notes. In addition, our management could undertake leveraged transactions that could constitute a change in control. Our board does not have the right under the indenture to limit or waive the repurchase right in the event of these types of leveraged transaction. The requirement to repurchase notes upon a repurchase event could delay, defer or prevent a change in control. As a result, the repurchase right may discourage: . a merger, consolidation or tender offer; and . the assumption of control by a holder of a large block of our shares. The repurchase feature was a result of negotiations between us and the initial purchasers. The repurchase feature is not the result of any specific effort to accumulate shares of common stock or to obtain control of us by means of a merger, tender offer or solicitation, or part of a plan by us to adopt a series of anti-takeover provisions. We have no present intention to engage in a transaction involving a change in control, although it is possible that we may decide to do so in the future. The Exchange Act and the rules thereunder require the distribution of specific types of information to securityholders in the event of issuer tender offers. These rules may apply in the event of a repurchase. We will comply with these rules to the extent applicable. Ranking The notes are our senior unsecured obligations and rank equally with all of our existing and future senior indebtedness. However, the notes are effectively subordinated to all existing and future obligations (including obligations to trade creditors) of our subsidiaries, and to any of our secured indebtedness to the extent of the collateral securing such indebtedness. See "Description of Other Indebtedness--Loan and Security Agreement." As of August 3, 2002, we had outstanding letters of credit totaling $75.7 million under our revolving credit facility. No other amounts were outstanding under our revolving credit agreement as of that date. Satisfaction and Discharge We may be discharged from our obligations on the notes if they mature within one year or will be redeemed within one year, and we deposit with the trustee enough cash and/or U.S. government obligations to pay all the principal, premium, if any, and interest due to the stated maturity date or redemption date of the notes. Defeasance The indenture also contains a provision that permits us to elect: . to be discharged from all of our obligations, subject to limited exceptions, with respect to the notes then outstanding; and/or . to be released from our obligations under the covenants relating to the required offer to repurchase upon a repurchase event, maintenance of our corporate existence, reports to holders, and certain other obligations. To make either of the above elections, we must deposit in trust with the trustee enough money to pay in full the principal, premium, if any, and interest on the notes. This amount may be made in cash and/or U.S. government obligations. As a condition to either of the above elections, we must deliver to the trustee an opinion of counsel that the holders of the notes will not recognize income, gain or loss for Federal income tax purposes as a result of the action. If we elect to be discharged from all of our obligations as outlined above in the first bullet point in this section, the holders of the notes will not be entitled to the benefits of the indenture, except for registration of transfer and exchange of notes and replacement of lost, stolen or mutilated notes. 17 Transfer and Exchange We issued the notes in registered form, without interest coupons. Notes may be transferred or exchanged at the office of the security registrar in accordance with the indenture. We will not impose a service charge for any transfer or exchange, but we may require holders to pay any tax or other governmental charges associated with any transfer or exchange. In the event of any potential redemption of the notes, we will not be required to: . issue, authenticate or register the transfer of or exchange any note during a period beginning at the opening of business 10 business days before the mailing of a notice of redemption and ending at the close of business on the day of the mailing; or . register the transfer of or exchange any note selected for redemption, in whole or in part, except the unredeemed portion of notes being redeemed in part. Consolidation, Merger and Sale of Assets We may not consolidate with or merge into any other person, in a transaction in which we are not the surviving corporation, or convey, transfer or lease our properties and assets substantially as an entirety to, any person, unless: . the successor, if any, is a U.S. or a District of Columbia corporation, limited liability company, partnership, trust or other business entity; . the successor assumes our obligations under the notes, the indenture and the registration rights agreement; and . immediately after giving effect to the transaction, no default or event of default will have occurred and be continuing, and certain other conditions are met. Events of Default The indenture defines an event of default with respect to the notes as one or more of the following events: (1) our failure to pay principal of or any premium on the notes when due; (2) our failure to pay any interest on the notes when due, if such failure continues for 30 days; (3) our failure to perform any other covenant in the indenture, if such failure continues for 90 days after the notice required in the indenture; (4) any indebtedness under any bonds, debentures, notes or other evidences of indebtedness for money borrowed, or any guarantee thereof, by us or any of our significant subsidiaries, in an aggregate principal amount in excess of $50 million is not paid when due either at its stated maturity or upon acceleration thereof, and such indebtedness is not discharged, or such acceleration is not rescinded or annulled within a period of 30 days after notice as provided in the indenture; or (5) our bankruptcy, insolvency or reorganization (which in the case of a proceeding instituted against us is not dismissed within 90 days). If an event of default, other than an event of default described in the last clause above, occurs and continues, either the trustee or the holders of at least 25% in aggregate principal amount of the outstanding notes, by written notice to us and the trustee, may declare the principal amount, including any accrued and unpaid interest on the notes, to be due and payable. Upon such declaration, such principal amount, premium, if any, and accrued and unpaid interest and liquidated damages, if any, will become immediately due and payable, notwithstanding anything contained in the indenture or the notes to the contrary. If an event of default described in the last clause above occurs, the principal amount of all the notes will automatically become immediately due and payable. After acceleration but before a judgment or decree of the money due in respect of the notes has been obtained, the holders of a majority in aggregate principal amount of the outstanding notes may rescind such 18 acceleration and its consequences, except default in the payment of principal or interest on the notes (other than the nonpayment of principal or interest on the notes that has become due solely by virtue of an acceleration that has been duly rescinded as provided above). Other than the duty to act with the required care during an event of default, the trustee will not be obligated to exercise any of its rights or powers at the request of the holders unless the holders offer the trustee reasonable indemnity. Generally, the holders of a majority in aggregate principal amount of the notes will have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee. If a default or event of default occurs and notice is delivered to the trustee, the indenture requires the trustee to mail a notice of default or event of default to each holder within 60 days of the occurrence of such default or event of default. However, the trustee may withhold from the holders notice of any continuing default or event of default (except a default or event of default in the payment of principal or interest on the notes) if it determines in good faith that withholding notice is in their best interest. A holder will have the right to begin a proceeding under the indenture, or for the appointment of a receiver or a trustee, or for any other remedy under the indenture only if: (1) the holder gives to the trustee written notice of a continuing event of default; (2) holders of at least 25% in aggregate principal amount of notes then outstanding made a written request to the trustee to pursue the remedy; (3) such holder or holders offer to the trustee indemnity satisfactory to the trustee against any loss, liability or expense; (4) the trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the holders of a majority in aggregate principal amount of the notes then outstanding do not give the trustee a direction inconsistent with the request. Holders may, however, sue to enforce the payment of principal, premium or interest on or after the due date or their right to convert without following the procedures listed in (1) through (5) above. We will furnish the trustee an annual statement by our officers as to whether or not, to the officer's knowledge, we are in default in the performance of the indenture and, if so, specifying all known defaults. Modification and Waiver We and the trustee may make certain modifications and amendments to the indenture or the notes without notice to or the consent of any holder, including modifications or amendments to comply with the merger provisions described in the indenture, to provide for uncertificated notes in addition to or in place of certificated notes, to comply with the provisions of the Trust Indenture Act, to appoint a successor trustee, to cure any ambiguity, defect or inconsistency, or to make any other change that does not adversely affect the rights of the holders. We may make modifications and amendments to the indenture with the consent of the holders of a majority in aggregate principal amount of the outstanding notes affected by the modification or amendment. However, we may not make any modification or amendment without the consent of the holder of each outstanding note affected by the modification or amendment if such modification or amendment would: . change the stated maturity of the notes; . reduce the principal, premium, if any, or interest on the notes; 19 . change the place of payment from New York, New York or the currency in which the notes are payable; . waive a default in payment of the principal of or interest on any note (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration); . impair the right to sue for any payment after the stated maturity or redemption date; . modify the ranking of the notes in a materially adverse manner to the holders; . adversely affect the right to convert the notes other than as provided in or under the indenture; or . change the provisions in the indenture that relate to modifying or amending the indenture. Generally, the holders of not less than a majority of the aggregate principal amount of the outstanding notes may, on behalf of all holders of the notes, waive any past default or event of default unless: . we fail to pay principal, premium or interest on any note when due (other than on account of acceleration that may be rescinded by the majority holders); . we fail to convert any note into common stock; or . we fail to comply with any of the provisions of the indenture that would require the consent of the holder of each outstanding note affected. Any notes held by us or by any persons directly or indirectly controlling or controlled by or under direct or indirect common control with us will be disregarded (from both the numerator and denominator) for purposes of determining whether the holders of a majority in principal amount of the outstanding notes have consented to a modification, amendment or waiver of the terms of the indenture. Notices Notices to holders will be given by mail to the addresses of the holders in the security register. Governing Law The indenture and the notes are governed by, and construed under, the law of the State of New York, without regard to conflicts of laws principles. Regarding the Trustee Wachovia Bank, National Association is the trustee under the indenture. The trustee will be permitted to deal with us and any affiliate of ours with the same rights as if it were not trustee. However, under the Trust Indenture Act, if the trustee acquires any conflicting interest and there exists a default with respect to the notes, the trustee must eliminate such conflicts or resign. Wachovia Bank, National Association is an affiliate of First Union Securities, Inc., an initial purchaser of the notes. Pursuant to the Trust Indenture Act of 1939, if an event of default were to occur with respect to the notes, Wachovia Bank, National Association might be deemed to have a conflicting interest by virtue of being an affiliate of one of the initial purchasers of the notes. In that event, Wachovia Bank, National Association would be required to resign as a trustee or eliminate the conflicting interest. The holders of a majority in principal amount of all outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy or power available to the trustee. However, any such direction may not conflict with any law or the indenture, may not be unduly prejudicial to the rights of another holder or the trustee and may not involve the trustee in personal liability. 20 We have initially appointed the trustee as the security registrar, paying agent and conversion agent. We may designate additional registrars, paying or conversion agents or change registrars, paying or conversion agents. However, we will be required to maintain a paying agent in the place of payment for the notes. Purchase and Cancellation All notes surrendered for payment, redemption, registration of transfer or exchange or conversion will, if surrendered to any person other than the trustee, be delivered to the trustee. All notes delivered to the trustee will be cancelled promptly by the trustee. No notes will be issued in exchange for any notes cancelled as provided in the indenture. We may, to the extent permitted by law, purchase notes in the open market or by tender offer at any price or by private agreement. Any notes purchased by us may, to the extent permitted by law, be reissued or resold or may, at our option, be surrendered to the trustee for cancellation. Any notes surrendered for cancellation may not be reissued or resold and will be promptly cancelled. Replacement Notes We will replace mutilated, destroyed, stolen or lost notes at your expense upon delivery to the trustee of the mutilated notes, or evidence of the loss, theft or destruction of the notes satisfactory to the trustee and us. In the case of a lost, stolen or destroyed note, indemnity satisfactory to the trustee and us may be required at the expense of the holder of such note before a replacement note will be issued. No Recourse Against Others None of our directors, officers, employees, shareholders or affiliates, as such, will have any liability or any obligations under the notes or the indenture or for any claim based on, in respect of or by reason of such obligations or the creation of such obligations. Each holder by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for the notes. 21 DESCRIPTION OF OTHER INDEBTEDNESS The following summarizes the material provisions of certain of our indebtedness currently outstanding. The capitalized terms used below and not otherwise defined in this prospectus have the definitions applied to them within our loan and security agreement. Loan and Security Agreement In connection with the acquisition of Lane Bryant, we replaced our existing $150 million revolving credit facility with a $375 million loan and security agreement. We also terminated two existing $20 million and $10 million revolving credit facilities. The loan and security agreement consists of a $300.0 million four year revolving credit facility and a $75.0 million three year term-loan. The loan and security agreement also enables us to have issued up to $150 million of letters of credit for overseas purchases of merchandise. During the second quarter of fiscal 2003 we repaid in full amounts then outstanding under the term-loan totaling $67.5 million. As of August 3, 2002, we had outstanding letters of credit totaling $75.7 million under our revolving credit facility. As of that date, we had no cash borrowings outstanding under the revolving credit facility and had unused availability under the facility of $166.5 million. The availability of borrowings under our revolving credit facility is subject to limitations based on eligible inventory and the value of certain real property. The credit facility is secured by our general assets, except for certain assets related to our credit card securitization program, certain real properties and equipment subject to other mortgages, our interest in our joint venture with Monsoon plc, and the assets of our non-U.S. subsidiaries. The interest rate on borrowings under the revolving credit facility ranges from Prime to Prime plus .75% per annum for Prime Rate Loans, and LIBOR plus 2.0% to LIBOR plus 2.75% per annum for Eurodollar Rate Loans, and is determined quarterly, based on our Leverage Ratio or excess availability, as defined in the loan and security agreement. The interest rate on borrowings under the three year term-loan that was repaid was 11.5%. The loan and security agreement includes limitations on sales and leasebacks, the incurrence of additional liens and debt, capital lease financing, and other limitations. The loan and security agreement also requires, among other things, that we not pay dividends on our common stock, under certain circumstances, and that we maintain an Adjusted Tangible Net Worth of $228.0 million (subject to adjustment). As of August 3, 2002, we were not in violation of any of the covenants included in the loan and security agreement. 22 DESCRIPTION OF CAPITAL STOCK Pursuant to our articles of incorporation, our authorized capital stock consists of 301,000,000 shares, of which: . 1,000,000 shares are designated as preferred stock, of which 500,000 shares of Participating Series A Junior Preferred Stock (the "Series A Preferred Shares"), $1.00 par value, have been authorized, none of which are outstanding; and . 300,000,000 shares are designated as common stock, $0.10 par value, of which 122,342,213 shares are outstanding as of August 3, 2002. Common Stock Holders of common stock are entitled to one vote per share on all matters to be voted upon by shareholders generally, including the election of directors. Shareholders are entitled to receive such dividends as may be declared from time to time by our board out of funds legally available for dividends and in the event of our liquidation, dissolution or winding up, to share ratably in all assets remaining after the payment of liabilities and any liquidation preference associated with outstanding preferred stock. The holders of our common stock have no cumulative voting rights, no preemptive rights, and no conversion rights. Our common stock outstanding as of the date of this prospectus is fully paid and nonassessable. The transfer agent for our common stock is American Stock Transfer and Trust Company. Preferred Stock The board is authorized under our articles of incorporation to provide, without further shareholder action, for the issuance of preferred stock in one or more series with such designations, rights, qualifications, preferences, restrictions, and special or relative rights as may be set forth in resolutions adopted by our board. Accordingly, our board may issue preferred stock with dividend, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of common stock. For example, the issuance of series preferred stock could result in a class of securities outstanding that will have certain preferences with respect to dividends and in liquidation over our common stock, may enjoy certain voting rights, contingent or otherwise, in addition to that of our common stock, and could result in the dilution of the voting rights, net income per share, and net book value of our common stock. Except for the Series A Preferred Shares (as described below), we have not authorized for issuance any preferred stock. Series A Preferred Shares In connection with the adoption of the Shareholder Rights Plan described below, our board authorized 500,000 Series A Preferred Shares. As of the date of this prospectus, there were no Series A Preferred Shares outstanding. As of the date of this prospectus, holders of Series A Preferred Shares are entitled to 300 votes per share on all matters to be voted upon by our shareholders. If we, at any time after the date of this prospectus: (i) declare a dividend on common stock payable in shares of common stock; (ii) subdivide the outstanding shares of common stock; or (iii) combine the outstanding shares of common stock into a smaller number of shares (with each of (i)-(iii) being a "Preferred Adjustment Event"), then, in each such case, the number of votes per share to which a holder of Series A Preferred was entitled immediately before such event will be adjusted by multiplying such number by a fraction, the numerator of which will be the number of shares of common stock outstanding immediately after such event and the denominator of which will be the number of shares of common stock outstanding immediately before such event (the "Preferred Adjustment Factor"). 23 Dividends on Series A Preferred Shares accrue quarterly, on a cumulative basis and will be paid out of funds legally available for such purpose. As of the date of this prospectus, the rate of dividends payable on the first day of March, June, September and December or such other quarterly date as may be specified by our board will be in an amount per Series A Preferred Share equal to the greater of (i) $1.50 or (ii) subject to the provision for adjustment set forth below, 300 times the aggregate per share amount of cash dividends, and 300 times the aggregate per share amount of all non-cash dividends or other distributions, other than a dividend payable in shares of common stock or a subdivision of the outstanding shares of common stock, declared on our common stock since the immediately preceding quarterly dividend payment date, or with respect to the first quarterly dividend payment date, since the first issuance of any share or fraction of a share of the Series A Preferred Shares. If a Preferred Adjustment Event occurs at any time after the date of this offering memorandum, the amount of dividends specified in (ii) to which holders of Series A Preferred Shares were entitled immediately before such event will be adjusted by multiplying such number by the Preferred Adjustment Factor. In the event of our liquidation, dissolution or winding up, holders of Series A Preferred Shares will be entitled to receive the greater of (i) $1.00 per Series A Preferred Share, plus accrued dividends to the date of distribution, whether or not earned or declared or (ii) an amount per share, subject to the provision for adjustment set forth below, equal to 300 times the aggregate amount to be distributed per share to the holders of common stock. If a Preferred Adjustment Event occurs any time after the date of this prospectus, then the liquidation payment contemplated by (ii) will be adjusted by multiplying such amount by the Preferred Adjustment Factor. If the dividends upon the Series A Preferred Shares are in arrears in an amount equal to six full quarterly dividends thereon, the holders of such series will be entitled to elect two directors. Such voting rights will continue until all accumulated and unpaid dividends have been paid or set aside for such purpose. At any time when such a right to elect directors has vested, we may, and upon the written request of not less than 20% of the then outstanding total number of Series A Preferred Shares having the right to elect directors in such circumstances will, call a special meeting of holders of such Series A Preferred Shares for the election of directors; provided that we will not be required to call a special meeting if the request is received less than 120 days before the next scheduled annual meeting or special meeting of the shareholders. The Series A Preferred Stock is not redeemable, and will rank junior with respect to payment of dividends and on liquidation to all other series of our preferred stock, except to the extent that any such series specifically provides that it will rank on parity with or junior to the Series A Preferred Stock. Shareholder Rights Plan In February 1999, our board adopted a Shareholder Rights Plan to replace our prior Shareholder Rights Plan. Our board also authorized an increase of the Series A Preferred Shares from 300,000 shares to 500,000 shares and declared a dividend of one Right for each outstanding share of our common stock, payable as of the close of business on April 26, 1999 to shareholders of record as of the close of business on April 12, 1999. Each Right entitles the registered holder to purchase from us one three-hundredth of a share of Series A Preferred Stock, or, under certain circumstances, a combination of securities and assets of equivalent value, at a Purchase Price of $20.00 per share of common stock or Right, subject to adjustment. The Purchase Price may be paid in cash or, if we permit, by the delivery of Rights under certain circumstances. The description and terms of the Rights are set forth in an Amended and Restated Rights Agreement (the "Rights Agreement") between us and American Stock Transfer & Trust Company, as Rights Agent. Each capitalized term in this "--Shareholder Rights Plan" has the meaning assigned to it within the Rights Agreement. Initially, ownership of the Rights will be evidenced by the certificates representing shares of our common stock then outstanding, and no separate Rights certificates will be distributed. The Rights will separate from shares of our common stock and a "Distribution Date" will occur upon the earlier of (i) 10 days following a 24 public announcement that (subject to certain exceptions) a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of shares of our outstanding common stock (the "Stock Acquisition Date") or (ii) the close of business on such date as may be fixed by our board, after the commencement of a tender or exchange offer that would result in a person or group beneficially owning 20% or more of our outstanding common stock. Until the Distribution Date, (i) the Rights will be evidenced by the certificates representing shares of our common stock and will be transferred with and only with such certificates; (ii) certificates issued after April 26, 1999 will contain a notation incorporating the Rights Agreement by reference; and (iii) the surrender for transfer of any certificates for our common stock outstanding will also constitute the transfer of the Rights associated with the common stock represented by such certificate. The Rights will not be exercisable until the Distribution Date and will expire at the close of business on April 25, 2009, unless earlier redeemed by us as provided in the Rights Agreement. If at any time following the Distribution Date a person becomes an Acquiring Person, each holder of a Right will thereafter have the right to receive, upon exercise, our common stock (or, in certain circumstances, cash, property or other of our securities) having a value equal to two times the exercise price of the Right. Instead of requiring payment of the purchase price upon exercise of the Rights following any such event, we may permit the holders simply to surrender the Rights under certain circumstances in which event they will be entitled to receive our common stock (and other property, as the case may be) with a value of 50% of what could be purchased by payment of the full purchase price. Notwithstanding any of the foregoing, all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by the Acquiring Person will be null and void. However, Rights are not exercisable until such time as the Rights are no longer redeemable by us as set forth in the Rights Agreement. If at any time following the Stock Acquisition Date, (i) we are acquired in a merger or other business combination transaction in which we are not the surviving corporation (other than a merger that is described, or that follows a tender offer or exchange offer described, above) or (ii) 50% or more of our assets or earning power are sold or transferred, each holder of a Right (except Rights that previously have been voided) will thereafter have the right to receive, upon exercise, common shares of the acquiring company having a value equal to two times the exercise price of the Right. Again, provision is made to permit the surrender of the Rights in exchange for one-half of the value otherwise purchasable. The events set forth in this paragraph and in the preceding paragraph are referred to as the "Triggering Events." The purchase price payable, and the number of shares of our common stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution as described in the Rights Agreement. With certain exceptions, no adjustment in the purchase price will be required until cumulative adjustments amount to at least 1% of the purchase price. No fractional share of common stock will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the common stock on the last trading date prior to the date of exercise. At any time until ten days following the Stock Acquisition Date, we may redeem the Rights in whole, but not in part, at a redemption price of $.01 per Right, subject to adjustment. The ten-day period may be extended by our board so long as the Rights are still redeemable. Immediately upon the action of the board ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the redemption price. Anti-takeover Provisions of Applicable Pennsylvania Law and our Articles of Incorporation and Bylaws Certain provisions of the Pennsylvania Business Corporation Law of 1988, as amended (the "PBCL"), and our articles of incorporation and bylaws, summarized in the following paragraphs, may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a shareholder might consider in his or her best interest, including those attempts that might result in a premium over the market price for the shares of common stock held by shareholders. 25 Pennsylvania Business Corporation Law Generally, Subchapters 25E, F, G and H of the PBCL place certain procedural requirements and establish certain restrictions upon the acquisition of voting shares of a corporation which would entitle the acquiring person to cast or direct the casting of a certain percentage of votes in an election of directors. As a consequence of amendments to our bylaws that were effected in 1984 and 1990, only Subchapter 25F of the PBCL applies to us. Subchapter 25F applies to a transaction between a publicly traded corporation and an interested shareholder (defined generally to be any beneficial owner of 20% or more of the corporation's voting stock). Subchapter 25F prohibits such a corporation from engaging in a "business combination" (as defined in the PBCL) with an interested shareholder unless (i) the board of such corporation gives approval to the proposed transaction or gives approval to the interested shareholder's acquisition of 20% of the shares entitled to vote in an election of directors of such corporation, in either case before the date on which the shareholder first becomes an interested shareholder (the "Share Acquisition Date"); (ii) the interested shareholder owns at least 80% of the stock of such corporation entitled to vote in an election of directors and, no earlier than three months after such interested shareholder reaches such 80% level, the majority of the remaining shareholders approve the proposed transaction and shareholders receive a minimum "fair price" for their shares (as set forth in the PBCL) in the transaction and the other conditions of Subchapter 25F are met; (iii) holders of all outstanding shares of common stock approve the transaction; (iv) no earlier than five years after the Share Acquisition Date, a majority of the remaining shares entitled to vote in an election of directors approve the transaction; or (v) no earlier than five years after the Share Acquisition Date, a majority of all the shares approve the transaction, all shareholders receive a minimum "fair price" for their shares (as set forth in the PBCL) and the other conditions of Subchapter 25F are met. Under certain circumstances, Subchapter 25F makes it more difficult for an interested shareholder to effect various business combinations with a corporation for a five-year period following a Share Acquisition Date. The provisions of Subchapter 25F should encourage persons interested in acquiring us to negotiate in advance with our board, since the higher shareholder voting requirements would not be invoked if such person, before acquiring 20% of our common stock, obtains the approval of our board for such acquisition or for the proposed business combination transaction (unless such person acquires 80% or more of our voting shares in such transaction, excluding certain shares as described above). Subchapter 25F will not prevent a hostile takeover of us. It may, however, make more difficult or discourage a takeover of us or the acquisition of control of us by a significant shareholder and thus the removal of incumbent management. Some shareholders may find this disadvantageous in that they may not be afforded the opportunity to participate in takeovers that are not approved as required by Subchapter 25F but in which shareholders might receive, for at least some of their shares, a substantial premium above the market price at the time of a tender offer or other acquisition transaction. Articles of Incorporation and Bylaws Provisions Certain provisions of our articles of incorporation and bylaws may have the effect of discouraging unilateral tender offers or other attempts to takeover and acquire our business. These provisions may discourage some potentially interested purchasers from attempting a unilateral takeover bid for us on terms which some shareholders might favor. These provisions may also reduce the likelihood of a change in the management or voting control of us without the consent of our then incumbent board. The articles of incorporation and bylaws provide for a classified board consisting of three classes as nearly equal in number as practicable. The members of each class are elected for a period of three years, and the term of at least one class will expire in each year. The terms of the existing three classes expire in 2003, 2004 and 2005, respectively. Our board, a class of our board, or any individual director may be removed from office without assigning cause by the vote of the holders of at least 80% of the combined voting power of the then outstanding shares of stock of all classes and series of our common stock then entitled to vote generally in the election of directors, voting together as a single class ("Voting Power"). 26 Our articles of incorporation provide that at least 80% of the Voting Power will be required to approve any "business combination" with an "interested shareholder" unless our board will have approved by resolution, before the time such person became an "interested shareholder," a memorandum of understanding or agreement with the "interested shareholder" setting forth, in general, the substance of the terms of the "business combination" transaction to be consummated. The term "business combination" is broadly defined in our articles of incorporation to include, among other things, the following transactions involving us and an "interested shareholder": (i) specified mergers, consolidations, sales or similar dispositions involving $5 million or more in consideration; (ii) issuances or transfers by us of any of our securities involving $5 million or more in consideration; (iii) liquidation or dissolution proposals; and (iv) reclassifications or recapitalizations. The term "interested shareholder" is broadly defined in our articles of incorporation to include, among other things, a person or persons, and his, her, its or their affiliates and associates, who acquire or beneficially own 10% or more of our Voting Power, unless in certain circumstances such Voting Power has been maintained for more than ten years. A majority of our board who are disinterested (i.e., unaffiliated with an "interested shareholder" and on a board before such person became an "interested shareholder") have the power and duty to determine "interested shareholder," "Voting Power," "affiliation," "association," and "business combination" matters, as such terms are defined or provided for in our articles of incorporation. At least 80% of the Voting Power is required to alter, amend or repeal, or adopt provisions inconsistent with, the provisions of our articles of incorporation described in the two preceding paragraphs. Our articles of incorporation do not permit cumulative voting in the election of directors. Under cumulative voting, it is possible for representation on a class of our board to be obtained by an individual or group of individuals which owns less than a majority of the Voting Power. Our bylaws establish advance notice procedures with regard to the nomination, other than by or at the direction of our board or a committee thereof, of candidates for election as directors. These procedures generally provide that the notice of proposed shareholder nominations for the election of directors must be given in writing to our Secretary not later than the date on which a shareholder proposal would be required to be submitted to us in order to be set forth in our proxy statement, in accordance with Exchange Act rules. Such notice generally must (i) identify the name and address of the nominating shareholder and nominee; (ii) contain representations concerning the nominating shareholder's ownership of common stock and intention to appear at the meeting and make the nomination; and (iii) include all relevant information concerning the nominee and his or her relationship or transactions with us that are required to be disclosed in the proxy statement pursuant to Exchange Act rules. 27 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES The following is a summary of certain material U.S. federal income tax considerations relating to the purchase, ownership and disposition of the notes and common stock into which the notes may be converted, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations issued thereunder, Internal Revenue Service ("IRS") rulings and judicial decisions now in effect, all of which are subject to change or differing interpretation, possibly with retroactive effect. This summary applies only to beneficial owners that hold notes and our common stock as "capital assets" (within the meaning of section 1221 of the Code). This discussion does not address all of the tax considerations applicable to an investor's particular circumstances or to investors that may be subject to special tax rules, such as banks or other financial institutions, holders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, expatriates, foreign persons or entities (except to the extent specifically set forth below), dealers in securities or currencies, partnerships or other entities classified as partnerships for U.S. federal income tax purposes, U.S. Holders whose financial currency is not the U.S. dollar, persons that hold notes as a position in a hedging transaction, "straddle" or "conversion transaction" for tax purposes or persons deemed to sell notes or our common stock under the constructive sale provisions of the Code. We have not sought any ruling from the IRS or an opinion of counsel with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS, or a court, will agree with these statements and conclusions. This summary does not discuss the effect of the federal estate or gift tax laws (except as set forth below with respect to Non-U.S. Holders) or the tax laws of any foreign, state, local or other jurisdiction. THE FOLLOWING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY. For purposes of the following discussion, the term "U.S. Holders" means beneficial owners of notes or common stock that are, for U.S. federal income tax purposes, (i) individual citizens or residents of the U.S.; (ii) corporations (or other entities treated as corporations for U.S. federal income tax purposes) created or organized in or under the laws of the U.S. or of any political subdivision thereof; (iii) estates, the income of which is subject to U.S. federal income taxation regardless of source; or (iv) trusts subject to the primary supervision of a U.S. court and the control of one or more U.S. persons and certain trusts in existence on August 20, 1996 that elect to be treated as United States persons, as such term is defined in the Code. The term "Non-U.S. Holders" means holders of the notes or common stock that are nonresident aliens, or corporations, estates or trusts that are not U.S. Holders. If a partnership is a beneficial owner of a note or our common stock, the treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A beneficial owner of notes or our common stock that is a partnership, or is treated as a partnership for U.S. federal income tax purposes, and persons who are, or who are treated as, partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of the acquisition, ownership and disposition of the notes and our common stock. 28 U.S. Holders Taxation of Interest Interest paid on the notes will be included in the income of a U.S. Holder as ordinary income at the time it is treated as received or accrued, in accordance with such holder's regular method of accounting for U.S. federal income tax purposes. Sale, Exchange, Redemption or Other Taxable Disposition of the Notes Upon a sale, exchange, redemption or other taxable disposition of a note, a U.S. Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash proceeds and the fair market value of any property received on the sale or redemption (except to the extent such amount is attributable to accrued interest income not previously included in income, which will be taxable as ordinary income, or is attributable to accrued interest that was previously included in income, which amount may be received without generating further income) and (ii) the holder's adjusted tax basis in the note. A U.S. Holder's adjusted tax basis in a note generally will equal the cost of the note to the holder increased by the amount of any market discount taken into income as ordinary income (as discussed below) or decreased by any bond premium previously amortized with respect to the note (as discussed below). Such capital gain or loss will be long-term capital gain or loss if the U.S. Holders' holding period in the note is more than one year at the time of sale, exchange or redemption. Long-term capital gains recognized by certain noncorporate U.S. Holders, including individuals, will generally be subject to a maximum rate of tax of 20%. The deductibility of capital losses is subject to limitations. Market Discount The market discount rules discussed below apply to any note purchased after its original issuance at a price that is less than its principal amount, as well as to any note purchased at its original issuance for an amount that is less than the price at which a substantial amount of the notes were originally sold. A U.S. Holder who purchases a note at a market discount generally will be required to treat any principal payments on, or any gain on the disposition or maturity of, such note as ordinary income to the extent of the accrued market discount (not previously included in income) at the time of such payment or disposition. In general, market discount is the amount by which the note's principal amount exceeds the holder's tax basis in the note immediately after the note is acquired. A note is not treated as purchased at market discount, however, if the market discount is less than 0.25 percent of the principal amount of the note multiplied by the number of complete years to maturity from the acquisition date. Market discount on a note will accrue on a straight-line basis, unless the holder elects to accrue such discount on a constant yield to maturity basis. This election is irrevocable and applies only to the note for which it is made. A holder may also elect to include market discount in income currently as it accrues. This election, once made, applies to all market discount obligations acquired on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. If a U.S. Holder disposes of a note acquired at a market discount in any nontaxable transaction (other than certain nonrecognition transactions referred to in section 1276(d) of the Code), accrued market discount will be includible in the U.S. Holder's income as ordinary income as if the U.S. Holder had sold the note at its fair market value. A U.S. Holder who has not elected to include market discount in income on a current basis will be required to defer the deduction of a portion of the interest expense attributable to any debt incurred or continued to purchase or carry a note with market discount until the maturity of the note, or, in certain circumstances its earlier disposition. Amortizable Bond Premium A U.S. Holder who purchases a note for an amount in excess of its principal amount generally will be considered to have purchased the note with "amortizable bond premium." Such a U.S. Holder generally may 29 elect to amortize such premium using the constant yield to maturity method. The amount amortized in any year will generally be treated as a reduction of interest income on the note. If the amortizable bond premium allocable to a year exceeds the amount of interest allocable to that year, the excess will be allowed as a deduction for that year but only to the extent of the U.S. Holder's prior interest inclusions on the note. If the U.S. Holder does not make such an election, the premium on the note will decrease the gain or increase the loss otherwise recognized on the sale, redemption, retirement or other disposition of the note. The election to amortize the premium on a constant yield to maturity method, once made, generally applies to all bonds held or subsequently acquired by the U.S. Holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. Conversion of the Notes A U.S. Holder generally will not recognize any income, gain or loss upon conversion of a note into our common stock except with respect to cash received in lieu of a fractional share of common stock. A U.S. Holder's tax basis in our common stock received on conversion of a note will be the same as such holder's adjusted tax basis in the note at the time of conversion (reduced by any basis allocable to a fractional share interest), and the holding period for our common stock will generally include the holding period of the note converted. Cash received in lieu of a fractional share of common stock upon conversion will be treated as a payment in exchange for the fractional share of common stock. Accordingly, the receipt of cash in lieu of a fractional share of common stock generally will result in capital gain or loss (measured by the difference between the cash received for the fractional share and the holder's adjusted tax basis in the fractional share). Dividends Distributions, if any, made on our common stock after a conversion generally will be included in the income of a U.S. Holder as dividend income to the extent of our current or accumulated earnings and profits. Distributions in excess of our current and accumulated earnings and profits will be treated as a return of capital to the extent of the U.S. Holder's basis in our common stock and thereafter as capital gain. Holders of convertible debt instruments such as the notes may, in certain circumstances, be deemed to have received distributions of stock if the conversion price of such instruments is adjusted. Adjustments to the conversion price made pursuant to a bona fide reasonable adjustment formula which has the effect of preventing the dilution of the interest of the holders of the debt instruments, however, will generally not be considered to result in a constructive distribution of stock. Certain of the possible adjustments provided in the notes (including, without limitation, adjustments in respect of taxable dividends to our stockholders) may not qualify as being pursuant to a bona fide reasonable adjustment formula. If such adjustments do not so qualify, the U.S. Holders of notes will be deemed to have received constructive distributions taxable as dividends to the extent of our current and accumulated earnings and profits even though they have not received any cash or property as a result of such adjustments. In certain circumstances, the failure to provide for an anti-dilution adjustment may result in taxable dividend income to the U.S. Holders of common stock. Sale of Common Stock Upon the sale of common stock a U.S. Holder generally will recognize capital gain or loss equal to the difference between (i) the amount of cash and the fair market value of any property received upon the sale or exchange and (ii) such U.S. Holder's adjusted tax basis in our common stock. Such capital gain or loss will be long-term capital gain or loss if the U.S. Holder's holding period in common stock is more than one year at the time of the sale or exchange. 30 Non-U.S. Holders In general, subject to the discussion below concerning backup withholding: (a) Payments of principal or interest on the notes by us or our paying agent to a beneficial owner of a note that is a Non-U.S. Holder will not be subject to U.S. withholding tax at a rate of 30%, provided that: (i) in the case of interest that is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the U.S., the Non-U.S. Holder provides us with a properly executed IRS W-8ECI; (ii) in the case of interest not effectively connected with the Non-U.S. Holders' conduct of a trade or business in the U.S., the Non-U.S. Holder (A) does not own, actually or constructively, 10% or more of the total combined voting power of all of our classes of stock entitled to vote within the meaning of section 871(h)(3) of the Code; (B) is not a "controlled foreign corporation" that is related to us through stock ownership; (C) is not a bank receiving interest described in section 881(c)(3)(A) of the Code; and (D) the certification requirements under section 871(h) or section 881(c) of the Code and Treasury Regulations thereunder (discussed below) are satisfied, or (if the Non-U.S. Holder does not meet the requirements set forth in (A) through (D)) the Non-U.S. Holder provides a properly executed IRS Form W-8BEN claiming a reduction of or an exemption from withholding under an applicable tax treaty; (b) Distributions on common stock made by us or our paying agent that are treated as dividends for U.S. federal income tax purposes (including constructive distributions) will be subject to U.S. withholding tax at a 30% rate except where: (i) such distributions are effectively connected with the Non-U.S. Holder's conduct of a trade or business in the U.S. and the Non-U.S. Holder provides us with a properly executed IRS W-8ECI; or (ii) such distributions are not effectively connected with the Non-U.S. Holder's conduct of a trade or business in the U.S. and the Non-U.S. Holder provides us with a properly executed IRS Form W-8BEN claiming a reduction of or an exemption from withholding under an applicable tax treaty. (c) A Non-U.S. Holder of a note or common stock will not be subject to U.S. withholding tax on gains realized on a sale, exchange or other disposition of such note or common stock. A Non-U.S. Holder will also not be subject to U.S. federal income tax on such gains unless: (i) such Non-U.S. Holder is an individual who is present in the U.S. for 183 days or more in the taxable year of sale, exchange or other disposition, and certain conditions are met; (ii) such gain is effectively connected with the conduct by the Non-U.S. Holder of a trade or business in the U.S. and, if certain U.S. income tax treaties apply, is attributable to a U.S. permanent establishment maintained by the Non-U.S. Holder; or (iii) we are or have been a "United States real properly holding corporation" (a "USRPHC") for United States federal income tax purposes at any time during the shorter of the five-year period preceding the sale or other disposition or the period such Non-U.S. Holder held our common stock and (A) our common stock is not regularly traded on an established securities market or (B) the Non-U.S. Holder owns more than 5% of our common stock at any time during the shorter of the two periods described above. We do not believe that we currently are a USRPHC and do not currently expect to become one in the future. However, we could become one as a result of future changes in assets or operations. To satisfy the certification requirements referred to in (a)(ii)(D) above, sections 871(h) and 881(c) of the Code and currently effective Treasury Regulations thereunder require that either (i) the beneficial owner of a note must certify, under penalties of perjury, to us or our paying agent, as the case may be, that such owner is a Non-U.S. Holder and must provide the owner's name and address, and U.S. taxpayer identification number ("TIN"), if 31 any; or (ii) a securities clearing organization, bank or other financial institution that holds customer securities in the ordinary course of its trade or business (a "Financial Institution") and holds the note on behalf of the beneficial owner thereof must certify, under penalties of perjury, to us or our paying agent, as the case may be, that such certificate has been received from the beneficial owner and must furnish the payor with a copy thereof. This requirement will be fulfilled if the beneficial owner of a note certifies on IRS Forms W-8BEN or W-8EXP, or successor form, under penalties of perjury, that it is a Non-U.S. Holder and provides his or her name and address or any Financial Institution holding the note on behalf of the beneficial owner files a statement with the withholding agent to the effect that it has received such a statement from the beneficial owner (and furnishes the withholding agent with a copy thereof). Special rules apply which permit the shifting of primary responsibility for withholding to certain financial intermediaries acting on behalf of beneficial owners. If a Non-U.S. Holder of a note or common stock is engaged in a trade or business in the U.S. and if interest on the note, dividends on our common stock, or gain realized on the sale, exchange or other disposition of the note or common stock is effectively connected with the conduct of such trade or business (and, if certain tax treaties apply, is attributable to a U.S. permanent establishment maintained by the Non-U.S. Holder in the U.S.), the Non-U.S. Holder, although exempt from U.S. withholding tax (provided that the certification requirements discussed above are met), will generally be subject to U.S. federal income tax on such interest, dividends or gain on a net income basis in the same manner as if it were a U.S. Holder. In addition, if such Non-U.S. Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% (or such lower rate provided by an applicable treaty) of its effectively connected earnings and profits for the taxable year, subject to certain adjustments. U.S. Federal Estate Tax A note held by an individual who at the time of death is not a citizen or resident of the U.S. (as specially defined for U.S. federal estate tax purposes) will not be subject to U.S. federal estate tax if the individual did not actually or constructively own 10% or more of the total combined voting power of all of our classes of stock and, at the time of the individual's death, payments with respect to such note would not have been effectively connected with the conduct by such individual of a trade or business in the U.S. Common stock held by an individual who at the time of death is not a citizen or resident of the U.S. (as specially defined for U.S. federal estate tax purposes) will be included in such individual's estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty otherwise applies. Non-U.S. Holders should consult with their tax advisors regarding U.S. and foreign tax consequences with respect to the notes and our common stock. Backup Withholding and Information Reporting Information returns will be filed with the United States Internal Revenue Service in connection with payments made with respect to notes or common stock, as well as proceeds from the sale or other disposition of notes or our common stock. You may be subject to backup withholding tax (currently at a rate of 30%) on these payments unless you comply with identification and certification requirements. Noncorporate U.S. Holders will be subject to backup withholding only if such holders fail to furnish their taxpayer identification numbers or fail to satisfy certain other requirements. Non-U.S. Holders will be subject to backup withholding only if such holders do not properly certify their non-U.S. status. The amount of any backup withholding from a payment to you will be allowed as a credit against your United States federal income tax liability and may entitle you to a refund provided that the required information is furnished to the IRS. 32 SELLING SECURITYHOLDERS We originally issued the notes in a private placement in May, 2002. Selling securityholders may offer and sell the notes and the underlying common stock using this prospectus. The following table contains information we received from the selling securityholders on or before August 16, 2002, with respect to the selling securityholders and the principal amount of notes and the underlying common stock beneficially owned by each selling securityholder prior to the offering and that may be offered using this prospectus.
Principal Number of Amount at Shares of Number of Maturity of Common Shares of Notes Stock Common Percentage of Beneficially Percentage Owned Prior Stock That Common Owned That of Notes to the May be Stock Name May Be Sold Outstanding Offering Sold(1) Outstanding(2) - ---- ------------ ----------- ----------- ---------- -------------- Aegon Transamerica Series Fund--Strategic $1,260,000 * 127,530 127,530 * Total Return AIM Opportunities I Fund 1,255,000 * 127,024 127,024 * AIM Opportunities II Fund 745,000 * 75,405 75,405 * Akela Capital Master Fund, Ltd. 2,000,000 1.3% 202,429 202,429 * Alpine Associates 7,000,000 4.7 708,502 708,502 * Alpine Partners, L.P. 1,000,000 * 101,215 101,215 * B.G.I. Global Investors c/o Forest Investment 227,000 * 22,976 22,976 * Mngt. L.L.C. Banc One Capital Markets, Inc. 500,000 * 50,607 91,107 * Bancroft Convertible Fund, Inc. 1,250,000 * 126,518 126,518 * Bank Austria Cayman Islands, LTD 2,250,000 1.5 227,733 227,733 * CALAMOS(R) Convertible Growth and 5,200,000 3.5 526,316 526,316 * Income Fund--CALAMOS(R) Investment Trust CALAMOS(R) Global Convertible Fund-- 250,000 * 25,304 25,304 * CALAMOS(R) Investment Trust CALAMOS(R) Market Neutral Fund-- 7,000,000 4.7 708,502 708,502 * CALAMOS(R) Investment Trust Chrysler Corporation Master Retirement 3,735,000 2.5 378,036 378,036 * Trust Consulting Group Capital Markets Funds 300,000 * 30,364 30,364 * Delta Air Lines Master Trust 965,000 * 97,672 97,672 * Delta Pilots D & S Trust 480,000 * 48,583 48,583 * DaimlerChrysler Corp. Emp. #1 Pension Plan 3,630,000 2.4 367,409 367,409 * dtd 4/1/89 Ellsworth Convertible Growth and Income 825,000 * 83,502 83,502 * Fund, Inc. Forest Alternative Strategies II 58,000 * 5,870 5,870 * Forest Fulcrum Fund L.L.P. 780,000 * 78,947 78,947 *
33
Principal Amount at Number of Number of Maturity of Shares of Shares of Notes Common Common Percentage of Beneficially Percentage Stock Stock That Common Owned That of Notes Owned Prior May be Stock Name May Be Sold Outstanding to the Offering Sold(1) Outstanding(2) - ---- ------------ ----------- --------------- ---------- -------------- Forest Global Convertible Fund Series A-5 3,174,000 2.1 321,255 321,255 * Franklin and Marshall College 207,000 * 20,951 20,951 * Grace Brothers Management, LLC 3,500,000 2.3 354,251 354,251 * IDEX--Luther King Management-- 660,000 * 66,802 66,802 * Strategic Total Return JP Morgan Securities Inc. 2,850,000 1.9 288,462 289,257 * LDG Limited 1,000,000 * 101,215 101,215 * LKCM Balanced Fund 80,000 * 8,097 8,097 * LLT Limited 221,000 * 22,368 22,368 * Lyxor Master Fund c/o Forest Investment 917,000 * 92,814 92,814 * Mngt L.L.C. Man Convertible Bond Master Fund, Ltd. 2,168,000 1.4 219,433 219,433 * MFS Total Return Fund 2,000,000 1.3 202,429 202,429 * Microsoft Corporation 1,235,000 * 125,000 125,000 * Motion Picture Industry Health Plan-- 225,000 * 22,773 22,773 * Active Motion Picture Industry Health Plan-- 140,000 * 14,170 14,170 * Retiree OCM Convertible Trust 2,100,000 1.4 212,551 212,551 * Partner Reinsurance Company Ltd. 730,000 * 73,887 73,887 * Qwest Occupational Health Trust 185,000 * 18,725 18,725 * Ram Trading, LTD 7,500,000 5.0 759,109 759,109 * Ramius, LP 120,000 * 12,146 12,146 * Ramius Capital Group 400,000 * 40,486 40,486 * RBC Alternative Asset L.P. 123,000 * 12,449 12,449 * RCG Baldwin LP 480,000 * 48,583 48,583 * RCG Halifax Master Fund, LTD 1,500,000 1.0 151,822 151,822 * RCG Latitude Master Fund, LTD 2,250,000 1.5 227,733 227,733 * RCG Multi Strategy, LP 3,000,000 2.0 303,644 303,644 * Relay 11 Holdings c/o Forest Investment 110,000 * 11,134 11,134 * Mngt L.L.C. Sage Capital 1,500,000 1.0 151,822 151,822 * SG Hambros Trust Company (Jersey) LTD 400,000 * 40,486 40,486 * as trustee of the Lyxor Master Fund Silverado Arbitrage Trading, LTD 600,000 * 60,729 60,729 * Sphinx Convertible Arbitrage c/o Forest 58,000 * 5,870 5,870 * Investment Mngt L.L.C. St. Thomas Trading, Ltd. 3,482,000 2.3 352,429 352,429 * State Employees' Retirement Fund of the 985,000 * 99,696 99,696 * State of Delaware
34
Principal Number of Amount at Shares of Number of Maturity of Common Shares of Notes Stock Common Percentage of Beneficially Percentage Owned Prior Stock That Common Owned That of Notes to the May be Stock Name May Be Sold Outstanding Offering Sold(1) Outstanding(2) - ---- ------------ ----------- ----------- ---------- -------------- State of Connecticut Combined Investment 2,900,000 1.9 293,522 293,522 * Funds State Street Bank custodian for GE Pension 1,663,000 1.1 168,320 168,320 * Trust Sylvan (IMA) Ltd. c/o Forest Investment 494,000 * 50,000 50,000 * Mngt L.L.C. TD Securities (USA) Inc. 9,875,000 6.6 999,494 999,494 * The Class I C Company 2,000,000 * 101,215 101,215 * TQA Master Fund 2,580,000 1.7 261,134 261,134 * TQA Master Plus Fund 1,920,000 1.3 194,332 194,332 * UBS O'Connor LLC F/B/O O'Connor 250,000 * 25,304 25,304 * Global Convertible Portfolio UBS O'Connor LLC F/B/O UBS Global Equity Arbitrage Master LTD 2,000,000 1.3 202,429 202,429 * Vanguard Convertible Securities Fund, Inc. 3,395,000 2.3 343,623 343,623 * Wachovia Securities, Inc. 7,250,000 4.8 733,806 733,806 * Wachovia Securities International, LTD. 5,000,000 3.3 506,073 506,073 * Zurich Inst Bench Master Fund c/o TQA Investors, LLC 1,000,000 * 101,215 101,215 * Zurich Master Hedge Fund c/o Forest Investment Mngt L.L.C. 396,000 * 40,081 40,081 * Any other holder of notes or future transferee, pledgee, donee or successor of any holder(3)(4) 24,667,000 16.4 2,496,660 2,496,660 2.0%
- -------- * Less than 1% (1) Assumes conversion of all of the holder's notes at a conversion price of $9.88. However, this conversion price is subject to adjustment as described under "Description of Notes--Conversion of the Notes." As a result, the amount of common stock issuable upon conversion of the notes may increase or decrease in the future. (2) Calculated based on Rule 13d-3(d)(i) of the Exchange Act using 122,342,213 shares of common stock outstanding as of August 3, 2002. In calculating this amount, we treated as outstanding the number of shares of common stock issuable upon conversion of that particular holder's notes. However, we did not assume the conversion of any other holder's notes. (3) Information about other selling securityholders will be set forth in prospectus supplements, if required. (4) Assumes that any other holders of notes, or any future transferees, pledgees, donees or successors of or from any of these other holders of notes, do not beneficially own any common stock other than the common stock issuable upon conversion of the notes at the initial conversion price. We prepared this table based on the information supplied to us by the selling securityholders named in the table. 35 The selling securityholders listed in the above table may have sold or transferred, in transactions exempt from the registration requirements of the Securities Act, some or all of their notes since the date on which the information in the above table is presented. Information about the selling securityholders may change over time. Any changed information will be set forth, to the extent provided to us by the selling securityholders, in prospectus supplements, if and when necessary. Because the selling securityholders may offer all or some of their notes or the underlying common stock from time to time, we cannot estimate the amount of the notes or underlying common stock that will be held by any selling securityholders upon completion of the offering. See "Plan of Distribution." 36 PLAN OF DISTRIBUTION We are registering the notes and the underlying common stock to allow the selling securityholders and their successors, including their transferees, pledgees and donees and their successors, to sell these securities to the public from time to time after the date of this prospectus. The selling securityholders may sell the securities directly or through underwriters, broker-dealers or agents. If the selling securityholders sell the securities through underwriters or broker-dealers, the selling securityholders will be responsible for underwriting discounts or commissions or agents' commissions. We have agreed to pay substantially all of the expenses incidental to the registration, offering and sale of the securities to the public other than commissions, fees and discounts of underwriters, brokers, dealers and agents. The total proceeds to the selling securityholders from selling the securities will be the purchase price of the securities, less any discounts and commissions paid by the selling securityholders. We will not receive any of the proceeds from the sale of the securities offered by this prospectus. The SEC may deem the selling securityholders and any broker-dealers or agents who participate in the distribution of the securities to be "underwriters." As a result the SEC may deem any profits the selling securityholders make by selling the securities and any discounts, commissions or concessions received by any broker-dealers or agents to be underwriting discounts and commissions under the Securities Act. Selling securityholders who are "underwriters" will be subject to the prospectus delivery requirements of the Securities Act and may also be subject to liabilities under the securities laws, including Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Exchange Act. To our knowledge, there are currently no plans, arrangements or understandings between any selling securityholders and any underwriter, broker-dealer or agent regarding the sale of the securities. The selling securityholders and any other person who participates in distributing the securities will be subject to the Exchange Act. The Exchange Act rules include Regulation M, which may limit the timing of purchases and sales of any of the securities by the selling securityholders and any other person. In addition, Regulation M may restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities with respect to the particular securities being distributed for a period of up to five business days before beginning to distribute the securities. This may affect the securities' marketability and the ability of any person or entity to engage in market-making activities with respect to the securities. The selling securityholders may sell the securities in one or more transactions at: . fixed prices; . prevailing market prices at the time of sale; . varying prices determined at the time of sale; or . negotiated prices. The sales may be effected in transactions: . on any national securities exchange or quotation service on which the securities are listed or quoted at the time of the sale, including the Nasdaq National Market in the case of the common stock; . in the over-the-counter market; . in transactions other than transactions on national securities exchanges, quotation services or in the over-the-counter market; or . through the writing of options. These transactions may include block transactions or crosses. Crosses are transactions in which the same broker acts as an agent on both sides of the transaction. 37 In connection with sales of the securities or otherwise, any selling securityholder may: . enter into hedging transactions with broker-dealers, who may in turn engage in short sales of the securities in the course of hedging the positions they assume; . sell the securities short and deliver the securities to close out their short positions; or . loan or pledge the securities to broker-dealers, who may in turn sell the securities. We cannot assure you any selling securityholders will sell any or all of securities using this prospectus. In addition, any securities covered by this prospectus that qualify for sale under Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than under this prospectus. The selling securityholders also may transfer, devise or gift the securities by other means not described in this prospectus. To comply with the securities laws of some states, if applicable, the selling securityholders may only sell the securities in these jurisdiction through registered or licensed brokers or dealers. Our common stock trades on the Nasdaq National Market under the symbol "CHRS." We do not intend to apply for listing of the notes on any securities exchange or for quotation through Nasdaq. Accordingly, we cannot assure you that selling securityholders will be able to sell the notes or that any trading market for the notes will develop. With respect to a particular offering of the securities, to the extent required, we will file an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement of which this prospectus is a part, disclosing the following information: . the specific notes or common stock to be offered and sold; . the names of the selling securityholders; . the respective purchase prices and public offering prices and other material terms of the offering; . the names of any participating agents, broker-dealers or underwriters; and . any applicable commissions, discounts, concessions and other items constituting compensation from the selling securityholders. The registration rights agreement filed as an exhibit to this registration statement provides that we and the selling securityholders will indemnify each other and each other's directors, officers and controlling persons against specified liabilities, including liabilities under the Securities Act, or that we will be entitled to contribution from each other in connection with these liabilities. LEGAL MATTERS Drinker Biddle & Reath LLP has provided us with an opinion as to the validity of the securities offered by this prospectus. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements included in our Annual Report on Form 10-K for the year ended February 2, 2002, as set forth in their report, which is incorporated by reference in this prospectus and registration statement. Our financial statements are incorporated by reference in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. 38 The financial statements of Lane Bryant, Inc. and Subsidiaries incorporated by reference in this Prospectus for the years ended February 3, 2001 and January 29, 2000 and for the three years in the period ended February 3, 2001 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Commission. You may read and copy materials that we have filed with the Commission at the following Commission public reference rooms: 450 Fifth Street, N.W. 233 Broadway 175 W. Jackson Blvd. Room 1024 New York, New York 10048 Chicago, Illinois 60604 Washington, D.C. 20549
Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. Our common stock is quoted on the Nasdaq National Market under the symbol "CHRS," and our Commission filings can also be read at the following Nasdaq address: Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006 Our Commission filings are also available to the public on the Commission's website at http://www.sec.gov. We incorporate by reference into this prospectus the documents listed below and any future filings we make with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, including any filings after the date of this registration statement, until the selling shareholder has sold all of the common stock to which this registration statement relates or the offering is otherwise terminated. The information we incorporate by reference is an important part of this prospectus. Any statement in a document specifically identified below as incorporated by reference into this registration statement will be deemed to be modified or superseded to the extent that a statement contained in (1) this registration statement or (2) any other subsequently filed document that is incorporated by reference into this registration statement modifies or supersedes the statement. . Our Annual Report on Form 10-K for the fiscal year ended February 2, 2002; . Our Quarterly Report on Form 10-Q for the quarterly period ended May 4, 2002; . Our Current Reports on Form 8-K filed on August 31, 2001 (as amended on October 30, 2001 and May 17, 2002), May 21, 2002, May 22, 2002, May 28, 2002, May 30, 2002, July 3, 2002 and August 21, 2002; and . The registration statement on Form 8-A filed by us with the Commission relating to our common stock, and the description of the stock purchase rights attached to our common stock contained in our Amended Form 8-A/12-B filed with the Commissions on April 18, 1999 (File No. 000-07258), as amended on May 3, 2002. You may request a copy, at no cost, of any or all of the documents referred to above, other than exhibits to the documents that are not specifically incorporated by reference in the documents. You should direct written or telephone requests to Charming Shoppes, Inc., 450 Winks Lane, Bensalem, Pennsylvania 19020, Attention: Colin D. Stern, Esq., Executive Vice President, General Counsel and Secretary, telephone (215) 245-9100. 39 You should rely only on the information incorporated by reference or provided in this prospectus. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front cover of this document. We have not authorized anyone to provide you with different or additional information. Our logo appearing on the front and back covers of this prospectus and "Lane Bryant(R)", "Catherines(R)", and "Fashion Bug(R)" are trademarks of Charming Shoppes, Inc. Other brands, names and trademarks contained in this prospectus are the property of their respective owners. 40 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains or incorporates by reference certain statements and information that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements may include, but are not limited to, statements regarding our growth, earnings, sales performance, store openings and closings, cost savings, capital requirements, our exposure to fluctuations in interest rates, and other matters. The words "expect," "intend," "project," "estimate," "predict," "anticipate," "believes," and similar expressions are also intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Some of these risks are discussed above under "Risk Factors." Should one or more of these risks or uncertainties materialize, or should our underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. Factors that could cause our results of operations or financial condition to differ from those described in this prospectus include, but are not necessarily limited to, the following: . Our business is dependent upon our being able to accurately predict rapidly changing fashion trends, customer preferences and other fashion-related factors, which we may not be able to successfully accomplish in the future. . The general slowdown in the United States economy and the uncertain economic outlook has led to reduced consumer demand for our apparel and accessories and may continue to do so in the future. . The women's specialty retail apparel industry is highly competitive and we may be unable to compete successfully against existing or future competitors. . We cannot assure the successful implementation of our business plan for increased profitability and growth in our plus-size women's apparel business. . Our business plan is largely dependent upon the continued growth in the plus-size women's apparel market which may not continue. . We depend on key personnel, particularly our Chief Executive Officer, Dorrit J. Bern, and we may not be able to retain or replace these employees or recruit additional qualified personnel. . We depend on our distribution centers and could incur significantly higher costs and longer lead times associated with distributing our products to our stores if any of these distribution centers were to shut down for any reason. . We depend for our working capital needs on the availability of credit, including credit we receive from our suppliers and their agents, and on our credit card securitization program. If we were unable to obtain sufficient financing at affordable cost, our ability to merchandise our stores would be adversely affected. . We rely significantly on foreign sources of production and face a variety of risks (including political instability, imposition of duties or quotas, increased security requirements applicable to imports, delays in shipping, increased costs of transportation, and issues relating to compliance with domestic or international labor standards) generally associated with doing business in foreign markets and importing merchandise from abroad. . Our stores experience seasonal fluctuations in net sales and operating income. Any decrease in sales or margins during our peak sales periods, or in the availability of working capital needed in the months preceding such periods, could have a material adverse effect on our business. In addition, extreme or unseasonable weather conditions may have an impact on our sales. . War, acts of terrorism, or the threat of either may negatively impact availability of merchandise, customer traffic to our stores and otherwise adversely impact our business. . We may be unable to obtain adequate insurance for our operations at a reasonable cost. 41 . We may be unable to protect our trademarks and other intellectual property rights, which we believe are important to our success and our competitive position. . We may be unable to hire and retain suitable sales associates at our stores. . We may be unable to successfully implement our restructuring plan. . Our manufacturers may be unable to manufacture and deliver merchandise to us in a timely manner or to meet our quality standards. . Our sales are dependent upon a high volume of traffic in the strip centers and malls in which our stores are located and our future growth is dependent upon the availability of suitable locations for new stores. . We may be unable to successfully integrate Lane Bryant into our current operating structure, and we currently rely on management information systems and logistics services from Limited Brands with respect to our Lane Bryant stores. We operate in a rapidly changing and competitive environment. New risk factors emerge from time to time and it is not possible for us to predict all risk factors that may affect us. Future events, actual results, performance and achievements could differ materially from those set forth in, contemplated by or underlying the forward-looking statements, which speak only as of the date on which they were made. We assume no obligation to update any forward-looking statement to reflect actual results or changes in or additions to the factors affecting such forward-looking statements. Given those risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. 42 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS Item 14. Other Expenses of Issuance and Distribution The following table sets forth our estimated expenses payable in connection with this registration statement. Securities and Exchange Commission registration fee $ 13,800 Nasdaq National Market listing fee................. $ 22,500 Accounting Fees.................................... $ 45,000 Legal fees and expenses............................ $ 20,000 Miscellaneous...................................... $ 5,000 -------- Total.............................................. $106,300 ========
Item 15. Indemnification of Directors and Officers Section 1741 of the Pennsylvania Business Corporation Law provides us the power to indemnify any officer or director acting in his or her capacity as a representative of us who was or is a party or is threatened to be made a party to any action or proceeding against expenses, judgments, penalties, fines and amounts paid in settlement in connection with such action or proceeding whether the action was instituted by a third party or arose by or in the right of us. Generally, the only limitation on the ability of us to indemnify our officers and directors is if the act or failure to act is finally determined by a court to have constituted willful misconduct or recklessness. The bylaws provide a clear and unconditional right to indemnification to the full extent permitted by law, for expenses (including attorneys' fees), damages, punitive damages, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by any person whether or not the indemnified liability arises or arose from any threatened, pending or completed proceeding by or in the right of us (a derivative action) by reason of the fact that such person is or was serving as our director, officer or employee, or, at our request, as a director, officer, partner, fiduciary or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, even if the act or failure to act giving rise to the claim for indemnification entails the negligence or gross negligence of the indemnified party unless such act or failure to act is finally determined by a court to have constituted willful misconduct or recklessness. The bylaws provide for the advancement of expenses to an indemnified party upon receipt of an undertaking by the party to repay those amounts if it is finally determined that the indemnified party is not entitled to indemnification. Indemnification is deemed a contract right of our directors, officers and employees, as opposed to a matter within the discretion of our board, as will the payment of expenses by us in advance of a proceeding's final disposition. The bylaws authorize us to take steps to ensure that all persons entitled to the indemnification are properly indemnified, including, if our board so determines, purchasing and maintaining insurance, entering into indemnification agreements, creating a reserve, trust, escrow or other fund or account, granting security interests, obtaining a letter of credit or using other means that may be available from time to time. We maintain insurance covering our directors and officers against certain liabilities incurred by them in their capacities as such, including among other things, certain liabilities under the Securities Act of 1933. II-1 Item 16. Exhibits The following exhibits are filed with or incorporated by reference in this registration statement:
Exhibit Number Description of Document - ------ ----------------------- 3.1 Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 of Form 10-K of the Registrant for the fiscal year ended January 29, 1994 (File No. 000-07258). 3.2 Bylaws, as Amended and Restated, incorporated by reference to Exhibit 3.2 of Form 10-Q of the Registrant for the quarter ended July 31, 1999. 4.1 Indenture dated May 28, 2002 between Charming Shoppes, Inc. and Wachovia Bank, National Association. 4.2 Registration Rights Agreement, dated as of May 28, 2002, between Charming Shoppes, Inc. and JP Morgan Securities, Inc. 4.3 Amended and Restated Rights Agreement, dated as of February 1, 2001, between Charming Shoppes, Inc. and American Stock Transfer & Trust Company, as Rights Agent, incorporated by reference to Exhibit 4.1 on Form 10-K of the Charming Shoppes, Inc. for the fiscal year ended February 3, 2001. 5.1 Opinion of Drinker Biddle & Reath LLP. 12.1 Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Ernst & Young LLP, independent auditors. 23.2 Consent of PricewaterhouseCoopers LLP. 23.3 Consent of Drinker Biddle & Reath LLP (included in exhibit 5.1 above). 24.1 Power of Attorney of certain officers and directors of the Registrant (see page II-4 of this Form S-3). 25.1 Form T-1 Statement of Eligibility of Trustee for Indenture under the Trust Indenture Act of 1939.
Item 17. Undertakings The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b), if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that clauses (a) and (b) do not apply if the information required to be included in a post-effective amendment by those clauses is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, that are incorporated by reference in the registration statement; II-2 (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions discussed in Item 15 above, or otherwise, the registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a trustee, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time is was declared effective; and (2) For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bensalem, Commonwealth of Pennsylvania, on August 26, 2002. CHARMING SHOPPES, INC. By: /s/ DORRIT J. BERN ------------------------------ Dorrit J. Bern Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below, does hereby constitute and appoint Dorrit J. Bern and Colin D. Stern, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution, resubstitution and revocation, for him or her and in his or her name, place and stead, in any and all capacities, to sign and file any and all amendments (including post-effective amendments) to this registration statement and to file the same with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated: Name Capacity Date ---- -------- ---- /s/ DORRIT J. BERN Chairman of the Board, August 26, 2002 - ----------------------------- President and Chief Dorrit J. Bern Executive Officer /s/ ERIC M. SPECTER Executive Vice President, August 26, 2002 - ----------------------------- Chief Financial Officer Eric M. Specter /s/ JOHN J. SULLIVAN Vice President, Corporate August 26, 2002 - ----------------------------- Controller, Chief John J. Sullivan Accounting Officer /s/ JOSEPH L. CASTLE, II Director August 26, 2002 - ----------------------------- Joseph L. Castle, II /s/ ALAN ROSSKAMM Director August 26, 2002 - ----------------------------- Alan Rosskamm /s/ MARVIN L. SLOMOWITZ Director August 26, 2002 - ----------------------------- Marvin L. Slomowitz II-4 Name Capacity Date ---- -------- ---- - ----------------------------- Director August , 2002 Marjorie Margolies-Mezvinsky /s/ PAMELA S. LEWIS Director August 26, 2002 - ----------------------------- Pamela S. Lewis /s/ KENNETH S. OLSHAN Director August 26, 2002 - ----------------------------- Kenneth S. Olshan /s/ CHARLES T. HOPKINS Director August 26, 2002 - ----------------------------- Charles T. Hopkins /s/ KATHERINE M. HUDSON Director August 26, 2002 - ----------------------------- Katherine M. Hudson II-5 EXHIBIT INDEX
Exhibit Number Description of Document - ------ ----------------------- 3.1 Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 of Form 10-K of the Registrant for the fiscal year ended January 29, 1994 (File No. 000-07258). 3.2 Bylaws, as Amended and Restated, incorporated by reference to Exhibit 3.2 of Form 10-Q of the Registrant for the quarter ended July 31, 1999. 4.1 Indenture dated May 28, 2002 between Charming Shoppes, Inc. and Wachovia Bank, National Association. 4.2 Registration Rights Agreement, dated as of May 28, 2002, between Charming Shoppes, Inc. and JP Morgan Securities, Inc. 4.3 Amended and Restated Rights Agreement, dated as of February 1, 2001, between Charming Shoppes, Inc. and American Stock Transfer & Trust Company, as Rights Agent, incorporated by reference to Exhibit 4.1 on Form 10-K of the Registrant for the fiscal year ended February 3, 2001. 5.1 Opinion of Drinker Biddle & Reath LLP. 12.1 Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Ernst & Young LLP, independent auditors. 23.2 Consent of PricewaterhouseCoopers LLP. 23.3 Consent of Drinker Biddle & Reath LLP (included in exhibit 5.1 above). 24.1 Power of Attorney of certain officers and directors of the Registrant (see page II-4 of this Form S-3). 25.1 Form T-1 Statement of Eligibility of Trustee for Indenture under the Trust Indenture Act of 1939.
II-6 EX-4.1 3 dex41.txt INDENTURE DATED MAY 28, 2002 Exhibit 4.1 ================================================================================ CHARMING SHOPPES, INC. and WACHOVIA BANK, NATIONAL ASSOCIATION as Trustee -------------------- INDENTURE Dated as of May 28, 2002 -------------------- $130,000,000 Principal Amount/a/ 4.75% SENIOR CONVERTIBLE NOTES DUE 2012 ================================================================================ - ------------------------------- a Plus an additional $20,000,000 issuable at the option of the Initial Purchasers as described herein CROSS-REFERENCE TABLE
TIA Indenture Section Section - ------- ----------- 310(a)(1) ................................................... 7.10 (a)(2) ................................................ 7.10 (a)(3) ................................................ N.A. (a)(4) ................................................ N.A. (a)(5) ................................................ N.A. (b) ................................................... 7.08; 7.10; 11.02 (c) ................................................... N.A. 311(a) ...................................................... 7.11 (b) ................................................... 7.11 (c) ................................................... N.A. 312(a) ...................................................... 2.05 (b) ................................................... 11.03 (c) ................................................... 11.03 313(a) ...................................................... 7.06 (b)(1) ................................................ N.A. (b)(2) ................................................ 7.06 (c) ................................................... 7.06; 11.02 (d) ................................................... 7.06 314(a) ...................................................... 4.02 (b) ................................................... N.A. (c)(1) ................................................ 11.04 (c)(2) ................................................ 11.04 (c)(3) ................................................ N.A. (d) ................................................... N.A. (e) ................................................... 11.05 (f) ................................................... N.A. 315(a) ...................................................... 7.01(b) (b) ................................................... 7.05; 11.02 (c) ................................................... 7.01(a) (d) ................................................... 7.01(c) (e) ................................................... 6.11 316(a)(last sentence) ....................................... 2.09 (a)(1)(A) ............................................. 6.05 (a)(1)(B) ............................................. 6.04 (a)(2) ................................................ N.A. (b) ................................................... 6.07 317(a)(1) ................................................... 6.08 (a)(2) ................................................ 6.09 (b) ................................................... 2.04 318(a) ...................................................... 11.01
TABLE OF CONTENTS
Page ---- ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. ............................................. 1 SECTION 1.02. Other Definitions. ....................................... 4 SECTION 1.03. Incorporation by Reference of Trust Indenture Act. ....... 5 SECTION 1.04. Rules of Construction. ................................... 5 ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating. ......................................... 6 SECTION 2.02. Execution and Authentication. ............................ 6 SECTION 2.03. Registrar, Paying Agent and Conversion Agent. ............ 7 SECTION 2.04. Paying Agent to Hold Money in Trust. ..................... 7 SECTION 2.05. Securityholder Lists. .................................... 8 SECTION 2.06. Transfer and Exchange. ................................... 8 SECTION 2.07. Replacement Securities. .................................. 8 SECTION 2.08. Outstanding Securities. .................................. 9 SECTION 2.09. Securities Held by the Company or an Affiliate. .......... 9 SECTION 2.10. Temporary Securities. .................................... 9 SECTION 2.11. Cancellation. ............................................ 9 SECTION 2.12. Defaulted Interest. ...................................... 10 SECTION 2.13. CUSIP Numbers. ........................................... 10 SECTION 2.14. Deposit of Moneys. ....................................... 10 SECTION 2.15. Book-Entry Provisions for Global Securities. ............. 10 SECTION 2.16. Special Transfer Provisions. ............................. 11 SECTION 2.17. Restrictive Legends. ..................................... 14 ARTICLE THREE REDEMPTION; REPURCHASE SECTION 3.01. Notices to Trustee. ...................................... 14 SECTION 3.02. Selection of Securities to Be Redeemed. .................. 15 SECTION 3.03. Notice of Redemption. .................................... 15 SECTION 3.04. Effect of Notice of Redemption. .......................... 16 SECTION 3.05. Deposit of Redemption Price. ............................. 16 SECTION 3.06. Securities Redeemed in Part. ............................. 16 SECTION 3.07. Repurchase at Option of Holder upon a Repurchase Event.... 17
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Page ---- ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Securities. ................................... 21 SECTION 4.02. Maintenance of Office or Agency. ......................... 21 SECTION 4.03. Reports to Holders. ...................................... 22 SECTION 4.04. Compliance Certificate. .................................. 22 SECTION 4.05. Stay, Extension and Usury Laws. .......................... 23 SECTION 4.06. Corporate Existence. ..................................... 23 SECTION 4.07. Notice of Default. ....................................... 23 ARTICLE FIVE CONSOLIDATION, MERGER AND SALE OF ASSETS SECTION 5.01. When Company May Merge, etc. ............................. 23 SECTION 5.02. Successor Substituted. ................................... 24 ARTICLE SIX DEFAULTS AND REMEDIES SECTION 6.01. Events of Default. ....................................... 24 SECTION 6.02. Acceleration. ............................................ 25 SECTION 6.03. Other Remedies. .......................................... 26 SECTION 6.04. Waiver of Past Defaults. ................................. 26 SECTION 6.05. Control by Majority. ..................................... 26 SECTION 6.06. Limitation on Suits. ..................................... 26 SECTION 6.07. Rights of Holders to Receive Payment or Convert. ......... 27 SECTION 6.08. Collection Suit by Trustee. .............................. 27 SECTION 6.09. Trustee May File Proofs of Claim. ........................ 27 SECTION 6.10. Priorities. .............................................. 28 SECTION 6.11. Undertaking for Costs. ................................... 28 ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. ....................................... 28 SECTION 7.02. Rights of Trustee. ....................................... 29 SECTION 7.03. Individual Rights of Trustee. ............................ 30 SECTION 7.04. Trustee's Disclaimer. .................................... 31 SECTION 7.05. Notice of Defaults. ...................................... 31 SECTION 7.06. Reports by Trustee to Holders. ........................... 31 SECTION 7.07. Compensation and Indemnity. .............................. 31 SECTION 7.08. Replacement of Trustee. .................................. 32
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Page ---- SECTION 7.09. Successor Trustee by Merger, etc. ........................ 33 SECTION 7.10. Eligibility; Disqualification. ........................... 33 SECTION 7.11. Preferential Collection of Claims Against Company. ....... 33 ARTICLE EIGHT SATISFACTION AND DISCHARGE; DEFEASANCE SECTION 8.01. Termination of Company's Obligations. .................... 33 SECTION 8.02. Application of Trust Money. .............................. 35 SECTION 8.03. Repayment to Company. .................................... 35 SECTION 8.04. Reinstatement. ........................................... 35 ARTICLE NINE AMENDMENTS SECTION 9.01. Without Consent of Holders. .............................. 35 SECTION 9.02. With Consent of Holders. ................................. 36 SECTION 9.03. Compliance with Trust Indenture Act. ..................... 37 SECTION 9.04. Revocation and Effect of Consents. ....................... 37 SECTION 9.05. Notation on or Exchange of Securities. ................... 37 SECTION 9.06. Trustee Protected. ....................................... 37 ARTICLE TEN CONVERSION SECTION 10.01. Conversion Privilege; Restrictive Legends. ............... 38 SECTION 10.02. Conversion Procedure. .................................... 38 SECTION 10.03. Fractional Shares. ....................................... 39 SECTION 10.04. Taxes on Conversion. ..................................... 39 SECTION 10.05. Company to Provide Stock. ................................ 39 SECTION 10.06. Adjustment of Conversion Price. .......................... 40 SECTION 10.07. Effect of Reclassification, Consolidation, Merger or Sale. 48 SECTION 10.08. Notice of Certain Transactions. .......................... 48 SECTION 10.09. Company Determination Final. ............................. 49 SECTION 10.10. Trustee's Disclaimer. .................................... 49 ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls. ............................ 49 SECTION 11.02. Notices. ................................................. 49 SECTION 11.03. Communication by Holders with Other Holders. ............. 50 SECTION 11.04. Certificate and Opinion as to Conditions Precedent. ...... 50
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Page ---- SECTION 11.05. Statements Required in Certificate or Opinion. ........... 51 SECTION 11.06. Rules by Trustee and Agents. ............................. 51 SECTION 11.07. Legal Holidays. .......................................... 51 SECTION 11.08. No Recourse Against Others. .............................. 52 SECTION 11.09. Duplicate Originals. ..................................... 52 SECTION 11.10. Governing Law. ........................................... 52 SECTION 11.11. No Adverse Interpretation of Other Agreements. ........... 52 SECTION 11.12. Successors. .............................................. 52 SECTION 11.13. Separability. ............................................ 52 SECTION 11.14. Table of Contents, Headings, etc. ........................ 52 SIGNATURES ................................................................. S-1 EXHIBITS - -------- Exhibit A - Form of Security Exhibit B - Form of Legends Exhibit C - Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S Exhibit D - Form of Notice of Transfer Pursuant to Registration Statement Exhibit E - Form of Opinion of Counsel in Connection with Registration of Securities
-iv- INDENTURE dated as of May 28, 2002 between CHARMING SHOPPES, INC., a Pennsylvania corporation (the "Company"), and WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Company's 4.75% Senior Convertible Notes Due 2012: ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.01. Definitions. ----------- "Affiliate" means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company. For this purpose, "control" shall mean the power to direct the management and policies of a Person through the ownership of securities, by contract or otherwise. "Agent" means any Registrar, Paying Agent, Conversion Agent or co-registrar. "Board of Directors" means the Board of Directors of the Company or any committee of the Board authorized to act for it hereunder. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Capital Stock" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of the Company and all warrants or options to acquire such capital stock. "Common Stock" means the common stock, par value $.10 per share, of the Company. "Company" means the party named as such above until a successor replaces it pursuant to the applicable provision hereof and thereafter means the successor. "Company Request" or "Company Order" means a written request or order signed on behalf of the Company by its Chairman of the Board, its President or any Senior Vice President, Executive Vice President or Vice President and by its Treasurer, Secretary or an Assistant Treasurer or an Assistant Secretary, and delivered to the Trustee. "Conversion Price" means $9.88 per share of Common Stock, as adjusted pursuant to Article Ten. -2- "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 11.02 or such other address as the Trustee may give notice of to the Company. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Depositary" means The Depository Trust Company, its nominees and successors. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Holder" means a Person in whose name a Security is registered on the Registrar's books. "Indenture" means this Indenture as amended or supplemented from time to time. "Institutional Accredited Investor" shall have the meaning ascribed to it in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933. "interest" means, with respect to any Security, interest on the Security plus liquidated damages, if any. "Issue Date" means (i) May 28, 2002 with respect to the $130,000,000 aggregate principal amount of Securities issued on such date, and (ii) with respect to any of up to $20,000,000 aggregate principal amount of Securities that may be issued after May 28, 2002 pursuant to the option described in Section 2.02, the respective issue date of such Securities. "liquidated damages" has the meaning provided in the Registration Rights Agreement. "Maturity Date" means June 1, 2012. "Non-U.S. Person" means a Person who is not a U.S. Person, as defined in Regulation S under the Securities Act. "obligations" means with respect to any indebtedness, all obligations (whether in existence on the date hereof or arising afterwards, absolute or contingent, direct or indirect) for or in respect of principal (when due, upon acceleration, upon redemption, upon mandatory repayment or repurchase pursuant to a mandatory offer to purchase, or otherwise), premium, interest, penalties, fees, indemnification, reimbursement and other amounts payable and liabilities with respect to such indebtedness, including, without limitation, all interest accrued or accruing after, or which would accrue but for, the commencement of any bankruptcy, insolvency or reorganization or similar case or proceeding at the contract rate (including, without limitation, any contract rate applicable upon default) specified in the relevant documentation, whether or not the claim for such interest is allowed as a claim in such case or proceeding. -3- "Officer" means the Chairman of the Board, the President, any Senior Vice President, Executive Vice President, any Vice President, the Chief Financial Officer, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed, on behalf of the Company, by two Officers or by an Officer and an Assistant Treasurer or an Assistant Secretary of the Company. "Opinion of Counsel" means a written opinion from legal counsel who may be an employee of or counsel for the Company. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or other agency or political subdivision thereof. "principal" of a debt security means the principal of the security, if any, on the security. "QIB" means a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act. "Registration Rights Agreement" means the Registration Rights Agreement dated as of May , 2002 by and among the Company and the Initial Purchasers. "Regulation S" means Regulation S under the Securities Act. "Regulation S Global Security" means a permanent Global Security in registered form representing the aggregate principal amount of Securities sold in reliance on Regulation S. "Restricted Security" means a Security that constitutes a "Restricted Security" within the meaning of Rule 144(a)(3) under the Securities Act; provided, however, that the Trustee shall be entitled to request and conclusively rely on an Opinion of Counsel with respect to whether any Security constitutes a Restricted Security. "Rule 144A Global Security" means a permanent Global Security in registered form representing the aggregate principal amount of Securities sold in reliance on Rule 144A. "SEC" means the Securities and Exchange Commission. "Securities" means the 4.75% Senior Convertible Notes Due 2012 issued by the Company pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Significant Subsidiary" shall have the meaning provided to it in Section 1-02(w) of Regulation S-X. -4- "subsidiary" means (i) a corporation a majority of whose Capital Stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly, owned by the Company, by one or more subsidiaries of the Company or by the Company and one or more subsidiaries thereof or (ii) any other Person (other than a corporation) in which the Company, one or more subsidiaries thereof or the Company and one or more subsidiaries thereof, directly or indirectly, at the date of determination thereof, have at least majority ownership voting interest. "Trust Indenture Act" or "TIA," subject to Section 9.03, means the Trust Indenture Act of 1939, as in force on the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" or "TIA" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Officer" means any officer of the Trustee assigned by the Trustee to administer this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions hereof and thereafter means the successor. SECTION 1.02. Other Definitions. -----------------
Term Defined in Section ---- ------------------ "Bankruptcy Law" ...................................... 6.01 "Business Day" ........................................ 11.07 "Change in Control" ................................... 3.07(l) "Closing Price" ....................................... 10.06(g) "Common Dividend Amount" .............................. 10.06(e) "Company Notice" ...................................... 3.07(b) "Conversion Agent" .................................... 2.03 "Current Market Price" ................................ 10.06(g) "Custodian" ........................................... 6.01 "Event of Default" .................................... 6.01 "fair market value" ................................... 10.06(g) "Global Security" ..................................... 2.01 "Initial Purchasers" .................................. 2.02 "Legal Holiday" ....................................... 11.07 "Market Capitalization" ............................... 10.06(e) "Participants" ........................................ 2.15(a) "Paying Agent" ........................................ 2.03 "Physical Securities" ................................. 2.15(b) "Private Placement Legend" ............................ 2.17 "Record Date" ......................................... 10.06(g) "Registrar" ........................................... 2.03 "Repurchase Date" ..................................... 3.07(a)
-5- "Repurchase Event" ......................................... 3.07(l) "Repurchase Price" ......................................... 3.07(a) "Subject Securities" ....................................... 10.06(d) "Trading Day" .............................................. 10.06(g) "Trigger Event" ............................................ 10.06(d) "U.S. Government Obligations" .............................. 8.01 SECTION 1.03. Incorporation by Reference of Trust Indenture Act. ------------------------------------------------- Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC; "indenture securities" means the Securities; "indenture security holder" means a Holder; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the indenture securities means the Company. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA and not otherwise defined herein have the meanings so assigned to them. SECTION 1.04. Rules of Construction. --------------------- Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in effect on the date hereof; (3) "or" is not exclusive; (4) words in the singular include the plural and in the plural include the singular; (5) provisions apply to successive events and transactions; and -6- (6) "herein", "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO THE SECURITIES SECTION 2.01. Form and Dating. --------------- The Securities and the Trustee's certificate of authentication shall be substantially in the form set forth in Exhibit A, which is incorporated in and forms a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication. Securities offered and sold in reliance on Rule 144A, Securities offered and sold in reliance on Regulation S and Securities subsequently transferred to Institutional Accredited Investors shall be issued initially in the form of one or more Global Securities, substantially in the form set forth in Exhibit A (the "Global Securities"). The aggregate principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary, as hereinafter provided. SECTION 2.02. Execution and Authentication. ---------------------------- Two Officers shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. Upon a written order of the Company signed by two Officers or by an Officer and an Assistant Treasurer of the Company, the Trustee shall authenticate Securities for original issue in the principal amount of $130,000,000 and such additional principal amounts, if any, as shall be determined pursuant to the next sentence of this Section 2.02. Upon receipt by the Trustee of an Officers' Certificate stating that the Initial Purchasers have elected to purchase from the Company a specified principal amount of additional Securities, not to exceed $20,000,000, pursuant to Section l of the Purchase Agreement dated May 21, 2002 by and among the Company, as issuer, and J.P. Morgan Securities Inc., Bear, Stearns & Co. Inc., First Union Securities, Inc., Lazard Freres & Co. LLC and McDonald Investments Inc., as initial purchasers (the "Initial Purchasers"), the Trustee shall authenticate and deliver such specified principal amount of additional Securities to or upon the written order of the Company signed as provided in the immediately preceding sentence. Such Officers' Certificate must -7- be received by the Trustee at least two full Business Days prior to the proposed date for delivery of such additional Securities, but, in any case, not later than June 20, 2002. The aggregate principal amount of Securities outstanding at any time may not exceed $150,000,000 except as provided in Section 2.07. Upon a written order of the Company signed by two Officers or by an Officer and an Assistant Treasurer of the Company, the Trustee shall authenticate Securities not bearing the Private Placement Legend to be issued to the transferee when sold pursuant to an effective registration statement under the Securities Act. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 principal amount and any integral multiple thereof. The Securities shall bear interest at the rate, calculated and paid, as provided in the form of Security set forth in Exhibit A. SECTION 2.03. Registrar, Paying Agent and Conversion Agent. -------------------------------------------- The Company shall maintain an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented for payment ("Paying Agent") and an office or agency where Securities may be presented for conversion ("Conversion Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may appoint or change one or more co-registrars, one or more additional paying agents and one or more additional conversion agents without notice and may act in any such capacity on its own behalf. The term "Registrar" includes any co-registrar; the term "Paying Agent" includes any additional paying agent; the term "Conversion Agent" includes any additional conversion agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any Agent not a party to this Indenture. If the Company fails to maintain a Registrar, Paying Agent or Conversion Agent, the Trustee shall act as such. The Company initially appoints the Trustee as Paying Agent, Registrar and Conversion Agent. SECTION 2.04. Paying Agent to Hold Money in Trust. ----------------------------------- Each Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all moneys held by the Paying Agent for the payment of principal of or interest on the Securities and -8- shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent shall have no further liability for the money. If the Company acts as Paying Agent, it shall segregate and hold as a separate trust fund all money held by it as Paying Agent. SECTION 2.05. Securityholder Lists. -------------------- The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. The Trustee shall make such a list available to the Company upon request. If the Trustee is not the Registrar, the Company shall furnish to the Trustee on or before each interest payment date and at such other times as the Trustee may request in writing a list, in such form and as of such date as the Trustee may reasonably require, of the names and addresses of Holders. SECTION 2.06. Transfer and Exchange. --------------------- Where Securities are presented to the Registrar with a request to register their transfer or to exchange them for an equal principal amount of Securities of other authorized denominations, the Registrar shall register the transfer or make the exchange if its requirements for such transaction, including the requirements under Section 2.16, are met. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. The Company or the Trustee, as the case may be, shall not be required (a) to issue or authenticate, register the transfer of or exchange any Security during a period beginning at the opening of business 10 Business Days before the mailing of a notice of redemption of the Securities selected for redemption under Section 3.03 and ending at the close of business on the day of such mailing, or (b) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of Securities being redeemed in part. No service charge shall be made for any registration of transfer, exchange or conversion of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any transfer, registration of transfer or exchange of Securities, other than exchanges pursuant to Sections 2.10, 3.06, 9.05 or 10.02 not involving any transfer. SECTION 2.07. Replacement Securities. ---------------------- If the Holder of a Security claims that the Security has been mutilated, lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security if the Trustee's requirements are met and, in the case of a mutilated Security, such mutilated Security is surrendered to the Trustee. In the case of lost, destroyed or wrongfully taken Securities, if required by the Trustee or the Company, an indemnity bond must be provided by the Holder that is sufficient in the judgment of both to protect the Company, the Trustee and any Agent from any loss -9- that any of them may suffer if a Security is replaced. The Company or the Trustee may charge for its expenses in replacing a Security. In case any such mutilated, lost, destroyed or wrongfully taken Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security when due. Every replacement Security is an additional obligation of the Company. SECTION 2.08. Outstanding Securities. ---------------------- Securities outstanding at any time shall be all the Securities authenticated by the Trustee except for those converted, those canceled by it, those delivered to it for cancellation and those described in this Section as not outstanding. A Security does not cease to be outstanding because the Company or one of its subsidiaries or Affiliates holds the Security. If a Security is replaced pursuant to Section 2.07, it ceases to be outstanding unless the Trustee receives proof satisfactory to it, or a court holds, that the replaced Security is held by a protected purchaser within the meaning of the Uniform Commercial Code. If the Paying Agent (other than the Company) holds on a redemption date, Repurchase Date or the Maturity Date money sufficient to pay Securities payable on that date, then on and after that date, such Securities shall be deemed to be no longer outstanding and interest on them shall cease to accrue, whether or not such Securities are surrendered. SECTION 2.09. Securities Held by the Company or an Affiliate. ---------------------------------------------- In determining whether the Holders of the required aggregate principal amount of Securities have concurred in any direction, waiver or consent, Securities owned by the Company or a subsidiary or an Affiliate shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities that a Trust Officer actually knows are so owned shall be so disregarded. SECTION 2.10. Temporary Securities. -------------------- Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate definitive Securities in exchange for temporary Securities. SECTION 2.11. Cancellation. ------------ The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar, Paying Agent and Conversion Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange, payment or conversion. The Trustee shall cancel -10- all Securities surrendered for registration of transfer, exchange, payment, conversion or cancellation and the Trustee shall dispose of such canceled Securities in its customary manner. The Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation or that any Holder has converted pursuant to Article Ten. SECTION 2.12. Defaulted Interest. ------------------ If and to the extent the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest in any lawful manner plus, to the extent not prohibited by applicable statute or case law, interest payable on the defaulted interest. It may pay the defaulted interest to the Persons who are Holders on a subsequent special record date. The Company shall fix such record date and payment date. At least 15 days before a special record date, the Company shall mail to Holders a notice that states the record date, payment date and amount of interest to be paid. SECTION 2.13. CUSIP Numbers. ------------- The Company in issuing the Securities may use one or more "CUSIP" numbers, and if so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that no representation will thereby be deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP numbers printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. The Company shall promptly notify the Trustee of any change in the CUSIP number. SECTION 2.14. Deposit of Moneys. ----------------- Prior to 10:00 a.m., New York City time, on each interest payment date, redemption date, Repurchase Date and the Maturity Date, the Company shall deposit with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such interest payment date, redemption date, Repurchase Date and the Maturity Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such interest payment date, Maturity Date, redemption date and Repurchase Date, as the case may be. SECTION 2.15. Book-Entry Provisions for Global Securities. ------------------------------------------- (a) The Global Securities initially shall (i) be registered in the name of the Depositary or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear the legend for Global Securities as set forth in Exhibit B(II). Members of, or participants in, the Depositary ("Participants") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Securities, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of the Global Securities for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as be- -11- tween the Depositary and Participants, the operation of customary practices governing the exercise of the rights of a Holder of any Security. (b) Transfers of Global Securities shall be limited to transfers in whole, but not in part, to the Depositary, its successors or their respective nominees. In addition, permanent certificated Securities in registered form, substantially in the form set forth in Exhibit A (the "Physical Securities"), shall be transferred to all beneficial owners in exchange for their beneficial interests in Global Securities if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for any Global Security and a successor Depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from the Depositary to issue Physical Securities. Except as provided in this Section 2.15(b), owners of beneficial interests in Global Securities will not be entitled to receive Physical Securities. (c) In connection with any issuance of Physical Securities upon the transfer or exchange of a portion of the beneficial interest in the Global Securities pursuant to paragraph (b) of this Section 2.15, the Registrar shall (if one or more Physical Securities are to be issued) reflect on its books and records the date and a decrease in the aggregate principal amount of such Global Securities in an amount equal to the aggregate initial aggregate principal amount of the beneficial interest in the Global Securities to be transferred, and the Company shall execute and the Trustee shall authenticate and deliver one or more Physical Securities of authorized denominations in an aggregate principal amount equal to the aggregate principal amount of the beneficial interest in the Global Securities so transferred. (d) In connection with the transfer of the Global Securities in their entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15, such Global Securities shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall upon written instructions from the Company authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in such Global Securities, an equal aggregate principal amount of Physical Securities of authorized denominations. (e) Any Physical Security constituting a Restricted Security delivered in exchange for an interest in the Global Securities pursuant to paragraph (b) or (c) of this Section 2.15 shall, except as otherwise provided by Section 2.16, bear the Private Placement Legend. (f) The Holder of the Global Securities may grant proxies and otherwise authorize any Person, including Participants and Persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Securities. SECTION 2.16. Special Transfer Provisions. --------------------------- (a) Transfers to Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Restricted Security to any Non-U.S. Person: -12- (i) the Registrar shall register the transfer of any Restricted Security, whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is after the second anniversary of the Issue Date for such Security; provided, however, that the transferor shall represent to the Registrar that, to the transferor's knowledge, neither the Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time on or prior to the second anniversary of the Issue Date for such Security or (y) in the case of a transfer to a Non-U.S. Person, the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto; (ii) if the proposed transferee is a Participant and the Securities to be transferred consist of Physical Securities that after transfer are to be evidenced by an interest in the Global Securities, upon receipt by the Registrar of (x) written instructions given in accordance with the Depositary's and the Registrar's procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, the Registrar shall register the transfer and reflect on its books and records the date and an increase in the aggregate principal amount of the Global Securities in an amount equal to the aggregate principal amount of Physical Securities to be transferred, and the Trustee shall cancel the Physical Securities so transferred; and (iii) if the proposed transferor is a Participant seeking to transfer an interest in the Rule 144A Global Security, upon receipt by the Registrar of (x) written instructions given in accordance with the Depositary's and the Registrar's procedures and (y) the appropriate certificate, if any, required by clause (y) of paragraph (i) above, the Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the aggregate principal amount of the Rule 144A Global Security in an amount equal to the aggregate principal amount of the Securities to be transferred and (B) an increase in the aggregate principal amount of the Regulation S Global Security, in an amount equal to the aggregate principal amount of the Securities to be transferred. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Restricted Security to a QIB: (i) the Registrar shall register the transfer of any Restricted Security, whether or not such Security bears the Private Placement Legend, if (x) the requested transfer is after the second anniversary of the Issue Date for such Security; provided, however, that the transferor shall represent to the Registrar that, to the transferor's knowledge, neither the Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time on or prior to the second anniversary of the Issue Date for such Security or (y) such transfer is being made by a proposed transferor who has checked the box provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Security stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that -13- the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; (ii) if the proposed transferee is a Participant and the Securities to be transferred consist of Physical Securities which after transfer are to be evidenced by an interest in the Global Securities, upon receipt by the Registrar of written instructions given in accordance with the Depositary's and Registrar's procedures, the Registrar shall register the transfer and reflect on its books and records the date and an increase in the principal amount of the Global Securities in an amount equal to the principal amount of Physical Securities to be transferred, and the Trustee shall cancel the Physical Security so transferred; and (iii) if the proposed transferor is a Participant seeking to transfer an interest in the Regulation S Global Security upon receipt by the Registrar of written instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall register the transfer and reflect on its books and records the date and (A) a decrease in the aggregate principal amount of the Regulation S Global Security in an amount equal to the aggregate principal amount of the Securities to be transferred and (B) an increase in the aggregate principal amount of the Rule 144A Global Security in an amount equal to the aggregate principal amount of the Securities to be transferred. (c) Restrictions on Transfer and Exchange of Global Securities. Notwithstanding any other provisions of this Indenture, the Global Securities may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (d) Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities not bearing the Private Placement Legend, the Registrar or co-Registrar shall deliver Securities that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Securities bearing the Private Placement Legend, the Registrar or co-Registrar shall deliver only Securities that bear the Private Placement Legend unless (i) the requested transfer is after the second anniversary of the Issue Date for such Security (provided, however, that neither the Company nor any Affiliate of the Company has held any beneficial interest in such Security, or portion thereof, at any time prior to or on the second anniversary of the Issue Date for such Security), (ii) there is delivered to the Trustee an Opinion of Counsel reasonably satisfactory to the Company to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (iii) such Security has been sold pursuant to an effective registration statement under the Securities Act and the Holder selling such Securities has delivered to the Registrar or co-Registrar a notice in substantially the form of Exhibit D hereto. Upon the effectiveness of the Shelf Registration Statement (as defined in the Registration Rights Agreement) the Company shall deliver to the Trustee a notice of effectiveness, a Security or Securities, an authentication order in accordance with Section 2.02 and an Opinion of Counsel in -14- substantially the form of Exhibit E hereto and, if required by the Depositary, the Company shall deliver to the Depositary a letter of representations in a form reasonably acceptable to the Depositary. (e) General. By its acceptance of any Security bearing the Private Placement Legend, each Holder of such a Security acknowledges the restrictions on transfer of such Security set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Security only as provided in this Indenture. The Registrar shall retain, in accordance with its customary procedures, copies of all letters, notices and other written communications received pursuant to Section 2.15 or this Section 2.16. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable notice to the Registrar. (f) Transfers of Securities Held by Affiliates. Any certificate (i) evidencing a Security that has been transferred to an Affiliate of the Company within two years after the Issue Date for such Security, as evidenced by a notation on the Assignment Form for such transfer or in the representation letter delivered in respect thereof or (ii) evidencing a Security that has been acquired from an Affiliate (other than by an Affiliate) in a transaction or a chain of transactions not involving any public offering, shall, until two years after the last date on which either the Company or any Affiliate of the Company was an owner of such Security, in each case, bear the Private Placement Legend, unless otherwise agreed by the Company (with written notice thereof to the Trustee). SECTION 2.17. Restrictive Legends. ------------------- Each Global Security and Physical Security that constitutes a Restricted Security shall bear the private placement legend (the "Private Placement Legend") as set forth in Exhibit B(I) on the face thereof until after the second anniversary of the later of the Issue Date for such Securities and the last date on which the Company or any Affiliate of the Company was the owner of such Security (or any predecessor security) (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) (or such longer period of time as may be required under the Securities Act or applicable state securities laws in the opinion of counsel for the Company, unless otherwise agreed by the Company and the Holder thereof). ARTICLE THREE REDEMPTION; REPURCHASE SECTION 3.01. Notices to Trustee. ------------------ If the Company wants to redeem Securities pursuant to paragraph 6 of the Securities, it shall notify the Trustee at least 40 days prior to the redemption date (unless a shorter notice period shall be satisfactory to the Trustee) of the redemption date and the aggregate principal amount of Securities to be redeemed. If the Company wants to credit against any such redemption Securities it has -15- not previously delivered to the Trustee for cancellation (other than Securities repurchased pursuant to Section 3.07), it shall deliver the Securities with the notice. SECTION 3.02. Selection of Securities to Be Redeemed. -------------------------------------- If less than all the outstanding Securities are to be redeemed, the Trustee shall select the Securities to be redeemed on either a pro rata basis or by lot or such other method as the Trustee shall deem fair and appropriate. The Trustee shall make the selection from Securities outstanding not previously called for redemption. The Trustee may select for redemption portions of the principal of Securities that have denominations larger than $1,000 principal amount. Securities and portions of them it selects shall be in amounts of $1,000 principal amount or integral multiples of $1,000 principal amount. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. The Registrar need not register the transfer of or exchange any Securities selected for redemption. Also, the Registrar need not transfer or exchange any Securities for a period of 10 Business Days before selecting Securities to be redeemed. SECTION 3.03. Notice of Redemption. -------------------- At least 20 days but not more than 60 days before a redemption date, the Company shall mail by first-class mail or cause to be mailed a notice of redemption to each Holder whose Securities are to be redeemed. The notice shall identify the Securities and the aggregate principal amount thereof to be redeemed and shall state: (1) the redemption date; (2) the redemption price, plus the amount of accrued and unpaid interest to be paid on the Securities called for redemption; (3) the then current conversion rate; (4) the name and address of the Paying Agent and Conversion Agent; (5) the date on which the right to convert the principal of the Securities called for redemption will terminate and the place or places where such Securities may be surrendered for conversion; (6) that Holders who want to convert Securities must satisfy the requirements in Article Ten; (7) that Securities called for redemption must be surrendered to the Paying Agent to collect the redemption price; -16- (8) that interest on Securities called for redemption ceases to accrue on and after the redemption date; and (9) the CUSIP number of the Securities. The date on which the right to convert the principal of the Securities called for redemption will terminate shall be at the close of business on the date prior to the redemption date, or, if the day before the redemption date is a Legal Holiday, the close of business on the next preceding day which is not a Legal Holiday. At the Company's request (which request shall be furnished to the Trustee at least 40 days prior to the redemption date (unless a shorter period shall be acceptable to the Trustee)), the Trustee shall give the notice of redemption in the Company's name and at the Company's expense; provided that the form and content of such notice shall be prepared by the Company. SECTION 3.04. Effect of Notice of Redemption. ------------------------------ Once notice of redemption is mailed, Securities called for redemption become due and payable on the redemption date at the applicable redemption price plus accrued and unpaid interest to, but excluding, the date of redemption, and, on and after such date (unless the Company shall default in the payment of the redemption price), such Securities shall cease to bear interest. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price plus accrued interest to the redemption date, unless the redemption date is an interest payment date, in which case the accrued interest will be paid as provided in the Securities. SECTION 3.05. Deposit of Redemption Price. --------------------------- On or before the redemption date, the Company shall deposit with the Paying Agent pursuant to Section 2.14 money in funds immediately available on the redemption date sufficient to pay the redemption price of and accrued interest on all Securities to be redeemed on that date. The Paying Agent shall return to the Company, as soon as practicable, any money not required for that purpose because of conversion of Securities. SECTION 3.06. Securities Redeemed in Part. --------------------------- Upon surrender of a Security that is redeemed in part, the Company shall execute and the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unredeemed portion of the Security surrendered. If a portion of a Holder's Securities is selected for partial redemption and that Holder converts a portion of that Holder's Securities, the converted portion shall be deemed (as far as may be) to be the portion selected for redemption. -17- SECTION 3.07. Repurchase at Option of Holder upon a Repurchase Event. ------------------------------------------------ (a) If there shall occur a Repurchase Event, then each Holder shall have the right, at such Holder's option, to require the Company to repurchase all of such Holder's Securities, or any portion thereof (in principal amounts of $1,000 or integral multiples thereof), on the date (the "Repurchase Date") that is forty-five (45) Business Days after the date of the Company Notice (as defined below). Such repurchase shall be made in cash at a price equal to 100% of the principal amount of Securities such Holder elects to require the Company to repurchase, together with accrued interest, if any, to but excluding the Repurchase Date (the "Repurchase Price") (or, at the option of the Company, by delivery of Common Stock in accordance with the provisions of Section 3.07(k)); provided, however, that if such Repurchase Date is an interest payment date, then the interest payable on such date shall be paid to the holder of record of the Security on the preceding record date for the payment of interest. No Securities may be repurchased at the option of Holders upon a Repurchase Event if there has occurred and is continuing an Event of Default, other than a default in the payment of the Repurchase Price with respect to such Securities on the Repurchase Date. (b) Unless the Company shall have theretofore called for redemption all of the outstanding Securities, on or before the tenth (10th) Business Day after the Company becomes aware of the occurrence of a Repurchase Event, the Company or, at the written request of the Company, the Trustee, shall mail to all holders of record of the Securities a notice (the "Company Notice") in the form prepared by the Company of the occurrence of the Repurchase Event and of the repurchase right set forth herein arising as a result thereof. The Company shall also deliver a copy of such Company Notice to the Trustee. The Company Notice shall contain the following information: (1) the Repurchase Date; (2) the date by which the repurchase right must be exercised; (3) the last date by which the election to require repurchase, if submitted, must be revoked; (4) the Repurchase Price and whether the Repurchase Price shall be payable in cash or Common Stock and, if payable in Common Stock, the method of calculating the amount of the Common Stock to be delivered upon the repurchase as provided in Section 3.07(k); (5) a description of the procedure that a Holder must follow to exercise a repurchase right; (6) the Conversion Price then in effect and a statement that the right to convert the principal amount of the Securities to be repurchased will terminate when and if the Holder exercises its repurchase right unless and until it withdraws such election; and (7) the CUSIP numbers of the Securities. -18- No failure of the Company to give the foregoing notices or defect therein shall limit any Holder's right to exercise a repurchase right or affect the validity of the proceedings for the repurchase of Securities. If any of the foregoing provisions are inconsistent with applicable law, such law shall govern. (c) To exercise a repurchase right, a Holder shall deliver to the Trustee on or before the 30th Business Day after the date of the Company Notice preceding the Repurchase Date (i) written notice to the Company (or agent designated by the Company for such purpose) of the Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of the Securities to be repurchased, a statement that an election to exercise the repurchase right is being made thereby and, in the event that the Repurchase Price shall be paid in shares of Common Stock, the name or names (with addresses) in which the certificate or certificates for shares of Common Stock shall be issued, and (ii) the Securities with respect to which the repurchase right is being exercised, duly endorsed for transfer to the Company. Election of repurchase by a Holder shall be revocable at any time prior to, but excluding, the Repurchase Date, by delivering written notice to that effect to the Trustee prior to the close of business on the Business Day prior to the Repurchase Date. (d) If the Company fails to repurchase on the Repurchase Date any Securities (or portions thereof) as to which the repurchase right has been properly exercised, then the principal of such Securities shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate borne by the Securities and each such Security shall be convertible into Common Stock in accordance with this Indenture until the principal of such Security shall have been paid or duly provided for. (e) Any Security that is to be repurchased only in part shall be surrendered to the Trustee duly endorsed for transfer to the Company and accompanied by appropriate evidence of genuineness and authority satisfactory to the Company and the Trustee duly executed by the Holder thereof (or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, containing identical terms and conditions, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) On or prior to the Repurchase Date, the Company shall deposit with the Trustee or with a Paying Agent, pursuant to Section 2.14, the Repurchase Price in cash for payment to the Holder on the Repurchase Date; provided that if payment is to be made in cash and such cash payment is made on the Repurchase Date it must be received by the Trustee or paying agent, as the case may be, by 10:00 a.m., New York City time, on such date; provided, further, that if the Repurchase Price is to be paid in shares of Common Stock, such shares of Common Stock are to be paid as promptly after the Repurchase Date as practicable. -19- (g) Any issuance of shares of Common Stock in respect of the Repurchase Price shall be deemed to have been effected immediately prior to the close of business on the Repurchase Date and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such repurchase shall be deemed to have become on the Repurchase Date the holder or holders of record of the shares represented thereby; provided, however, that any surrender for repurchase on a date when the stock transfer books of the Company shall be closed shall constitute the Person or Persons in whose name or names the certificate or certificates for such shares are to be issued as the record holder or holders thereof for all purposes at the opening of business on the next succeeding day on which such stock transfer books are open. No payment or adjustment shall be made for dividends or distributions on any Common Stock issued upon repurchase of any Security declared prior to the Repurchase Date. (h) No fractions of shares shall be issued upon repurchase of Securities. If more than one Security shall be repurchased from the same Holder and the Repurchase Price shall be payable in shares of Common Stock, the number of full shares which shall be issuable upon such repurchase shall be computed on the basis of the aggregate principal amount of the Securities so repurchased. Instead of any fractional share of Common Stock otherwise issuable on the repurchase of any Security or Securities, the Company will deliver to the applicable Holder its check for the current market value of such fractional share. The current market value of a fraction of a share is determined by multiplying the current market price of a full share by the fraction, and rounding the result to the nearest cent. For purposes of this Section, the current market price of a share of Common Stock is the Closing Price of the Common Stock on the Trading Day immediately preceding the Repurchase Date. (i) Any issuance and delivery of certificates for shares of Common Stock on repurchase of Securities shall be made without charge to the Holder of Securities being repurchased for such certificates or for any tax or duty in respect of the issuance or delivery of such certificates or the securities represented thereby; provided, however, that the Company shall not be required to pay any tax or duty which may be payable in respect of (i) income of the Holder or (ii) any transfer involved in the issuance or delivery of certificates for shares of Common Stock in a name other than that of the Holder of the Securities being repurchased, and no such issuance or delivery shall be made unless and until the Person requesting such issuance or delivery has paid to the Company the amount of any such tax or duty or has established, to the satisfaction of the Company, that such tax or duty has been paid. (j) All Securities delivered for repurchase shall be delivered to the Trustee to be canceled in accordance with the provisions of Section 2.11. (k) The Company may elect to pay the Repurchase Price by delivery of shares of Common Stock if and only if the following conditions shall have been satisfied on or prior to the Repurchase Date: (i) the shares of Common Stock deliverable in payment of the Repurchase Price shall have a fair market value as of the Repurchase Date of not less than the Repurchase Price. For purposes of this Section 3.07, the fair market value of shares of Common Stock shall be determined by the Company and shall be equal to 95% of the average of the Closing -20- Prices of the Common Stock for the five consecutive Trading Days immediately preceding and including the third Trading Day prior to the Repurchase Date; (ii) such shares have been registered under the Securities Act or are freely transferable without such registration; (iii) the issuance of such Common Stock does not require registration with or approval of any governmental authority under any state law or any other federal law, which registration or approval has not been made or obtained; (iv) such shares have been approved for quotation on the Nasdaq National Market or listing on a national securities exchange; and (v) such shares will be issued out of the Company's authorized but unissued stock and, upon issuance, will be duly and validly and fully paid and non-assessable and free of any preemptive rights. (l) For purposes of this Section 3.07: (i) the term "beneficial owner" shall be determined in accordance with Rule 13d-3 and 13d-5, as in effect on the date of the original execution of this Indenture, promulgated by the SEC pursuant to the Exchange Act; (ii) the term "Person" or "group" shall include any syndicate or group which would be deemed to be a "person" under Section 11(d) and 14(d) of the Exchange Act as in effect on the date of this Indenture; (iii) the term "Repurchase Event" means a Change in Control defined as follows: A "Change in Control" shall be deemed to have occurred when (i) any "person" or "group" is or becomes the "beneficial owner" of shares representing more than 50% of the combined voting power of the then outstanding securities entitled to vote generally in elections of directors of the Company (the "Voting Stock"); (ii) there shall occur the liquidation or dissolution or adoption of a plan of liquidation or dissolution of the Company other than in a transaction which complies with Section 5.01; (iii) the Company consolidates with or merges into any other Person or any other Person merges into the Company and, as a result, the outstanding Common Stock of the Company is changed or exchanged into or for other assets or securities, unless the shareholders of the Company immediately before such transac- -21- tion own, directly or indirectly, immediately following such transaction, more than 50% of the combined voting power of the outstanding Voting Stock of the Person resulting from such transaction or the transferee Person or unless such transaction is effected solely to change the Company's jurisdiction of incorporation; or (iv) the Company conveys, transfers or leases all or substantially all of its assets to any Person other than its subsidiaries, unless the shareholders of the Company immediately before such transaction own, directly or indirectly, immediately following such transaction, more than 50% of the combined voting power of the outstanding Voting Stock of the Person resulting from such transaction or the transferee Person; provided that a Change in Control shall not be deemed to have occurred if either (x) the Closing Price of the Common Stock for any five (5) Trading Days (1) in the case of a Change in Control described in clause (i) above, during the ten (10) consecutive Trading Days immediately after the later of the Change in Control or the public announcement of the Change in Control or (2) in the case of a Change of Control described in clause (ii) or (iii) above, during the ten (10) Trading Days immediately preceding the Change in Control, in each such case, is at least equal to 105% of the Conversion Price in effect on the date on which the Change in Control occurs or (y) in the case of a merger or consolidation otherwise constituting a Change in Control, at least 90% of the consideration (excluding cash payments for fractional shares) in such merger or consolidation constituting the Change in Control consists of common stock traded on a United States national securities exchange or quoted on the Nasdaq National Market (or which will be so traded or quoted when issued or exchanged in connection with such Change in Control) and as a result of such transaction or transactions the Securities become convertible solely into such common stock (and cash in lieu of fractional shares). ARTICLE FOUR COVENANTS SECTION 4.01. Payment of Securities. --------------------- The Company shall pay the principal amount, premium, if any, of and any accrued and unpaid interest on the Securities on the dates and in the manner provided in the Securities. The principal, premium, if any, and any accrued and unpaid interest thereon shall be considered paid on the date due if the Paying Agent holds (or, if the Company is acting as Paying Agent, if the Company has segregated and holds in trust in accordance with Section 2.04) on that date money sufficient to pay the principal, premium, if any, and any accrued and unpaid interest thereon. The Company shall pay interest on any overdue principal at the rate borne by the Securities. The Company shall pay interest on overdue installments of interest at the same rate to the extent not prohibited by applicable law. SECTION 4.02. Maintenance of Office or Agency. ------------------------------- The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be surrendered for registration of transfer or exchange or conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, -22- and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as an agency of the Company in accordance with Section 2.03. The Company also shall comply with the provisions of TIA ss. 314(a). SECTION 4.03. Reports to Holders. ------------------ (a) The Company (at its own expense) will deliver to the Trustee within 15 days after the filing of the same with the SEC, copies of the quarterly and annual reports and of the information, documents and other reports, if any, the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. (b) Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will promptly provide the information required by Rule 144A(d)(4) to any Holder that so requests. (c) In addition, if and when this Indenture becomes subject to the TIA, the Company will file a copy of all such information with the SEC for public availability (unless the Commission will not accept such a filing) and make such information available to investors who request it in writing. The Company will also comply with the other provisions of TIA ss. 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). SECTION 4.04. Compliance Certificate. ---------------------- The Company shall deliver to the Trustee within 120 days after the end of each fiscal year of the Company an Officers' Certificate stating whether or not the signers know of any Default or Event of Default by the Company in performing any of its obligations under this Indenture or the -23- Securities. If they do know of any such Default or Event of Default, the certificate shall describe the Default or Event of Default and its status. SECTION 4.05. Stay, Extension and Usury Laws. ------------------------------ The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. SECTION 4.06. Corporate Existence. ------------------- Subject to Article Five, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each subsidiary in accordance with the respective organizational documents of each subsidiary and the rights (charter and statutory), licenses and franchises of the Company and its subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate existence of any subsidiary, if in the judgment of the Company, (i) such preservation or existence is not material to the conduct of business of the Company and (ii) the loss of such right, license or franchise or the dissolution of such subsidiary does not have a material adverse impact on the Holders. SECTION 4.07. Notice of Default. ----------------- In the event that any Default under Section 6.01 hereof shall occur the Company will give prompt written notice of such Default to the Trustee. ARTICLE FIVE CONSOLIDATION, MERGER AND SALE OF ASSETS SECTION 5.01. When Company May Merge, etc. --------------------------- The Company shall not consolidate with or merge into, or transfer or lease all or substantially all of its assets to, another Person unless such other Person is a corporation, limited liability company, partnership, trust or other business entity organized under the laws of the United States, any State thereof or the District of Columbia and such Person assumes by supplemental indenture all the obligations of the Company under the Securities, this Indenture and the Registration Rights Agreement, and immediately after giving effect to the transaction, no Default or Event of Default has occurred and is continuing. -24- The Company shall deliver to the Trustee prior to the consummation of the proposed transaction an Officers' Certificate to the foregoing effect and an Opinion of Counsel stating that the proposed transaction and such supplemental indenture will, upon consummation of the proposed transaction, comply with this Indenture. SECTION 5.02. Successor Substituted. --------------------- Upon any consolidation or merger or transfer or lease of all or substantially all of the assets of the Company in accordance with Section 5.01, the successor Person formed by such consolidation or into which the Company is merged or to which such transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, and shall assume every duty and obligation of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein. When the successor corporation assumes all obligations of the Company hereunder, all obligations of the predecessor corporation shall terminate. ARTICLE SIX DEFAULTS AND REMEDIES SECTION 6.01. Events of Default. ----------------- An "Event of Default" occurs if: (1) the Company fails to pay the principal of or any premium on the Securities when due; (2) the Company fails to pay any interest on the Securities when due, if such failure continues for 30 days; (3) the Company fails to perform any other covenant in this Indenture for the period after the notice specified in the last paragraph of this Section 6.01; (4) any indebtedness under any bonds, debentures, notes or other evidences of indebtedness for money borrowed, or any guarantee thereof, by the Company or any of its Significant Subsidiaries, in an aggregate principal amount in excess of $50 million is not paid when due either at its stated maturity or upon acceleration thereof, and such indebtedness is not discharged, or such acceleration is not rescinded or annulled within a period of 30 days after notice as provided below; or (5) the Company pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, -25- (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, or (D) makes a general assignment for the benefit of its creditors; or (6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company in an involuntary case, (B) appoints a Custodian of the Company for all or substantially all of its property, or (C) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for 90 consecutive days. The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or State law for the relief of debtors. The term "Custodian" means any receiver trustee, assignee, liquidator or similar official under any Bankruptcy Law. A default under clause (3) and clause (4) is not an Event of Default until the Holders of at least 25% in aggregate principal amount of the Securities then outstanding notify the Company and the Trustee of the default and, in the case of clause (3), the Company does not cure the default within 90 days after receipt of the notice of such default. The notice must specify the default, demand that it be remedied and state that the notice is a "Notice of Default." If the Holders of 25% in aggregate principal amount of the outstanding Securities request the Trustee to give such notice on their behalf, the Trustee shall do so. When a default is cured, it ceases. SECTION 6.02. Acceleration. ------------ If an Event of Default (other than an Event of Default specified in Section 6.01(5) or (6)) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities then outstanding by notice to the Company and the Trustee, may declare the principal amount of the Securities including any accrued and unpaid interest on the Securities due and payable. If an Event of Default under clause Section 6.01(5) or (6) occurs, the principal amount of all the Securities will automatically become due and payable without any declaration or other act on the part of the Trustee or any Holder. After a declaration of acceleration, but before a judgment or decree of the money due in respect of the Securities has been obtained, the Holders of not less than a majority in aggregate principal amount of the Securities then outstanding by written notice to the Trustee may rescind an acceleration and its consequences if (i) all existing Events of Default (other than the nonpayment of -26- principal of and interest on the Securities which has become due solely by virtue of such acceleration) have been cured or waived, (ii) the rescission would not conflict with any judgment or decree and (iii) the Company shall have paid all amounts due pursuant to Section 7.07. SECTION 6.03. Other Remedies. -------------- Notwithstanding any other provision of this Indenture, if an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of the principal of, premium, if any, and interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative. SECTION 6.04. Waiver of Past Defaults. ----------------------- Subject to Sections 6.02, 6.07 and 9.02, the Holders of a majority in aggregate principal amount of the Securities then outstanding by notice to the Trustee may waive any past Default or Event of Default and its consequences, except a Default or Event of Default in the payment of the principal of or interest on any Security, a failure by the Company to convert any Securities into Common Stock or any Default or Event of Default in respect of any provision of this Indenture or the Securities that, under Section 9.02, cannot be modified or amended without the consent of the Holder of each Security directly affected. When a Default or an Event of Default is waived, it is cured and ceases. SECTION 6.05. Control by Majority. ------------------- The Holders of a majority in aggregate principal amount of the Securities then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture, is unduly prejudicial to the rights of other Holders or would involve the Trustee in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 6.06. Limitation on Suits. ------------------- Except as provided in Section 6.07, a Holder may pursue a remedy with respect to this Indenture or the Securities only if: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; -27- (2) the Holders of at least 25% in aggregate principal amount of the Securities then outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period the Holders of a majority in aggregate principal amount of the Securities then outstanding do not give the Trustee a direction inconsistent with the request. A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder. SECTION 6.07. Rights of Holders to Receive Payment or Convert. ----------------------------------------------- Notwithstanding any other provision of this Indenture, (i) the right of any Holder to receive payment of the principal of and interest on the Security, on or after the respective due dates expressed in the Security, or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of the Holder and (ii) the right of any Holder to bring suit for the enforcement of the right to convert the Security shall not be impaired or affected without the consent of the Holder. SECTION 6.08. Collection Suit by Trustee. -------------------------- If an Event of Default specified in Section 6.01(l) or (2) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal and interest remaining unpaid and amounts due to the Trustee under Section 7.07. SECTION 6.09. Trustee May File Proofs of Claim. -------------------------------- The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee, any predecessor Trustee and the Holders allowed in any judicial proceedings relative to the Company, its creditors or its property. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. -28- SECTION 6.10. Priorities. ---------- If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order: First: to the Trustee for amounts due under Section 7.07; Second: to Holders for amounts due and unpaid on the Securities for principal, premium, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal, premium, if any, and interest, respectively, and Third: to the Company. The Trustee, upon prior written notice to the Company, may fix a record date and payment date for any payment by it to Holders pursuant to this Section 6.10. SECTION 6.11. Undertaking for Costs. --------------------- In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit other than the Trustee of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 shall not apply to a suit by the Trustee, a suit by a Holder or group of Holders of more than 10% in aggregate principal amount of the outstanding Securities, or to any suit instituted by any Holder for the enforcement or the payment of the principal or interest on any Securities on or after the respective due dates for such Securities. ARTICLE SEVEN TRUSTEE SECTION 7.01. Duties of Trustee. ----------------- (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (b) Prior to the occurrence of an Event of Default: -29- (1) the Trustee need perform only those duties that are specifically set forth in this Indenture and no others shall be inferred or implied; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture, but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opin ions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of any mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05. (d) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against any loss, liability or expense. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree from time to time in writing with the Company. The Trustee may pay interest to the Company on amounts held by it prior to payment to Holders. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 7.02. Rights of Trustee. ----------------- (a) The Trustee may conclusively rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document; if, however, the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the expense of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate and/or an Opinion of Counsel. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. -30- (c) Any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors shall be sufficiently evidenced by a Board Resolution. (d) The Trustee may consult with counsel of its own selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (e) The Trustee may act through agents or attorneys and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care. (f) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its discretion, rights or powers hereunder. (g) Whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee may, in absence of bad faith on its part, rely upon an Officers' Certificate. (h) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable security or indemnity satisfactory to it against costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (i) The Trustee shall not be charged with knowledge of any Default or Event of Default with respect to the Securities unless either (1) a Trust Officer shall have actual knowledge of such Default or Event of Default or (2) written notice of such Default or Event of Default shall have been given to the Trustee by the Company or by any Holder. (j) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. (k) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder. SECTION 7.03. Individual Rights of Trustee. ---------------------------- The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate thereof with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, must comply with Sections 7.10 and 7.11. -31- SECTION 7.04. Trustee's Disclaimer. -------------------- The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities; it shall not be accountable for the Company's use of the proceeds from the Securities; and it shall not be responsible for any statement in the Securities other than its certificate of authentication. SECTION 7.05. Notice of Defaults. ------------------ If a Default or Event of Default occurs and is continuing and if it is actually known to a Trust Officer of the Trustee, the Trustee shall mail to each Holder a notice of the Default or Event of Default within 60 days after it occurs unless such Default or Event of Default has been cured or waived; provided that except in the case of a Default or Event of Default in payment of the principal of, premium, if any, and interest on any Security, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interests of Holders. SECTION 7.06. Reports by Trustee to Holders. ----------------------------- Within 60 days after each May 1 beginning with May 1, 2003, the Trustee shall mail to each Holder, to the extent required by TIA ss. 313(c), a brief report dated as of such reporting date that complies with TIA ss. 313(a). In such event, the Trustee also shall comply with TIA ss. 313(b). A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed by the Trustee with the SEC and each stock exchange, if any, on which the Securities are listed. The Company shall promptly notify the Trustee when the Securities are listed on any stock exchange or delisted therefrom. SECTION 7.07. Compensation and Indemnity. -------------------------- The Company shall pay to the Trustee from time to time such compensation for its services as shall be agreed upon in writing from time to time. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred by it. Such expenses shall include the reasonable compensation and out-of-pocket expenses of the Trustee's agents and counsel. The Company shall fully indemnify the Trustee against any and all loss, claim, damage or liability or expense (including the reasonable fees and expenses of counsel) incurred by it in connection with the acceptance or administration of this trust and the performance of its duties hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers and duties hereunder. The Company need not pay for any settlement made without its consent. The Trustee shall notify the Company promptly of any claim for which it may seek indemnification. The Company need not reimburse any expense or indemnify against any loss or liability determined by a court of competent jurisdiction to have been caused by the Trustee's own negligence or bad faith. -32- To secure the Company's payment obligations in this Section 7.07, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay the principal of, premium, if any, and interest on particular Securities. The indemnity obligations of the Company with respect to the Trustee provided for in this Section 7.07 shall survive any resignation or removal of the Trustee and the termination of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(5) or (6) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law, to the extent permitted by law. SECTION 7.08. Replacement of Trustee. ---------------------- A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. The Trustee may resign by so notifying the Company in writing 30 days prior to such resignation. The Holders of a majority in aggregate principal amount of the Securities then outstanding may remove the Trustee by so notifying the Trustee and the Company in writing and may appoint a successor Trustee with the Company's consent. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the Securities then outstanding may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in aggregate principal amount of the outstanding Securities may petition at the expense of the company any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. -33- A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. The retiring Trustee shall upon payment of all amounts due it hereunder promptly transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07. SECTION 7.09. Successor Trustee by Merger, etc. -------------------------------- If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee, if such successor corporation is otherwise eligible hereunder. SECTION 7.10. Eligibility; Disqualification. ----------------------------- This Indenture shall always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1). The Trustee shall always have a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b). SECTION 7.11. Preferential Collection of Claims Against Company. ------------------------------------------------- The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311(b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated. ARTICLE EIGHT SATISFACTION AND DISCHARGE; DEFEASANCE SECTION 8.01. Termination of Company's Obligations. ------------------------------------ The Company may terminate all of its obligations, except for those set forth below, in respect of the Securities if (i) the Company delivers to the Trustee for cancellation all of the Securities theretofore authenticated (other than any Securities that have been destroyed, lost or stolen and in lieu of or in substitution for which other Securities have been authenticated and delivered) and not theretofore canceled (the "Outstanding Securities") or (ii) (a) all of the Outstanding Securities mature or will be called for redemption within one (1) year under arrangements satisfactory to the Trustee for giving notice of redemption and (b) the Company deposits with the Trustee, in trust, amounts sufficient to pay all of the principal of, premium, if any, interest and liquidated damages due to the stated maturity date or redemption date of all Outstanding Securities. -34- In addition to the foregoing, the Company may terminate its obligations under Sections 3.07, 4.03 and 4.06 (other than with respect to the corporate existence of the Company), and no Default or Event of Default under Section 6.01(3) or (4) shall thereafter apply, by (i) depositing with the Trustee, under the terms of an irrevocable trust agreement, money or direct non-callable obligations of the United States of America for the payment of which the full faith and credit of the United States is pledged ("U. S. Government Obligations") sufficient (without reinvestment), in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay the principal of, premium, if any, and interest on the Securities at maturity or an earlier redemption, (ii) delivering to the Trustee either an Opinion of Counsel or a ruling obtained by the Company from or published by the Internal Revenue Service to the effect that the Holders of the Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and termination of obligations and (iii) delivering to the Trustee an Officers' Certificate and an Opinion of Counsel each stating compliance with all conditions precedent provided for herein. In addition, the Company may, provided that no Default or Event of Default has occurred and is continuing or would arise therefrom (or, with respect to a Default or Event of Default specified in Section 6.01(5), occurs at any time on or prior to the 91st calendar day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until after such 91st day)), terminate all of its obligations, except for those set forth below, in respect of the Securities (including its obligations to pay the principal of, premium, if any, and interest on the Securities) by (i) depositing with the Trustee, under the terms of an irrevocable trust agreement, money or United States Government Obligations sufficient (without reinvestment) to pay the principal of, premium, if any, and interest on the Securities at maturity or on earlier redemption, (ii) delivering to the Trustee either a ruling obtained by the Company from or published by the Internal Revenue Service to the effect that the Holders of the Securities will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and termination of obligations or an Opinion of Counsel addressed to the Trustee based upon such a ruling or based on a change in the applicable Federal tax law since the date of this Indenture to such effect and (iii) delivering to the Trustee an Officers' Certificate and an Opinion of Counsel each stating compliance with all conditions precedent provided for herein. Notwithstanding the foregoing three paragraphs, the Company's obligations in Article Ten and Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.11, 2.12 (but not with respect to termination of obligations pursuant to the foregoing paragraph), 2.13 and 4.01 (but not with respect to termination of obligations pursuant to the foregoing paragraph), 4.02, 7.07, 7.08, 8.03 and 8.04 shall survive until the Securities are no longer outstanding. Thereafter the Company's obligations in Sections 7.07, 8.03 and 8.04 shall survive such satisfaction and discharge. After such delivery or irrevocable deposit and delivery of an Officers' Certificate and Opinion of Counsel, the Trustee upon request shall acknowledge in writing the discharge of the Company's obligations under the Securities and this Indenture except for those surviving obligations specified above. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the United States Government Obligations deposited pursuant -35- to this Section 8.01 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Securities. SECTION 8.02. Application of Trust Money. -------------------------- Subject to the provisions of Section 8.03, the Trustee shall hold in trust money or U.S. Government Obligations deposited with it pursuant to Section 8.01. It shall apply the deposited money and the money from U.S. Government obligations through the Paying Agent and in accordance with this Indenture to the payment of the principal of, premium, if any, and interest on the Securities. SECTION 8.03. Repayment to Company. -------------------- The Trustee and the Paying Agent shall promptly pay to the Company upon request any excess money or securities held by them at any time. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of the principal of, premium, if any, and interest that remains unclaimed for two years; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may, at the expense of the Company, cause to be mailed to each Holder, notice stating that such money remains and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing, any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another Person. SECTION 8.04. Reinstatement. ------------- If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 8.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.01 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 8.01; provided, however, that to the extent the Company makes any payment of the principal of, premium, if any, and interest on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. ARTICLE NINE AMENDMENTS SECTION 9.01. Without Consent of Holders. -------------------------- The Company, when authorized by a Board Resolution, may modify, amend or supplement this Indenture or the Securities without notice to or the consent of any Holder: -36- (1) to comply with the provisions of the TIA: (2) to cure any ambiguity, omission, defect or inconsistency; (3) to appoint a successor Trustee; (4) to comply with Sections 5.01 and 10.07; (5) to provide for uncertificated Securities in addition to certificated Securities; or (6) to make any change that does not adversely affect the rights of any Holder. SECTION 9.02. With Consent of Holders. ----------------------- The Company, when authorized by a Board Resolution, may modify, amend or supplement this Indenture or the Securities without notice to any Holder but with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Securities. Subject to Section 6.07, the Holders of a majority in aggregate principal amount of the outstanding Securities may waive compliance by the Company with any provision of this Indenture or the Securities without notice to any other Holder. However, without the consent of each Holder directly affected thereby, an amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may not: (1) change the stated maturity of the Securities; (2) reduce the principal, premium, if any, or interest on the Securities; (3) change the place of payment from New York, New York or change the currency in which the Securities are payable; (4) waive a default in the payment of the principal of, premium, if any, or interest on any Security; (5) make any change in Section 6.04, Section 6.07 or this Section 9.02; (6) modify the ranking of the Securities in a materially adverse manner to the Holders; or (7) make any change that adversely affects the right to convert any Security. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or supplement, but it shall be sufficient if such consent approves the substance thereof. -37- Promptly after an amendment under this Section 9.02 becomes effective, the Company (or the Trustee on behalf of the Company) shall mail to Holders a notice briefly describing the amendment. SECTION 9.03. Compliance with Trust Indenture Act. ----------------------------------- Every amendment, waiver or supplement to this Indenture or the Securities shall comply with the TIA as then in effect. SECTION 9.04. Revocation and Effect of Consents. --------------------------------- Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by that Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to its Security or portion of a Security if the Trustee receives the notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. After an amendment, supplement or waiver becomes effective with respect to the Securities, it shall bind every Holder unless it makes a change described in any of clauses (1) through (7) of Section 9.02. In that case the amendment, supplement or waiver shall bind each Holder of a Security who has consented to it and, provided that notice of such amendment, supplement or waiver is reflected on a Security that evidences the same debt as the consenting Holder's Security, every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security. SECTION 9.05. Notation on or Exchange of Securities. ------------------------------------- If an amendment, supplement or waiver changes the terms of a Security, the Trustee may require the Holder of the Security to deliver, and the Holder shall deliver, it to the Trustee. The Trustee may place an appropriate notation on the Security as directed and prepared by the Company about the changed terms and return it to the Holder. Alternatively, if the Company so determines, the Company in exchange for the Security shall issue and the Trustee shall authenticate a new Security that reflects the changed terms. SECTION 9.06. Trustee Protected. ----------------- The Trustee may, but shall not be obligated to, sign any amendment, supplement or waiver authorized pursuant to this Article that affects the Trustee's rights, duties or obligations. The Trustee shall be entitled to receive and may conclusively rely upon, in addition to the documents required by Section 11.04, an Opinion of Counsel and an Officers' Certificate that any supplemental indenture, modification, amendment or waiver complies with the Indenture. -38- ARTICLE TEN CONVERSION SECTION 10.01. Conversion Privilege; Restrictive Legends. ----------------------------------------- A Holder of a Security may convert the principal of such Security into Common Stock at any time during the period stated in paragraph 9 of the Securities. The number of shares issuable upon conversion of a Security is determined as follows: divide each $1,000 of the principal amount to be converted by the Conversion Price in effect on the conversion date and round the result to the nearest 1/100th of a share. The Conversion Price is subject to adjustment in accordance with Section 10.06. A Holder may convert a portion of the principal of such Security if the portion is $1,000 principal amount or an integral multiple of $1,000 principal amount. Provisions of this Indenture that apply to conversion of all of a Security also apply to conversion of a portion of it. Any shares issued upon conversion of a Security shall bear the Private Placement Legend set forth in Exhibit B(I) until after the second anniversary of the later of the Issue Date for such Security and the last date on which the Company or any Affiliate of the Company was the owner of such shares or the Security (or any predecessor security) from which such shares were converted (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder or such longer period of time as may be required under the Securities Act or applicable state securities laws unless otherwise agreed by the Company and the Holder thereof). SECTION 10.02. Conversion Procedure. -------------------- To convert a Security a Holder must satisfy the requirements in paragraph 9 of the Securities. The date on which the Holder satisfies all those requirements is the conversion date. As soon as practicable, the Company shall deliver to the Holder through the Conversion Agent a certificate for the number of full shares of Common Stock issuable upon the conversion and a check in lieu of any fractional share. The Person in whose name the certificate is registered shall be treated as a shareholder of record on and after the conversion date. Except as described below, no payment or adjustment will be made for accrued interest on, or liquidated damages with respect to, a converted Security or for dividends on any Common Stock issued on conversion. If any Security is converted during the period from but excluding, a record date for the payment of interest to, but excluding, the next succeeding interest payment date, unless such Security has been called for redemption on a redemption date between such dates, such Security must be accompanied by funds equal to the interest payable to the registered Holder on such interest payment date on the principal amount so converted. A Security converted on an interest payment date need not be accompanied by any payment, and the interest on the principal amount of the Security being converted will be paid on such interest payment date to the registered Holder of such Security on the applicable record date. -39- If a Holder converts more than one Security at the same time, the number of full shares issuable upon the conversion shall be based on the total principal amount of the Securities converted. Upon surrender of a Security that is converted in part the Trustee shall authenticate for the Holder a new Security equal in principal amount to the unconverted portion of the Security surrendered. If the last day on which a Security may be converted is a Legal Holiday in a place where a Conversion Agent is located, the Security may be surrendered to that Conversion Agent on the next succeeding day that is not a Legal Holiday. SECTION 10.03. Fractional Shares. ----------------- The Company will not issue fractional shares of Common Stock upon conversion of Securities and instead will deliver a cash adjustment in lieu of the fractional share based upon the current market value of the Common Stock. The current market value of a fraction of a share is determined by multiplying the current market price of a full share by the fraction, and rounding the result to the nearest cent. For purposes of this Section, the current market price of a share of Common Stock is the Closing Price of the Common Stock on the Trading Day immediately preceding the conversion date. SECTION 10.04. Taxes on Conversion. ------------------- If a Holder converts its Security, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock upon the conversion. However, the Holder shall pay any such tax which is due because the shares are issued in a name other than the Holder's name. SECTION 10.05. Company to Provide Stock. ------------------------ The Company shall reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion of all of the Securities, including such greater number of shares of Common Stock into which such Securities shall be convertible into as a result of a Conversion Price adjustment contemplated by Section 10.06 hereof. All shares of Common Stock which may be issued upon conversion of the Securities shall be validly issued, fully paid and non-assessable. The Company will endeavor to comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of Securities and will endeavor to list such shares on each national securities exchange on which the Common Stock is listed. -40- SECTION 10.06. Adjustment of Conversion Price. ------------------------------ The Conversion Price shall be adjusted from time to time by the Company as follows: (a) In case the Company shall hereafter pay a dividend or make a distribution to all holders of the outstanding Common Stock in shares of Common Stock, the Conversion Price in effect at the opening of business on the date following the Record Date with respect to shareholders entitled to receive such dividend or other distribution shall be reduced by multiplying such Conversion Price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date fixed for such determination and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such reduction to become effective immediately after the opening of business on the day following the Record Date. If any dividend or distribution of the type described in this Section 10.06(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price on the Record Date fixed for the determination of shareholders entitled to receive such rights or warrants, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect at the opening of business on the date after such Record Date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date plus the number of shares which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such Current Market Price, and of which the denominator shall be the number of shares of Common Stock outstanding on the close of business on the Record Date plus the total number of additional shares of Common Stock so offered for subscription or purchase. Such adjustment shall become effective immediately after the opening of business on the day following the Record Date fixed for determination of shareholders entitled to receive such rights or warrants. To the extent that shares of Common Stock are not delivered pursuant to such rights or warrants, upon the expiration or termination of such rights or warrants the Conversion Price shall be readjusted to the Conversion Price that would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered. In the event that such rights or warrants are not so issued, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such date fixed for the determination of shareholders entitled to receive such rights or warrants had not been fixed. In determining whether any rights or warrants entitle the holders to subscribe for or purchase shares of Common Stock at less than such Current Market Price, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants, the value of such consideration, if other than cash, to be determined in good faith by the Board of Directors. -41- (c) In case the outstanding shares of Common Stock shall be split or subdivided into a greater number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (d) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock shares of any class of Capital Stock of the Company (other than any dividends or distributions to which Section 10.06(a) applies) or evidences of its indebtedness, cash or other assets (including securities, but excluding (1) any rights or warrants referred to in Section 10.06(b), (2) dividends and distributions paid exclusively in cash and (3) any Capital Stock, evidences of indebtedness, cash or assets distributed upon a merger or consolidation to which Section 10.07 applies) (the foregoing hereinafter in this Section 10.06(d) called the "Subject Securities"), unless the Company elects to reserve such Subject Securities for distribution to the Holders upon conversion of the Securities so that any such Holder converting Securities will receive upon such conversion, in addition to the shares of Common Stock to which such Holder is entitled, the amount and kind of such Subject Securities which such Holder would have received if such Holder had converted its Securities into Common Stock immediately prior to the Record Date for such distribution of the Subject Securities, then, in each such case, the Conversion Price shall be reduced so that, as of the Record Date for such distribution of Subject Securities, the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date with respect to such distribution by a fraction of which the numerator shall be the Current Market Price on such date less the fair market value on such date of the portion of the Subject Securities so distributed applicable to one share of Common Stock and the denominator shall be such Current Market Price, such reduction to become effective immediately prior to the opening of business on the day following the Record Date; provided, however, that in the event the then fair market value of the portion of the Subject Securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price on the Record Date, then in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Security (or any portion thereof) the amount of Subject Securities such Holder would have received had such Holder converted such Security (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. For purposes of this Section 10.06(d), rights or warrants distributed by the Company to all holders of Common Stock entitling the holders thereof to subscribe for or purchase shares of the Company's Capital Stock (either initially or under certain circumstances) that are (i) deemed to be transferred with such shares of Common Stock; (ii) not exercisable; and -42- (iii) issued in respect of future issuances of Common Stock, until the occurrence of a specified event or events ("Trigger Event") shall be deemed not to have been distributed and no adjustment to the Conversion Price with respect thereto shall be made until the occurrence of the earliest Trigger Event. If any such right or warrant is subject to subsequent events, upon the occurrence of which such right or warrant shall become exercisable to purchase different securities, evidences of indebtedness or other assets or entitle the holder to purchase a different number or amount of the foregoing or to purchase any of the foregoing at a different purchase price, then the occurrence of each such event shall be deemed to be the date of issuance and record date with respect to a new right or warrant (and a termination or expiration of the existing right or warrant without exercise by the holder thereof). In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event (of the type described in the preceding sentence) with respect thereto, that resulted in an adjustment to the Conversion Price under this Section 10.06(d), (1) in the case of any such rights or warrants which shall all have been redeemed or repurchased without exercise by any holders thereof, the Conversion Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution, equal to the per share redemption or repurchase price received by a holder of Common Stock with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants all of which shall have expired or been terminated without exercise, the Conversion Price shall be readjusted as if such rights and warrants had never been issued. For purposes of this Section 10.06(d) and Sections 10.06(a) and (b), any dividend or distribution to which this Section 10.06(d) is otherwise applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock applies (or both), shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, assets, shares of Capital Stock, rights or warrants (other than such shares of Common Stock or rights or warrants) (and any Conversion Price reduction required by this Section 10.06(d) with respect to such dividend or distribution shall then be made) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (and any further Conversion Price reduction required by Sections 10.06(a) and (b) with respect to such dividend or distribution shall then be made), except (A) the Record Date of such dividend or distribution shall be substituted as "the date fixed for the determination of shareholders entitled to receive such dividend or other distribution", "Record Date fixed for such determination" and "Record Date" within the meaning of Section 10.06(a) and as "the date fixed for the determination of shareholders entitled to receive such rights or warrants", "the Record Date fixed for the determination of the shareholders entitled to receive such rights or warrants" and "such Record Date" within the meaning of Section 10.06(b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed "outstanding at the close of business on the Record Date fixed for such determination" within the meaning of Section 10.06(a). With respect to any shareholder rights plan existing on the date hereof or in the event that the Company implements any other shareholder rights plan, upon conversion of the Secu- -43- rities the Holders will receive, in addition to the Common Stock issuable upon such conversion, the rights issued under such rights plan (notwithstanding the occurrence of an event causing such rights to separate from the Common Stock at or prior to the time of conversion); provided, a Holder who is a holder of Common Stock (or direct or indirect interests therein) at the time of conversion, but who is not entitled as such a holder to such rights pursuant to the terms of any such plan, shall not be eligible to receive any such rights hereunder. Any distribution of rights or warrants pursuant to a shareholder rights plan complying with the requirements set forth in the immediately preceding sentence of this paragraph shall not constitute a distribution of rights or warrants for the purposes of the other provisions of Section 10.06(b) or this Section 10.06(d). (e) In case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock cash (excluding any cash that is distributed upon a merger or consolidation to which Section 10.07 applies or as part of a distribution referred to in Section 10.06(d)), in an aggregate amount that, combined together with (1) the aggregate amount of all other such all-cash distributions to all holders of its Common Stock within the twelve (12) months preceding the date of payment of such distribution, and in respect of which no adjustment has been made, and (2) the aggregate of any cash plus the fair market value of consideration payable in respect of any tender offer by the Company or any subsidiary for all or any portion of the Common Stock concluded within the twelve (12) months preceding the date of payment of such distribution, and in respect of which no adjustment has been made (such aggregate amount, the "Common Dividend Amount"), exceeds 15% of the product of the Current Market Price on the Record Date with respect to such distribution times the number of shares of Common Stock outstanding on such date (the "Market Capitalization"), then, and in each such case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date for such cash dividend or distribution by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the amount by which the Common Dividend Amount exceeds 15% of the Market Capitalization and (y) the number of shares of Common Stock outstanding on the Record Date and (ii) the denominator of which shall be equal to the Current Market Price on such date; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price of the Common Stock on the Record Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive upon conversion of a Security (or any portion thereof) the amount of cash such Holder would have received had such holder converted such Security (or portion thereof) immediately prior to such Record Date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (f) In case a tender offer made by the Company or any subsidiary for all or any portion of the Common Stock shall expire and such tender offer shall require the payment to holders of Common Stock of an aggregate consideration that together with -44- (1) the aggregate of the cash plus the fair market value of consideration payable in respect of any other tender offers by the Company or any of its subsidiaries for all or any portion of the Common Stock expiring within the twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment has been made, and (2) the aggregate amount of any all-cash distributions to all holders of the Company's Common Stock made within twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment has been made, exceeds 15% of the product of the Current Market Price as of the time of expiration of such tender offer times the number of shares of Common Stock outstanding at such time, then, and in each such case, immediately prior to the opening of business on the day after the expiration of such tender offer, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the date of the expiration of such tender offer by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of expiration of the tender offer multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the date of expiration of the tender offer and the denominator shall be the sum of (x) the fair market value of the aggregate consideration payable for all shares of Common Stock validly tendered and not withdrawn as of the date of expiration of the tender offer and (y) the product of the number of shares of Common Stock outstanding less all shares validly tendered and not withdrawn as of the date of expiration of the tender offer and the Current Market Price of the Common Stock on the Trading Day next succeeding the date of expiration of the tender offer, such reduction (if any) to become effective immediately prior to the opening of business on the day following the date of expiration of the tender offer. In the event the Company is permanently prevented by applicable law from effecting any such purchases or all such purchases are rescinded, the Conversion Price shall again be adjusted to be the Conversion Price which would then be in effect if such tender offer had not been made. If the application of this Section 10.06(f) to any tender offer would result in an increase in the Conversion Price, no adjustment shall be made for such tender offer under this Section 10.06(f). (g) For purposes of this Section 10.06, the following terms have the meanings indicated: (1) "Closing Price" with respect to any securities on any day shall mean the closing sale price regular way on such day or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in each case on the Nasdaq National Market or New York Stock Exchange, as applicable, or, if such security is not listed or admitted to trading on such Nasdaq National Market or New York Stock Exchange, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on -45- the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution. (2) "Current Market Price" shall mean the average of the Closing Prices per share of Common Stock for the ten (10) consecutive Trading Days immediately prior to the date for which a Current Market Price is required; provided, however, that: (1) if the "ex" date (as hereinafter defined) for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 10.06(a), (b), (c), (d), (e), (f) or (g) occurs during such ten consecutive Trading Days, then the Closing Price for each Trading Day prior to the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the same fraction by which the Conversion Price is so required to be adjusted as a result of such other event, (2) if the "ex" date for any event (other than the issuance or distribution requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 10.06(a), (b), (c), (d), (e), (f) or (g) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the day in question, then the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event, and (3) if the "ex" date for the issuance or distribution requiring such computation is prior to the day in question, after taking into account any adjustment required pursuant to clause (1) or (2) of this proviso, the Closing Price for each Trading Day on or after such "ex" date shall be adjusted by adding thereto the amount of any cash and the fair market value of the evidences of indebtedness, shares of Capital Stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Sections 10.06(f) or (g), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the "ex" date for any event (other than the tender offer requiring such computation) that requires an adjustment to -46- the Conversion Price pursuant to Section 10.06(a), (b), (c), (d), (e), (f) and (g) occurs on or after the date of expiration of the tender or exchange offer requiring such computation and prior to the day in question, the Closing Price for each Trading Day on and after the "ex" date for such other event shall be adjusted by multiplying such Closing Price by the reciprocal of the fraction by which the Conversion Price is so required to be adjusted as a result of such other event. For purposes of this definition, the term "ex" date, (1) when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way on the relevant exchange or in the relevant market from which the Closing Price was obtained without the right to receive such issuance or distribution, (2) when used with respect to any subdivision or combination of shares of Common Stock, means the first date on which the Common Stock trades regular way on such exchange or in such market after the time at which such subdivision or combination becomes effective, and (3) when used with respect to any tender or exchange offer means the first date on which the Common Stock trades regular way on such exchange or in such market after the Expiration Time of such offer. (3) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution. (4) "Record Date" shall mean, with respect to any dividend, distribution or other transaction or event in which the holders of Common Stock have the right to receive any cash, securities or other property or in which the Common Stock (or other applicable security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of shareholders entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or by statute, contract or otherwise). (5) "Trading Day" shall mean (x) if the applicable security is listed or admitted for trading on the New York Stock Exchange or another national security exchange, a day on which the New York Stock Exchange or such other national security exchange, as the case may be, is open for business, (y) if the applicable security is quoted on the Nasdaq National Market, a day on which trades may be made thereon or (z) if the applicable security is not so listed, admitted for trading or quoted, any day other than a Saturday or Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close. (h) The Company may make such reductions in the Conversion Price, in addition to those required by Sections 10.06(a), (b), (c), (d), (e) and (f), as the Board of Directors considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. -47- To the extent permitted by applicable law, the Company from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days and the reduction is irrevocable during the period. Whenever the Conversion Price is reduced pursuant to the preceding sentence, the Company shall mail to the Holder of each Security at his last address appearing on the register maintained by the Registrar a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. (i) No adjustment in the Conversion Price pursuant to this Section 10.06 shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustment that would otherwise be required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article Ten shall be made by the Company and shall be made to the nearest cent or to the nearest one hundredth of a share, as the case may be. No adjustment need be made for a change in the par value or no par value of the Common Stock. (j) Whenever the Conversion Price is adjusted as herein provided, the Company shall promptly file with the Trustee, and any Conversion Agent other than the Trustee, an Officers' Certificate setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Unless and until a Trust Officer of the Trustee shall have received such Officers' Certificate, the Trustee shall not be deemed to have knowledge of any adjustment of the Conversion Price and may assume without inquiry that the last Conversion Price of which it has knowledge remains in effect. Promptly after delivery of such certificate, the Company shall prepare a notice of such adjustment of the Conversion Price setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective and shall mail such notice of such adjustment of the Conversion Price to the Holder of each Security at his last address appearing on the register maintained by the Registrar, within twenty (20) days of the effective date of such adjustment. Failure to deliver such notice shall not affect the legality or validity of any such adjustment. (k) In any case in which this Section 10.06 provides that an adjustment shall become effective immediately after a Record Date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any Security converted after such Record Date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such Holder any amount in cash in lieu of any fraction pursuant to Section 10.03. (l) For purposes of this Section 10.06, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. -48- SECTION 10.07. Effect of Reclassification, Consolidation, Merger or Sale. --------------------------------------------------------- In the case of (i) any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), (ii) any consolidation, merger or combination of the Company with another corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock or (iii) any sale or conveyance of the properties and assets of the Company as, or substantially as, an entirety to any other corporation as a result of which holders of Common Stock shall be entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then, unless an adjustment with respect thereto shall be made pursuant to Section 10.06, the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture providing that the Securities shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) receivable upon such reclassification, change, consolidation, merger, combination, sale or conveyance by a holder of a number of shares of Common Stock issuable upon conversion of such Securities immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance. Such supplemental indenture shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article Ten. If, in the case of any such reclassification, change, consolidation, merger, combination, sale or conveyance, the stock or other securities and assets receivable thereupon by a holder of shares of Common Stock include shares of stock or other securities and assets of a Person other than the successor or purchasing corporation, as the case may be, in such reclassification, change, consolidation, merger, combination, sale or conveyance, then such supplemental indenture shall also be executed by such other Person and shall contain such additional provisions to protect the interests of the Holders as the Board of Directors shall reasonably consider necessary by reason of the foregoing. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder of Securities, at its address appearing on the register maintained by the Registrar, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. SECTION 10.08. Notice of Certain Transactions. ------------------------------ If: (1) the Company proposes to take any action that would require an adjustment in the conversion rate; (2) the Company proposes to take any action that would require a supplemental indenture pursuant to Section 10.07; or -49- (3) there is a proposed liquidation, winding up or dissolution of the Company, the Company shall mail to Holders a notice stating the proposed record date for a dividend or distribution or the proposed effective date of a subdivision, combination, reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. The Company shall mail the notice at least 10 days before such date. Failure to mail the notice or any defect in it shall not affect the validity of the transaction. SECTION 10.09. Company Determination Final. --------------------------- Any determination that the Board of Directors makes pursuant to this Article Ten is conclusive, absent manifest error. SECTION 10.10. Trustee's Disclaimer. -------------------- The Trustee has no duty to determine when an adjustment under this Article or under the terms of the Securities should be made, how it should be made or what it should be. Such information shall be timely provided to the Trustee in an Officers' Certificate. The Trustee has no duty to determine whether any provisions of a supplemental indenture under Section 10.07 are correct. The Trustee makes no representation as to the validity or value of any securities or assets issued upon conversion of Securities. The Trustee shall not be responsible for the Company's failure to comply with this Article. Each Conversion Agent other than the Company shall have the same protection under this Section 10.10 as the Trustee. ARTICLE ELEVEN MISCELLANEOUS SECTION 11.01. Trust Indenture Act Controls. ---------------------------- If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. SECTION 11.02. Notices. ------- Any notice, request or communication by the Company or the Trustee to the other is duly given if in writing and delivered in person, mailed by first-class mail or by express delivery to the other's address stated in this Section 11.02. The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication to a Holder shall be mailed by first-class mail or by express delivery to its address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. -50- If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. All notices or communications shall be in writing. The Company's address is: Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Attention: General Counsel With a copy to (which shall not constitute required notice): Drinker Biddle & Reath, LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103-6996 Attention: F. Douglas Raymond, III, Esq. The Trustee's address is: Wachovia Bank, National Association 123 South Broad Street Mail PA 1249 Philadelphia, PA 19109 Attention: Corporate Trust Administration SECTION 11.03. Communication by Holders with Other Holders. ------------------------------------------- Holders may communicate pursuant to TIA ss. 312(b) with other Holders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). SECTION 11.04. Certificate and Opinion as to Conditions Precedent. -------------------------------------------------- Upon any request or application by the Company to the Trustee to take any action under this Indenture the Company shall furnish to the Trustee: -51- (1) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each signer of an Officers' Certificate or an Opinion of Counsel may (if so stated) rely, effectively, upon an Opinion of Counsel as to legal matters and an Officers' Certificate as to factual matters if such signer reasonably and in good faith believes in the accuracy of the document relied upon. SECTION 11.05. Statements Required in Certificate or Opinion. --------------------------------------------- Each Officers' Certificate or Opinion of Counsel with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 11.06. Rules by Trustee and Agents. --------------------------- The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar, Paying Agent or Conversion Agent may make reasonable rules and set reasonable requirements for their respective functions. SECTION 11.07. Legal Holidays. -------------- A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions are not required to be open in The City of New York, in the State of New York or in the city in which the Trustee administers its corporate trust business. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on that payment for the intervening period. A "Business Day" is a day other than a Legal Holiday. -52- SECTION 11.08. No Recourse Against Others. -------------------------- No past, present or future director, officer, employee or shareholder, as such, of the Company shall have any liability for any obligations of the Company under the Securities or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. SECTION 11.09. Duplicate Originals. ------------------- The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. SECTION 11.10. Governing Law. ------------- The laws of the State of New York, without regard to principles of conflicts of law, shall govern this Indenture and the Securities. SECTION 11.11. No Adverse Interpretation of Other Agreements. --------------------------------------------- Another indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.12. Successors. ---------- All agreements of the Company in this Indenture and the Securities shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.13. Separability. ------------ In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and a Holder shall have no claim therefor against any party hereto. SECTION 11.14. Table of Contents, Headings, etc. -------------------------------- The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. S-1 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first above written. CHARMING SHOPPES, INC. By: /s/ Eric M. Specter ------------------------------------------ Name: Eric M. Specter Title: Executive Vice President and Chief Financial Officer WACHOVIA BANK, NATIONAL ASSOCIATION as Trustee (formerly known as First Union National Bank) By: /s/ George J. Rayzis ------------------------------------------ Name: George J. Rayzis Title: Vice President EXHIBIT A REGISTERED [Face of Security] NUMBER $ CUSIP______________ CHARMING SHOPPES, INC. 4.75% SENIOR CONVERTIBLE NOTE DUE 2012 CHARMING SHOPPES, INC., a Pennsylvania corporation (herein called the "Company"), for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of [AMOUNT] Dollars on June 1, 2012, and to pay interest thereon as provided below and on the reverse hereof on the principal sum, until the principal hereof and any unpaid and accrued interest is paid or duly provided for. Interest Payment Dates: June 1 and December 1, with the first payment to be made on December 1, 2002. Record Dates: May 15 and November 15. A-1 IN WITNESS WHEREOF, CHARMING SHOPPES, INC. has caused this instrument to be duly signed. CHARMING SHOPPES, INC. By: ------------------------------ Name: Title: By: ------------------------------ Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Securities referred to in the within-mentioned Indenture. WACHOVIA BANK, NATIONAL ASSOCIATION, as Trustee By: ------------------------------------------------ Authorized Officer A-2 [REVERSE OF SECURITY] CHARMING SHOPPES, INC. 4.75% SENIOR CONVERTIBLE NOTE DUE 2012 1. Interest. Charming Shoppes, Inc., a Pennsylvania corporation (the "Company"), promises to pay interest on the principal amount of this Security at the rate per annum shown above. The Company will pay interest semi-annually in arrears on June 1 and December 1 of each year, with the first payment to be made on December 1, 2002. Interest on the Securities will accrue on the principal amount from the most recent date to which interest has been paid or duly provided for or, if no interest has been paid, from the original date of issuance. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. Maturity. The Securities will mature on June 1, 2012 unless earlier converted, redeemed or repurchased pursuant to the terms hereof and the Indenture (as defined below). 3. Method of Payment. The Company will pay interest on the Securities to the Persons who are registered Holders of Securities at the close of business on the record date set forth on the face of this Security next preceding the applicable interest payment date except: (i) defaulted interest, which shall be paid as set forth in Section 2.12 of the Indenture, (ii) interest payable upon redemption or repurchase, unless the date of redemption or repurchase is an interest payment date, will be payable to the Person to whom the principal is payable and (iii) in the case of any Security or portion of any Security that is converted into Common Stock during the period from, but excluding, a record date for any interest payment date to, but excluding, that interest payment date, (A) if the Company has sent a notice of redemption with respect to such Security, or portion of such Security, for a redemption date that occurs during that period, or if the Company has sent a Company Notice respecting a Repurchase Date for such Security, or portion of such Security, that occurs during that period, then the Company will not be required to pay interest on that interest payment date in respect of such Security, or portion of such Security, that is converted rather than redeemed or repurchased; or (B) if no such notice of redemption or Company Notice has been sent during that period with respect to such Security or portion of such Security, then such Security or portion of such Security that is submitted for conversion during that period must be accompanied by funds equal to the interest payable on that interest payment date on the principal amount so converted. Holders must surrender Securities to a Paying Agent to collect the principal payments. The Company will pay the principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender. Principal and interest may, at the Company's option, be paid either (i) by check mailed to the address of the Person entitled to the interest as it appears in the register kept by the Registrar (provided (a) payments to the Depositary will be made by wire transfer of immediately available funds to the account of the Depositary or its nominee and (b) a Holder with an aggregate principal amount of Securities in excess of $10 million will, at the written election of the Holder, filed on or before the relevant record date with the Trustee, be paid by wire transfer in immediately available funds); or (ii) by transfer to an account maintained by that Person located in the U.S. 4. Paying Agent, Registrar, Conversion Agent. Initially, Wachovia Bank, National Association (the "Trustee"), will act as Paying Agent, Registrar and Conversion Agent. The A-3 Company may change any Paying Agent, Registrar or Conversion Agent without notice. The Company may act in any such capacity. 5. Indenture. The Company issued the Securities under an Indenture dated as of May 28, 2002 (the "Indenture") between the Company and the Trustee. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) (the "Act") as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, the "Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. The Securities are subject to all such terms, and Holders are referred to the Indenture and the Act for a statement of such terms. The Securities are unsecured general obligations of the Company limited to a maximum of $130,000,000 aggregate principal amount (plus such additional amount (up to an aggregate of $20,000,000) purchased by the Initial Purchasers pursuant to the option described in Section 2.02 of the Indenture), except as otherwise provided in the Indenture (except for Securities issued in substitution for destroyed, mutilated, lost or stolen Securities). Terms used herein which are defined in the Indenture have the meanings assigned to them in the Indenture. 6. Optional Redemption by the Company. At any time on or after June 4, 2007, the Company may redeem the Securities on at least 20 days' notice as a whole or, from time to time, in part at the following prices, expressed as a percentage of the principal amount, together with accrued interest to, but excluding, the date fixed for redemption:
Redemption Period Price - ------ ---------- Beginning June 4, 2007 and ending on May 31, 2008 ...................... 102.38% Beginning June 1, 2008 and ending on May 31, 2009 ...................... 101.90% Beginning June 1, 2009 and ending on May 31, 2010 ...................... 101.43% Beginning June 1, 2010 and ending on May 31, 2011 ...................... 100.95% Beginning June 1, 2011 and ending on May 31, 2012 ...................... 100.48%
Subject to Section 3 above, any accrued interest becoming due on the date fixed for redemption will be payable to the holders of record on the relevant record date of the Securities being redeemed. 7. Notice of Redemption. Notice of redemption pursuant to paragraph 6 will be mailed at least 20 days before the redemption date to each Holder of Securities to be redeemed at its registered address. Securities in denominations larger than $1,000 principal amount may be redeemed in part but only in whole multiples of $1,000 principal amount. On and after the redemption date interest ceases to accrue on Securities or portions of them called for redemption. 8. Repurchase at Option of Holder. Pursuant to Section 3.07 of the Indenture within 10 Business Days after the Company becomes aware that a Repurchase Event has occurred, the Company is required to give notice of the Repurchase Event to the Holders. Each Holder has the right, at its option, to require the Company to repurchase all or any portion of the Securities by delivering notice on or before the 30th Business Day after the notice of Repurchase Event is mailed. The Repurchase Price will be 100% of the principal amount of the Securities submitted for repurchase, plus accrued and unpaid interest to, but excluding, the Repurchase Date. If a Repurchase Date is an interest payment date, then the interest payable on that date will be paid to the holder of record on the A-4 relevant record date. Subject to the conditions of Section 3.07 of the Indenture, the Company, at its option, instead of paying the Repurchase Price in cash, may pay the Repurchase Price in Common Stock, valued at 95% of the average of the Closing Prices for the five Trading Days immediately before and including the third Trading Day preceding the Repurchase Date. 9. Conversion. A Holder of a Security may convert the principal of such Security into Common Stock at any time after the date of original issuance of the Security to the close of business on the business day prior to June 1, 2012, or (x) if the Security is called for redemption by the Company, the Holder may convert it at any time before the close of business on the date that is one business day before the date fixed for such redemption, or (y) if a Holder exercises its repurchase right, the right to convert the principal amount of the Securities to be repurchased will terminate, unless and until it withdraws such election. The initial Conversion Price is $9.88 per share of Common Stock, subject to adjustment in certain circumstances as set forth in Section 10.06 of the Indenture. To determine the number of shares issuable upon conversion of a Security, divide each $1,000 of the principal amount to be converted by the Conversion Price in effect on the conversion date and round the result to the nearest 1/100th share. The Company is not required to issue fractional shares of Common Stock upon conversion and, instead, will pay a cash amount as provided in Section 10.03 of the Indenture. Except as provided in Article Ten of the Indenture, no payment or adjustment for the principal of, premium, if any, interest on or liquidated damages with respect to, the Securities so converted or for dividends on any Common Stock will be made. If a Holder surrenders a Security for conversion between the record date for the payment of interest and the next interest payment date, such Security, when surrendered for conversion, must be accompanied by payment of an amount equal to the interest thereon which the registered Holder on such record date is to receive. A Security that the Holder has elected to be repurchased may be converted only if the Holder withdraws its election to have such Security repurchased in accordance with the terms of the Indenture before the close of business on the business day prior to the Repurchase Date. To convert a Security a Holder must complete and sign the Conversion Notice, with appropriate signature guarantee, on the back of the Security and surrender the Security to a Conversion Agent, together with (1) the appropriate endorsements and transfer documents if required by the Registrar or Conversion Agent, (2) payment of the amount of interest, if any, the Holder may be paid as provided in the last sentence of the above paragraph and (3) payment of any transfer or similar tax if required. A Holder may convert a portion of a Security if the portion is $1,000 principal amount or an integral multiple of $1,000 principal amount. Any shares issued upon conversion of a Security shall bear the Private Placement Legend until after the second anniversary of the later of the issue date for the Securities and the last date on which the Company or any Affiliate of the Company was the owner of such shares or the Security (or any predecessor security) from which such shares were converted (or such shorter period of time as permitted by Rule 144(k) under the Securities Act or any successor provision thereunder) (or such longer period of time as may be required under the Securities Act or applicable state securities laws as set forth in the Opinion of Counsel delivered to the Conversion Agent, unless otherwise agreed by the Company and the Holder thereof). 10. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 principal amount and whole multiples of $1,000 principal amount. The transfer of Securities may be registered and Securities may be exchanged as provided in the Indenture. The Registrar may require a Holder, among other things, to furnish appropri- A-5 ate endorsements and transfer documents. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Registrar need not exchange or register the transfer of any Security selected for redemption in whole or in part. Also, it need not exchange or register the transfer of any Securities for a period of 15 days before the mailing of a notice of redemption of the Securities selected to be redeemed. 11. Persons Deemed Owners. The registered Holder of a Security may be treated as the owner of such Security for all purposes. 12. Merger or Consolidation. The Company shall not consolidate with, or merge into, or transfer or lease all or substantially all of its assets to, any Person unless, among other things, the Person is organized under the laws of the United States, any State thereof or the District of Columbia and such Person assumes by supplemental indenture all the obligations of the Company under the Securities, the Indenture and the Registration Rights Agreement and after giving effect to the transaction no Default or Event of Default exists. 13. Amendments, Supplements and Waivers. Subject to certain exceptions, the Indenture or the Securities may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the Securities then outstanding, and any existing Default or Event of Default may be waived with the consent of the Holders of a majority in aggregate principal amount of the Securities then outstanding. Without notice to or the consent of any Holder, the Indenture or the Securities may be amended or supplemented, among other things, to cure any ambiguity, omission, defect or inconsistency, to provide for uncertificated Securities in addition to certificated Securities, to comply with Sections 5.01 and 10.07 of the Indenture or to make any change that does not adversely affect the rights of any Holder. 14. Defaults and Remedies. An Event of Default includes the occurrence of any or the following: default in payment of the principal of or any premium on the Securities; default for 30 days in payment of interest; failure by the Company for 90 days after notice to it to comply with any of its other agreements in the Indenture or the Securities; any indebtedness under any bonds, debentures, notes or other evidences of indebtedness for money borrowed, or any guarantee thereof, by the Company or any of its Significant Subsidiaries, in an aggregate principal amount in excess of $50 million is not paid when due either at its stated maturity or upon acceleration thereof, and such indebtedness is not discharged, or such acceleration is not rescinded or annulled within a period of 30 days after notice as provided in Section 6.01 of the Indenture; and certain events of bankruptcy or insolvency. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the Securities then outstanding may declare all the Securities to be due and payable, subject to certain limitations contained in the Indenture. Holders may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default or Event of Default (except a Default or Event of Default in payment of principal or interest) if it determines that withholding notice is in their interests. The Company must furnish an annual compliance certificate to the Trustee. A-6 15. Registration Rights. The Holders are entitled to shelf registration rights as set forth in the Registration Rights Agreement. The Holders shall be entitled to receive liquidated damages in certain circumstances, all as set forth in the Registration Rights Agreement. 16. Trustee Dealings with Company. Except as provided in ss.77jjj of the Act, the Trustee under the Indenture, or any banking institution serving as successor Trustee thereunder, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not Trustee. 17. No Recourse Against Others. No past, present or future director, officer, employee or shareholder, as such, of the Company shall have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities. 18. Authentication. This Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 19. Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act). THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: CHARMING SHOPPES, INC. 450 Winks Lane Bensalem, Pennsylvania 19020 ATTENTION: Treasurer A-7 [FORM OF ASSIGNMENT] I or we assign to PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER - ---------------------------------------- - -------------------------------------------------------------------------------- (please print or type name and address) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- the within Security and all rights thereunder, and hereby irrevocably constitutes and appoints - -------------------------------------------------------------------------------- attorney to transfer the Security on the books of the Company with full power of substitution in the premises. Dated: ---------------------------------- ----------------------------------- NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Security in every particular without alteration or enlargement or any change whatsoever and be guaranteed by the endorser's bank or broker. Signature Guarantee: ----------------------------------------------------------- (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) In connection with any transfer of this Security occurring prior to the date which is the earlier of (i) the date of the declaration by the Commission of the effectiveness of a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering resales of this Security (which effectiveness shall not have been suspended or terminated at the date of the transfer) and (ii) the date that the undersigned confirms that it has not utilized any general solicitation or general advertising in connection with such transfer and that such transfer is being made: A-8 [Check One] (1) ____ to the Company or a subsidiary thereof; or (2) ____ pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or (3) ____ to an institutional "accredited investor" (as defined in Rule 501(a) (1), (2), (3) or (7) under the Securities Act of 1933, as amended) that has furnished to the Trustee a signed letter containing certain representations and agreements (the form of which letter can be obtained from the Trustee); or (4) ____ outside the United States to a "foreign purchaser" in compliance with Rule 904 of Regulation S under the Securities Act of 1933, as amended; or (5) ____ pursuant to the exemption from registration provided by Rule 144 under the Securities Act of 1933, as amended; or (6) ____ pursuant to an effective registration statement under the Securities Act of 1933, as amended; or (7) ____ pursuant to another available exemption from the registration statement requirements of the Securities Act of 1933, as amended. and unless the box below is checked, the undersigned confirms that such Security is not being transferred to an "affiliate" of the Company as defined in Rule 144 under the Securities Act of 1933, as amended (an "Affiliate"): [ ] The transferee is an Affiliate of the Company. (If the Security is transferred to an Affiliate, the restrictive legend must remain on the Security for two years following the date of the transfer). Unless one of the items is checked, the Trustee will refuse to register any of the Securities evidenced by this certificate in the name of any Person other than the registered Holder thereof; provided, however, that if item (3),(4),(5) or (7) is checked, the Company or the Trustee may require, prior to registering any such transfer of the Securities, in their sole discretion, such written legal opinions, certifications (including an investment letter in the case of item (3) or (4)) and other information as the Trustee or the Company have reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933, as amended. If none of the foregoing items are checked, the Trustee or Registrar shall not be obligated to register this Security in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 2.16 of the Indenture shall have been satisfied. A-9 Dated: Signed: ---------------------------- --------------------------------- (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ------------------------------------------------------------ TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Security for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ---------------------------- ---------------------------------------- NOTICE: To be executed by an executive officer Signature Guarantee: ------------------------------------------------------------ A-10 CONVERSION NOTICE To convert this Security into Common Stock of the Company, check the box: [ ] To convert only part of this Security, state the principal amount to be converted (must be in multiples of $1,000): $ ------------------------------------------------------------------------------- If you want the stock certificate made out in another person's name, fill in the form below: - -------------------------------------------------------------------------------- (Insert other person's soc. sec. or tax I.D. no.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Print or type other person's name, address and zip code) - --------------------------------------------------------------- Date: Signature(s): --------------- -------------------------------------------- -------------------------------------------- (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-11 Signature(s) guaranteed by: ----------------------------------------------------- (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-12 OPTION OF HOLDER TO ELECT PURCHASE NOTICE If you want to elect to have this Security purchased by the Company pursuant to Section 3.07 of the Indenture, check the box: [ ] If you want to elect to have only part of this Security purchased by the Company pursuant to Section 3.07 of the Indenture, state the principal amount: $ ----------------------------------- (in an integral multiple of $1,000) Date: Signature(s): --------------------- --------------------------- ---------------------------------------- (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by: ---------------------------------------- (Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.) A-13 EXHIBIT B --------- FORM OF LEGENDS I. PRIVATE PLACEMENT LEGEND Each Security issued under the Indenture shall bear a legend (and any common stock issued upon conversion of such Security shall bear a comparable legend) substantially in the following form: THIS SECURITY (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THIS SECURITY AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THIS SECURITY IS HEREBY NOTIFIED THAT THE SELLER OF THIS SECURITY MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THIS SECURITY (OR ITS PREDECESSOR) MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (3) PRIOR TO ANY TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(E) ABOVE), WILL FURNISH TO WACHOVIA BANK, NATIONAL ASSOCIATION, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, B-1 LEGAL OPINIONS OR OTHER INFORMATION AS THE TRUSTEE OR CHARMING SHOPPES MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND (4) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY. IN ANY CASE, THE HOLDER HEREOF WILL NOT, DIRECTLY OR INDIRECTLY, ENGAGE IN ANY HEDGING TRANSACTION WITH REGARD TO THIS SECURITY OR ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS SECURITY EXCEPT AS PERMITTED BY THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS SECURITY IN VIOLATION OF THE FOREGOING RESTRICTIONS. B-2 II. GLOBAL SECURITY LEGEND Any Global Security authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Security) in substantially the following form: THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 2.16 OF THE INDENTURE. B-3 EXHIBIT C --------- Form of Certificate To Be Delivered in Connection with Transfers Pursuant to Regulation S ----------------------------------- [Date] Wachovia Bank, National Association 123 South Broad Street Mail PA 1249 Philadelphia, PA 19109 Attention: Corporate Trust Administration Re: Charming Shoppes, Inc. (the "Company") 4.75% Senior Convertible Notes due 2012 (the "Securities") -------------------------------------- Ladies and Gentlemen: In connection with our proposed purchase of $[ ] aggregate principal amount of the Securities, we confirm that such purchase has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1)/a/ [We are not a U.S. person and are not acquiring the Securities for the account or benefit of any U.S. person]. [We are a U.S. person who purchased securities in a transaction that did not require registration under the Act.] (2) We agree to resell the Securities only in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act, or pursuant to an available exemption from registration; and we agree not to engage in hedging transactions with regard to such securities unless in compliance with the Securities Act. - ----------------------------------- /a/ One of the two following sentences must be used. C-1 You, the Company and counsel for the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: -------------------------------------- Authorized Signature C-2 EXHIBIT D --------- Form of Notice of Transfer Pursuant to Registration Statement ------------------------------------------------------------- [Date] Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Wachovia Bank, National Association 123 South Broad Street Mail PA 1249 Philadelphia, PA 19109 Attention: Corporate Trust Administration Re: Charming Shoppes, Inc. (the "Company") 4.75% Senior Convertible Notes Due 2012 (the "Securities") --------------------------------------- Ladies and Gentlemen: Please be advised that _____________ has transferred $___________ aggregate principal amount of the Securities or __ shares of the Company's common stock, $.001 par value per share, issuable on conversion of the Securities ("Stock") pursuant to an effective Shelf Registration Statement on Form S-3 (File No. 333- ) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933 as amended, have been satisfied with respect to the transfer described above and that the above-named beneficial owner of the Securities or Stock is named as a "Selling Security Holder" in the Prospectus dated or in amendments or supplements thereto, and that the aggregate principal amount of the Securities, or number of shares of Stock transferred are [a portion of] the Securities or Stock listed in such Prospectus, as amended or supplemented, opposite such owner's name. Very truly yours, ----------------------------------------- (Name) D-1 EXHIBIT E --------- Form of Opinion of Counsel in Connection with Registration of Securities ------------------------------------------------------------------------ [Date] Wachovia Bank, National Association 123 South Broad Street Mail PA 1249 Philadelphia, PA 19109 Attention: Corporate Trust Administration Re: Charming Shoppes, Inc. (the "Company") 4.75% Senior Convertible Notes Due 2012 (the "Securities") --------------------------------------- Ladies and Gentlemen: Reference is made to the Securities issued pursuant to a certain indenture dated as of May 28, 2002 by and between the Company and Wachovia Bank, National Association, as trustee (the "Trustee"). The Securities were issued in transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). The Company has filed with the Securities and Exchange Commission (the "SEC") a registration statement on Form S-3 (number 333-____) (the "Registration Statement") relating to the registration under the Securities Act of $[ ] principal amount of the Securities and the shares of Common Stock of the Company (the "Shares") issuable upon conversion of the Securities being registered. We have acted as counsel for the Company in connection with the issuance of the Securities and the preparation and filing of the Registration Statement and are familiar with the Securities, the Indenture, the Registration Statement and such other documents as are necessary to render this opinion. We have been orally advised by the SEC that the Indenture has been qualified under the Trust Indenture Act of 1939, as amended, and that the Registration Statement was declared effective under the Securities Act at _____, on ____________, 200_, and we have been orally advised by the SEC that no stop order suspending the effectiveness of the Registration Statement has been issued and, to the best of our knowledge, no proceedings for that purpose have been instituted or are pending or threatened by the SEC. E-1 This opinion is being furnished only to you in connection with the Indenture and is solely for your benefit and is not to be used, circulated, quoted or otherwise referred to for any other purpose or relied upon by any other person for any other purpose without our prior written consent. Yours truly, E-2 EX-4.2 4 dex42.txt REGISTRATION RIGHTS AGREEMENT DATED MAY 28, 2002 Exhibit 4.2 REGISTRATION RIGHTS AGREEMENT Dated as of May 28, 2002 By and Among CHARMING SHOPPES, INC., as Issuer and J.P. MORGAN SECURITIES INC., BEAR, STEARNS & CO. INC., FIRST UNION SECURITIES, INC., LAZARD FRERES & CO. LLC, and MCDONALD INVESTMENTS INC. as Initial Purchasers 4.75% Senior Convertible Notes due 2012 TABLE OF CONTENTS
Page ---- 1. Definitions ......................................................... 1 2. Shelf Registration .................................................. 4 3. Liquidated Damages .................................................. 6 4. Registration Procedures ............................................. 7 5. Registration Expenses ............................................... 14 6. Indemnification ..................................................... 15 7. Rules 144 and 144A .................................................. 18 8. Underwritten Registrations .......................................... 18 9. Miscellaneous ....................................................... 19 (a) No Inconsistent Agreements ................................... 19 (b) Adjustments Affecting Registrable Securities ................. 19 (c) Amendments and Waivers ....................................... 19 (d) Notices ...................................................... 19 (e) Successors and Assigns ....................................... 21 (f) Counterparts ................................................. 21 (g) Headings ..................................................... 21 (h) Governing Law ................................................ 21 (i) Severability ................................................. 21 (j) Securities Held by the Company or Its Affiliates ............. 21 (k) Third Party Beneficiaries .................................... 22 (l) Entire Agreement ............................................. 22
-i- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is dated as of May 28, 2002, by and among CHARMING SHOPPES, INC., a Pennsylvania corporation (the "Company"), J.P. MORGAN SECURITIES INC., BEAR, STEARNS & CO. INC., FIRST UNION SECURITIES, INC., LAZARD FRERES & CO. LLC and MCDONALD INVESTMENTS INC. (individually, an "Initial Purchaser" and, together, the "Initial Purchasers"). This Agreement is entered into in connection with the Purchase Agreement, dated May 21, 2002 (the "Purchase Agreement"), by and among the Company and the Initial Purchasers, which provides for the sale by the Company to the Initial Purchasers of $130,000,000 aggregate principal amount of the Company's 4.75% Senior Convertible Notes due 2012 (the "Firm Notes"), which are convertible into Common Stock of the Company, par value $.10 per share (the "Underlying Shares"), plus up to an additional $20,000,000 aggregate principal amount of the same that the Initial Purchasers may subsequently elect to purchase pursuant to the terms of the Purchase Agreement (the "Additional Notes" and, together with the Firm Notes, the "Convertible Notes"). The Convertible Notes are being issued pursuant to an indenture dated as of the date hereof (the "Indenture") between the Company and Wachovia Bank, National Association, as Trustee. In order to induce the Initial Purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement for the benefit of the Initial Purchasers and any subsequent holder or holders of the Convertible Notes or Underlying Shares. The execution and delivery of this Agreement is a condition to the Initial Purchasers' obligation to purchase the Firm Notes under the Purchase Agreement. The parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the following meanings: Agreement: See the first introductory paragraph hereto. Amount of Registrable Securities: (a) With respect to Convertible Notes constituting Registrable Securities, the aggregate principal amount of all such Convertible Notes outstanding, (b) with respect to Underlying Shares constituting Registrable Securities, the aggregate number of such Underlying Shares outstanding multiplied by the Conversion Price (as defined in the Indenture relating to the Convertible Notes upon the conversion of which such Underlying Shares were issued) in effect at the time of computing the Amount of Registrable Securities or, if no such Convertible Notes are then outstanding, the last Conversion Price that was in effect under such Indenture when any such Convertible Notes were last outstanding, and (c) with respect to combinations thereof, the sum of (a) and (b) for the relevant Registrable Securities. Business Day: Any day that is not a Saturday, Sunday or a day on which banking institutions in New York are authorized or required by law to be closed. Closing Date: May 28, 2002. Company: See the first introductory paragraph hereto. Convertible Notes: See the second introductory paragraph hereto. Damages Payment Date: See Section 3(c) hereof. Depositary: The Depository Trust Company until a successor is appointed by the Company. Effectiveness Date: The 180th day after the Closing Date. Effectiveness Period: See Section 2 hereof. Exchange Act: The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. Filing Date: The 90th day after the Closing Date. Holder: Any holder of Registrable Securities. Indemnified Holder: See Section 6 hereof. Indemnified Person: See Section 6 hereof. Indemnifying Person: See Section 6 hereof. Indenture: See the second introductory paragraph hereto. Initial Purchasers: See the first introductory paragraph hereto. Initial Shelf Registration: See Section 2(a) hereof. Inspectors: See Section 4(n) hereof. Liquidated Damages: See Section 3(a) hereof. NASD: See Section 4(q) hereof. -2- Person: An individual, partnership, corporation, limited liability company, unincorporated association, trust or joint venture, or a governmental agency or political subdivision thereof. Prospectus: The prospectus included in any Registration Statement (including, without limitation, any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus. Purchase Agreement: See the second introductory paragraph hereto. QIU: See Section 4(q) hereof. Questionnaire Deadline: See Section 2(d) hereof. Records: See Section 4(n) hereof. Registrable Securities: All Convertible Notes and all Underlying Shares upon original issuance thereof and at all times subsequent thereto until the earliest to occur of (i) a Registration Statement covering such Convertible Notes and Underlying Shares having been declared effective by the SEC and such Convertible Notes and Underlying Shares have been disposed of in accordance with such effective Registration Statement, (ii) such Convertible Notes and Underlying Shares having been sold in compliance with Rule 144 or could (except with respect to affiliates of the Company within the meaning of the Securities Act) be sold in compliance with Rule 144(k) and (iii) such Convertible Notes and any Underlying Shares cease to be outstanding. Registration Default: See Section 3(a) hereof. Registration Statement: Any registration statement of the Company filed with the SEC pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. Rule 144: Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer of such securities being free of the registration and prospectus delivery requirements of the Securities Act. -3- Rule 144A: Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC. Rule 415: Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. SEC: The Securities and Exchange Commission. Securities Act: The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. Shelf Registration: See Section 2(b) hereof. Shelf Registration Statement: See Section 2(b) hereof. Subsequent Shelf Registration: See Section 2(b) hereof. TIA: The Trust Indenture Act of 1939, as amended, and the rules and regulations of the SEC promulgated thereunder. Trustee: The Trustee under the Indenture. Underlying Shares: See the second introductory paragraph hereto. Underwritten registration or underwritten offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. 2. Shelf Registration. (a) Shelf Registration. The Company shall file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Securities (the "Initial Shelf Registration") on or prior to the Filing Date. The Initial Shelf Registration shall be on Form S-3 or another appropriate form permitting registration of such Registrable Securities for resale by Holders in the manner or manners designated by them. The Company shall not permit any securities other than the Registrable Securities to be included in the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below). The Company shall use its reasonable best efforts to cause the Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date and to keep such Initial Shelf Registration continuously effective under the Securities Act until the date that is two years from the Closing Date (as it may be shortened pursuant to clause (i) or clause (ii) immediately following, the "Effectiveness Period"), or such shorter -4- period ending when (i) all the Registrable Securities covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration, (ii) the date on which all the Registrable Securities (x) held by Persons who are not affiliates of the Company may be resold pursuant to Rule 144(k) under the Securities Act or (y) cease to be outstanding or (iii) a Subsequent Shelf Registration covering all of the Registrable Securities has been declared effective under the Securities Act. (b) Subsequent Shelf Registrations. If the Initial Shelf Registration or any Subsequent Shelf Registration ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder), the Company shall use its reasonable best efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 45 days of such cessation of effectiveness amend the Initial Shelf Registration or any subsequent Shelf Registration, as the case may be, in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file an additional "shelf" Registration Statement pursuant to Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed, the Company shall use its reasonable best efforts to cause the Subsequent Shelf Registration to be declared effective under the Securities Act as soon as practicable after such filing and to keep such Registration Statement continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective; provided, however, that such period shall not exceed two years from the Closing Date. As used herein the term "Shelf Registration" means the Initial Shelf Registration and any Subsequent Shelf Registration and the term "Shelf Registration Statement" means any Registration Statement filed in connection with a Shelf Registration. (c) Supplements and Amendments. The Company shall promptly supplement and amend the Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act, or if reasonably requested by the Holders of the majority in Amount of Registrable Securities covered by such Registration Statement or by any underwriter of such Registrable Securities; provided that the Company agrees that such request is reasonable. (d) Information from Holders. No Holder of Registrable Securities may include any of its Registrable Securities in the Shelf Registration Statement pursuant to this Agreement unless such Holder furnishes to the Company in writing, prior to or on the 20th Business Day after receipt of a request therefor (the "Questionnaire Deadline"), such information as the Company may reasonably request for use in connection with the Shelf Registration Statement or Prospectus or preliminary Prospectus included therein and in any application to be filed with or under state securities laws. In connection with all such requests for information from Holders of Registrable Securities, the Company shall notify such Holders of the requirements set forth in the preceding sentence. No Holder of Registrable Securities shall be entitled to Liquidated Damages pursuant to Section 3 hereof unless such Holder shall have -5- provided all such reasonably requested information prior to or on the Questionnaire Deadline. Each Holder as to which the Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make information previously furnished to the Company by such Holder not materially misleading. 3. Liquidated Damages. (a) The Company and the Initial Purchasers agree that the Holders of Registrable Securities will suffer damages if the Company fails to fulfill its obligations under Section 2 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company agrees to pay liquidated damages on the Registrable Securities ("Liquidated Damages") under the circumstances and to the extent set forth below (each of which shall be given independent effect; each a "Registration Default"): (i) if the Initial Shelf Registration is not filed on or prior to the Filing Date, then commencing on the day after the Filing Date, Liquidated Damages shall accrue on the Registrable Securities at a rate of 0.25% per annum on the Amount of Registrable Securities for the first 90 days immediately following the Filing Date, such Liquidated Damages increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period; (ii) if the Initial Shelf Registration is not declared effective by the SEC on or prior to the Effectiveness Date, then commencing on day after the Effectiveness Date, Liquidated Damages shall accrue on the Registrable Securities at a rate of 0.25% per annum on the Amount of Registrable Securities for the first 90 days immediately following the day after such Effectiveness Date, such Liquidated Damages increasing by an additional 0.25% per annum at the beginning of each subsequent 90-day period; and (iii) if a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective for a period of time that exceeds 90 days in the aggregate in any 360-day period during the Effectiveness Period (other than as permitted under Section 3(b)), Liquidated Damages shall accrue on the Registrable Securities at a rate of 0.25% per annum on the Amount of Registrable Securities for the first 90 days commencing on the day such Shelf Registration ceases to be effective, such Liquidated Damages increasing by an additional 0.25% per annum at the beginning of each such subsequent 90-day period; provided, however, that Liquidated Damages on the Registrable Securities may not accrue under more than one of the foregoing clauses (i), (ii) or (iii) at any one time and at no time shall the aggregate amount of Liquidated Damages accruing exceed in the aggregate 0.50% per annum of the Amount of Registrable Securities; provided, further, however, that (1) upon the filing of the Shelf Registration as required hereunder (in the case of clause (a)(i) of this Section 3), (2) upon the effectiveness of the Shelf Registration as required hereunder (in the case -6- of clause (a)(ii) of this Section 3) or (3) upon the effectiveness of a Shelf Registration which had ceased to remain effective (in the case of (a)(iii) of this Section 3), Liquidated Damages on the Registrable Securities as a result of such clause (or the relevant subclause thereof), as the case may be, shall cease to accrue. It is understood and agreed that, notwithstanding any provision to the contrary, so long as any Registrable Security is then covered by an effective Shelf Registration Statement, no Liquidated Damages shall accrue on such Registrable Security. (b) Notwithstanding paragraph (a) of this Section 3, the Company shall be permitted to suspend the use of a Shelf Registration for up to 45 consecutive days in any 90-day period, for a total of not more than 120 days in any 360-day period, without paying Liquidated Damages. However, if the disclosure relates to possible acquisitions, financing or similar transactions, the disclosure of which could, in the Company's reasonable judgment, impede the Company's ability to consummate such transaction, the Company may extend the suspension period from 45 days to 60 days. (c) So long as Convertible Notes remain outstanding, the Company shall notify the Trustee within two Business Days after each and every date on which an event occurs in respect of which Liquidated Damages is required to be paid. Any amounts of Liquidated Damages due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 3 will be payable in cash semi-annually on each June 1 and December 1 (each a "Damages Payment Date"), commencing with the first such date occurring after any such Liquidated Damages commences to accrue, to Holders to whom regular interest is payable on such Damages Payment Date with respect to Convertible Notes that are Registrable Securities and to Persons that are registered Holders 15 days prior to such Damages Payment Date with respect to Underlying Shares that are Registrable Securities. The amount of Liquidated Damages for Registrable Securities will be determined by multiplying the applicable rate of Liquidated Damages by the Amount of Registrable Securities outstanding on the Damages Payment Date following such Registration Default in the case of the first such payment of Liquidated Damages with respect to a Registration Default (and thereafter at the next succeeding Damages Payment Date until the cure of such Registration Default), multiplied by a fraction, the numerator of which is the number of days such Liquidated Damages rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. 4. Registration Procedures. In connection with the filing of any Registration Statement pursuant to Section 2 hereof, the Company shall effect such registrations to permit the resale of the securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder the Company shall: -7- (a) Prepare and file with the SEC prior to the Filing Date a Registration Statement or Registration Statements as prescribed by Section 2 hereof and use its reasonable best efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided, however, that before filing any Registration Statement or Prospectus or any amendments or supplements thereto, the Company shall furnish to and afford the Holders of the Registrable Securities covered by such Registration Statement, a single counsel to such Holders (chosen in accordance with Section 5(b)) and the managing underwriters, if any, a reasonable opportunity to review copies of all such documents proposed to be filed (in each case, where possible, at least four Business Days prior to such filing, or such date as is reasonable under the circumstances). Before filing any Registration Statement or Prospectus or any amendments or supplements thereto the Company will consider any reasonable objections of the Holders of a majority in Amount of Registrable Securities covered by such Registration Statement, their counsel or the managing underwriters, if any. (b) Prepare and file with the SEC such amendments and post-effective amendments to each Shelf Registration as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period; cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and use all reasonable best efforts to comply with the provisions of the Securities Act and the Exchange Act applicable to it with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented. (c) Notify the selling Holders of Registrable Securities, a single counsel to such Holders (chosen in accordance with Section 5(b)) and the managing underwriters, if any, promptly (but in any event within two Business Days) and, confirm such notice in writing, (i) when a Prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective under the Securities Act (including in such notice a written statement that any Holder may, upon request, obtain, at the sole expense of the Company, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose, (iii) during the Effectiveness Period of the happening of any event, the existence of any condition or any information becoming known that makes any statement made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in or amendments or supplements to such Registration Statement, Pro- -8- spectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, unless such event, condition or information has otherwise been publicly disclosed by the Company through a press release or Exchange Act filing with a copy thereof delivered to the Trustee and (iv) of the Company's determination that a post-effective amendment to a Registration Statement would be appropriate. (d) Use its reasonable best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus and, if any such order is issued, to use its reasonable best efforts to obtain the withdrawal of any such order at the earliest possible moment. (e) Furnish to each selling Holder of Registrable Securities, a single counsel to such Holders (chosen in accordance with Section 5(b)) and each managing underwriter, if any, at the sole expense of the Company, one conformed copy of the Registration Statement or Registration Statements and each post-effective amendment thereto, including financial statements but excluding schedules, all documents incorporated or deemed to be incorporated therein by reference and all exhibits (unless requested in writing to the Company by such Holder of Registrable Securities or managing underwriter, as the case may be). (f) Deliver to each selling Holder of Registrable Securities, a single counsel to such Holders (chosen in accordance with Section 5(b)) and the underwriters, if any, at the sole expense of the Company, as many copies of the Prospectus (including each form of preliminary prospectus) and each amendment or supplement thereto and any documents incorporated by reference therein as such Persons may reasonably request; and, subject to the second paragraph of Section 4(r) hereof, the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Registrable Securities and the underwriters or agents, if any, and dealers (if any), in connection with the offering and sale of the Registrable Securities covered by such Prospectus and any amendment or supplement thereto. (g) Prior to any public offering of Registrable Securities, to use its reasonable best efforts to register or qualify, to the extent required by applicable law, and to cooperate with the selling Holders of Registrable Securities, the managing underwriter or underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities or offer and sale under the securities or Blue Sky laws of such juris- -9- dictions within the United States as any selling Holder, or the managing underwriter or underwriters, if any, reasonably request; provided, however, that where Registrable Securities are offered other than through an underwritten offering, the Company agrees to cause the Company's counsel to perform Blue Sky investigations and file registrations and qualifications required to be filed pursuant to this Section 4(h); keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Registrable Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such where it is not then so subject or (C) subject itself to taxation in any such jurisdiction where it is not then so subject. (h) Cooperate with the selling Holders of Registrable Securities and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing shares of Registrable Securities to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company; and enable such shares of Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. (i) Use its reasonable best efforts to cause the Registrable Securities covered by any Shelf Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be reasonably necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities, except as may be required solely as a consequence of the nature of such selling Holder's business, in which case the Company will cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals. (j) Upon the occurrence of any event contemplated by paragraph 4(c)(ii), 4(c)(iii) or 4(c)(iv) hereof, as promptly as practicable prepare and (subject to Section 4(a) hereof) file with the SEC, at the sole expense of the Company, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, any such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. -10- (k) Prior to the effective date of the first Registration Statement relating to the Registrable Securities, (i) provide the Trustee with certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company and (ii) provide required CUSIP numbers for the Registrable Securities. (l) In connection with any offering of Registrable Securities pursuant to a Shelf Registration that the Company agrees to effect as an underwritten offering, enter into an underwriting agreement as is customary in underwritten offerings of securities similar to the Registrable Securities and take all such other actions as are reasonably requested by the managing underwriter or underwriters in order to expedite or facilitate the registration or the disposition of such Registrable Securities and, in such connection, (i) make such representations and warranties to, and covenants with, the underwriters with respect to the business of the Company and its subsidiaries (including any acquired business, properties or entity, if applicable) and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, as are customarily made by issuers to underwriters in underwritten offerings of securities similar to the Registrable Securities and confirm the same in writing if and when requested; (ii) obtain the written opinion of counsel to the Company and written updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters, addressed to the underwriters covering the matters customarily covered in opinions requested in underwritten offerings of securities similar to the Registrable Securities and such other matters as may be reasonably requested by the managing underwriter or underwriters; and (iii) obtain "cold comfort" letters and updates thereof in form, scope and substance reasonably satisfactory to the managing underwriter or underwriters from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included or incorporated by reference in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings of securities similar to the Registrable Securities and such other matters as reasonably requested by the managing underwriter or underwriters as permitted by the Statement on Auditing Standards No. 72. The above shall be done as and to the extent required by such underwriting agreement. (m) Make available for inspection by any selling Holder of such Registrable Securities being sold, any underwriter participating in any such disposition of Registrable Securities, if any, and any attorney, accountant or other agent retained by any such selling Holder, or underwriter (collectively, the "Inspectors"), at the offices where normally kept, during reasonable business hours at such time or times as shall be mutually convenient for the Company and the Inspectors as a group, all financial and other records, pertinent corporate documents and instruments of the Company and its -11- subsidiaries (collectively, the "Records") as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested by any such Inspector in connection with such Registration Statement. The Inspectors shall treat all records as confidential and such records shall not be disclosed by any Inspector unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or material omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) disclosure of such information is, in the opinion of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding directly involving or potentially involving such Inspector and arising out of, based upon, relating to, or involving this Agreement or any transactions contemplated hereby or arising hereunder, (iv) the information in such Records has been made generally available to the public other than through the acts of such Inspector; provided, however, that prior notice shall be provided as soon as practicable to the Company of the potential disclosure of any information by such Inspector pursuant to clause (ii) or (iii) of this sentence to permit the Company to obtain a protective order (or waive the provisions of this paragraph (n)) and that such Inspector shall take such actions as are reasonably necessary to protect the confidentiality of such information (if practicable) to the extent such action is otherwise not inconsistent with, an impairment of or in derogation of the rights and interests of any Holder or Inspector or (v) the information in such Records has been made generally available to the public other than as a result of a breach of this Agreement. (n) Provide (i) the Holders of the Registrable Securities to be included in such Registration Statement and not more than one counsel for all the Holders of such Registrable Securities, (ii) the underwriters (which term, for purposes of this Registration Rights Agreement, shall include a Person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, thereof, (iii) the sales or placement agent, if any, thereof, and (iv) one counsel for such underwriters or agents, reasonable opportunity to participate in the preparation of such Registration Statement, each prospectus included therein or filed with the SEC, and each amendment or supplement thereto. (o) Comply in all material respects with all applicable rules and regulations of the SEC and make generally available to its securityholders earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, com- -12- mencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. (p) Cooperate with each seller of Registrable Securities covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. (the "NASD"), including, if the Conduct Rules of the NASD or any successor thereto as amended from time to time so require, engaging a "qualified independent underwriter" ("QIU") as contemplated therein and making Records available to such QIU as though it were a participating underwriter for the purposes of Section 4(n) and otherwise applying the provisions of this Agreement to such QIU (including indemnification) as though it were a participating underwriter. (q) Cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Registrable Securities; and in connection therewith, cooperate with the Trustee and the Holders of the Registrable Securities to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner. (r) Use its reasonable best efforts to take all other steps necessary or advisable to effect the registration of the Registrable Securities covered by a Registration Statement contemplated hereby. Each Holder who intends to be named as a selling Holder in the Shelf Registration Statement shall furnish to the Company in writing, within 20 Business Days after receipt of a request therefor as set forth in a questionnaire in the form attached hereto as Annex A, such information regarding such Holder and the proposed distribution by such Holder of its Registrable Securities as the Company may reasonably request for use in connection with the Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. Holders that do not complete the questionnaire and deliver it to the Company shall not be named as selling securityholders in the Prospectus or preliminary Prospectus included in the Shelf Registration Statement and therefore shall not be permitted to sell any Registrable Securities pursuant to the Shelf Registration Statement. Each Holder who intends to be named as a selling Holder in the Shelf Registration Statement shall promptly furnish to the Company in writing such other information as the Company may from time to time reasonably request in writing. Each seller as to which any Shelf Registration is being effected agrees to furnish promptly to the Company all information required to be disclosed so that the information previously furnished to the Company by such seller is not materially misleading and does -13- not omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made. Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon actual receipt of any notice from the Company of the happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii) or 4(c)(iv) hereof or of a suspension pursuant to Section 3(b) hereof, such Holder will forthwith discontinue disposition of such Registrable Securities covered by such Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(k) hereof, or until it is advised in writing by the Company that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto. 5. Registration Expenses. (a) All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, including, without limitation, (i) all registration and filing fees (including, without limitation, (A) fees with respect to filings required to be made with the NASD in connection with an underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as provided in Section 4(h) hereof), (ii) printing expenses, including, without limitation, expenses of printing certificates for Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing prospectuses if the printing of prospectuses is requested by the managing underwriter or underwriters, if any, or by the Holders of the majority in Amount of Registrable Securities included in any Registration Statement, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and reasonable fees and disbursements of a single counsel (chosen in accordance with Section 5(b)) for the sellers of Registrable Securities (subject to the provisions of Section 5(b) hereof), (v) fees and disbursements of all independent certified public accountants referred to in Section 4(m)(iii) hereof (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such performance), (vi) Securities Act liability insurance, if the Company desires such insurance, (vii) fees and expenses of all other Persons retained by the Company, (viii) internal expenses of the Company (including, without limitation, all salaries and expenses of officers and employees of the Company performing legal or accounting duties), (ix) the expense of any annual audit, (x) the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange, if applicable, and (xi) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements and any other documents necessary in order to comply with this Agreement. Notwithstanding anything in this Agreement to -14- the contrary, each Holder shall pay all underwriting discounts and brokerage commissions with respect to any Registrable Securities sold by it. (b) The Company shall reimburse the Holders of the Registrable Securities being registered in a Shelf Registration for the reasonable fees and disbursements of not more than one counsel chosen by the Holders of a majority in Amount of Registrable Securities to be included in such Registration Statement. 6. Indemnification. The Company agrees to indemnify and hold harmless (i) each Initial Purchaser and its affiliates, (ii) each Holder and its affiliates, (iii) each Person, if any, who controls (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) any of the foregoing (any of the Persons referred to in this clause (iii) being hereinafter referred to as a "controlling person"), (iv) the respective officers, directors, partners, employees, representatives and agents of the Initial Purchasers, the Holders (including predecessor Holders) or any controlling person (any person referred to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an "Indemnified Holder"), from and against any and all losses, claims, damages, liabilities and judgments (including, without limitation, reasonable legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus, or any amendment or supplement thereto or any related preliminary prospectus, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such losses, claims, damages or liabilities are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to any Initial Purchaser or any Holder furnished to the Company in writing through any Initial Purchaser or any selling Holder expressly for use therein; provided that, with respect to any such untrue statement in or omission from any preliminary prospectus, this indemnity will not apply in the event that (a) a copy of the related Prospectus (excluding any documents incorporated by reference therein) was not sent or given by such Initial Purchaser or selling Holder and (b) the untrue statement in or omission from such preliminary prospectus was corrected in the related Prospectus, unless, in either case, such failure to deliver the Prospectus was a result of noncompliance by the Company with the provisions of Section 4 hereof. In connection with any underwritten offering permitted by Section 4, the Company will also indemnify the underwriters, if any, selling brokers, dealers and similar securities industry professionals participating in the distribution, their respective affiliates and each Person who controls such Persons (within the meaning of the Securities Act and the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders, if requested in connection with any Registration Statement. -15- Each Holder agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, officers, affiliates and each Person who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to each Holder, but only with reference to such losses, claims, damages or liabilities which are caused by any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with information relating to a Holder furnished to the Company in writing by such Holder expressly for use in any Registration Statement or Prospectus, or any amendment or supplement thereto or any related preliminary prospectus. If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnity may be sought pursuant to either of the two preceding paragraphs, such Person (the "Indemnified Person") shall promptly notify the Person or Persons against whom such indemnity may be sought (each an "Indemnifying Person") in writing; provided, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person other wise than under this Section 6 and such Indemnifying Person, upon request of the Indemnified Person, shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 6 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such counsel related to such proceeding. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) such Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary, (ii) such Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to such Indemnified Person or (iii) the named parties in any such proceeding (including any impleaded parties) include an Indemnifying Person and an Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood that an Indemnifying Person shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm for the Indemnified Holders shall be designated in writing by the Holders of the majority in Amount of Registrable Securities, and any such separate firm for the Company, its directors, respective officers and such control Persons of the Company shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, such Indemnifying Person agrees to indemnify any Indemnified Person from and against any loss or liability by reason of such settlement or judgment. No Indemnifying Person shall, without the prior -16- written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Person, unless such settlement (i) includes an unconditional release of such Indemnified Person from all liability on claims that are the subject matter of such proceeding and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person. If the indemnification provided for in the first and second paragraphs of this Section 6 is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Person on the one hand, and the Indemnified Person on the other hand, pursuant to the Purchase Agreement or from the offering of the Registrable Securities pursuant to any Shelf Registration or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Indemnifying Person on the one hand, and the Indemnified Person on the other, in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand, and any Indemnified Holder on the other, shall be deemed to be in the same proportion as the total net proceeds from the initial offering and sale of Convertible Notes before deducting expenses received by the Company bear to the total net proceeds received by such Indemnified Holder from sales of Registrable Securities giving rise to such obligations. The relative fault of the parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Indemnified Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Each of the Company and the Initial Purchasers agrees that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, in no event shall any Holder be required to contribute any amount in excess of the amount by which the net proceeds received by such Holder from the sale of the Registrable Securities pursuant to a Shelf Registration Statement exceeds the amount of damages -17- which such Holder would have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any indemnified party at law or in equity. The indemnity and contribution agreements contained in this Section 6 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Holder or any Person controlling any Holder or by or on behalf of the Company, its officers or directors or any other Person controlling any of the Company and (iii) acceptance of and payment for any of the Registrable Securities. 7. Rules 144 and 144A. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder in a timely manner in accordance with the requirements of the Securities Act and the Exchange Act and, for so long as any Registrable Securities remain outstanding, if at any time the Company is not required to file such reports, it will, upon the request of any Holder or beneficial owner of Registrable Securities, make available such information as is necessary to permit sales pursuant to Rule 144A under the Securities Act. The Company further covenants that, for so long as any Registrable Securities remain outstanding, it will use its reasonable best efforts to take such further action as any Holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144(k) and Rule 144A under the Securities Act, as such rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. 8. Underwritten Registrations. If any of the Registrable Securities covered by any Shelf Registration are, with the agreement of the Company, to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of the majority in Amount of Registrable Securities to be included in such offering and will be reasonably acceptable to the Company. -18- No Holder of Registrable Securities may participate in any underwritten registration hereunder unless the Company agrees to such underwriting and such Holder (a) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 9. Miscellaneous. (a) No Inconsistent Agreements. The Company has not, as of the date hereof, and the Company shall not, after the date of this Agreement, enter into any agreement with respect to any of its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The Company has not entered and will not enter into any agreement with respect to any of its securities that will grant to any Person piggyback registration rights with respect to a Registration Statement, except to the extent any existing right has heretofore been waived. (b) Adjustments Affecting Registrable Securities. The Company shall not, directly or indirectly, take any action with respect to the Registrable Securities as a class that would adversely affect the ability of the Holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Company and the Holders of not less than the majority in Amount of Registrable Securities; provided, however, that Section 6 and this Section 9(c) may not be amended, modified or supplemented without the prior written consent of the Company and each Holder (including, in the case of an amendment, modification or supplement of Section 6, any Person who was a Holder of Registrable Securities disposed of pursuant to any Registration Statement). Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Securities may be given by Holders of at least a majority in Amount of the Registrable Securities being sold by such Holders pursuant to such Registration Statement. (d) Notices. All notices and other communications (including, without limitation, any notices or other communications to the Trustee) provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, next-day air courier or facsimile: -19- (1) if to a Holder of the Registrable Securities, at the most current address of such Holder set forth on the records of the registrar under the Indenture, in the case of Holders of Convertible Notes, and the stock ledger of the Company, in the case of Holders of common stock of the Company. (2) if to the Initial Purchasers: J.P. MORGAN SECURITIES INC. BEAR, STEARNS & CO. INC. FIRST UNION SECURITIES, INC. LAZARD FRERES & CO. LLC MCDONALD INVESTMENTS INC. c/o J.P. Morgan Securities Inc. 270 Park Avenue New York, New York 10017-2070 Attention: Syndicate Department with copies to: Cahill Gordon & Reindel 80 Pine Street New York, New York 10005 Facsimile No.: (212) 269-5420 Attention: Gerald Tanenbaum, Esq. (3) if to the Company, at the addresses as follows: Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Facsimile No.: (215) Attention: Colin D. Stern, General Counsel with copies to: Drinker Biddle & Reath LLP One Logan Square 18/th/ and Cherry Streets Philadelphia, Pennsylvania 19103 Facsimile No.: (215) 988-2757 Attention: F. Douglas Raymond, III, Esq. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in -20- the mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier; and when receipt is acknowledged by the addressee, if sent by facsimile. (e) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including the Holders; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and except to the extent such successor or assign holds Registrable Securities. (f) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS SITTING IN MANHATTAN, NEW YORK CITY, THE STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. (i) Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. (j) Securities Held by the Company or Its Affiliates. Whenever the consent or approval of Holders of a specified percentage in Amount of Registrable Securities is required hereunder, Registrable Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. -21- (k) Third Party Beneficiaries. Holders of Registrable Securities are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. (l) Entire Agreement. This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understandings, correspondence, conversations and memoranda between the Initial Purchasers on the one hand, and the Company on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. -22- IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. CHARMING SHOPPES, INC. By: /s/ Eric M. Specter -------------------------- Name: Eric M. Specter Title: Executive Vice President and Chief Financial Officer J.P. MORGAN SECURITIES INC. BEAR, STEARNS & CO. INC. FIRST UNION SECURITIES, INC. LAZARD FRERES & CO. LLC. MCDONALD INVESTMENTS INC. By: J.P. MORGAN SECURITIES INC. By: /s/ Michael Harris ------------------------- Name: Michael Harris Title: Vice President -23- ANNEX A CHARMING SHOPPES, INC. NOTICE OF REGISTRATION STATEMENT AND SELLING SECURITYHOLDER ELECTION AND QUESTIONNAIRE NOTICE Charming Shoppes, Inc. (the "Company") has filed, or intends shortly to file, with the Securities and Exchange Commission (the "Commission"), a registration statement on Form S-3 or such other Form as may be available (the "Shelf Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Company's 4.75% Senior Convertible Notes due 2012 (CUSIP No. ) (the "Notes"), and common stock, par value $0.10 per share, issuable upon conversion thereof (the "Shares" and, together with the Notes, the "Transfer Restricted Securities") in accordance with the terms of the Registration Rights Agreement, dated as of May 28, 2002 (the "Registration Rights Agreement"), between the Company and J.P. MORGAN SECURITIES INC., BEAR, STEARNS & CO. INC., FIRST UNION SECURITIES, INC., LAZARD FRERES & CO. LLC and MCDONALD INVESTMENTS INC. A copy of the Registration Rights Agreement is available from the Company. All capitalized terms not otherwise defined herein have the meaning ascribed thereto in the Registration Rights Agreement. To sell or otherwise dispose of any Transfer Restricted Securities pursuant to the Shelf Registration Statement, a beneficial owner of Transfer Restricted Securities generally will be required to be named as a selling securityholder in the related Prospectus, deliver a Prospectus to purchasers of Transfer Restricted Securities, be subject to certain civil liability provisions of the Securities Act and be bound by those provisions of the Registration Rights Agreement applicable to such beneficial owner (including certain indemnification rights and obligations, as described below). To be included in the Shelf Registration Statement, this Election and Questionnaire must be completed, executed and delivered to the Company at the address set forth herein for receipt PRIOR TO OR ON [insert date that is 20 business days from the notice date] (the "Election and Questionnaire Deadline"). Beneficial owners that do not complete and return this Election and Questionnaire prior to the Election and Questionnaire Deadline and deliver it to the Company as provided below will not be named as selling securityholders in the prospectus and therefore will not be permitted to sell any Transfer Restricted Securities pursuant to the Shelf Registration Statement. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and the related Prospectus. Accordingly, holders and beneficial owners of Transfer Restricted Securities are advised to consult their own securities A-1 law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and the related Prospectus. ELECTION The undersigned holder (the "Selling Securityholder") of Transfer Restricted Securities hereby elects to include in the Shelf Registration Statement the Transfer Restricted Securities beneficially owned by it and listed below in Item 3 (unless otherwise specified under Item 3). The undersigned, by signing and returning this Election and Questionnaire, understands that it will be bound with respect to such Transfer Restricted Securities by the terms and conditions of this Election and Questionnaire and the Registration Rights Agreement. Pursuant to the Registration Rights Agreement, the Selling Securityholder has agreed to indemnify and hold harmless the Company, the Company's directors, the Company's officers, employees, representatives and agents and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against certain losses arising in connection with statements concerning the Selling Securityholder made in the Shelf Registration Statement or the related Prospectus in reliance upon the information provided in this Election and Questionnaire. The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: QUESTIONNAIRE 1. (a) Full legal name of Selling Securityholder: ______________________________________________________________ (b) Full legal name of registered holder (if not the same as (a) above) through which Transfer Restricted Securities listed in (3) below are held: ______________________________________________________________ (c) Full legal name of DTC participant (if applicable and if not the same as (b) above) through which Transfer Restricted Securities listed in (3) are held: ______________________________________________________________ A-2 2. Address for notices to Selling Securityholders: _______________________________________________________________________ _______________________________________________________________________ _______________________________________________________________________ Telephone:_____________________________________________________________ Fax:___________________________________________________________________ Contact Person:________________________________________________________ 3. Beneficial ownership of Transfer Restricted Securities: (a) Type of Transfer Restricted Securities beneficially owned, and principal amount of Notes or number of shares of Common Stock, as the case may be, beneficially owned: ______________________________________________________________ (b) CUSIP No(s). of such Transfer Restricted Securities beneficially owned: ______________________________________________________________ 4. Beneficial ownership of the Company's securities owned by the Selling Securityholder: Except as set forth below in this Item (4), the undersigned is not the beneficial or registered owner of any securities of the Company other than the Transfer Restricted Securities listed above in Item (3) ("Other Securities"). (a) Type and amount of Other Securities beneficially owned by the Selling Securityholder: ______________________________________________________________ (b) CUSIP No(s). of such Other Securities beneficially owned: ______________________________________________________________ 5. Relationship with the Company: Except as set forth below, neither the undersigned nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company) (or their predecessors or affiliates) during the past three years. State any exceptions here: _______________________________________________________________________ _______________________________________________________________________ A-3 6. Plan of Distribution: Except as set forth below, the undersigned (including its donees or pledgees) intends to distribute the Transfer Restricted Securities listed above in Item (3) pursuant to the Shelf Registration Statement only as follows (if at all). Such Transfer Restricted Securities may be sold from time to time directly by the undersigned or, alternatively, through underwriters, broker-dealers or agents. If the Transfer Restricted Securities are sold through underwriters or broker-dealers, the Selling Securityholder will be responsible for underwriting discounts or commissions or agent's commissions. Such Transfer Restricted Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions): (i) on any national securities exchange or quotation service on which the Transfer Restricted Securities may be listed or quoted at the time of sale; (ii) in the over-the-counter market; (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market; or (iv) through the writing of options. In connection with sales of the Transfer Restricted Securities or otherwise, the undersigned may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Transfer Restricted Securities and deliver Transfer Restricted Securities to close out such short positions, or loan or pledge Transfer Restricted Securities to broker-dealers that in turn may sell such securities. State any exceptions here: _______________________________________________________________________ _______________________________________________________________________ Note: In no event will such method(s) of distribution take the form of an underwritten offering of the Transfer Restricted Securities without the prior agreement of the Company. By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees it will comply, with the provisions of the prospectus delivery and other provisions of the Securities Act and Exchange Act and the respective rules and regulations promulgated thereunder, particularly Regulation M thereunder (and any suc- A-4 cessor rules or regulations), in connection with any offering of Transfer Restricted Securities pursuant to the Shelf Registration Statement. If the Selling Securityholder transfers all or any portion of the Transfer Restricted Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Election and Questionnaire and the Registration Rights Agreement. By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and the related Prospectus. The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation or amendment of the Shelf Registration Statement and the related Prospectus. In accordance with the Selling Securityholder's obligation under the Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein that may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains effective. All notices hereunder and pursuant to the Registration Rights Agreement shall be made in writing at the address set forth below. Once this Election and Questionnaire is executed by the Selling Securityholders and received by the Company, the terms of this Election and Questionnaire and the representations and warranties contained herein shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives and assigns of the Company and the Selling Securityholder with respect to the Transfer Restricted Securities beneficially owned by such Selling Securityholder and listed in Item (3) above. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Election and Questionnaire to be executed and delivered either in person or by its authorized agent. Dated: Beneficial Owner By: ________________________________ Name: A-5 Title: Please return the completed and executed Election and Questionnaire for receipt prior to or on [deadline for response] to Charming Shoppes, Inc. at: Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Attention: [Treasurer] A-6 EXHIBIT 1 TO ANNEX A NOTICE TO TRANSFER PURSUANT TO REGISTRATION STATEMENT Charming Shoppes, Inc. 450 Winks Lane Bensalem, Pennsylvania 19020 Attention: [Treasurer] [ ] [ ] [ ] Attention: ______________ Re: Charming Shoppes, Inc.'s 4.75% Senior Convertible Notes due 2012 (the "Notes") Dear Sirs: Please be advised that has transferred $ aggregate principal amount of the above-referenced Notes or shares of the Company's Common Stock issued on conversion or repurchase of the Notes, pursuant to the Registration Statement on Form S-3 (File No. 333- ) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied with respect to the transfer described above and that the above-named beneficial owner of the Notes or Common Stock is named as a selling securityholder in the Prospectus dated , or in amendments or supplements thereto, and that the aggregate principal amount of the Notes or number of shares of Common Stock transferred are [all or a portion of] the Notes or Common Stock listed in such Prospectus, as amended or supplemented, opposite such owner's name. Very truly yours, [NAME] By:___________________________________ (Authorized Signature) Dated: EX-5.1 5 dex51.txt OPINION OF DRINKER BIDDLE & REATH LLP Exhibit 5.1 August 26, 2002 Charming Shoppes, Inc. 450 Winks Lane Bensalem, PA 19020 RE: Registration Statement on Form S-3 Ladies and Gentlemen: We have acted as counsel to Charming Shoppes, Inc., a Pennsylvania corporation (the "Company"), in connection with the preparation and filing with the Securities and Exchange Commission of the Company's Registration Statement on Form S-3 (the "Registration Statement"), relating to the public offering from time to time of (i) $150,000,000 aggregate principal amount of the Company's 4.75% Senior Convertible Notes Due 2012 (the "Notes") issued pursuant to an Indenture dated as of May 28, 2002 (the "Indenture"), between the Company and Wachovia Bank, National Association, as Trustee, and (ii) the shares of Common Stock, par value $0.10 per share, of the Company that are issuable upon conversion of the Notes (the "Conversion Shares"). For purposes of this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of the Articles of Incorporation and Bylaws of the Company, each as amended to date, the Indenture, certain resolutions adopted by the Company's Board of Directors and such other agreements, instruments, documents and records relating to the Company, the Notes and the Conversion Shares as we have deemed appropriate. In all cases, we have assumed the genuineness of signatures, the authenticity of documents submitted to us as originals, the conformity to authentic original documents of documents submitted to us as copies and the accuracy and completeness of all records and other information made available to us by the Company. Based upon the foregoing, and subject to the qualifications, limitations and assumptions set forth herein, we are of the opinion that: 1. The Notes have been legally issued and constitute valid and binding obligations of the Company; and 2. The Conversion Shares, when and if delivered upon the due conversion of the Notes in accordance with the Indenture and the terms of the Notes, will, when so issued, have been legally issued, fully paid and non-assessable by the Company. We express no opinion concerning the laws of any jurisdiction other than the laws of the Commonwealth of Pennsylvania. Charming Shoppes, Inc. August 26, 2002 Page 2 We express no opinion as to the effect of bankruptcy, insolvency, reorganization, moratorium or other laws now or hereafter in effect affecting the enforcement of creditors' rights and remedies (including those relating to fraudulent conveyances and transfers). We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Prospectus constituting a part of the Registration Statement. In giving this consent we do not admit that we come within the categories of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended. Sincerely yours, /s/ Drinker Biddle & Reath LLP ------------------------------ DRINKER BIDDLE & REATH LLP EX-12.1 6 dex121.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12.1 Charming Shoppes, Inc Computation of Earnings to Fixed Charges (Unaudited)
Three Months Fiscal Year Ended Ended Pro Forma Ratio (4) ------------------------------------------------------------------------------------------------------------- 1998 1999 2000(1) 2001 2002 May 5, May 4, Fiscal Year Ended Three Months Ended 2001 2002 2002 May 4, 2002 ------------------------------------------------------------------------------------------------------------- Earnings: Pre-tax income (loss)from continuing operations $ 29,422 $(30,989) $ 71,911 $ 84,652 $ (4,526) $ 13,673 $ 26,294 $ 4,810 $ 29,310 Fixed charges 34,405 34,069 33,239 44,241 66,364 11,372 21,907 57,028 18,891 ------------------------------------------------------------------------------------------------------------- Total earnings available for fixed charges (a) $ 63,827 $ 3,080 $ 105,150 $128,893 $ 61,838 $ 25,045 $ 48,201 $ 61,838 $ 48,201 ================================ Non-recurring and restructuring items (2) (13,018) 54,246 (10,171) - 37,708 - - ------------------------------------------------------------------------ Adjusted earnings (b) 50,809 57,326 94,979 128,893 99,546 25,045 48,201 ======================================================================== Fixed Charges: Interest expense $ 10,390 $ 10,052 $ 7,308 $ 8,894 $ 18,701 $ 2,385 $ 6,802 $ 9,365 $ 3,786 Interest component of operating leases 24,015 24,017 25,931 35,347 47,663 8,987 15,105 47,663 15,105 ------------------------------------------------------------------------------------------------------------- Total fixed charges (c) 34,405 34,069 33,239 44,241 66,364 11,372 21,907 57,028 18,891 ------------------------------------------------------------------------------------------------------------- Ratio of earnings to fixed charges (a)/(c) 1.86x 0.09x(3) 3.16x 2.91x 0.93x(3) 2.20x 2.20x 1.08x 2.55x ============================================================================================================= Adjusted ratio of earnings to fixed charges (b)/(c) 1.48x 1.68x 2.86x 2.91x 1.50x 2.20x 2.20x ======================================================================
(1) During the quarter ended August 3, 2002, the Company adopted FAS 145, "Recission of FAS Statements No. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections," which requires that prior-period financial statements be reclassified consistent with the new rules. During the year ended January 29, 2000, the Company had reported a $1.2 million after-tax gain on the early retirement of debt as an extraordinary item in accordance with the accounting rules in effect at that time. This gain on the retirement of debt does not qualify as an extraordinary item under the new rules; accordingly, it has been reclassified to income before the cumulative effect of an accounting change for the year ended January 29, 2000. (2) For purposes of this adjusted ratio of earnings to fixed charges, earnings represent income (loss) before cumulative effect of accounting change, restructuring charge (credit), non-recurring gain from demutualization from insurance company, fixed charges and income taxes, and fixed charges represent gross interest expense, including capitalized interest, and a share of rental expense, which is deemed to be representative of the interest factor. (3) The Company would have had to generate additional earnings of $4,526,000 in the fiscal year ended February 2, 2002 and $30,989,000 in the fiscal year ended January 30, 1999 to achieve a ratio of earnings to fixed charges of 1:1. (4) All proceeds from the offering of the notes to be registered will be received by the selling noteholders. The net proceeds received by the Company from the sale of notes to the initial purchasers were used to retire $67.5 million of term notes, redeem $6.9 million of convertible notes called for redemption, paydown $3.5 million of revolving credit debt, purchase $18.3 million of treasury stock, and the balance of $49.3 million was invested in short-term securities. In connection with the sale of notes to the initial purchasers, the Company called for redemption all its $96.0 million of 7.5% convertible debentures due 2006. $89.1 million of those notes were converted to common stock. The pro forma ratio of earnings to fixed charges adjusts the historical ratio for the elimination of all interest expense associated with the Company's 7.5% convertible notes that were either converted or redeemed, the elimination of interest expense associated with the term-debt and revolving credit borrowings which were paid and the addition of interest expense related to $77.8 million of the 4.75% Senior Convertible Notes, which were used to redeem the 7.5% convertible notes and pay the term debt and revolving credit borrowings. Borrowings used to pay the term debt were assumed to be outstanding from August 16, 2001, when the term debt was issued. The pro forma adjustments do not include any assumed earnings on the amount of proceeds ($49.3 million) invested in short-term investments. The pro forma ratio of earnings to fixed charges is not necessarily indicative of what the future ratio of earnings to fixed charges will be. EX-23.1 7 dex231.txt CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITOR EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement (Form S-3, No. 333-00000) and related Prospectus of Charming Shoppes, Inc. for the registration of $150,000,000 principal amount of Senior Convertible Notes due 2012 and the Common Stock issuable upon conversion of the Notes and to the incorporation by reference therein of our report dated March 11, 2002 with respect to the consolidated financial statements of Charming Shoppes, Inc. included in its Annual Report (Form 10-K) for the year ended February 2, 2002, filed with the Securities and Exchange Commission. /S/ ERNST & YOUNG LLP Philadelphia, Pennsylvania August 22, 2002 EX-23.2 8 dex232.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP. EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated June 15, 2001, relating to the financial statements of Lane Bryant, Inc. and Subsidiaries as of February 3, 2001 and June 29, 2000 and for the three years in the period ended February 3, 2001, which appears in the Current Report on Form 8-K of Charming Shoppes, Inc. dated August 31, 2001 (as amended on October 30, 2001 and May 17, 2002). We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PRICEWATERHOUSECOOPERS LLP Columbus, Ohio August 23, 2002 EX-25.1 9 dex251.txt FORM T-1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) WACHOVIA BANK, NATIONAL ASSOCIATION (Exact Name of Trustee as Specified in its Charter) 22-1147033 (I.R.S. Employer Identification No.) 301 S. COLLEGE STREET, CHARLOTTE, NORTH CAROLINA (Address of Principal Executive Offices) 28288-0630 (Zip Code) WACHOVIA BANK, NATIONAL ASSOCIATION 123 SOUTH BROAD STREET PHILADELPHIA, PA 19109 ATTENTION: CORPORATE TRUST ADMINISTRATION (215) 670-6300 (Name, address and telephone number of Agent for Service) CHARMING SHOPPES, INC. (Exact Name of Obligor as Specified in its Charter) PENNSYLVANIA State or other jurisdiction of Incorporation or Organization) 23-1721355 (I.R.S. Employer Identification No.) 450 WINKS LANE BENSALEM, PENNSYLVANIA (Address of Principal Executive Offices) 19020 (Zip Code) 4.75% SENIOR CONVERTIBLE NOTES DUE 2012 (Title of Indenture Securities) 1. General information Furnish the following information as to the trustee: a) Name and address of each examining or supervisory authority to which it is subject: Comptroller of the Currency United States Department of the Treasury Washington, D.C. 20219 Federal Reserve Bank Richmond, Virginia 23219 Federal Deposit Insurance Corporation Washington, D.C. 20429 b) Whether it is authorized to exercise corporate trust powers. Yes. 2. Affiliations with obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. None. 3. Voting securities of the trustee. Furnish the following information as to each class of voting securities of the trustee: Not applicable - see answer to Item 13. 4. Trusteeships under other indentures. If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, furnish the following information: Not applicable - see answer to Item 13. 5. Interlocking directorates and similar relationships with the obligor or underwriters. If the trustee or any of the directors or executive officers of the trustee is a director, officer, partner, employee, appointee, or representative of the obligor or of any underwriter for the obligor, identify each such person having any such connection and state the nature of each such connection. Not applicable - see answer to Item 13. 6. Voting securities of the trustee owned by the obligor or its officials. Furnish the following information as to the voting securities of the trustee owned beneficially by the obligor and each director, partner, and executive officer of the obligor: Not applicable - see answer to Item 13. 7. Voting securities of the trustee owned by underwriters or their officials. Furnish the following information as to the voting securities of the trustee owned beneficially by each underwriter for the obligor and each director, partner, and executive officer of each such underwriter: Not applicable - see answer to Item 13. 8. Securities of the obligor owned or held by the trustee. Furnish the following information as to securities of the obligor owned beneficially or held as collateral security for obligations in default by the trustee: Not applicable - see answer to Item 13. 9. Securities of underwriters owned or held by the trustee. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of an underwriter for the obligor, furnish the following information as to each class of securities of such underwriter any of which are so owned or held by the trustee: Not applicable - see answer to Item 13. 10. Ownership or holdings by the trustee of voting securities of certain affiliates or security holders of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default voting securities of a person who, to the knowledge of the trustee (1) owns 10 percent or more of the voting stock of the obligor or (2) is an affiliate, other than a subsidiary, of the obligor, furnish the following information as to the voting securities of such person: Not applicable - see answer to Item 13. 11. Ownership or holdings by the trustee of any securities of a person owning 50 percent or more of the voting securities of the obligor. If the trustee owns beneficially or holds as collateral security for obligations in default any securities of a person who, to the knowledge of the trustee, owns 50 percent or more of the voting securities of the obligor, furnish the following information as to each class of securities of such person any of which are so owned or held by the trustee: Not applicable - see answer to Item 13. 12. Indebtedness of the obligor to the trustee. Except as noted in the instructions, if the obligor is indebted to the trustee, furnish the following information: Not applicable - see answer to Item 13. 13. Defaults by the obligor. (a) State whether there is or has been a default with respect to the securities under this indenture. Explain the nature of any such default. None. (b) If the trustee is a trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the obligor are outstanding, or is trustee for more than one outstanding series of securities under the indenture, state whether there has been a default under any such indenture or series, identify the indenture or series affected, and explain the nature of any such default. None 14. Affiliations with the underwriters. If any underwriter is an affiliate of the trustee, describe each such affiliation. Not applicable - see answer to Item 13. 15. Foreign trustee. Identify the order or rule pursuant to which the trustee is authorized to act as sole trustee under indentures qualified or to be qualified under the Act. Not applicable - trustee is a national banking association organized under the laws of the United States. 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. 1. Copy of Articles of Association of the trustee as now in effect* - --- 2. Copy of the Certificate of the Comptroller of the Currency dated - --- March 27, 2002, evidencing the authority of the trustee to transact business* 3. Copy of the Certification of Fiduciary Powers of the trustee by the - --- Office of the Comptroller of the Currency dated March 27,2002.* 4. Copy of existing by-laws of the trustee* - --- 5. Copy of each indenture referred to in Item 4, if the obligor is in - --- default. -Not Applicable. X 6. Consent of the trustee required by Section 321(b) of the Act. - --- X 7. Copy of report of condition of the trustee at the close of business on - --- June 30, 2002, published pursuant to the requirements of its supervising authority. 8. Copy of any order pursuant to which the foreign trustee is authorized to - --- act as sole trustee under indentures qualified or to be qualified under the Act. - Not Applicable 9. Consent to service of process required of foreign trustees pursuant to - --- Rule 10a-4 under the Act. - Not Applicable - ------------------------- *Previously filed with the Securities and Exchange Commission on April 11, 2002 as an Exhibit to Form T-1 in connection with Registration Statement Number 333-86036. NOTE The trustee disclaims responsibility for the accuracy or completeness of information contained in this Statement of Eligibility and Qualification not known to the trustee and not obtainable by it through reasonable investigation and as to which information it has obtained from the obligor and has had to rely or will obtain from the principal underwriters and will have to rely. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939,the trustee, Wachovia Bank, National Association, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility and Qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Philadelphia and the Commonwealth of Pennsylvania, on the 23rd day of August, 2002. Wachovia Bank, National Association By: /s/George J. Rayzis ------------------- George J. Rayzis Vice President Exhibit T-6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, and in connection with the proposed issue of Charming Shoppes, Inc. 4.75% Senior Convertible Notes due 2012, Wachovia Bank, National Association, hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. WACHOVIA BANK, NATIONAL ASSOCIATION By: /s/ George J. Rayzis -------------------- George J. Rayzis Vice President Philadelphia, Pennsylvania August 23, 2002 EXHIBIT T-7 REPORT OF CONDITION Consolidating domestic and foreign subsidiaries of the Wachovia Bank, National Association, at the close of business on June 30, 2002, published in response to call made by Comptroller of the Currency, under title 12, United States Code, Section 161. Charter Number 1 Comptroller of the Currency. Statement of Resources and Liabilities ASSETS Thousand of Dollars ------------------- Cash and balance due from depository institutions: Noninterest-bearing balances and currency and coin .................11,260,000 Interest-bearing balances .............................................635,000 Securities Hold-to-maturity securities .............................................8,000 Available-for-sale securities ......................................57,360,000 Federal funds sold and securities purchased under agreements to resell ...................................................... Federal funds sold in domestic offices ..............................1,798,000 Securities purchased under agreements to resell .....................4,281,000 Loans and lease financing receivables: Loan and leases held for sale ..................................8,862,000 Loan and leases, net of unearned income ......................157,120,000 LESS: Allowance for loan and lease losses ......................2,924,000 Loans and leases, net of unearned income and allowance .......154,196,000 Trading Assets ...................................................... 27,254,000 Premises and fixed assets (including capitalized leases) ..............3,235,000 Other real estate owned .................................................104,000 Investment in unconsolidated subsidiaries and associated companies ...............................................................511,000 Customer's liability to this bank on acceptances outstanding ..........1,105,000 Intangible assets ..................................................... Goodwill .......................................................9,337,000 Other intangible Assets ........................................2,008,000 Other assets .........................................................19,691,000 Total assets ............................301,645,000 LIABILITIES Deposits: In domestic offices ........................................171,788,000 Noninterest-bearing .......................................27,375,000 Interest-bearing .........................................144,413,000 In foreign offices, Edge and Agreement subsidiaries, and IBFs ....................................................14,754,000 Noninterest-bearing ...........................................31,000 Interest-bearing ..........................................14,723,000 Federal funds purchased and securities sold under agreements to repurchase ................................................ Federal funds purchased in domestic offices .........................2,924,000 Securities sold under agreements to repurchase .....................22,994,000 Trading liabilities ..................................................19,758,000 Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases): ..........................18,405,000 Bank's liability on acceptances executed and outstanding ..............1,110,000 Subordinated notes and debentures .....................................8,616,000 Other liabilities ....................................................10,592,000 Total liabilities ...................................................270,941,000 Minority Interest in consolidated subsidiaries ..........................977,000 EQUITY CAPITAL Perpetual preferred stock and related surplus .................................0 Common Stock ............................................................455,000 Surplus(exclude all surplus related to preferred stock) ..............24,942,000 Retained Earnings .....................................................3,272,000 Accumulated other comprehensive income ................................1,058,000 Other Equity Capital components ...............................................0 Total equity capital .................................................29,727,000 Total liabilities and equity capital ................................301,645,000 -----END PRIVACY-ENHANCED MESSAGE-----