-----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, MWh7KNeO7AuvQWgLTsrHKhloSds9/QU+pDOgUzJwn13sKJXWXefAs9NQPAQsV0US 2Dlmc2Xv3u7/bh7zpGzHKw== 0000950130-98-003435.txt : 19980703 0000950130-98-003435.hdr.sgml : 19980703 ACCESSION NUMBER: 0000950130-98-003435 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980702 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMVERSE TECHNOLOGY INC/NY/ CENTRAL INDEX KEY: 0000803014 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 133238402 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-15502 FILM NUMBER: 98660291 BUSINESS ADDRESS: STREET 1: 170 CROSSWAYS PARK DR CITY: WOODBURY STATE: NY ZIP: 11797 BUSINESS PHONE: 5166777200 MAIL ADDRESS: STREET 1: 170 CROSSWAYS PARK DRIVE STREET 2: 170 CROSSWAYS PARK DRIVE CITY: WOODBURY STATE: NY ZIP: 11797 8-K 1 FORM 8-K - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) June 30, 1998 0-15502 (Commission File Number) ---------------------------- COMVERSE TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) New York 13-3238402 (State of Incorporation) (IRS Employer Identification Number) 170 Crossways Park Drive, Woodbury, New York 11797 (Address of registrant's principal executive office) (516) 677-7200 (Registrant's telephone number) ---------------------------- - -------------------------------------------------------------------------------- ITEM 5. Other Events ------------ On June 30, 1998, the registrant issued $250,000,000 aggregate principal amount of its 4-1/2% Convertible Subordinated Debentures due 2005 (the "Debentures"). The Debentures are convertible, at the option of the holder, into shares of the registrant's common stock at a conversion price of $64.50. The registrant intends to use the proceeds of this offering for working capital and other general corporate purposes, including possible investments in, or acquisitions of, other companies, businesses, technologies or product lines. The Registrant's Financial Statement for the three fiscal years ended December 31, 1997 appear after page 3 of this current report. ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits ------------------------------------------------------------------ (c) Exhibits. -------- Exhibit Number Title -------------- ----- 4 Indenture, dated June 30, 1998, between Comverse Technology, Inc. and The Chase Manhattan Bank, N.A., as Trustee. 10.1 Purchase Agreement, dated June 25, 1998, between Comverse Technology, Inc. and Lehman Brothers Inc., as Initial Purchaser. 10.2 Registration Rights Agreement, dated June 30, 1998, between Comverse Technology, Inc. and Lehman Brothers Inc., as Initial Purchaser. 99 Press Release dated June 25, 1998. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. COMVERSE TECHNOLOGY, INC. By: /s/ WILLIAM F. SORIN --------------------------- William F. Sorin Counsel and Secretary Date: July 2, 1998 3 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Reports............................................ F-2 Consolidated Balance Sheets as of December 31, 1996 and 1997............. F-4 Consolidated Statements of Income for the Years Ended December 31, 1995, 1996 and 1997........................................................... F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1996 and 1997..................................................... F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997..................................................... F-7 Notes to Consolidated Financial Statements............................... F-8
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Comverse Technology, Inc. Woodbury, New York We have audited the accompanying consolidated balance sheets of Comverse Technology, Inc. and subsidiaries (the "Company") as of December 31, 1996 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements give retroactive effect to the merger of the Company and Boston Technology, Inc., which has been accounted for as a pooling of interests as described in Note 8 to the consolidated financial statements. We did not audit the financial statements of Boston Technology, Inc. for the years ended January 31, 1997 and 1996, respectively, which statements reflect total assets constituting 25% of total assets as of December 31, 1996 and total sales constituting 49% and 43% of consolidated total sales for the years ended December 31, 1996 and 1995, respectively. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Boston Technology, Inc., is based solely on the report of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our report and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of Comverse Technology, Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP New York, New York June 17, 1998 F-2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Boston Technology, Inc.: We have audited the accompanying consolidated balance sheet of Boston Technology, Inc. as of January 31, 1997 and the related consolidated statements of operations, stockholders' equity, and cash flows for the years ended January 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Boston Technology, Inc. as of January 31, 1997 and the consolidated results of its operations and its cash flows for the years ended January 31, 1997 and 1996 in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. Boston, Massachusetts April 24, 1997 F-3 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
1996* 1997* ASSETS -------- -------- CURRENT ASSETS: Cash and cash equivalents................................... $210,756 $188,023 Bank time deposits.......................................... 10,000 40,700 Short-term investments...................................... 39,464 60,787 Accounts receivable, net of allowance for doubtful accounts of $7,640 and $21,846...................................... 117,945 141,922 Inventories................................................. 50,540 65,358 Prepaid expenses and other current assets................... 12,450 29,895 Deferred income tax benefits................................ 5,796 2,163 -------- -------- TOTAL CURRENT ASSETS......................................... 446,951 528,848 -------- -------- PROPERTY AND EQUIPMENT, NET.................................. 43,609 62,325 INVESTMENTS.................................................. 5,788 6,859 OTHER ASSETS................................................. 23,517 24,658 -------- -------- TOTAL ASSETS................................................. $519,865 $622,690 ======== ======== 1996* 1997* LIABILITIES AND STOCKHOLDERS' EQUITY -------- -------- CURRENT LIABILITIES: Accounts payable and accrued expenses....................... $ 79,940 $ 88,254 Bank loans.................................................. 12,195 16,970 Advance payments from customers............................. 16,479 25,074 Other current liabilities................................... 602 3,047 -------- -------- TOTAL CURRENT LIABILITIES.................................... 109,216 133,345 -------- -------- CONVERTIBLE SUBORDINATED DEBENTURES.......................... 115,000 115,000 LIABILITY FOR SEVERANCE PAY.................................. 2,708 3,515 LONG-TERM DEBT AND OTHER LIABILITIES......................... 4,391 24,669 -------- -------- TOTAL LIABILITIES............................................ 231,315 276,529 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, $0.01 par value--authorized, 2,500,000 shares; issued, none....................................... -- -- Common stock, $0.10 par value--authorized, 100,000,000 shares; issued and outstanding, 41,317,327 and 43,340,361 shares..................................................... 4,132 4,333 Additional paid-in capital.................................. 195,661 218,501 Cumulative translation adjustment........................... 338 444 Unrealized gain on available-for-sale securities, net of tax........................................................ 1,547 1,117 Retained earnings........................................... 86,872 121,766 -------- -------- TOTAL STOCKHOLDERS' EQUITY................................... 288,550 346,161 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................... $519,865 $622,690 ======== ========
- -------- * Restated for pooling of interests with Boston Technology, Inc. See notes to consolidated financial statements. F-4 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1995* 1996* 1997* -------- -------- -------- REVENUES: Sales........................................... $242,416 $389,639 $488,940 Interest and other income....................... 9,916 11,011 16,962 -------- -------- -------- TOTAL REVENUES................................... 252,332 400,650 505,902 -------- -------- -------- COSTS AND EXPENSES: Cost of sales................................... 104,980 169,524 202,640 Selling, general and administrative............. 72,953 93,604 138,305 Research and development, net................... 41,310 66,228 96,626 Interest expense and other...................... 4,593 8,635 12,243 Royalties and license fees...................... 3,321 10,443 12,325 Minority interest and equity in affiliates...... (147) 444 (160) Warrants and other expenses associated with AT&T contract acquisition........................... 21,000 -- -- -------- -------- -------- TOTAL COSTS AND EXPENSES......................... 248,010 348,878 461,979 -------- -------- -------- INCOME BEFORE GAIN ON ISSUANCE OF SUBSIDIARY SHARES AND INCOME TAX PROVISION................. 4,322 51,772 43,923 GAIN ON ISSUANCE OF SUBSIDIARY SHARES............ -- 535 -- -------- -------- -------- INCOME BEFORE INCOME TAX......................... 4,322 52,307 43,923 INCOME TAX PROVISION............................. 2,162 10,170 9,398 -------- -------- -------- NET INCOME....................................... $ 2,160 $ 42,137 $ 34,525 ======== ======== ======== EARNINGS PER SHARE: Basic........................................... $ 0.06 $ 1.10 $ 0.81 -------- -------- -------- Diluted......................................... $ 0.06 $ 1.01 $ 0.75 ======== ======== ========
- -------- * Restated for pooling of interests with Boston Technology, Inc. See notes to consolidated financial statements. F-5 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK TREASURY STOCK ----------------- ADDITIONAL ------------------ CUMULATIVE UNREALIZED NUMBER OF PAR PAID-IN TRANSLATION GAINS RETAINED SHARES VALUE CAPITAL SHARES AMOUNT ADJUSTMENT (LOSSES) EARNINGS TOTAL ---------- ------ ---------- -------- -------- ----------- ---------- -------- -------- BALANCE, January 1, 1995, as previously reported............... 20,981,456 $2,098 $ 73,300 $(118) $ 15 $ 26,318 $101,613 Pooling of interests.... 16,093,546 1,609 33,510 (16) -- 21,689 56,792 ---------- ------ -------- ----- ------ -------- -------- BALANCE, as restated.... 37,075,002 3,707 106,810 (134) 15 48,007 158,405 Unrealized gain on available-for-sale securities............. -- -- -- -- $ -- -- 631 -- 631 Common stock purchased.. (487,500) (10,663) -- -- -- (10,663) Issuance of treasury stock upon exercise of stock options.......... -- -- -- 71,067 1,649 (1,146) 503 Issuance of treasury stock for employee stock purchase plan.... -- -- -- 17,906 415 -- -- (96) 319 Exercise of stock options................ 733,125 73 4,007 -- -- -- -- -- 4,080 Employee stock purchase plan................... 17,904 2 294 -- -- -- -- -- 296 Acquisition of additional interest in majority-owned subsidiary............. 10,696 1 154 -- -- -- -- -- 155 Tax benefit of dispositions of stock options................ -- -- 1,313 -- -- -- -- -- 1,313 Stock warrants issued... -- -- 18,600 -- -- -- -- -- 18,600 Translation adjustment.. -- -- -- -- -- 281 -- -- 281 Net income year ended December 31, 1995...... -- -- -- -- -- -- -- 2,160 2,160 ---------- ------ -------- -------- -------- ----- ------ -------- -------- BALANCE, DECEMBER 31, 1995*.................. 37,836,727 3,783 131,178 (398,527) (8,599) 147 646 48,925 176,080 Unrealized gain on available-for-sale securities............. -- -- -- -- -- -- 901 -- 901 Issuance of treasury stock upon exercise of stock options.......... -- -- -- 352,596 7,534 (3,993) 3,541 Issuance of treasury stock for employee stock purchase plan.... -- -- -- 45,931 1,065 -- -- (197) 868 Exercise of stock options................ 378,332 38 2,817 -- -- -- -- -- 2,855 Conversion of debentures............. 3,096,768 310 58,335 -- -- -- -- -- 58,645 Acquisition of additional interest in majority-owned subsidiary............. 5,500 1 148 -- -- -- -- -- 149 Tax benefit of dispositions of stock options................ -- -- 3,183 -- -- -- -- -- 3,183 Translation adjustment.. -- -- -- -- -- 191 -- -- 191 Net income year ended December 31, 1996...... -- -- -- -- -- -- -- 42,137 42,137 ---------- ------ -------- -------- -------- ----- ------ -------- -------- BALANCE, DECEMBER 31, 1996*.................. 41,317,327 4,132 195,661 -- -- 338 1,547 86,872 288,550 Unrealized gain on available-for-sale securities............. -- -- -- -- -- -- (430) -- (430) AT&T warrant exercises.. 552,144 55 (55) -- -- -- -- -- - Common stock issued for acquisition............ 162,500 16 -- -- -- -- -- -- 16 Retained earnings of acquired company....... -- -- -- -- -- -- -- 661 661 Common stock issued for employee stock purchase plan................... 50,921 5 1,301 -- -- -- -- -- 1,306 Issuance of treasury stock upon exercise of stock options.......... -- -- -- -- -- -- -- (292) (292) Exercise of stock options................ 1,257,469 125 14,664 -- -- -- -- -- 14,789 Tax benefit of dispositions of stock options................ -- -- 6,930 -- -- -- -- -- 6,930 Translation adjustment.. -- -- -- -- -- 106 -- -- 106 Net income year ended December 31, 1997...... -- -- -- -- -- -- -- 34,525 34,525 ---------- ------ -------- -------- -------- ----- ------ -------- -------- BALANCE, DECEMBER 31, 1997*.................. 43,340,361 $4,333 $218,501 -- $ -- $ 444 $1,117 $121,766 $346,161 ========== ====== ======== ======== ======== ===== ====== ======== ========
- ------- * Restated for pooling of interests with Boston Technology, Inc. See notes to consolidated financial statements. F-6 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (IN THOUSANDS)
1995* 1996* 1997* -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income...................................... $ 2,160 $ 42,137 $ 34,524 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................. 10,696 15,493 22,000 Non-cash charge for warrants issued........... 18,600 -- -- Changes in assets and liabilities: Accounts receivable.......................... (17,244) (46,044) (23,977) Inventories.................................. (11,999) (17,816) (14,818) Prepaid expenses and other current assets.... (5,077) (1,503) (17,802) Accounts payable and accrued expenses........ 12,723 35,459 8,314 Advance payments from customers.............. (46) 5,130 8,595 Liability for severance pay.................. 947 409 807 Other........................................ 549 (305) 3,658 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES........ 11,309 32,960 21,301 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Maturities and sales (purchases) of bank time deposits and investments, net............................... 68,663 (27,792) (53,524) Purchase of property and equipment.............. (12,102) (32,227) (36,532) Capitalization of software development costs.... (4,697) (4,466) (6,008) Other........................................... (597) (1,331) -- -------- -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES...................................... 51,267 (65,816) (96,064) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of debentures........ -- 111,899 -- Proceeds from issuance of common stock in connection with exercise of stock options, warrants, and employee stock purchase plan.................................. 5,198 7,412 23,041 Net proceeds from bank loans and other debt..... (767) 10,510 28,989 Purchases of treasury stock..................... (10,663) -- -- Other........................................... (1,493) -- -- -------- -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES...................................... (7,725) 129,821 52,030 -------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... 54,851 96,965 (22,733) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..... 58,940 113,791 210,756 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR........... $113,791 $210,756 $188,023 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for interest.......... $ 3,677 $ 3,276 $ 9,184 ======== ======== ======== Cash paid during the year for income taxes...... $ 5,897 $ 5,116 $ 10,811 ======== ======== ========
- -------- * Restated for pooling of interests with Boston Technology, Inc. See notes to consolidated financial statements. F-7 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 1.ORGANIZATION AND BUSINESS Comverse Technology, Inc. ("Comverse" and, together with its subsidiaries, "CTI" or the "Company") was organized as a New York corporation in October 1984. The Company is engaged in the design, development, manufacture, marketing and support of special purpose computer and telecommunications systems and software for multimedia communications and information processing applications. 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of Comverse and its wholly-owned and majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated. CASH, CASH EQUIVALENTS AND BANK TIME DEPOSITS--The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Bank deposits with maturities in excess of three months are classified as bank time deposits. SHORT-TERM INVESTMENTS--The Company classifies all of its short-term investments (including U.S. treasury bills) as available-for-sale, accounted for at fair value, with resulting unrealized gains or losses reported as a separate component of stockholders' equity, on a net-of-tax basis. CONCENTRATION OF CREDIT RISK--Financial instruments which potentially expose the Company to concentration of credit risk, consist primarily of cash investments and accounts receivable. The Company places its cash investments with high-credit quality financial institutions and currently invests primarily in bank time deposits, money market funds placed with major banks and financial institutions, corporate commercial paper, corporate medium-term notes, and U.S. government obligations that have maturities of one year or less. Accounts receivable are generally diversified due to the number of commercial and government entities comprising the Company's customer base and their dispersion across many geographical regions. The Company believes no significant concentration of credit risk exists with respect to these cash investments and accounts receivable. INVENTORIES--Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. PROPERTY AND EQUIPMENT--Property and equipment are carried at cost less accumulated depreciation and amortization. The Company depreciates its property and equipment on a straight-line basis over periods ranging from three to seven years. The cost of maintenance and repairs is charged to operations as incurred. Significant renewals and betterments are capitalized. INCOME TAXES--The Company accounts for its income using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. REVENUE AND EXPENSE RECOGNITION--Revenues from product sales are generally recognized upon shipment. Products shipped for customer trials are carried in finished goods inventory until customer acceptance is obtained, at which time revenue is recognized. Revenues from certain contracts are recognized under the percentage-of- completion method on the basis of physical completion to date or using actual costs incurred to total expected costs under the contract. F-8 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 Amounts received from customers in excess of revenues earned under the percentage-of-completion method are recorded as advance payments from customers. Related contract costs include all direct material and labor costs and those indirect costs related to contract performance, and are included in cost of sales in the consolidated statements of income. Expenses incurred in connection with research and development activities, other than certain software development costs that are capitalized, and selling, general and administrative expenses are charged to operations as incurred. SOFTWARE DEVELOPMENT COSTS--Software development costs are capitalized upon the establishment of technological feasibility and are amortized over the estimated useful life of the software, which to date has been four years or less. Amortization begins in the period in which the related product is available for general release to customers. Amortization expenses amounted to $2,453,000, $3,079,000 and $3,546,000 in 1995, 1996 and 1997, respectively. FUNCTIONAL CURRENCY AND FOREIGN CURRENCY TRANSACTION GAINS AND LOSSES--The United States dollar (the "dollar") is the functional currency of the major portion of the Company's foreign operations. Most of the Company's sales, and materials purchased for manufacturing, are denominated in or linked to the dollar. Certain operating costs, principally salaries, of foreign operations are denominated in local currencies. In those instances where a foreign subsidiary has a functional currency other than the dollar, the Company records any necessary foreign currency translation adjustment, reflected in stockholders' equity, at the end of each reporting period. Net losses from foreign currency transactions, included in the consolidated statements of income, approximated $258,000, $1,012,000 and $2,192,000 in 1995, 1996 and 1997, respectively. The Company occasionally enters into foreign exchange forward contracts and options on foreign currencies. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar cash flows resulting from the sale of products to international customers will be adversely affected by changes in exchange rates. Any gain or loss on a foreign exchange contract which hedges a firm commitment is deferred until the underlying transaction is realized, at which time it is included in the consolidated statement of income. At December 31, 1997, there were outstanding forward contracts to purchase approximately $22,680,000 in Western European and Japanese currencies. The Company also purchases foreign exchange options which permit, but do not require, the Company to exchange foreign currencies at a future date with another party at a contracted exchange rate. To finance premiums paid on such options, from time to time the Company may also write offsetting options at exercises prices which limit, but do not eliminate, the effect of purchased options as a hedge. As of December 31, 1997, the Company had purchased foreign exchange options of $8,000,000 and written foreign exchange options of $8,000,000 in Western European currencies. OTHER ASSETS--Licenses of patent rights and acquired "know-how" are recorded at cost and amortized using the straight-line method over the estimated useful lives of the related technology, not exceeding five years. Goodwill and other intangible assets associated with acquired subsidiaries are amortized over periods ranging from five to twelve years. Debt issue costs are amortized over the ten-year term of the related debt, on a straight-line basis. LONG-LIVED ASSETS--The Company reviews for the impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. F-9 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 PERVASIVENESS OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3.RESEARCH AND DEVELOPMENT A significant portion of the Company's research and development operations are located in Israel where the Company derives substantial benefits from participation in programs sponsored by the Government of Israel for the support of research and development activities conducted in that country. For the years 1995, 1996 and 1997, the Company's research and development activities included projects partially funded by the Office of the Chief Scientist of the Ministry of Industry and Trade of the State of Israel (the "OCS") under which the funding organization reimbursed a portion of the Company's research and development expenditures under approved project budgets. The Company is currently involved in several ongoing research and development projects supported by the OCS. The Company is required to pay royalties to the OCS based on the sale of products incorporating technology developed in these projects. In addition, under the terms of the applicable funding agreements, products resulting from projects funded by the OCS may not be manufactured outside of Israel without government approval. The amounts reimbursed by the OCS for the years 1995, 1996 and 1997 were $7,735,000, $9,172,000 and $16,276,000, respectively. The Company has been involved in several software research and development programs that were funded in whole or in part by its customers. Customer funding was recognized as a reduction to research and development expense, and was recognized as development activities occur. Amounts received from customers for research and development funding were included in the balance sheet as advance payments from customers until they are recognized. Customer funding offsets against research and development expense for the years ended December 31, 1995, 1996 and 1997 amounted to approximately $5,051,000, $3,349,000 and $5,148,000, respectively. 4.SHORT-TERM INVESTMENTS The Company classifies all of its short-term investments as available-for- sale securities. The following is a summary of available-for-sale securities as of December 31, 1997:
GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------- ---------- ---------- --------- (IN THOUSANDS) U.S. treasury notes................ $ 248 $ 4 $ -- $ 252 Corporate debt securities.......... 35,685 50 -- 35,735 U.S. Government agency bonds....... 749 -- -- 749 ------- ------ ------ ------- Total debt securities.............. 36,682 54 -- 36,736 ------- ------ ------ ------- Common stock....................... 14,359 2,787 1,687 15,459 Mutual funds investing in U.S. government and agencies obligations....................... 1,929 35 -- 1,964 Preferred stock.................... 5,981 880 233 6,628 ------- ------ ------ ------- Total equity securities............ 22,269 3,702 1,920 24,051 ------- ------ ------ ------- $58,951 $3,756 $1,920 $60,787 ======= ====== ====== =======
F-10 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 The following is a summary of available-for-sale securities as of December 31, 1996:
GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ------- ---------- ---------- --------- (IN THOUSANDS) U.S. treasury notes................ $ 347 $ 4 $ -- $ 351 Corporate debt securities.......... 12,493 5 -- 12,498 U.S. government agency bonds....... 746 2 -- 748 ------- ------ ------ ------- Total debt securities.............. 13,586 11 -- 13,597 ------- ------ ------ ------- Common stock....................... 15,300 2,878 986 17,192 Mutual funds investing in U.S. government and agencies obligations....................... 1,929 10 -- 1,939 Preferred stock.................... 6,431 349 44 6,736 ------- ------ ------ ------- Total equity securities............ 23,660 3,237 1,030 25,867 ------- ------ ------ ------- $37,246 $3,248 $1,030 $39,464 ======= ====== ====== =======
During 1997, the gross realized gains on sales of securities totaled approximately $4,037,000 and the gross realized losses totaled approximately $2,503,000. The amortized cost and estimated fair value of debt securities at December 31, 1997, by contractual maturity, are as follows:
ESTIMATED COST FAIR VALUE ------- ---------- (IN THOUSANDS) Due in one year or less................................... $15,041 $15,047 Due after one year through three years.................... 21,591 21,638 Due after three years..................................... 50 51 ------- ------- $36,682 $36,736 ======= =======
5.INVENTORIES Inventories consist of:
DECEMBER 31, --------------- 1996 1997 ------- ------- (IN THOUSANDS) Raw materials................................................ $25,416 $32,379 Work in process.............................................. 17,438 18,104 Finished goods............................................... 7,686 14,875 ------- ------- $50,540 $65,358 ======= =======
F-11 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 6.PROPERTY AND EQUIPMENT Property and equipment consists of:
DECEMBER 31, ----------------- 1996 1997 ------- -------- (IN THOUSANDS) Fixtures and equipment.................................... $76,388 $112,625 Transportation vehicles................................... 3,237 2,845 Leasehold improvements.................................... 1,387 2,072 ------- -------- 81,012 117,542 Less accumulated depreciation and amortization............ (37,403) (55,217) ------- -------- $43,609 $ 62,325 ======= ========
7.OTHER ASSETS Other assets consist of:
DECEMBER 31, --------------- 1996 1997 ------- ------- (IN THOUSANDS) Software development costs, net of accumulated amortization of $9,103 and $12,649......................................... $10,143 $12,605 Other assets................................................ 13,374 12,053 ------- ------- $23,517 $24,658 ======= =======
8.ACQUISITIONS On January 14, 1998, Boston Technology, Inc., a Delaware corporation, ("BTI") merged with and into Comverse in a transaction that has been accounted for as a pooling of interests. BTI designs, develops, manufactures, markets and supports standard and customized enhanced services platforms and software applications for the telephone network operator market. Pursuant to the merger, the issued and outstanding shares of BTI at the effective date of the merger were converted into an aggregate of approximately 18,141,185 shares of Comverse's common stock and outstanding options and warrants to purchase BTI stock were converted into options and warrants to purchase an aggregate of 3,458,265 Comverse shares. F-12 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 The table below sets forth the unaudited separate and combined results of CTI and BTI for the fiscal years ended December 31, 1995, 1996 and 1997:
CTI BTI ADJUSTMENTS COMBINED ---------- ---------- ------------------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1995 Sales....................... $ 137,149 $ 105,267 $ 242,416 Net income (loss)........... $ 17,050 $ (14,890) $ 2,160 Earnings per share-- diluted.................... $ 0.75 $ 0.06 1996 Sales....................... $ 197,181 $ 192,458 $ 389,639 Net income.................. $ 27,988 $ 14,149 $ 42,137 Earnings per share-- diluted.................... $ 1.16 $ 1.01 1997 Sales....................... $ 280,281 $ 210,525 $ (1,866) $ 488,940 Net income (loss)........... $ 43,500 $ (7,503) $ (1,472) $ 34,525 Earnings per share-- diluted.................... $ 1.61 $ 0.75
BTI had a January fiscal year end. Accordingly, the consolidated statement of income data combines the historical statement of income data of the Company for the years ended December 31, 1995, 1996 and 1997 with the historical statement of income data of BTI for the fiscal years ended January 31, 1996 and 1997 and the eleven months ended December 31, 1997, respectively. On February 20, 1997, the Company acquired all of the outstanding stock of Enhanced Communications Corporation ("ECC"), a company providing outsourcing of voice messaging, for 162,500 shares of the Company's common stock. The combination has been accounted for as a pooling of interests. The Company did not restate prior financial statements for this acquisition due to immateriality and recorded the book value of the net assets of ECC of $661,000 in the statement of stockholders' equity. On August 30, 1995, the Company acquired DGM&S, a corporation that develops and markets telecommunications software products. To effect the acquisition, the Company issued 1,078,944 shares of common stock for all of the outstanding common stock of DGM&S. The acquisition has been accounted for as a pooling of interests; therefore, prior financial statements and information have been restated to include DGM&S, as if the companies had been combined for all periods presented. 9.ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consist of:
DECEMBER 31, --------------- 1996 1997 ------- ------- (IN THOUSANDS) Accounts payable............................................ $35,164 $42,462 Accrued payroll and vacation................................ 14,103 20,300 Accrued royalties........................................... 3,426 6,049 Other accrued expenses...................................... 27,247 19,443 ------- ------- $79,940 $88,254 ======= =======
F-13 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 10.BANK LOANS As of December 31, 1997, a subsidiary of Comverse has a bank loan of $16,500,000. The loan has an interest rate of 6% and is repayable in July 1998. The loan is secured by a $16,500,000 deposit with the bank. As of December 31, 1997, the Company maintained a $60,000,000 revolving credit facility with four banks. Borrowings are collateralized by the Company's accounts receivable and inventories and bear interest at the prime rate (8.5% at December 31, 1997) or the LIBOR rate plus 175 basis points. The credit facility is scheduled to expire on July 17, 1999. This revolving credit facility also has a .25% annual commitment fee on the unused portion. This facility contains quarterly covenants which, among other things, require the Company to maintain certain financial ratios, specified levels of equity and other restrictions. The Company had outstanding cash borrowings of $17,000,000 at December 31, 1997. In January 1998, the borrowings were repaid and the credit facility was cancelled. 11.CONVERTIBLE SUBORDINATED DEBENTURES In October 1996, the Company issued $115,000,000 of convertible subordinated debentures bearing interest at 5 3/4% per annum, payable semi- annually. The debentures mature on October 1, 2006. The debentures are convertible into shares of the Company's common stock at a conversion price of $45.75 per share, subject to adjustment in certain events. The debentures are subordinated in right of payment to all existing and future senior indebtedness of the Company. The debentures are redeemable at the option of the Company, in whole or in part, at prices decreasing from 102% of the face amount on October 12, 1999 to par on October 1, 2001. The debenture holders may require the Company to repurchase the debentures at par in the event that the common stock ceases to be publicly traded and, in certain instances, upon a change in control of the Company. In November 1993, the Company issued $60,000,000 of convertible subordinated debentures bearing interest at 5 1/4% per annum, payable semi- annually. In November 1996, the Company called these debentures for redemption. All of the debentures were converted into 3,096,768 shares of common stock. 12.LIABILITY FOR SEVERANCE PAY Liability for severance pay consists of the Company's unfunded liability for severance pay to employees of certain foreign subsidiaries and accrued severance to the Company's chief executive officer. The Company's statutory obligation for severance pay to employees of its Israeli subsidiaries is determined on the basis of each individual's current salary and length of employment. Funding is currently provided primarily by premiums paid by the Company to insurance providers. The Company is obligated under an agreement with its chief executive officer to provide a severance payment upon the termination of his employment with the Company. Approximately $1,186,000 and $1,398,000 has been accrued as of December 31, 1996 and 1997, respectively, relating to this liability. 13.RELATED PARTIES The Company paid or accrued legal fees to one of its directors in the amounts of $298,000, $254,000, and $422,000 in 1995, 1996 and 1997, respectively. F-14 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 14.STOCK OPTIONS EMPLOYEE STOCK OPTIONS--At December 31, 1997, 5,277,904 shares of common stock were reserved for issuance upon the exercise of options then outstanding and 1,478,899 options were available for future grant under Comverse's Stock Option Plans, under which options may be granted to key employees, directors, and other persons rendering services to the Company. Options which are designated as "incentive stock options" under the option plans may be granted with an exercise price not less than the fair market value of the underlying shares at the date of grant and are subject to certain quantity and other limitations specified in Section 422 of the Internal Revenue Code. Options which are not intended to qualify as incentive stock options may be granted at any price, but not less than the par value of the underlying shares, and without restriction as to amount. The options and the underlying shares are subject to adjustment in accordance with the terms of the plans in the event of stock dividends, recapitalizations and similar transactions. The right to exercise the options generally vests in annual increments over periods of up to four years from the date of grant or the date of commencement of the grantee's employment with the Company. The changes in the number of options were as follows:
YEAR ENDED DECEMBER 31, -------------------------------- 1995 1996 1997 --------- --------- ---------- Outstanding at beginning of year........... 4,346,902 4,620,225 5,572,961 Granted during the year.................... 1,234,756 1,892,136 1,104,750 Exercised during the year.................. (804,192) (730,928) (1,257,469) Canceled, terminated and expired........... (157,241) (208,472) (142,338) --------- --------- ---------- Outstanding at end of year................. 4,620,225 5,572,961 5,277,904 ========= ========= ==========
At December 31, 1997, options to purchase an aggregate of 2,136,339 shares were vested and currently exercisable under the option plans and options to purchase an additional 3,141,565 shares vest at various dates extending through the year 2001. Weighted average option exercise price information for the years 1995, 1996 and 1997 was as follows:
1995 1996 1997 ------ ------ ------ Outstanding at beginning of year....................... $ 8.57 $11.25 $16.62 Granted during the year................................ 17.38 27.11 43.04 Exercised during the year.............................. 5.71 8.92 12.38 Canceled, terminated and expired....................... 13.70 17.55 26.97 Exercisable at year end................................ 7.56 9.77 11.68
Significant option groups outstanding at December 31, 1997 and related weighted average price and life information were as follows:
WEIGHTED AVERAGE WEIGHTED WEIGHTED RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE -------------- ----------- ---------------- -------------- ----------- -------------- $ 1.40- $10.00 1,463,194 5.24 $ 7.11 1,321,943 $ 6.79 $10.20- $23.75 2,165,585 7.74 19.57 748,968 18.23 $25.47- $44.25 1,362,795 8.95 39.79 63,028 34.93 $45.09- $51.83 286,330 9.06 47.00 2,400 45.25 --------- ---- ------ --------- ------ 5,277,904 7.43 $22.81 2,136,339 $11.68 ========= ==== ====== ========= ======
F-15 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its option plans. Accordingly, as all options have been granted at exercise prices equal to fair market value on the date of grant, no compensation expense has been recognized by the Company in connection with its stock-based compensation plans. Had compensation cost for the Company's stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been reduced by approximately $2,254,000, $4,962,000 and $13,505,000 or $.06, $.11 and $.29 per diluted share in 1995, 1996 and 1997, respectively. The weighted average fair value of the options granted during 1995, 1996 and 1997 is estimated at $9.63, $14.20 and $23.21 on the date of grant (using the Black-Scholes option pricing model) with the following weighted average assumptions for 1995, 1996 and 1997, respectively: volatility of 63%, 56% and 54%, risk-free interest rate of 6.7%, 6.3% and 6.5%, and an expected life of 4.6, 4.6 and 4.7 years in 1995, 1996 and 1997, respectively. OPTIONS ON SUBSIDIARY SHARES--Comverse has granted to its chief executive officer, under the terms of his employment agreement, options to acquire 7.5% of the equity of Comverse's subsidiaries, other than Efrat Future Technology, Ltd. ("Efrat"). In addition, Comverse has granted to certain other key executives of the Company options to acquire shares of certain subsidiaries, other than Efrat, as a means of providing incentives directly tied to the performance of those subsidiaries for which different executives have direct responsibility. Such options, which upon exercise would represent in the aggregate up to 23.6% of the outstanding shares of each subsidiary, have terms of ten years and become exercisable and vest in equal ratable annual increments over periods ranging from three to five years from the first anniversary of the date of initial grant. The exercise price of each option is equal to the higher of the book value of the underlying shares at the date of grant or the fair market value of such shares at that date determined on the basis of an arms'-length transaction with a third party or, if no such transactions have occurred, on a reasonable basis as determined by a committee of the Board of Directors. Upon the exercise, in whole or in part, of any option, Comverse will receive an irrevocable proxy to vote the underlying shares and a right of first refusal to purchase the shares upon any proposed sale, transfer or other disposition, until such time as the shares shall have been sold in a bona fide open market transaction. 15.WARRANTS In November 1995, the Company entered into an agreement to supply its products to AT&T. Pursuant to this agreement, the Company issued warrants to purchase shares of its common stock at an exercise price of $21.54 per share. The warrants vest in five equal annual increments, commencing with the first anniversary of the date of grant, and remain exercisable for 30 months after first becoming exercisable. Any stock issued as a result of the exercise of the warrants would be for the customer's investment purposes only, and would be "restricted securities" under Rule 144 of the Securities Act of 1933. As of December 31, 1997, warrants to purchase 1,914,432 shares are outstanding, none of which are exercisable. At commencement of the contract, the Company estimated that compliance with the terms of the agreement would result in a $21,000,000 loss, which was recognized in the year ended December 31, 1995. Included in the $21,000,000 was a charge of $18,600,000 relating to the value of the warrants issued to AT&T, based on an evaluation performed by an independent investment banking firm. F-16 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 16.EARNINGS PER SHARE ("EPS") In 1997, the Company adopted SFAS No. 128, "Earnings Per Share". Basic earnings per share is determined by using the weighted average number of shares of common stock outstanding during each period. Diluted earnings per share further assumes the issuance of common shares for all dilutive potential common shares outstanding. The calculation for earnings per share for each of the three years ended December 31, 1997 was as follows:
1995 1996 1997 ----------------------- ------------------------ ------------------------ PER SHARE PER SHARE PER SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT ------ ------ --------- ------- ------ --------- ------- ------ --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) BASIC EPS Net Income.............. $2,160 37,281 $0.06 $42,137 38,223 $1.10 $34,525 42,413 $0.81 ===== ===== ===== EFFECT OF DILUTIVE SECURITIES Options................. 1,479 3,453 3,556 Convertible debentures.. 2,586 2,701 ------ ------ ----- ------- ------ ----- ------- ------ ----- DILUTED EPS............. $2,160 38,760 $0.06 $44,723 44,377 $1.01 $34,525 45,969 $0.75 ====== ====== ===== ======= ====== ===== ======= ====== =====
Debentures convertible into 3,096,768 shares, 2,513,661 shares and 2,513,661 shares were outstanding as of December 31, 1995, 1996 and 1997, respectively, but were not included in the computation of diluted EPS because the effect of including them would be antidilutive. 17.FOREIGN OPERATIONS Condensed net assets, exclusive of intercompany balances, applicable to all foreign operations, principally located in Israel, included in the consolidated balance sheets, are summarized as follows:
DECEMBER 31, ---------------- 1996 1997 ------- -------- (IN THOUSANDS) Current assets............................................. $85,841 $131,262 Property and equipment, net................................ 13,548 19,523 Software development costs, net............................ 9,394 12,134 Other assets............................................... 80 1,757 ------- -------- Total assets............................................. 108,863 164,676 ------- -------- Current liabilities........................................ 32,323 43,942 Other liabilities.......................................... 2,258 2,849 ------- -------- Total liabilities........................................ 34,581 46,791 ------- -------- Net assets............................................. $74,282 $117,885 ======= ========
F-17 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 Condensed operating information, exclusive of intercompany transactions, applicable to all foreign operations, principally located in Israel, included in the consolidated statements of income, is summarized as follows:
YEAR ENDED DECEMBER 31, -------------------------- 1995 1996 1997 ------- -------- -------- (IN THOUSANDS) Total revenues.................................. $72,843 $ 95,766 $156,337 Costs and expenses.............................. 71,430 112,056 166,726 ------- -------- -------- Operating income (loss)......................... $ 1,413 $(16,290) $(10,389) ======= ======== ========
The operating results shown above reflect the inclusion in costs and expenses of fixed charges incurred by Comverse's foreign subsidiaries necessary to support a level of activity which is greater than that shown in the table due to the exclusion of intercompany revenue. Foreign operations in 1996 and 1997 were profitable when intercompany transactions are included. 18.INCOME TAXES The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31, -------------------------- 1995 1996 1997 ------- -------- ------- (IN THOUSANDS) Current: Federal......................................... $ 2,218 $ 9,885 $ 3,471 State........................................... 585 1,235 703 Foreign......................................... 1,022 1,950 2,216 ------- -------- ------- 3,825 13,070 6,390 ------- -------- ------- Deferred (benefit): Federal......................................... (1,559) (2,716) 2,810 State........................................... (325) (206) 215 Foreign......................................... 221 22 (17) ------- -------- ------- (1,663) (2,900) 3,008 ------- -------- ------- $ 2,162 $ 10,170 $ 9,398 ======= ======== =======
The reconciliation of the U.S. Federal statutory tax rate to the Company's effective tax rate is as follows:
YEAR ENDED DECEMBER 31, ---------------- 1995 1996 1997 ---- ---- ---- U.S. Federal statutory rate............................... 35% 35% 35% Consolidated worldwide income in excess of U.S. income.... (136) (18) (31) Foreign income taxes...................................... 29 4 5 AT&T warrants............................................. 151 -- -- Other..................................................... (29) (2) 12 ---- --- --- Company's effective tax rate.............................. 50% 19% 21% ==== === ===
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and F-18 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 (b) operating loss carryforwards. The tax effects of significant items comprising the Company's deferred tax asset and liability at December 31, 1996 and 1997 are as follows:
1996 1997 ------ ------- (IN THOUSANDS) Deferred tax liability: Expenses deductible for tax purposes and not for financial reporting purposes............................ $1,681 $ 846 Unrealized gain on available-for-sale securities......... 674 679 ------ ------- $2,355 $ 1,525 ------ ------- Deferred tax asset: Reserves not currently deductible........................ $8,308 $15,827 Tax loss carryforwards................................... 1,091 482 Inventory capitalization................................. (263) 420 Other.................................................... 474 94 ------ ------- 9,610 16,823 Less: valuation allowance................................. (3,814) (14,660) ------ ------- Total deferred tax asset................................ $5,796 $ 2,163 ====== =======
Income tax has not been provided on unrepatriated earnings of foreign subsidiaries as currently it is the intention of the Company to reinvest such foreign earnings in their operations. 19.BUSINESS SEGMENT INFORMATION The Company is engaged in one business segment: the design, development, manufacture, marketing and support of special purpose computer and telecommunications systems and software for multimedia communications and information processing applications. Sales by geographic regions, as a percentage of total sales, for the years ended December 31, 1995, 1996 and 1997 were as follows:
1995 1996 1997 ---- ---- ---- United States................................................ 34% 49% 33% Canada....................................................... 2% 2% 1% Europe....................................................... 18% 20% 26% Far East/Australia........................................... 36% 23% 30% Latin America................................................ 3% 1% 6% Other........................................................ 7% 5% 4% --- --- --- Total........................................................ 100% 100% 100% === === ===
In 1996, sales to AT&T constituted 11% of total sales. No customer accounted for 10% of sales in 1995 or 1997. 20.COMMITMENTS AND CONTINGENCIES LEASES--The Company leases office, manufacturing, and warehouse space under non-cancelable operating leases. Rent expense for all leased premises approximated $5,889,000, $7,839,000 and $11,705,000 in 1995, 1996, and 1997, respectively. F-19 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 As of December 31, 1997, the minimum rent obligations of the Company were approximately as follows:
AMOUNT -------------- (IN THOUSANDS) 1998....................................................... $ 13,568 1999....................................................... 12,090 2000....................................................... 9,944 2001....................................................... 9,779 2002 and thereafter........................................ 64,948 -------- $110,329 ========
EMPLOYMENT AGREEMENTS--The Company is obligated under employment contracts with its chief executive officer to provide salary, bonuses, and fringe benefits through June 30, 2000. Minimum salary payments under the contracts currently amount to $350,000 per year and aggregate $875,000 through June 30, 2000. The executive is entitled to annual bonuses equal to at least 3% of the Company's consolidated after-tax net income during each year. Upon termination or expiration of the term of employment, the executive is entitled to receive a severance payment equal to $93,170 for each year of his previous and current employment with the Company, which is increased by the rate of 10% per annum compounded for each year of employment, plus continued employment-related benefits for the period of 36 months thereafter. If the termination of employment results from a unilateral termination or fundamental breach of the agreement by the Company, or the resignation of the executive within six months following a change in control of the Company not approved by the executive in his capacity as a director of Comverse, the executive is entitled to an additional payment equal to 299% of the average annual cash compensation, including salary and any bonus payments, received by the executive from the Company during the three immediately preceding fiscal years, plus an amount equal to the income tax resulting from such payment. The agreements also provide for the executive to receive options entitling him to purchase 7 1/2% of the equity of Comverse's subsidiaries, other than Efrat, at prices equal to the higher of book value of the underlying shares at the date of option grant or the fair market value of such shares at that date determined on the basis of an arms'-length transaction with a third party or, if no such transactions have occurred, on a reasonable basis as determined by the Board of Directors. Most other employment agreements of the Company are terminable with or without cause with prior notice of 60 days or less. In certain instances, the termination of employment agreements without cause entitles the employees to certain benefits, including acceleration of the vesting of stock options and severance payment of as much as one year's compensation. LICENSES AND ROYALTIES--The Company licenses certain technology, "know- how," software and related rights for use in the manufacture and marketing of its products, and pays royalties to third parties under such licenses and under other agreements entered into in connection with research and product development activities. The Company currently pays royalties on the sale of substantially all of its product lines in varying amounts based upon the revenues attributed to the various components of such products. Royalties typically range up to 6% of net sales of the related products and, in the case of royalties due to government funding sources in respect of research and development projects, are required to be paid until the funding organization has received total royalties ranging from 100% to 150% of the amounts received by the Company under the approved project budgets. DIVIDEND RESTRICTIONS--The ability of Comverse's Israeli subsidiaries to pay dividends is governed by Israeli law, which provides that cash dividends may be paid by an Israeli corporation only out of retained F-20 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 earnings as determined for statutory purposes in Israeli currency. In the event of a devaluation of the Israeli currency against the dollar, the amount in dollars available for payment of cash dividends out of prior years' earnings will decrease accordingly. Cash dividends paid by an Israeli corporation to United States residents are subject to withholding of Israeli income tax at source at a rate of up to 25%, depending on the particular facilities which have generated the earnings that are the source of the dividends. INVESTMENTS--In 1997, wholly-owned subsidiaries of Comverse and Quantum Industrial Holdings Ltd. organized two new companies to make investments primarily relating to Israel, including investments in high technology ventures. Each participant committed a total of $25,000,000 to the capital of the new companies, for use as suitable investment opportunities are identified. Quantum Industrial Holdings Ltd. is the principal direct investment vehicle of the Quantum Group, a group of investment funds managed by Soros Fund Management LLC. GUARANTIES--The Company has obtained bank guaranties primarily for performance of certain obligations under contracts with customers. These guaranties, which aggregated approximately $13,142,000 at December 31, 1997, are to be released by the Company's performance of specified contract milestones, which are scheduled to be completed primarily during 1998. LITIGATION--On February 2, 1998, Computel Computadores e Telecommunicacoes S.A. ("Computel") filed a Request for Arbitration with the International Chamber of Commerce ("ICC") in Paris, France (No. 9858/FMS), claiming breaches by BTI and its wholly-owned subsidiary, Boston Technology Investments, Inc., in respect of agreements with Computel and its affiliates for the distribution of BTI's systems in Brazil. On March 10, 1998, the Company commenced an action against Computel and an affiliate in the Middlesex Superior Court of Massachusetts (Civil Action No. 98-1155) seeking declaratory judgments as to arbitrability and the continuing validity of the Purchase and Sale Agreement between the parties, Computel's specific performance of such agreement and injunctions to prevent Computel from proceeding with the ICC arbitration. In this action, the Company seeks damages in excess of $3,767,500 as a result of Computel's failure to pay monies owed under the Purchase and Sale Agreement, as well as costs and attorneys' fees. The defendants have filed a counterclaim in that action alleging, among other things, that BTI breached its obligations to Computel by merging with Comverse and thereby competing with a company jointly established by the parties in connection with such distribution activities, by delivering equipment that did not conform to specifications, and by failing to support this equipment. On April 21, 1998, the Company served on Computel and its affiliate a motion to stay and to compel arbitration and to dismiss certain counts of defendants' Counterclaim. On March 11, 1998, the Company filed a Demand for Arbitration with the American Arbitration Association in Boston, Massachusetts, against Computel and certain of its affiliates claiming breach of a Distribution Agreement between the parties and unfair and deceptive trade practices. In this arbitration, the Company seeks to recover damages in excess of $12,000,000, plus interest, for systems shipped to respondents, and additional damages for respondents' repudiation and anticipatory breach of contract and unfair and deceptive trade practices. On April 3, 1998, the Middlesex Superior Court issued a temporary injunction prohibiting Computel from proceeding with its ICC arbitration request. The Company is subject to certain other legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their final resolution will not have any significant adverse effect upon the Company's business or its consolidated financial statements. F-21 COMVERSE TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 21.FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value amounts have been determined by the Company, using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
DECEMBER 31, 1996 DECEMBER 31, 1997 ------------------- ------------------- CARRYING ESTIMATED CARRYING ESTIMATED AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- (IN THOUSANDS) Liabilities: Convertible subordinated debentures....................... $115,000 $119,456 $115,000 $122,188 Off-balance sheet financial instruments: Foreign exchange forward contracts used for hedging purposes........ $ -- $ 64 $ -- $ 1,407
CASH AND CASH EQUIVALENTS, BANK TIME DEPOSITS, SHORT-TERM INVESTMENTS, ACCOUNTS RECEIVABLE, LONG-TERM RECEIVABLES, INVESTMENTS, AND ACCOUNTS PAYABLE--The carrying amounts of these items are a reasonable estimate of their fair value. CONVERTIBLE SUBORDINATED DEBENTURES AND FOREIGN EXCHANGE FORWARD CONTRACTS--The fair value of these securities is estimated based on quoted market prices or recent sales for those or similar securities. The fair value estimates presented herein are based on pertinent information available to management as of December 31, 1997. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since that date, and current estimates of fair value may differ significantly from the amounts presented herein. 22.QUARTERLY INFORMATION (UNAUDITED) The following table shows selected results of operations for each of the quarters during 1996 and 1997.
FISCAL QUARTER ENDED --------------------------------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, 1996 1996 1996 1996 1997 1997 1997 1997 --------- -------- --------- -------- --------- -------- --------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Sales................... $76,161 $88,084 $104,710 $120,684 $126,848 $133,012 $140,327 $ 88,753 Gross profit............ $41,231 $51,065 $ 58,772 $ 69,047 $ 74,221 $ 80,101 $ 85,081 $ 46,897 Net income (loss)....... $ 7,337 $ 9,642 $ 11,406 $ 13,752 $ 15,494 $ 17,050 $ 18,246 $(16,265) Diluted earnings per share.................. $ 0.18 $ 0.23 $ 0.27 $ 0.32 $ 0.34 $ 0.37 $ 0.39 $ (0.35) ======= ======= ======== ======== ======== ======== ======== ========
The difference between income per share for the years and the sum of the income per share for the quarters comprising the years is due to differences in the calculation of the weighted average number of shares outstanding over the respective periods and rounding adjustments. F-22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. INTRODUCTION On January 14, 1998, Comverse Technology, Inc. ("Comverse" and, together with its subsidiaries, the "Company") consummated a merger (the "Merger") with Boston Technology, Inc., a Delaware corporation ("Boston") in a transaction in which former shareholders of Boston received an aggregate of 18,141,185 shares of Comverse's Common Stock. The Merger has been accounted for as a pooling of interests. This Discussion and Analysis reviews the financial statements of the Company for the three years ended December 31, 1997 restated to include the operations of Boston for its fiscal years ended January 31, 1996 and 1997 and the eleven months ended December 31, 1997. RESULTS OF OPERATIONS The following discussion and analysis of the Company's results of operations covers the operating results of Comverse and its consolidated subsidiaries for the fiscal years included in the foregoing selected financial data. COMPARISON OF 1996 AND 1997 OPERATIONS Total Revenues. Total revenues increased from 1996 to 1997 by approximately $105,252,000 (26%). The increase is attributable primarily to a higher volume of sales of systems and parts. Sales increased from 1996 to 1997 by approximately $99,301,000 (25%), primarily resulting from increased sales of Comverse Network Systems' products. Interest and other income increased from 1996 to 1997 by approximately $5,951,000 (54%), resulting primarily from increased interest and dividend income, the investment of funds generated through the issuance of convertible subordinated debentures in October 1996, and realized gains on sales of investments. Cost of Sales. Cost of sales increased by approximately $33,116,000 (20%) from 1996 to 1997 primarily as a result of the increase in sales. Gross margins increased from approximately 56.5% in 1996 to approximately 58.6% in 1997. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased from 1996 to 1997 by approximately $44,701,000 (48%) and as a percentage of total revenues increased from approximately 23% in 1996 to approximately 27% in 1997. The increased amount was a result of increased sales, marketing and administrative activities associated with the overall growth of the Company's operations, and particularly with the expansion of direct sales and marketing activities. Research and Development Expenses. Net research and development expenses during 1997 increased by approximately $30,398,000 (46%) over 1996 due to overall growth of research and development operations, the initiation of significant new research and development projects and increases in salaries and other costs associated with research and development operations in Israel. Royalties and License Fees. Royalties and license fees increased from 1996 to 1997 by approximately $1,882,000 (18%) due primarily to growth in sales of royalty-bearing products. Income Tax Provision. Provision for income taxes decreased from 1996 to 1997 by approximately $772,000 (8%), while the Company's overall effective tax rate increased from approximately 19% during 1996 to approximately 21% in 1997. The Company's overall rate of tax is reduced significantly by the tax benefits associated with qualified activities of one of its Israeli subsidiaries, which is entitled to favorable income tax rates under a program of the Israeli Government for "Approved Enterprise" investments in that country. Net Income. Net income after taxes decreased from approximately $42,137,000 in 1996 to approximately $34,525,000 in 1997, a decrease of approximately $7,612,000 (18%), while net F-23 income after taxes as a percentage of total revenues decreased from approximately 10.5% in 1996 to approximately 6.8% in 1997. The decreases resulted primarily from the factors described above. COMPARISON OF 1995 AND 1996 OPERATIONS Total Revenues. Total revenues increased from 1995 to 1996 by approximately $148,318,000 (59%). The increase is attributable primarily to a higher volume of sales of systems and parts. Sales increased from 1995 to 1996 by approximately $147,223,000 (61%), primarily resulting from increased sales of Comverse Network Systems' products. Interest and other income increased from 1995 to 1996 by approximately $1,095,000 (11%), resulting primarily from increased interest and dividend income, the investment of funds generated through the issuance of convertible subordinated debentures in October 1996, and realized gains on sales of short-term investments. Cost of Sales. Cost of sales increased by approximately $64,544,000 (61%) from 1995 to 1996 primarily as a result of the increase in sales. Gross margins decreased from approximately 56.7% in 1995 to approximately 56.5% in 1996. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased from 1995 to 1996 by approximately $20,651,000 (28%) and as a percentage of total revenues decreased from approximately 29% in 1995 to approximately 23% in 1996. The increased amount was a result of increased sales, marketing and administrative activities associated with the overall growth of the Company's operations, and particularly with the expansion of direct sales and marketing activities. Research and Development Expenses. Net research and development expenses during 1996 increased by approximately $24,918,000 (60%) over 1995 due to overall growth of research and development operations, the initiation of significant new research and development projects and increases in salaries and other costs associated with research and development operations in Israel. Royalties and License Fees. Royalties and license fees increased from 1995 to 1996 by approximately $7,122,000 (214%) due primarily to growth in sales of royalty-bearing products, as well as a new licensing agreement. Warrants and Other Expenses Associated with AT&T Contract Acquisition. In 1995, the Company entered into an agreement with AT&T Corporation ("AT&T") for the supply of the Company's Access NP Network Services Platform and its AccessMAX object-oriented software. Pursuant to the agreement, the Company issued to AT&T warrants to purchase the Company's common stock. In conjunction with the issuance of the warrants and the start-up costs associated with the agreement, the Company took a non-cash, non-tax deductible charge of $21,000,000 to earnings. The $21,000,000 charge was due primarily to the valuation placed on the warrants. Income Tax Provision. Provision for income taxes increased from 1995 to 1996 by approximately $8,008,000 (370%), while the Company's overall effective tax rate decreased from approximately 50% during 1995 to approximately 19% in 1996. The Company's overall rate of tax is reduced significantly by the tax benefits associated with qualified activities of one of its Israeli subsidiaries, which is entitled to favorable income tax rates under a program of the Israeli Government for "Approved Enterprise" investments in that country. F-24 Net Income. Net income after taxes increased from approximately $2,160,000 in 1995 to approximately $42,137,000 in 1996, an increase of approximately $39,977,000 (1,851%), while net income after taxes as a percentage of total revenues increased from approximately 0.9% in 1995 to approximately 10.5% in 1996. The increases resulted primarily from the factors described above. LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, the Company had cash and cash equivalents of approximately $188,023,000, bank time deposits of approximately $40,700,000, short-term investments of approximately $60,787,000 and working capital of approximately $395,503,000. In addition, in June 1998, the Company issued $250,000,000 of 4-1/2% Convertible Subordinated Debentures due 2005. The Company believes that its existing working capital, together with funds generated from operations, will be sufficient to provide for its planned operations at least through December 31, 1998. The Company regularly examines opportunities for strategic acquisitions of other companies or lines of business, and anticipates that it may from time to time issue additional debt and/or equity securities either as direct consideration for such acquisitions or to raise additional funds to be used (in whole or in part) in payment for acquired securities or assets. The issuance of such securities can be expected to have a dilutive impact on the Company's shareholders, and there can be no assurance as to whether or when any acquired business would contribute positive operating results commensurate with the associated acquisition cost. The Company's liquidity and capital resources have not been, and are not anticipated to be, materially affected by restrictions pertaining to the ability of its subsidiaries in Israel to pay dividends or by withholding taxes associated with any such dividend payments. Cash dividends paid by an Israeli corporation to United States residents are subject to withholding of Israeli income tax at source at rates of up to 25%, depending on the particular facilities that have generated the earnings that are the source of the dividends. YEAR 2000 The Company has taken actions to understand the nature and extent of the work required to make its systems, products and infrastructure Year 2000 compliant and has begun work to prepare its products and its financial, information and other computer-based systems for the Year 2000, including replacing and/or updating existing legacy systems. The Company continues to evaluate the estimated costs associated with these efforts. While these efforts will involve additional costs, the Company believes, based on available information, that it will be able to manage its total Year 2000 transition without any material adverse effect on its business operations, products or financial prospects. CERTAIN TRENDS AND UNCERTAINTIES The Company has benefited from the growth in its business and capital base over the past several years to make significant new investment in its operations and infrastructure intended to F-25 enhance its opportunities for future growth and profitability. The Company's results of operations reflect the significant increase in its investment in operations over the past three years. The Company intends to continue to make significant investments in the growth of its business, and to examine opportunities for additional growth through acquisitions and strategic investments. The impact of these decisions on future profitability cannot be predicted with assurance, and the Company's commitment to growth may increase its vulnerability to unforeseen downturns in its markets, technology changes and shifts in competitive conditions. However, the Company believes that significant opportunities exist in the markets for each of its main product lines, and that continued strong investment in its technical, product development, marketing and sales capabilities will enhance its opportunities for long term growth and profitability. The Merger involves the integration of two companies that have previously operated independently. The combination of two sizable technology-based companies involves significant complexities, and no assurance can be given that the combined Company will be able to integrate the operations of Boston into the Company without encountering difficulties or experiencing the loss of key Comverse or Boston personnel or that the benefits expected from such integration will be realized. The integration of two companies across geographically dispersed operations can create the risk of disruption in operations of the combined company, and neither company's management has substantial experience in managing such integration or the operations of an entity the size of the combined company. The Company does not expect to realize cost savings in the near future as a result of the Merger, and no assurance can be given that any savings can be achieved in future periods. Furthermore, there can be no certainty that the Merger will not adversely affect the relationships with key customers or key vendors of either company. As a result of its significantly greater concentration on a small number of large telephone company customers, Boston's business has historically been considerably more volatile than that of Comverse, and the operations of the combined company are likely to be less predictable and subject to greater risks from actions of individual customers than the operations of Comverse in recent years. The telecommunications industry is subject to rapid technological change. The Company's revenue stream will depend on its ability to enhance its existing products and to introduce new products on a timely and cost-effective basis. This includes any customer-requested custom software enhancements required in the normal course of product delivery and customer demands for the technological convergence of the Company's products. The Company's products involve sophisticated hardware and software technology that performs critical functions to highly demanding standards. There can be no assurance that the Company's current or future products will not develop operational problems, which could have a material adverse effect on the Company. In addition, if the Company were to delay the introduction of new products, or to delay the delivery of specific custom software enhancements, the Company's operating results could be adversely affected. The Company sells a majority of its products to companies in the telecommunications industry. This industry is undergoing significant change as a result of deregulation and privatization worldwide, reducing restrictions on competition in the industry. Unforeseen changes in the regulatory environment may have an impact on the Company's revenues and/or costs in any given part of the world. The worldwide enhanced services systems industry is already highly competitive and the Company expects competition to intensify. The Company believes that existing competitors will continue to present substantial competition, and that other companies, many with considerably greater financial, marketing and sales resources than the Company, may enter the enhanced services systems markets. The 1997 acquisition of Octel Communications Corporation, a significant competitor of the Company, by Lucent F-26 Technologies, Inc. may intensify the competitive environment in the industry, and there can be no assurance that similar business combinations or industry consolidation will not occur in the future. The enhanced services platforms industry has experienced a continuing evolution of product offerings and alternatives for delivery of services. These trends have affected and may be expected to have a significant continuing influence on conditions in the industry, although the impact on the industry generally and on the Company's position in the industry cannot be predicted with assurance. Significant changes in the industry make planning decisions more difficult and increase the risk inherent in the planning process. The market for telecommunications monitoring systems is also in a period of significant transition. Budgetary constraints, uncertainties resulting from the introduction of new technologies in the telecommunications environment and shifts in the pattern of government expenditures resulting from geopolitical events have increased uncertainties in the market, resulting in certain instances in the attenuation of government procurement programs beyond their originally expected performance periods and an increased incidence of delay, cancellation or reduction of planned projects. The continuing delay and uncertainties surrounding the Communications Assistance for Law Enforcement Act ("CALEA") have had a significant impact on acquisition plans of law enforcement agencies in North America engaged in monitoring activities, and no assurances can be given as to the timing or ultimate content of the proposed legislation. Competitive conditions in this sector have also been affected by the increasing use by certain potential government customers of their own internal development resources rather than outside vendors to provide certain technical solutions. In addition, a number of established government contractors, particularly developers and integrators of technology products, have taken steps to redirect their marketing strategies and product plans in reaction to cut-backs in their traditional areas of focus, resulting in an increase in the number of competitors and the range of products offered in response to particular requests for proposals. The lack of predictability in the timing and scope of government procurements have similarly made planning decisions more difficult and have increased the associated risks. The Company has historically derived a significant portion of its sales and operating profit from a relatively small number of contracts for large system installations with major customers. Boston's operating results, in particular, have often been characterized by volatility and lack of predictability, reflecting its traditional customer concentration among major telecommunications services providers such as the Regional Bell Operating Companies. The Company continues to emphasize large capacity systems in its product development and marketing strategies. Contracts for large installations typically involve a lengthy and complex bidding and selection process, and the ability of the Company to obtain particular contracts is inherently difficult to predict. The Company believes that opportunities for large installations will continue to grow in both its commercial and government markets, and intends to continue to expand its research and development, manufacturing, sales and marketing and product support capabilities in anticipation of such growth. However, the timing and scope of these opportunities and the pricing and margins associated with any eventual contract award are difficult to forecast, and may vary substantially from transaction to transaction. The Company's future operating results may accordingly exhibit a higher degree of volatility than the operating results of other companies in its industries that have adopted different strategies, and than the Company has experienced in prior periods. Although the Company is actively pursuing a number of significant procurement opportunities in the United States and internationally, both the timing of any eventual procurements and the probability of the Company's receipt of significant contract awards are uncertain. The degree of dependence by the Company on large orders, and the investment F-27 required to enable the Company to perform such orders, without assurance of continuing order flow from the same customers and predictability of gross margins on any future orders, increase the risk associated with its business. The Company has significantly increased its expenditures in all areas of its operations during recent periods, including the areas of research and development and marketing and sales, and the Company plans to further increase these expenditures in the foreseeable future. The increase in research and development expenditures reflects the Company's concentration on enhancing the range of features and capabilities of its existing product lines and developing new generations of its products. The Company believes that these efforts are essential for the continuing competitiveness of its product offerings and for positioning itself to participate in future growth opportunities in both the commercial and government sectors. The increase in sales and marketing expenditures primarily results from the Company's decision to expand its activities and direct presence in a growing number of world markets. The Company's costs of operations have also been affected by increases in the cost of its operations in Israel, resulting both from general inflation and increases in the cost of attracting and retaining qualified scientific, engineering and technical personnel in Israel, where the demand for such personnel is growing rapidly with the expansion of technology-based industries in that country. The increase in these costs in recent periods has not been offset by proportional devaluation of the Israeli shekel against the United States dollar, and accordingly has had a negative impact on the Company's overall results of operations. Continuation of such trends may have a material adverse effect on the Company's future results of operations. A significant portion of the Company's research and development and manufacturing operations are located in Israel and may be affected by regulatory, political, military and economic conditions in that country. The Company's historical operating results reflect substantial benefits from programs sponsored by the Israeli government for the support of research and development, as well as favorable tax rates available to "Approved Enterprises" in Israel. The Israeli government has indicated its intention to reexamine certain of its policies in these areas. In 1996, the Israeli government acted to increase, from between 2% and 3% of associated product sales to between 3% and 5% of associated product revenues (including service and other related revenues), the annual rate of royalties to be applied to repayment of benefits under the conditional grant program administered by the Office of the Chief Scientist of the Ministry of Industry and Trade, a program in which the Company has regularly participated and under which it continues to receive significant benefits through reimbursement of qualified research and development expenditures. The Company's repayment of amounts received under the program will be accelerated through these higher royalty rates until repayment is completed. In addition, permission from the government of Israel is required for the Company to manufacture outside of Israel products resulting from research and development activities funded under such programs, or to transfer outside of Israel related technology rights, and in order to obtain such permission the Company may be required to increase the royalties to the applicable funding agencies and/or repay certain amounts received as reimbursement of research and development costs. The Company expects to incur additional royalty expenses and/or repayment obligations as a result of the Merger and the location of certain manufacturing and research and development operations pertaining to its TRILOGUE product line at its Boston facilities. The Israeli authorities have also indicated that these research and development funding programs will be further reduced in the future, particularly for larger entities such as the Company. The Israeli government has also shortened the period of the tax moratorium applicable to "Approved Enterprises" from four years to two years. Although this change has not affected the tax status of the Company's projects that were eligible for the moratorium prior to 1997, it applies to the subsequent "Approved Enterprises" of the Company. F-28 If further changes in the law or government policies regarding those programs were to result in their termination or adverse modification, or if the Company were to become unable to participate in or take advantage of those programs, the cost to the Company of its operations in Israel would materially increase and there would be an adverse effect on the results of the Company's operations as a whole. To the extent the Company increases its activities outside Israel, which will result from the Merger and possible future acquisitions, such increased activities will not be eligible for programs sponsored by Israel. Most of the Company's research and development and manufacturing operations attributable to Boston are expected to continue to be located in the United States and thus will not be eligible for the benefits of those programs. Accordingly, the effective cost to the Company of its future research and development activities in particular, and its operations in general, could significantly increase relative to that of Comverse, historically. The Company currently derives a significant portion of its total sales from customers outside of the United States. International transactions involve particular risks, including political decisions affecting tariffs and trade conditions, rapid and unforeseen changes in economic conditions in individual countries, turbulence in foreign currency and credit markets, and increased costs resulting from lack of proximity to the customer. Volatility in international currency exchange rates may have a significant impact on the Company's operating results. The Company has, and anticipates that it will continue to receive, significant contracts denominated in foreign (primarily Western European and Japanese) currencies. As a result of the unpredictable timing of purchase orders and payments under such contracts and other factors, it is often not practicable for the Company to effectively hedge the risk of significant changes in currency rates during the contract period. Since the Company will hedge the exchange rate risks associated with long-term contracts denominated in foreign currencies only to a limited extent, operating results can be affected by the impact of currency fluctuations as well as the cost of such hedging. Prevailing economic conditions in the Far East and Southeast Asia have reduced the demand for the Company's systems in certain countries. The Company cannot currently predict the effect on its business should regional economic conditions fail to improve. The trading price of the Company's shares may be affected by the factors noted above as well as prevailing economic and financial trends and conditions in the public securities markets. Share prices of companies in technology and government contracting businesses, and particularly smaller and medium-sized publicly traded companies such as the Company, tend to exhibit a high degree of volatility. The Company's revenues and earnings may be more volatile than those of Comverse historically as a result of the greater concentration of Boston's business on a limited number of large customers. Shortfalls in revenues or earnings from the levels anticipated by the public markets could have an immediate and significant effect on the trading price of the Company's shares in any given period. Such shortfalls may result from events that are beyond the Company's immediate control, can be unpredictable and, since a significant proportion of the Company's sales during each fiscal quarter tend to occur in the latter stages of the quarter, may not be discernible until the end of a financial reporting period. These factors contribute to the volatility of the trading value of its shares regardless of the Company's long-term prospects. The trading price of the Company's shares may also be affected by developments, including reported financial results and fluctuations in trading prices of the shares of other publicly-held companies in the telecommunications equipment industry in general, and the enhanced services platform industry in particular, which may not have any direct relationship with the Company's business or prospects. F-29 FORWARD-LOOKING STATEMENTS From time to time, the Company makes forward-looking statements. Forward-looking statements include financial projections, statements of plans and objectives for future operations, statements of future economic performance, and statements of assumptions relating thereto. The Company may include forward-looking statements in its periodic reports to the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K, in its annual report to shareholders, in its proxy statements, in its press releases, in other written materials, and in statements made by employees to analysts, investors, representatives of the media, and others. By their very nature, forward-looking statements are subject to uncertainties, both general and specific, and risks exist that predictions, forecasts, projections and other forward-looking statements will not be achieved. Actual results may differ materially due to a variety of factors, including without limitation those discussed under "Certain Trends and Uncertainties" and elsewhere in this report. Investors and others should carefully consider these and other uncertainties and events, whether or not the statements are described as forward-looking. Forward-looking statements made by the Company are intended to apply only at the time they are made, unless explicitly stated to the contrary. Moreover, whether or not stated in connection with a forward-looking statement, the Company undertakes no obligation to correct or update a forward-looking statement should the Company later become aware that it is not likely to be achieved. If the Company were in any particular instance to update or correct a forward-looking statement, investors and others should not conclude that the Company will make additional updates or corrections thereafter. F-30 Exhibit Index Exhibit Number Title Page - -------------- ----- ---- 4 Indenture, dated June 30, 1998, between Comverse Technology, Inc. and The Chase Manhattan Bank, N.A., as Trustee. 10.1 Purchase Agreement, dated June 25, 1998, between Comverse Technology, Inc. and Lehman Brothers Inc., as Initial Purchaser. 10.2 Registration Rights Agreement, dated June 30, 1998, between Comverse Technology, Inc. and Lehman Brothers Inc., as Initial Purchaser. 99 Press Release dated June 25, 1998. EX-4 2 INDENTURE ================================================================================ COMVERSE TECHNOLOGY, INC., ISSUER TO THE CHASE MANHATTAN BANK, TRUSTEE ------------------ INDENTURE DATED AS OF JUNE 30, 1998 ----------------- U.S. $250,000,000 4-1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2005 ================================================================================ TABLE OF CONTENTS ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions............................... 1 SECTION 1.2 Form of Documents Delivered to Trustee.... 10 SECTION 1.3 Acts of Holders of Securities............. 11 SECTION 1.4 Notices, Etc., to Trustee and Company..... 12 SECTION 1.5 Notice to Holders of Securities; Waiver... 13 SECTION 1.6 Effect of Headings and Table of Contents.. 13 SECTION 1.7 Successors and Assigns.................... 14 SECTION 1.8 Separability Clause....................... 14 SECTION 1.9 Benefits of Indenture..................... 14 SECTION 1.10 GOVERNING LAW............................. 14 SECTION 1.11 Counterparts.............................. 14 SECTION 1.12 Legal Holidays............................ 14 SECTION 1.13 Recourse Against Others................... 15 ARTICLE 2 THE SECURITIES SECTION 2.1 Title and Terms................................ 15 SECTION 2.2 Form of Securities............................. 16 SECTION 2.3 Denominations.................................. 16 SECTION 2.4 Execution, Authentication, Delivery and Dating. 17 SECTION 2.5 Registration, Registration of Transfer and Exchange; Restrictions on Transfer....................... 17 SECTION 2.6 Mutilated, Destroyed, Lost or Stolen Securities 27 SECTION 2.7 Payment of Interest, Interest Rights Preserved. 28 SECTION 2.8 Persons Deemed Owners.......................... 29 SECTION 2.9 Cancellation................................... 30 SECTION 2.10 Computation of Interest........................ 30 SECTION 2.11 Temporary Securities........................... 30 i ARTICLE 3 SATISFACTION AND DISCHARGE SECTION 3.1 Satisfaction and Discharge of Indenture....... 31 SECTION 3.2 Application of Trust Money.................... 32 ARTICLE 4 REMEDIES SECTION 4.1 Events of Default............................. 33 SECTION 4.2 Acceleration of Maturity; Rescission and Annulment................................. 34 SECTION 4.3 Collection of Indebtedness and Suits for Enforcement by the Trustee.................... 36 SECTION 4.4 Trustee May File Proofs of Claim.............. 36 SECTION 4.5 Trustee May Enforce Claims Without Possession of Securities................................. 37 SECTION 4.6 Application of Money Collected................ 37 SECTION 4.7 Limitation on Suit............................ 38 SECTION 4.8 Unconditional Right of Holders to Receive Principal, Premium and Interest and To Convert....................................... 39 SECTION 4.9 Restoration of Rights and Remedies............ 39 SECTION 4.10 Rights and Remedies Cumulative................ 39 SECTION 4.11 Delay or Omission Not Waiver.................. 39 SECTION 4.12 Control by Holders of Securities.............. 40 SECTION 4.13 Waiver of Past Default........................ 40 SECTION 4.14 Undertaking for Costs......................... 40 SECTION 4.15 Waiver of Stay or Extension Laws.............. 41 ARTICLE 5 THE TRUSTEE SECTION 5.1 Certain Duties and Responsibilities........... 41 SECTION 5.2 Notice of Defaults............................ 42 SECTION 5.3 Certain Rights of Trustee..................... 43 SECTION 5.4 Not Responsible for Recitals or Issuance of Securities................................. 44 SECTION 5.5 May Hold Securities, Act as Trustee Under Other Indentures.............................. 44 SECTION 5.6 Money Held in Trust........................... 45 SECTION 5.7 Compensation and Indemnification of Trustee and Its Prior Claims.................. 45 SECTION 5.8 Corporate Trustee Required; Eligibility....... 46 SECTION 5.9 Resignation and Removal; Appointment of Successor.................................. 46 SECTION 5.10 Acceptance of Appointment by Successor........ 47 SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business........................ 48 ii SECTION 5.12 Authenticating Agent............................. 48 ARTICLE 6 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 6.1 Company May Consolidate, Etc., Only on Certain Terms............................................ 51 SECTION 6.2 Successor Corporation Substituted................ 51 ARTICLE 7 SUPPLEMENTAL INDENTURES SECTION 7.1 Supplemental Indentures Without Consent of Holders of Securities............................ 52 SECTION 7.2 Supplemental Indentures With Consent of Holders of Securities.................................... 53 SECTION 7.3 Execution of Supplemental Indentures............. 54 SECTION 7.4 Effect of Supplemental Indentures................ 54 SECTION 7.5 Reference in Securities to Supplemental Indentures....................................... 54 SECTION 7.6 Notice of Supplemental Indentures................ 55 ARTICLE 8 MEETING OF HOLDERS OF SECURITIES SECTION 8.1 Purposes for Which Meetings May Be Called........ 55 SECTION 8.2 Call Notice and Place of Meetings................ 55 SECTION 8.3 Persons Entitled to Vote at Meetings............. 56 SECTION 8.4 Quorum; Action................................... 56 SECTION 8.5 Determination of Voting Rights; Conduct and Adjournment of Meetings.......................... 57 SECTION 8.6 Counting Votes and Recording Action of Meetings.. 57 ARTICLE 9 COVENANTS SECTION 9.1 Payment of Principal, Premium and Interest....... 58 SECTION 9.2 Maintenance of Offices or Agencies............... 58 SECTION 9.3 Money for Security Payments To Be Held in Trust.. 59 SECTION 9.4 Corporate Existence.............................. 60 SECTION 9.5 Maintenance of Properties........................ 60 SECTION 9.6 Payment of Taxes and Other Claims................ 61 SECTION 9.7 Statement by Officers as to Default.............. 61 SECTION 9.8 Waiver of Certain Covenants...................... 61 SECTION 9.9 Delivery of Certain Information.................. 62 SECTION 9.10 Resale of Certain Securities..................... 62 iii ARTICLE 10 REDEMPTION OF SECURITIES SECTION 10.1 Right of Redemption............................. 62 SECTION 10.2 Applicability of Article........................ 63 SECTION 10.3 Election to Redeem; Notice to Trustee........... 63 SECTION 10.4 Selection by Trustee of Securities to Be Redeemed........................................ 63 SECTION 10.5 Notice of Redemption............................ 63 SECTION 10.6 Deposit of Redemption Price..................... 65 SECTION 10.7 Securities Payable on Redemption Date........... 65 SECTION 10.8 Securities Redeemed in Part..................... 65 ARTICLE 11 REPURCHASE UPON A DESIGNATED EVENT SECTION 11.1 Repurchase Right................................ 66 SECTION 11.2 Conditions to the Company's Election to Pay the Repurchase Price in Common Stock........ 67 SECTION 11.3 Notices; Method of Exercising Repurchase Right, Etc...................................... 68 ARTICLE 12 CONVERSION OF SECURITIES SECTION 12.1 Conversion Privilege and Conversion Price....... 70 SECTION 12.2 Exercise of Conversion Privilege................ 71 SECTION 12.3 Fractions of Shares............................. 72 SECTION 12.4 Adjustment of Conversion Price.................. 73 SECTION 12.5 Notice of Adjustments of Conversion Price....... 81 SECTION 12.6 Notice of Certain Corporate Action.............. 82 SECTION 12.7 Company to Reserve Common Stock................. 83 SECTION 12.8 Taxes on Conversions............................ 83 SECTION 12.9 Covenant as to Common Stock..................... 83 SECTION 12.10 Cancellation of Converted Securities............ 83 SECTION 12.11 Effect of Reclassification, Consolidation, Merger or Sale.................................. 84 SECTION 12.12 Responsibility of Trustee for Conversion Provisions...................................... 85 ARTICLE 13 SUBORDINATION SECTION 13.1 Securities Subordinated to Senior Debt.......... 85 SECTION 13.2 Subrogation..................................... 87 SECTION 13.3 Obligation of Company Unconditional............. 87 SECTION 13.4 Maturity of or Default on Senior Debt........... 88 SECTION 13.5 Payments on Securities Permitted................ 88 SECTION 13.6 Effectuation of Subordination by Trustee........ 88 SECTION 13.7 Knowledge of Trustee............................ 89 SECTION 13.8 Trustee's Relation to Senior Debt............... 89 iv SECTION 13.9 Rights of Holders of Senior Debt Not Impaired... 89 SECTION 13.10 Modification of Terms of Senior Debt............ 90 v Exhibit 4 INDENTURE, dated as of June 30, 1998, between COMVERSE TECHNOLOGY, INC., a corporation duly organized and existing under the laws of the State of New York, having its principal office at 170 Crossways Park Drive, Woodbury, New York 11797 (herein called the "Company"), and THE CHASE MANHATTAN BANK, a New York banking corporation, as Trustee (herein called the "Trustee"), having its principal Corporate Trust offices at 450 West 33rd Street, 15th Floor, New York, New York 10001. RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its 4-1/2% Convertible Subordinated Debentures Due 2005 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Securities, when the Securities are executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.1 Definitions. ----------- For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with U.S. generally accepted accounting principles prevailing at the time of any relevant computation hereunder; and (3) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder of a Security, has the meaning specified in Section 1.3.(a). "Affiliate" of any specified Person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control", when used with respect to any specified Person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Members" has the meaning specified in Section 2.5(d)(5). "Authenticating Agent" means any Person named as Authenticating Agent pursuant to Section 5.12. "Board of Directors" means either the board of directors of the Company or any committee of that board empowered to act for it with respect to this Indenture. "Board Resolution" means a resolution duly adopted by the Board of Directors, a copy of which, certified by the Secretary or an Assistant Secretary of the Company to be in full force and effect on the date of such certification, shall have been delivered to the Trustee. "Business Day", when used with respect to any Place of Payment or Place of Conversion, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment or Place of Conversion, as the case may be, are authorized or obligated by law to close. "Capitalized Lease Obligation" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with U.S. generally accepted accounting principles prevailing at the time of any relevant determination hereunder, is required to be accounted for as a capital lease on the balance sheet of that Person. "Change in Control" means an event or series of events as a result of which (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-5 under the Exchange Act) 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 ("Voting Stock"); (ii) the Company consolidates with or merges into any other corporation or conveys, transfers or leases all or substantially all of its assets to any person, or any other corporation merges into the Company, and in the case of any such transaction, the outstanding Common Stock of the Company is changed or exchanged into or for other assets or securities as a result, unless the stockholders of the Company immediately before such transaction own, directly or indirectly, immediately following such transaction, at least a majority of the combined voting power of the outstanding voting securities of the corporation resulting from such transaction in substantially the same proportion as their ownership of the Voting Stock immediately before such transaction; or (iii) at any time Continuing Directors do not constitute a majority of the Board of Directors of the Company (or, if applicable, a successor corporation of the Company); provided, however, that a Change of Control shall not be deemed to have occurred - -------- ------- if either (x) the closing price per share of the Common Stock for any five trading days within the period of ten consecutive trading days ending immediately before the Change of Control shall equal or exceed 105% of the conversion price of the Securities in effect on each such trading day, or (y) at least 90% of the consideration (excluding cash payments for dissenting and fractional shares) in the transaction or transactions constituting the Change of Control consists of shares of common stock or securities convertible into common stock that are, or immediately upon issuance will be, listed on a national securities exchange or The 2 Nasdaq Stock Market and as a result of the transaction or transactions such Securities become convertible solely into such common stock. "Closing Date" means June 30, 1998 or such later date on which the Securities may be delivered pursuant to the Purchase Agreement. "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Section 12.11, shares issuable on conversion of Securities shall include only shares of the class designated as Common Stock, par value $0.10 per share, of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company, provided that if at any time there shall be more than one such -------- resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "Company" means the corporation named as the "Company" in the first paragraph of this instrument until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor corporation. "Company Notice" has the meaning specified in Section 11.3. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by the Chairman of the Board, the Chief Executive Officer, Chief Financial Officer, a Vice Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company, and delivered to the Trustee. "Continuing Director" means at any date a member of the Company's Board of Directors (i) who was a member of such board on June 25, 1998 or (ii) who was nominated or elected by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Company's Board of Directors was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election. (Under this definition, if the current Board of Directors of the Company were to approve a new director or directors and then resign, no Change of Control would occur even though the current Board of Directors would thereafter cease to be in office.) "Conversion Agent" means any Person authorized by the Company pursuant to Section 9.2 to convert Securities in accordance with Article 12. "Conversion Price" has the meaning specified in Section 12.1. "Corporate Trust Office" means the office of the Trustee located in The City of 3 New York at which at any particular time its corporate trust business shall be administered (which at the date of this Indenture is located at 450 West 33rd Street, 15th Floor, New York, New York, New York 10001). "corporation" includes corporations, associations, limited liability companies, companies and business trusts. "Custodian" shall mean The Chase Manhattan Bank, as custodian with respect to the Securities in global form, or any successor entity thereto. "Defaulted Interest" has the meaning specified in Section 2.7. "Depositary" shall mean, with respect to the Securities issuable or issued in whole or in part in global form, the person specified in Section 2.5(e) as the Depositary with respect to such Securities, until a successor shall have been appointed and become such pursuant to the applicable provisions of this Indenture, and thereafter, "Depositary" shall mean or include such successor. "Designated Event" means a Change in Control or a Termination of Trading. "Dollar", "U.S. Dollar" or "U.S. $" means a dollar or other equivalent unit in such coin or currency of the United States as at the time shall be legal tender for the payment of public and private debts. "Event of Default" has the meaning specified in Section 4.1. "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended. "Exchange Rate Contract" means, with respect to any Person, any currency swap agreements, forward exchange rate agreements, foreign currency futures or options, exchange rate collar agreements, exchange rate insurance and other agreements or arrangements, or combination thereof, designed to provide protection against fluctuations in currency exchange rates. "Global Security" has the meaning specified in Section 2.2. "guarantee" means, as applied to any obligation, (i) a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (ii) an agreement, direct or indirect, contingent or otherwise, the effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of any part or all of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. "Hedging Agreement" means any Interest Rate Protection Agreement or Exchange Rate Contract. "Holder", when used with respect to any Security, means the Person in whose name the Security is registered in the Security Register. 4 "Indebtedness", when used with respect to any Person, means (a) any liability of such Person for borrowed money, or evidenced by an instrument for the payment of money, or incurred in connection with the acquisition of any property, services or assets (including securities) or relating to a Capitalized Lease Obligation; (b) obligations under Hedging Agreements; (c) any obligation of such Person to reimburse the issuer of a letter of credit, surety bond, performance bond or other guarantee of contractual performance and (d) any liability of any other Person of the type referred to in clauses (a), (b) or (c) which has been assumed or guaranteed by such Person; provided, however, that -------- ------- Indebtedness shall not include accounts payable or other obligations of such Person to trade creditors created or assumed by such Person in the ordinary course of business in connection with the obtaining of materials or services. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Securities. "Interest Rate Protection Agreement" means, with respect to any Person, any interest rate swap agreement, interest rate cap or collar agreement or other financial agreement or arrangement designed to protect such person against fluctuations in interest rates, as in effect from time to time. "Internal Revenue Code" means the U.S. Internal Revenue Code of 1986, as amended. "Liquidated Damages" means all liquidated damages, if any, payable pursuant to Section 3 of the Registration Rights Agreement. "Maturity" means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by acceleration, conversion, call for redemption, exercise of a Repurchase Right or otherwise. "Nasdaq National Market" means the Nasdaq National Market or any successor national securities exchange or automated over-the-counter trading market in the United States. "Non-Electing Share" has the meaning specified in Section 12.11. "Officers' Certificate" means a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President and by the Chief Financial Officer, the Treasurer or the Secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company (and may include directors or employees of the Company) and which opinion is acceptable to the Trustee which acceptance shall not be unreasonably withheld. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: ------ 5 (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for the payment or redemption of which money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities, provided that if such Securities are to -------- be redeemed, notice of such redemption has been duly given pursuant to this Indenture; and (iii) Securities which have been paid pursuant to Section 2.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite - -------- ------- principal amount of Outstanding Securities are present at a meeting of Holders of Securities for quorum purposes or have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such determination as to the presence of a quorum or upon any such request, demand, authorization, direction, notice, consent or waiver, only such Securities of which the Trustee has received written notice and are so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of, and premium, if any, or interest (including Liquidated Damages, if any) on any Securities on behalf of the Company. "Person" means any individual, corporation, limited liability company partnership, joint venture, association, joint-stock company, trust, estate, unincorporated organization or government or any agency or political subdivision thereof. "Place of Conversion" has the meaning specified in Section 2.1. "Place of Payment" has the meaning specified in Section 2.1. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.6 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. 6 "Purchase Agreement" means the Purchase Agreement, dated June 25, 1998, between the Company and Lehman Brothers Inc. "QIB" shall mean a "qualified institutional buyer" as defined in Rule 144A. "Quoted Price" of the Common Stock means the last reported sale price of the Common Stock on the Nasdaq National Market, or, if the Common Stock is listed on a national securities exchange, then on such exchange, or if the Common Stock is not quoted on Nasdaq National Market or listed on an exchange, the average of the last bid and asked price on the National Association of Securities Dealers Automated Quotation System, in each case as determined by the Board of Directors. "Record Date" means either a Regular Record Date or a Special Record Date, as the case may be. "Redemption Date", when used with respect to any Security to be redeemed or repurchased, means the date fixed for such redemption or repurchase by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which such Security is to be redeemed pursuant to this Indenture. "Registration Rights Agreement" means the Registration Rights Agreement dated as of June 30, 1998, between the Company and the Lehman Brothers Inc. "Regular Record Date" for the interest payable means the December 15 (whether or not a Business Day) next preceding a January 1 Interest Payment Date and the June 15 (whether or not a Business Day) next preceding a July 1 Interest Payment Date. "Repurchase Right" has the meaning specified in Section 11.1. "Responsible Officer", when used with respect to the Trustee, means any officer within the Corporate Trust Office of the Trustee, including any vice president, assistant vice president, secretary, assistant secretary, the treasurer, any assistant treasurer, the managing director or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "Restricted Securities" means the Securities defined as such in Section 2.5(e). "Rule 144" means Rule 144 under the Securities Act (including any successor rule thereof), as the same may be amended from time to time. "Rule 144A" shall mean Rule 144A as promulgated under the Securities Act (including any successor rule thereof), as the same may be amended from time to time. "Rule 144A Information" has the meaning specified in Section 9.9. "Securities" has the meaning ascribed to it in the first paragraph under 7 the caption "Recitals of the Company". "Securities Act" means the U.S. Securities Act of 1933, as amended. "Securities Register" and "Security Register" have the respective meanings specified in Section 2.5(a). "Senior Debt" means all Indebtedness of the Company outstanding at any time, except (i) Indebtedness of the Company that by its terms is expressly pari ---- passu with or subordinate in right of payment to the Securities; (ii) any - ----- indebtedness or other obligations of the Company in respect of its 5-3/4% Convertible Subordinated Debentures due 2006; (iii) accounts payable or any other Indebtedness of the Company to trade creditors created or assumed by the Company in the ordinary course of business in connection with the obtaining of materials or services; or (iv) any liability for federal, state, local or other taxes owed or owing by the Company. "Significant Subsidiary" means any Subsidiary which is a "significant subsidiary" within the meaning of Rule 405 under the Securities Act. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.7. "Stated Maturity" means the date specified in any Security as the fixed date for the payment of principal on such Security or on which an installment of interest on such Security is due and payable. "Subsidiary" means a corporation more than 50% of the outstanding voting stock of which is owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition only, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. "Termination of Trading" means such time as the Common Stock (or other common stock into which the Securities are then convertible) is neither listed for trading on a U.S. national securities exchange nor approved for trading on an established automated over-the-counter trading market in the United States. "Transfer Agent" means any Person, which may be the Company, authorized by the Company to exchange or register the transfer of Securities. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Vice President", when used with respect to the Company, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". 8 SECTION 1.2 Form of Documents Delivered to Trustee. -------------------------------------- In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, unless such officer knows, or in the exercise of reasonable care should know, that the Opinion of Counsel with respect to the matters upon which such certificate or opinion is based is erroneous. Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such Counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion on behalf of the Company has read such covenant or condition and the definitions herein relating thereto; (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 each such individual, he has made such examination or investigation as is necessary to enable him 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, in the opinion of each such individual, such condition or covenant has been complied with. 9 SECTION 1.3 Acts of Holders of Securities. ----------------------------- (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders of Securities may be embodied in and evidenced by (1) one or more instruments of substantially similar tenor signed by such Holders in person or by agent or proxy duly appointed in writing, (2) the record of Holders of Securities voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities duly called and held in accordance with the provisions of Article 8 or (3) a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders of Securities signing such instrument or instruments and so voting at such meeting. Proof of execution of any such instrument or of a writing appointing any such agent or proxy, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 5.1) conclusive in favor of the Trustee and the Company if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 8.6. (b) The fact and date of the execution by any Person of any such instrument or writing may be provided in any manner which the Trustee reasonably deems sufficient. (c) The principal amount and serial numbers of Securities held by any Person, and the date of such Person holding the same, shall be proved by the Security Register. (d) Any request, demand, authorization, direction, notice, consent, election, waiver or other Act of the Holders of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. SECTION 1.4 Notices, Etc., to Trustee and Company. ------------------------------------- Any request, demand, authorization, direction, notice, consent, election, waiver or Act of Holders of Securities or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder of Securities or by the Company shall be sufficient for every purpose hereunder if in writing, mailed, first-class postage prepaid or telecopied at (212) 946-6181 and confirmed by mail, first-class postage prepaid, addressed to it at 450 West 33rd Street, New York, New York 10001, to the attention of Global Trust Services, or in the case of notice by telecopy confirmed at (212) 946-3082, or at any other address or telecopy number otherwise furnished in writing to the Company by the Trustee; or (2) the Company by the Trustee or by any Holder of Securities shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if 10 in writing, mailed, first-class postage prepaid or telecopied at (516) 677- 7323 and confirmed by mail, first-class postage prepaid, addressed to it at 170 Crossways Park Drive, Woodbury, New York 11797, to the attention of its President, with a copy to its Chief Financial Officer, or at any other address or telecopy number otherwise furnished in writing to the Trustee by the Company. Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language. SECTION 1.5 Notice to Holders of Securities; Waiver. --------------------------------------- Except as otherwise expressly provided herein, where this Indenture provides for notice to Holders of Securities of any event, such notice shall be sufficiently given to Holders of Securities if mailed, first-class postage prepaid, to each Holder of a Security affected by such event, at the address of such Holder as it appears in the Security Register, not earlier than the earliest date and not later than the latest date prescribed for the giving of such notice. Neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Security shall affect the sufficiency of such notice with respect to other Holders of Securities. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification to Holders of Securities as shall be made with the approval of the Trustee shall constitute a sufficient notification to such Holders for every purpose hereunder. Such notices shall be deemed to have been given on the date of such mailing. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. SECTION 1.6 Effect of Headings and Table of Contents. ---------------------------------------- The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.7 Successors and Assigns. ---------------------- All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.8 Separability Clause. ------------------- In case any provision in this Indenture or 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. SECTION 1.9 Benefits of Indenture. --------------------- 11 Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Debt and the Holders of Securities, any benefit or legal or equitable right, remedy or claim under this Indenture. SECTION 1.10 GOVERNING LAW. ------------- THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO SUCH STATE'S CONFLICT OF LAWS PRINCIPLES. SECTION 1.11 Counterparts. ------------ This instrument may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original but all such counterparts shall together constitute but one and the same instrument. SECTION 1.12 Legal Holidays. -------------- In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security or the last day on which a Holder of a Security has a right to convert such Security shall not be a Business Day at any Place of Payment or Place of Conversion, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest (including Liquidated Damages, if any) or principal or premium, if any, or conversion of the Securities, need not be made at such Place of Payment or Place of Conversion on such day, but may be made on the next succeeding Business Day at such Place of Payment or Place of Conversion with the same force and effect as if made on the Interest Payment Date or Redemption Date or at the Stated Maturity or on such last day for conversion, provided, that in the case that payment is made on such -------- succeeding Business Day, no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be. SECTION 1.13 Recourse Against Others. ----------------------- No recourse for the payment of the principal of or premium, if any, or interest (including Liquidated Damages, if any) on any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance thereof and as part of the consideration for the issue thereof, expressly waived and released. 12 ARTICLE 2 THE SECURITIES SECTION 2.1 Title and Terms. --------------- The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to U.S. $250,000,000 (or $300,000,000 if the over-allotment option set forth in Section 2(b) of the Purchase Agreement is exercised in full), except for securities authenticated - ------------------ and delivered upon registration of, transfer of, or in exchange for, or in lieu of other Securities pursuant to Section 2.5, 2.6, 7.5, 10.8, 11.3 or 12.2. The Securities shall be known and designated as the "4-1/2% Convertible Subordinated Debentures Due 2005" of the Company. Their Stated Maturity shall be July 1, 2005 and they shall bear interest from June 30, 1998, payable semiannually in arrears on January 1 and July 1 in each year, commencing January 1, 1999, at the rate of 4-1/2% per annum until the principal thereof is paid or made available for payment. The principal of and premium, if any, and interest (including Liquidated Damages, if any) on the Securities shall be payable as provided in the form of Security set forth in Exhibit A hereto (any city in which any Paying Agent is located being herein called a "Place of Payment"). The Securities shall be redeemable at the option of the Company, and shall have a Repurchase Right exercisable at the option of Holders, as provided in the form of Security set forth in Exhibit A hereto and in Articles 10 and 11. The Securities shall be convertible as provided in Article 12 (any city in which any Conversion Agent is located being herein called a "Place of Conversion"). The Securities shall be subordinated in right of payment to Senior Debt of the Company as provided in Article 13. SECTION 2.2 Form of Securities. ------------------ The Securities and the Trustee's certificate of authentication to be borne by such Securities shall be substantially in the form set forth in Exhibit A, which is incorporated in and made a part of this Indenture. Any of the Securities may have such letters, numbers or other marks of identification and such notations, legends and endorsements as the officers executing the same may approve (execution thereof to be conclusive evidence of such approval) and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any securities exchange or automated quotation system on which the Securities may be listed or designated for issuance, or to conform to usage. Securities offered and sold in their initial distribution in reliance on Rule 144A 13 shall be issued in the form of one or more Global Securities (collectively, the "Global Security") in fully registered form without interest coupons, substantially in the form of Security set forth in Exhibit A, with such applicable legends as are provided for in Section 2.5 and Exhibit A. Such Global Security shall be registered in the name of the Depositary or its nominee and deposited with the Custodian, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The terms and provisions contained in the form of Security attached as Exhibit A hereto shall constitute, and is hereby expressly made, a part of this Indenture and to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. SECTION 2.3 Denominations. ------------- The definitive Securities shall be issuable in fully registered form, without coupons, in denominations of U.S. $1,000 or integral multiples of U.S. $1,000 in excess thereof. SECTION 2.4 Execution, Authentication, Delivery and Dating. ---------------------------------------------- The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President or one of its Vice Presidents, under a facsimile of its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. Any such signature may be manual or facsimile. Securities bearing the manual or facsimile signature of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities as in this Indenture provided and not otherwise. Each Security shall be dated the date of its authentication. No Security shall be entitled to any benefit under this Indenture, or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by or on behalf of the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. 14 SECTION 2.5 Registration, Registration of Transfer and Exchange; ---------------------------------------------------- Restrictions on Transfer. - ------------------------ (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at any office or agency of the Company designated pursuant to Section 9.2 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount and bearing such restrictive legends as may be required by this Indenture. Subject to the other provisions of this Section 2.5(a), Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive, bearing registration numbers not contemporaneously outstanding. All Securities issued upon any registration of transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. None of the Company, the Trustee nor the Security Registrar shall be required to exchange or register a transfer of (i) any Securities for a period of fifteen (15) days next preceding any selection of Securities to be redeemed or (ii) any Securities called for redemption or, if a portion of any Security is selected or called for redemption, such portion thereof selected or called for redemption or (iii) any Securities surrendered for conversion or, if a portion of any Security is surrendered for conversion, such portion thereof surrendered for conversion. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed by, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar and duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing, together with any documentation required to be delivered pursuant to Section 2.5(b). No service charge shall be made to any Holder for any registration of transfer or exchange 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 therewith. (b) Notwithstanding any other provisions of this Indenture or the Securities 15 (but subject to Section 2.2), transfers of a Global Security, in whole or in part, transfers and exchanges of interests therein of the kinds described in clauses (2) and (3) below shall be made only in accordance with this Section 2.5(b). Transfers and exchanges subject to this Section 2.5 shall also be subject to the other provisions of this Indenture that are not inconsistent with this Section 2.5. (1) Limitation on Transfers of a Global Security. A Global Security -------------------------------------------- may not be transferred, in whole or in part, to any Person other than the Depositary or a nominee thereof, and no such transfer to any such other Person may be registered; provided that this clause (1) shall not prohibit any transfer of a Security that is issued in exchange for a Global Security but is not itself a Global Security. No transfer of a Security to any Person shall be effective under this Indenture or the Securities unless and until such Security has been registered in the name of such Person. Nothing in this Section 2.5(b)(1) shall prohibit or render ineffective any transfer of a beneficial interest in a Global Security effected in accordance with the other provisions of this Section 2.5(b). (2) Global Security to Global Security. If the holder of a ---------------------------------- beneficial interest in the Global Security wishes at any time to transfer such interest to a Person who wishes to take delivery thereof in such form, such transfer may be effected only in accordance with the applicable procedures of the Depositary. (3) Exchanges. In the event that a Global Security or any portion --------- thereof is exchanged for Securities other than Global Securities, such Securities may in turn be exchanged (on transfer or otherwise) for Securities that are not Global Securities or for beneficial interests in a Global Security (if any is then outstanding) only in accordance with such procedures, which shall be substantially consistent with the provisions of clauses (1) and (2) above (including the certification requirements intended to insure that the transfers and exchanges of beneficial interests in a Global Security comply with Rule 144A or Rule 144, as the case may be) and any applicable procedures, as may be from time to time adopted by the Company and the Trustee. (c) Each Restricted Security and Global Security issued hereunder shall, upon issuance, bear the legends required by Section 2.5(e) to be applied and such required legends shall not be removed except as provided in the next sentence or paragraph (d) of this Section 2.5. The legend required for a Restricted Security may be removed if there is delivered to the Company such satisfactory evidence, which may include an opinion of independent counsel licensed to practice law in the State of New York, as may be reasonably required by the Company that neither such legend nor the restrictions on transfer set forth therein are required to ensure that transfers of such Security will not violate the registration requirements of the Securities Act. Upon provision of such satisfactory evidence, the Trustee, at the written direction of the Company, shall authenticate and deliver in exchange for such Securities another Security or Securities having an equal aggregate principal amount that does not bear such legend. If such a legend required for a Restricted Security has been removed from a Security as provided above, no other Security issued in exchange for all or any part of such Security shall bear such legend, unless the Company has reasonable cause to believe that such other Security is a "restricted security" within the meaning of Rule 144 and instructs the Trustee in writing to cause a legend to appear thereon. (d) The provisions of clauses (1), (2), (3) and (4) below shall apply only to 16 Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture or the Securities, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary or a nominee thereof unless (A) the Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security or (C) a request for certificates has been made upon the Trustee in accordance with the Depositary's customary procedures and a copy of such notice has been received by the Company from the Trustee. Any Global Security exchanged pursuant to clause (A) above shall be so exchanged in whole or in part and any Global Security exchanged pursuant to clause (B) or (C) above may be exchanged in whole or from time to time in part as directed by the Depositary. Any Security issued in exchange for a Global Security or any portion thereof shall be a Global Security, provided that any Security so issued that is registered in the name of a Person other than the Depositary or a nominee thereof shall not be a Global Security. (3) Securities issued in exchange for a Global Security or any portion thereof pursuant to clause (2) above shall be issued in definitive, fully registered form, without interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear any legends required hereunder. Any Global Security to be exchanged in whole shall be surrendered by the Depositary to the Trustee, as Security Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the Depositary or its nominee with respect to such Global Security, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and make available for delivery the Security issuable on such exchange to or upon the written order of the Depositary or an authorized representative thereof. (4) In the event of the occurrence of any of the events specified in clause (2) above, the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form, without interest coupons. (5) Neither any members of, or participants in, the Depositary ("Agent Members") nor any other Persons on whose behalf Agent Members may act shall have any rights under this Indenture with respect to any Global Security, or under any Global Security, and the Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and holder of such Global Security for all purposes whatsoever. 17 Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a holder of any Security. (e) Every Security that bears or is required under this Section 2.5(e) to bear the legend set forth in this Section 2.5(e) (together with any Common Stock issued upon conversion of the Securities and required to bear the legend set forth in Section 2.5(f), collectively, the "Restricted Securities") shall be subject to the restrictions on transfer set forth in this Section 2.5(e) (including the legend set forth below), unless such restrictions on transfer shall be waived by written consent of the Company, and the Holder of each such Restricted Security, by such Holder's acceptance thereof, agreed to be bound by all such restrictions on transfer. As used in Sections 2.5(e) and 2.5(f), the term "transfer" encompasses any sale, pledge, transfer or other disposition whatsoever of any Restricted Security. Until two (2) years after the original issuance date of any Security, any certificate evidencing such Security (and all securities issued in exchange therefor or substitution thereof, other than Common Stock, if any, issued upon conversion thereof which shall bear the legend set forth in Section 2.5(f), if applicable) shall bear a legend in substantially the following form (unless such Securities have been transferred pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or unless otherwise agreed by the Company in writing, with notice thereof to the Trustee): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND 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 IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT); (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH 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) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 18 2(D) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF SUCH SECURITY (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(D) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 2(D) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any Security (or security issued in exchange or substitution thereof) as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend as set forth therein have been satisfied may, upon surrender of such Security for exchange to the Security Registrar in accordance with the provisions of this Section 2.5, be exchanged for a new Security or Securities, of like tenor and aggregate principal amount, which shall not bear the restrictive legend required by this Section 2.5(e). The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Global Securities. Initially, the Global Securities shall be issued to the Depositary, registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Trustee as Custodian for Cede & Co. If at any time the Depositary for a Global Security notifies the Company that it is unwilling or unable to continue as Depositary for a Global Security, the Company may appoint a successor Depositary with respect to such Global Security. If a successor Depositary for a Global Security is not appointed by the Company within ninety (90) days after the Company receives such notice, the Company will execute, and the Trustee, upon receipt of an Officers' Certificate for the authentication and delivery of Securities, will authenticate and deliver, Securities in certificated form, in an aggregate principal amount equal to the principal amount of the Global Security in exchange for such Global Security and upon delivery of such Global Security to the Trustee such Global Security shall be canceled. Securities in certificated form issued in exchange for all or a part of a Global 19 Security pursuant to this Section 2.5 shall be registered in such names and in such authorized denominations as the Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Securities in certificated form to the persons in whose names such Securities in certificated form are so registered. At such time as all interests in a Global Security have been redeemed, converted, canceled, repurchased or transferred, such Security in global form shall be, upon receipt thereof, canceled by the Trustee in accordance with standing procedures and instructions existing between the Depositary and the Custodian. At any time prior to such cancellation, if any interest in a Global Security is exchanged for Securities in certificated form, redeemed, converted, canceled, repurchased or transferred to a transferee who receives Securities in certificated form therefor or any Security in certificated form is exchanged or transferred for part of a Global Security, the principal amount of such Global Security shall, in accordance with the standing procedures and instructions existing between the Depositary and the Custodian, be appropriately reduced or increased, as the case may be, and a notation shall be made on the records of Trustee, by the Trustee or the Custodian, at the direction of the Trustee, to reflect such reduction or increase. (f) Until two (2) years after the original issuance date of any Security, any stock certificate representing Common Stock issued upon conversion of such Security shall bear a legend in substantially the following form (unless such Common Stock has been sold pursuant to a registration statement that has been declared effective under the Securities Act (and which continues to be effective at the time of such transfer) or such Common Stock has been issued upon conversion of Securities that have been transferred pursuant to a registration statement that has been declared effective under the Securities Act or unless otherwise agreed by the Company with written notice thereof to the Trustee and any transfer agent for the Common Stock): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND 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 IN THE FOLLOWING SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED, (1) IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED HEREBY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (C) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO ANY SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(C) ABOVE), IT WILL FURNISH TO AMERICAN STOCK TRANSFER & TRUST COMPANY, AS TRANSFER AGENT (OR ANY SUCCESSOR TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS 20 OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO A CLAUSE 1(C) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(C) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE SECURITY UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any such Common Stock as to which such restrictions on transfer shall have expired in accordance with their terms or as to which the conditions for removal of the foregoing legend as set forth therein have been satisfied may, upon surrender of the certificates representing such shares of Common Stock for exchange in accordance with the procedures of the transfer agent for the Common Stock, be exchanged for a new certificate or certificates for a like aggregate number of shares of Common Stock, which shall not bear the restrictive legend required by this Section 2.5(f). (g) Any certificate evidencing a Security that has been transferred to an Affiliate of the Company within two years after the original issuance date of the Security, as evidenced by a notation on the Assignment Form for such transfer or in the representation letter delivered in respect thereof, for so long as such Security is held by such Affiliate, shall, until two years after the last date on which the Company or any Affiliate of the Company was an owner of such Security, in each case, bear a legend in substantially the following form, unless otherwise agreed by the Company (with written notice thereof to the Trustee): THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR THE ACCOUNT TO BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES (1) THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) IN A TRANSACTION REGISTERED UNDER THE SECURITIES ACT OR (C) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) AND (2) THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS LEGEND SHALL BE REMOVED UPON THE TRANSFER OF THE SECURITY EVIDENCED 21 HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH SECURITY PURSUANT TO THE IMMEDIATELY PRECEDING SENTENCE. IF THE PROPOSED TRANSFER IS PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Any stock certificate representing Common Stock issued upon conversion of such Security shall also bear a legend in substantially the form indicated above, unless otherwise agreed by the Company (with written notice thereof to the Trustee). (h) Notwithstanding any provision of Section 2.5 to the contrary, in the event Rule 144(k) as promulgated under the Securities Act (or any successor rule) is amended to shorten the two-year period under Rule 144(k) (or the corresponding period under any successor rule), from and after receipt by the Trustee of the Officers' Certificate and Opinion of Counsel provided for this Section 2.5(h), (i) the references in the first sentence of the second paragraph of Section 2.5(e) to "two (2) years" and in the restrictive legend set forth in such paragraph to "TWO YEARS" shall be deemed for all purposes hereof to be references to such shorter period, (ii) the references in the first paragraph of Section 2.5(f) to "two (2) years" and in the restrictive legend set forth in such paragraph to "TWO YEARS" shall be deemed for all purposes hereof to be references to such shorter period and (iii) all corresponding references in the Securities and the restrictive legends on the Restricted Securities shall be deemed for all purposes hereof to be references to such shorter period, provided that such changes shall not become effective if they are otherwise prohibited by, or would otherwise cause a violation of, the then-applicable federal securities laws. As soon as practicable after the Company has knowledge of the effectiveness of any such amendment to shorten the two-year period under Rule 144(k) (or the corresponding period under any successor rule), unless such changes would otherwise be prohibited by, or would otherwise cause a violation of, the then-applicable securities law, the Company shall provide to the Trustee an Officers' Certificate and Opinion of Counsel informing the Trustee of the effectiveness of such amendment and the effectiveness of the foregoing changes to Sections 2.5(e) and 2.5(f) and the restrictive legends on the Restricted Securities. The provisions of this Section 2.5(h) will not be effective until such time as the Opinion of Counsel and Officer's Certificate have been received by the Trustee hereunder. This Section 2.5(h) shall apply to successive amendments to Rule 144(k) (or any successor rule) shortening the holding period thereunder. 22 SECTION 2.6 Mutilated, Destroyed, Lost or Stolen Securities. ----------------------------------------------- If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. If there be delivered to the Company and the Trustee (1) evidence to their satisfaction of the destruction, loss or theft of any Security, and (2) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion, but subject to any conversion rights, may, instead of issuing a new Security, pay such Security, upon satisfaction of the condition set forth in the preceding paragraph. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and such new Security shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 2.7 Payment of Interest, Interest Rights Preserved. ---------------------------------------------- Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith 23 cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date of the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid (by airmail in the case of any notice sent to an address outside the United States), to each Holder of Securities at the address of such Holder as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed reasonable and practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. The person in whose name any Security (or its Predecessor Security) is registered at the close of business on any Record Date (including any Security that is converted after the Record Date and on or before the relevant Interest Payment Date) shall be entitled to receive the interest payable on such Interest Payment Date notwithstanding the cancellation of such Security upon any transfer, exchange or conversion subsequent to the Record Date and on or prior to such Interest Payment Date; provided that in the case of any Security, or portion thereof, called for redemption pursuant to Article 10 on a Redemption Date or repurchased by the Company pursuant to Article 11 on a repurchase date during the period from the close of 24 business on the Record Date to the close of business on the Business Day next preceding the following Interest Payment Date, interest shall not be paid to the person in whose name the Security, or portion thereof, is registered on the close of business of such Record Date, and the Company shall have no obligation to pay interest on such Security or portion thereof except to the extent required to be paid upon such redemption or repurchase in accordance with Article 10 or Article 11. In the case of any Security which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date), the Holder of such Security shall be required to make a payment to the Company in an amount equal to the interest payable on such Interest Payment Date on the principal amount of the Security so converted. Interest on the principal amount of such Security shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on such Regular Record Date. SECTION 2.8 Persons Deemed Owners. --------------------- The Company, the Trustee and any agent of the Company or the Trustee may treat the registered Holder of the Global Security as the absolute owner of such Security for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not such Security be overdue, and notwithstanding any notice of ownership or writing thereon, or any notice of previous loss or theft or other interest therein. The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name any Security is registered as the owner of such Security for the purpose of receiving payment of principal of and premium, if any, and (subject to Section 2.7) interest (including Liquidated Damages, if any) on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and notwithstanding any notice of ownership or writing thereon, or any notice of previous loss or theft or other interest therein. SECTION 2.9 Cancellation. ------------ All securities surrendered for payment, redemption, repurchase, conversion, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee. All Securities so delivered shall be canceled promptly by the Trustee, and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. Upon written instructions of the Company, the Trustee shall destroy canceled Securities and, after such destruction, shall deliver a certificate of such destruction to the Company. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are delivered to the Trustee for cancellation. SECTION 2.10 Computation of Interest. ----------------------- Interest shall be calculated on the basis of a 360-day year. Whenever it is necessary to compute an amount of interest in respect of any Security for a period of less than a full year, such interest shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed out of 30 days. 25 SECTION 2.11 Temporary Securities. Pending the preparation of -------------------- Securities in certificated form, the Company may execute and the Trustee or an Authenticating Agent shall, upon written request of the Company, authenticate and deliver temporary Securities (printed or lithographed). Temporary Securities shall be issuable in any authorized denomination, and substantially in the form of the Securities in certified form but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Every such temporary Security shall be executed by the Company and authenticated by the Trustee or the Authenticating Agent upon the same conditions and in substantially the same manner, and with the same effect, as the Securities in certificated form. Without unreasonable delay the Company will execute and deliver to the Trustee or the Authenticating Agent Securities in certified form (other than in the case of Securities in global form) and thereupon any or all temporary Securities (other than any such Securities in global form) may be surrendered in exchange therefor, at each office or agency maintained by the Company pursuant to Section 9.2 and the Trustee or the Authenticating Agent shall authenticate and deliver in exchange for such temporary Securities an equal aggregate principal amount of Securities in certified form. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits and subject to the same limitations under this Indenture as Securities in certificated form authenticated and delivered hereunder. ARTICLE 3 SATISFACTION AND DISCHARGE SECTION 3.1 Satisfaction and Discharge of Indenture. --------------------------------------- This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange or replacement of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.6 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.3), have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (other than Securities referred to in clauses (i) and (ii) of clause (1)(A) above) 26 (i) have become due and payable, or (ii) will have become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company; and the Company, in the case of clause (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds (immediately available to the Holders in the case of clause (i)) in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and premium, if any, and interest (including Liquidated Damages, if any) to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 5.7 shall survive and, if money shall have been deposited with the Trustee pursuant to clause (1)(B) of this Section, the obligations of the Trustee under Section 3.2 and the last paragraph of Section 9.3 shall survive. Funds held in trust pursuant to this Section are not subject to the provisions of Article 13. SECTION 3.2 Application of Trust Money. -------------------------- Subject to the provisions of the last paragraph of Section 9.3, all money deposited with the Trustee pursuant to Section 3.1 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and premium, if any, and interest (including Liquidated Damages, if any) for whose payment such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 3.1 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon Company Request. 27 ARTICLE 4 REMEDIES SECTION 4.1 Events of Default. ----------------- "Event of Default", where used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article 13 or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) there shall be a failure by the Company to pay when due the principal of or premium, if any, on any of the Securities at the Stated Maturity, upon redemption or exercise of a Repurchase Right or otherwise, whether or not such payment is prohibited by Article 13 of this Indenture; or (2) there shall be a failure by the Company to pay an installment of interest (including Liquidated Damages, if any) on any of the Securities for 30 days after the date when due, whether or not such payment is prohibited by Article 13 of this Indenture; or (3) the Company shall fail to perform or observe any other term, covenant or agreement contained in the Securities or this Indenture for a period of 60 days after written notice of such failure, requiring the Company to remedy the same, shall have been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities; or (4) if any default shall have occurred under any agreements, indentures or instruments under which the Company has outstanding Indebtedness in excess of U.S. $25,000,000 in the aggregate (but excluding for purposes of this clause (4) any amounts owing under reimbursement or similar obligations to banks, sureties or other entities which have issued letters of credit, surety bonds, performance bonds or other guarantees relating to the performance by the Company or its subsidiaries of contractual obligations to customers, to the extent any demands made under any such reimbursement or similar obligation relates to a draw under the related letter of credit or other instrument which draw is being contested in good faith through appropriate proceedings) and, if not already matured in accordance with its terms, such Indebtedness (as set forth in this clause (4)) shall have been accelerated, and such acceleration shall not have been rescinded or annulled within 30 days after notice thereof shall have been given to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of Outstanding Securities, provided, that if, prior to the entry of judgment in favor of the Trustee, such default under such indenture or instrument shall be remedied or cured by the Company, or waived by the holders of such Indebtedness, then the Event of Default under this Indenture shall be deemed likewise to have been remedied, cured or waived; or (5) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under 28 any applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable United States federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (6) the commencement by the Company of a voluntary case or proceeding under any applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable United States federal or state bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company, or the filing by the Company of a petition or answer or consent seeking reorganization or relief under any applicable United States federal or state law, or the consent by the Company to the filing of such petition or to the appointment of or the taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by the Company of an assignment for the benefit of creditors, or the admission by the Company in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company expressly in furtherance of any such action. SECTION 4.2 Acceleration of Maturity; Rescission and Annulment. -------------------------------------------------- If an Event of Default specified in Section 4.1(5) or 4.1(6) occurs and is continuing, then automatically the principal of all the Securities and the interest thereon shall become immediately due and payable. If any other Event of Default occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities may declare the Securities to be due and payable immediately at their principal amount together with accrued interest, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal amount and accrued interest shall become immediately due and payable. At any time after an acceleration and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of this Indenture), by written notice to the Company and the Trustee, may rescind and annul such acceleration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest (including Liquidated Damages, if any) on 29 all Securities, (B) the principal of and premium, if any, on any Securities which has become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest (including Liquidated Damages, if any) at the rate borne by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and (2) all Events of Default, other than the non-payment of the principal of Securities which have become due solely by such acceleration, have been cured or waived as provided in Section 4.13; provided, however, that in the event such declaration of acceleration has been made based on the existence of an Event of Default under Section 4.1(4) and such Event of Default has, pursuant to the proviso to such Section 4.1(4), been remedied, cured or waived, then without any further action by the Holders such declaration of acceleration shall be rescinded automatically and the consequences of such declaration shall be annulled. No such rescission or annulment shall affect any subsequent default or impair any right consequent thereon. SECTION 4.3 Collection of Indebtedness and Suits for Enforcement by ------------------------------------------------------- the Trustee. - ----------- The Company covenants that if (1) default is made in the payment of any interest (including Liquidated Damages, if any) on any Security when such interest (including Liquidated Damages, if any) becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of or premium, if any, on any Security at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable (as expressed therein or as a result of any acceleration effected pursuant to Section 4.2) on such Securities for principal and premium, if any, and interest (including Liquidated Damages, if any) and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium, if any, and on any overdue interest (including Liquidated Damages, if any), at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the 30 Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 4.4 Trustee May File Proofs of Claim. -------------------------------- In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or the property of the Company or its creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (1) to file and prove a claim for the whole amount of principal and premium, if any, and interest (including Liquidated Damages, if any) owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders of Securities allowed in such judicial proceeding, and (2) to collect and receive any moneys or other property payable or deliverable on any such claim and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceedings is hereby authorized by each Holder of Securities to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 5.7. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept, or adopt on behalf of any Holder of a Security, 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 of a Security in any such proceeding. SECTION 4.5 Trustee May Enforce Claims Without Possession of ------------------------------------------------ Securities. - ---------- All rights of action and claims under this Indenture or the Securities may be 31 prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which judgment has been recovered. SECTION 4.6 Application of Money Collected. ------------------------------ Subject to Article 13, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or premium, if any, or interest (including Liquidated Damages, if any), upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee; SECOND: To the payment of the amounts then due and unpaid for principal of and premium, if any, and interest (including Liquidated Damages, if any) on the Securities and coupons in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and premium, if any, and interest (including Liquidated Damages, if any), respectively; and THIRD: Any remaining amounts shall be repaid to the Company. SECTION 4.7 Limitation on Suit. ------------------ No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; 32 (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Outstanding Securities (or such amount as shall have acted at a meeting pursuant to the provisions of this Indenture); it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. SECTION 4.8 Unconditional Right of Holders to Receive Principal, ---------------------------------------------------- Premium and Interest and To Convert. - ----------------------------------- Notwithstanding any other provision in this Indenture, the Holder of any Security (other than the Temporary Global Security) shall have the right, which is absolute and unconditional, to receive payment of the principal of and premium, if any, and (subject to Section 2.7) interest (including Liquidated Damages, if any) on such Security on the Stated Maturity expressed in such Security (or, in the case of redemption or exercise of a Repurchase Right, on the Redemption Date) and to convert such Security in accordance with Article 12, and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder. SECTION 4.9 Restoration of Rights and Remedies. ---------------------------------- If the Trustee or any Holder of a Security has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders of Securities shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 4.10 Rights and Remedies Cumulative. ------------------------------ Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 2.6, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders of Securities is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 4.11 Delay or Omission Not Waiver. ---------------------------- 33 No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or any acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders of Securities may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders of Securities, as the case may be. SECTION 4.12 Control by Holders of Securities. -------------------------------- The Holders of a majority in aggregate principal amount of the Outstanding Securities (or such lesser amount as shall have acted as a meeting pursuant to the provisions of this Indenture) shall 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, provided -------- that - ---- (1) such direction shall not be conflict with any rule of law or with this Indenture or expose the Trustee to personal liability, or be unduly prejudicial to the Holders not joining therein, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 4.13 Waiver of Past Default. ---------------------- The Holders, either (a) through the written consent of not less than a majority in principal amount of the Outstanding Securities, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of at least a majority in principal amount of the Outstanding Securities represented at such meeting, may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of or premium, if any, or interest (including Liquidated Damages, if any) on any Security or (2) in respect of a covenant or provision hereof which under Article 7 cannot be modified or amended without the consent of the Holders of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 4.14 Undertaking for Costs. --------------------- All parties to this Indenture agree, and each Holder of any Security by such Holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, 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, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not 34 apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in aggregate principal amount of the Outstanding Securities, or to any suit instituted by any Holder or any Security for the enforcement of the payment of the principal of or premium, if any, or interest (including Liquidated Damages, if any) on any Security on or after the Stated Maturity expressed in such Security (or, in the case of redemption or exercise of a Repurchase Right, on or after the Redemption Date) or for the enforcement of the right to convert any Security in accordance with Article 12. SECTION 4.15 Waiver of Stay or Extension Laws. -------------------------------- The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim to take the benefit or advantage of, any stay or extension 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 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 had been enacted. ARTICLE 5 THE TRUSTEE SECTION 5.1 Certain Duties and Responsibilities. ----------------------------------- (a) Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; 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 be under a duty to examine the same to determine whether or not they conform to the requirements to this Indenture. (b) In case an Event of Default actually known to a Responsible Officer of the Trustee 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 such person's own affairs. (c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that ------ 35 (1) this paragraph (c) shall not be construed to limit the effect of paragraph (a) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of this Indenture) relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and (4) 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, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 5.2 Notice of Defaults. ------------------ Within 90 days after the occurrence of any default hereunder of which the Trustee has received written notice, the Trustee shall give notice to Holders pursuant to Section 1.5 hereof, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the -------- ------- payment of the principal of or premium, if any, or interest (including Liquidated Damages, if any), or in the payment of any redemption or repurchase obligation on any Security, the Trustee shall be protected in withholding such notice if and so long as Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interest of the Holders; and provided further, that in the case of any default of the character specified -------- ------- in Section 4.1(3), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 5.3 Certain Rights of Trustee. ------------------------- Subject to the provisions of Section 5.1: (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, Company Request, Company Order, other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by 36 the proper party or parties; (2) 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 may be sufficiently evidenced by a Board Resolution; (3) 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 (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel 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 hereon; (5) 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 of Securities pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if 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; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be deemed to have notice or actual knowledge of any Event of Default (other than an Event of Default described in Section 4.1(1) or (2)) unless written notice thereof is received by a Responsible Officer of the Trustee at its Corporate Trust Office, including, from Holders of not less than 25% in aggregate principal amount of the Outstanding Securities; (9) the Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; and (10) the rights, protections and immunities afforded to the Trustee hereunder shall apply with equal force and effect to any Paying Agent, Authenticating Agent, Conversion Agent or Security Registrar acting hereunder. 37 SECTION 5.4 Not Responsible for Recitals or Issuance of Securities. ------------------------------------------------------ The recitals contained herein and in the Securities (except the Trustee's and Authenticating Agent's certificates of authentication) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 5.5 May Hold Securities, Act as Trustee Under Other ----------------------------------------------- Indentures. - ---------- The Trustee, any Paying Agent, any Transfer Agent, any Conversion Agent, the Security Registrar or any other agent of the Company or the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Transfer Agent, Conversion Agent, Security Registrar or such other agent. The Trustee may become and act as trustee under other indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding in the same manner as if it were not Trustee. SECTION 5.6 Money Held in Trust. ------------------- Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise expressly agreed with the Company. SECTION 5.7 Compensation and Indemnification of Trustee and Its Prior --------------------------------------------------------- Claims. - ------ The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) and the Company covenants and agrees to pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by or on behalf of it in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all agents and other persons not regularly in its employ), except to the extent that any such expense, disbursement or advance is due to its negligence or bad faith. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 4.1, the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any bankruptcy law. The Company also covenants to indemnify the Trustee and its officers, directors, employees and agents for, and to hold such Persons harmless against, any loss, liability or expense incurred by them, arising out of or in connection with the acceptance or administration of this Indenture or the trusts hereunder or the performance of their duties hereunder, including the costs and expenses of defending themselves against or investigating any claim of liability in the premises, except to the extent that any such loss, liability or expense was due to the negligence or bad faith of 38 such Persons. The obligations of the Company under this Section 5.7 to compensate and indemnify the Trustee and its officers, directors, employees and agents and to pay or reimburse such Persons for expenses, disbursements and advances shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee. Such additional indebtedness shall be a senior claim to that of the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities, and the Securities are hereby subordinated to such senior claim. "Trustee" for purposes of this Section 5.7 shall include any predecessor Trustee, but the negligence or bad faith of any Trustee shall not affect the indemnification of any other Trustee. SECTION 5.8 Corporate Trustee Required; Eligibility. --------------------------------------- There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having (together with any Person directly or indirectly controlling the Trustee) a combined capital and surplus of at least U.S. $50,000,000, subject to supervision or examination by federal or state authority. If such corporation publishes reports of conditions at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 5.9 Resignation and Removal; Appointment of Successor. ------------------------------------------------- (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 5.10. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 5.10 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of this Indenture), delivered to the Trustee and the Company. (d) If at any time: (1) the Trustee shall cease to be eligible under Section 5.8 and shall fail to resign after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, or 39 (2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 4.14, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee and shall comply with the applicable requirements of Section 5.10. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of this Indenture) delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 5.10, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by Section 5.10, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of Securities in the manner provided in Section 1.5. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 5.10 Acceptance of Appointment by Successor. -------------------------------------- Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be eligible under this Article. 40 The fees, charges and expenses of the retiring Trustee shall be paid upon the appointment of a successor Trustee hereunder. The retiring Trustee shall not be liable for any acts or omissions of a successor hereunder. SECTION 5.11 Merger, Conversion, Consolidation or Succession to -------------------------------------------------- Business. - -------- Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise eligible under this Article, - -------- without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 5.12 Authenticating Agent. -------------------- The Company may appoint an authenticating agent or agents reasonably acceptable to the Trustee with respect to the Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon exchange, registration of transfer, partial redemption thereof or substitution pursuant to this Indenture. Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder and every reference herein to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication shall be deemed to include authentication and delivery on behalf of the Trustee by an authenticating agent and a certificate of authentication executed on behalf of the Trustee by an authenticating agent. Each authenticating agent shall at all times be a bank or trust company authorized by law to act as an authenticating agent, having a combined capital and surplus of not less than U.S. $50,000,000 and subject to supervision or examination by a duly constituted banking authority. If such authenticating agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section 5.12, the combined capital and surplus of such authenticating agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an authenticating agent shall cease to be eligible in accordance with the provisions of this Section 5.12, such authenticating agent shall resign immediately in the manner and with the effect specified in this Section 5.12. The Company hereby appoints The Chase Manhattan Bank as Authenticating Agent. Any corporation into which an authenticating agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such authenticating agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an authenticating agent, shall continue to be an authenticating agent, provided such corporation shall be otherwise eligible under this Section 5.12, without the execution or filing of any paper or any further act on the part of the Trustee or the authenticating agent. 41 An authenticating agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Company may at any time terminate the agency of an authenticating agent by giving written notice thereof to such authenticating agent and to the Trustee. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such authenticating agent shall cease to be eligible in accordance with the provisions of this Section 5.12, the Company may appoint a successor authenticating agent which shall be acceptable to the Trustee. Any successor authenticating agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an authenticating agent. No successor authenticating agent shall be appointed unless eligible under the provisions of this Section 5.12. The Company agrees to pay to each authorizing agent from time to time reasonable compensation for its services under this Section 5.12. If an authenticating agent is appointed with respect to the Securities pursuant to this Section 5.12, the Securities may have been endorsed thereon, in addition to or in lieu of the Trustee's certification of authentication, an alternate certificate of authentication in the following form: This is one of the Securities referred to in the within-mentioned Indenture: THE CHASE MANHATTAN BANK as Trustee By [Authenticating Agent], as Authenticating Agent By ______________________________________ Authorized Signatory 42 ARTICLE 6 CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 6.1 Company May Consolidate, Etc., Only on Certain Terms. ---------------------------------------------------- The Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Company shall not permit any Person to consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless: (1) in the event that the Company shall consolidate with or merge into another Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company substantially as an entirety shall be a corporation organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and, if the entity surviving such transaction or transferee entity is not the Company, then such surviving or transferee entity shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of and premium, if any and interest (including Liquidated Damages, if any), on all the Securities and the performance of every covenant of this Indenture on the party of the Company to be performed or observed and shall have provided for conversion rights in accordance with Section 12.11; (2) at the time of consummation of such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and (3) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 6.2 Successor Corporation Substituted. --------------------------------- Upon any consolidation or merger by the Company with or into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person, in accordance with Section 6.1, the successor corporation formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein, and thereafter, except in the case of a lease to another Person, the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Securities. 43 ARTICLE 7 SUPPLEMENTAL INDENTURES SECTION 7.1 Supplemental Indentures Without Consent of Holders of ----------------------------------------------------- Securities. - ---------- Without the consent of any Holders of Securities, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, for any of the following purposes: (1) to evidence the succession of another corporation to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders of Securities, or to surrender any right or power herein conferred upon the Company; or (3) to modify the restrictive legend set forth on the face of the form of Security set forth in Exhibit A hereto or modify the form of certificates set forth in Exhibit A hereto; provided, however, that any -------- ------- such modification shall not adversely affect the interest of the Holders of the Securities in any material respect; or (4) to make provision with respect to the conversion rights of Holders of Securities pursuant to Section 12.11; or (5) to make provision for the establishment of a book-entry system, in which Holders would have the option to participate, for the clearance and settlement of transactions in Securities originally issued in certificated form; or (6) to reduce the Conversion Price; provided, that such reduction in -------- the Conversion Price shall not adversely affect the interest of the Holders of Securities (after taking into account tax and other consequences of such reduction) in any material respect; or (7) to qualify this Indenture under the Trust Indenture Act of 1939, as amended; or (8) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein or which is otherwise defective, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided, such action -------- pursuant to this clause (8) shall not adversely affect the interest of the Holders of Securities in any material respect. 44 SECTION 7.2 Supplemental Indentures With Consent of Holders of -------------------------------------------------- Securities. - ---------- With either (a) the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by the Act of said Holders delivered to the Company and the Trustee, or (b) by the adoption of a resolution, at a meeting of Holders of the Outstanding Securities at which a quorum is present, by the Holders of a majority in principal amount of the Outstanding Securities represented at such meeting, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of the Securities under this Indenture; provided, however, that no such supplemental indenture shall, without -------- ------- the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any installment of interest (including Liquidated Damages, if any) on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium, if any, payable upon the redemption thereof or the amount payable upon the exercise of a Repurchase Right with respect thereto, or change the coin or currency in which any Security or premium, if any, or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof or, except as permitted by Section 12.11, adversely affect the Repurchase Right or the right to convert any Security as provided in Article 12, or change the subordination provisions of the Securities in a manner adverse to the Holders of Securities, or (2) reduce the requirements of Section 8.4 for quorum or voting, or reduce the percentage in principal amount of the Outstanding Securities the consent of whose Holders is required for any such supplemental indenture or the consent of whose Holders is required for any waiver provided for in this Indenture, or (3) change the obligation of the Company to maintain an office or agency in The City of New York pursuant to Section 9.2, or (4) modify any of the provisions of this Section, Section 4.13 or Section 1.10, except to increase any percentage contained herein or therein or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby. It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposal supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. 45 SECTION 7.3 Execution of Supplemental Indentures. ------------------------------------ In executing or accepting the additional trusts created by any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 5.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and an Officer's Certificate stating that all conditions precedent to the execution of such supplemental indenture have been fulfilled. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 7.4 Effect of Supplemental Indentures. --------------------------------- Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 7.5 Reference in Securities to Supplemental Indentures. -------------------------------------------------- Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Company and the Trustee, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. SECTION 7.6 Notice of Supplemental Indentures. --------------------------------- Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 7.1 or 7.2, the Company shall give notice, setting forth in general terms the substance of such supplemental indenture, in the manner provided in Section 1.5. Any failure of the Company to give such notice, or any defect therein, shall not in any way impair or affect the validity of any such supplemental indenture. ARTICLE 8 MEETING OF HOLDERS OF SECURITIES SECTION 8.1 Purposes for Which Meetings May Be Called. ----------------------------------------- A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of Securities. 46 SECTION 8.2 Call Notice and Place of Meetings. --------------------------------- (a) The Trustee may at any time call a meeting of Holders of Securities for any purpose specified in Section 8.1, to be held at such time and at such place in The City of New York. Notice of every meeting of Holders of Securities, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.5, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (b) In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Securities shall have requested the Trustee to call a meeting of the Holders of Securities for any purpose specified in Section 8.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities in the amount specified, as the case may be, may determine the time and the place in The City of New York for such meeting and may call such meeting for such purposes by giving notice thereof as provided in paragraph (a) of this Section. SECTION 8.3 Persons Entitled to Vote at Meetings. ------------------------------------ To be entitled to vote at any meeting of Holders of Securities, a Person shall be (a) a Holder of one or more Outstanding Securities, or (b) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. SECTION 8.4 Quorum; Action. -------------- The Persons entitled to vote a majority in principal amount of the Outstanding Securities shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 8.2(a), except that such notice need be given only once and not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage of the principal amount of the Outstanding Securities which shall constitute a quorum. Subject to the foregoing, at the reconvening of any meeting adjourned for a lack of a quorum, the Persons entitled to vote 25% in principal amount of the Outstanding Securities at the time shall constitute a quorum for the taking of any action set forth in the 47 notice of the original meeting. At a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid, any resolution and all matters (except as limited by the proviso to Section 7.2) shall be effectively passed and decided if passed or decided by the Persons entitled to vote not less than a majority in principal amount of Outstanding Securities represented and voting at such meeting. Any resolution passed or decisions taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities, whether or not present or represented at the meeting. SECTION 8.5 Determination of Voting Rights; Conduct and Adjournment ------------------------------------------------------- of Meetings. - ----------- (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities in regard to proof of the holding of Securities and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 1.3 and the appointment of any proxy shall be proved in the manner specified in Section 1.3. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.3 or other proof. (b) The Trustee shall, by an instrument in writing, appoint a temporary chairman (which may be the Trustee) of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 8.2(b), in which case the Company or the Holders of Securities calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting. (c) At any meeting each Holder of a Security or proxy shall be entitled to one vote for each U.S. $1,000 principal amount of Securities held or represented by him; provided, however, that no vote shall be cast or counted at -------- ------- any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security or proxy. 48 (d) Any meeting of Holders of Securities duly called pursuant to Section 8.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting, and the meeting may be held as so adjourned without further notice. SECTION 8.6 Counting Votes and Recording Action of Meetings. ----------------------------------------------- The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more Persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 8.2 and, if applicable, Section 8.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE 9 COVENANTS SECTION 9.1 Payment of Principal, Premium and Interest. ------------------------------------------ The Company will duly and punctually pay the principal of and premium, if any, and interest (including Liquidated Damages, if any) in respect of the Securities in accordance with the terms of the Securities and this Indenture. The Company will deposit or cause to be deposited with the Trustee as directed by the Trustee, on the day of the Stated Maturity of any Security or installment of interest, all payments so due. 49 SECTION 9.2 Maintenance of Offices or Agencies. ---------------------------------- The Company hereby appoints the Corporate Trust Office of the Trustee as its agent in The City of New York, where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for conversion, and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company may at any time and from time to time vary or terminate the appointment of any such agent or appoint any additional agents for any or all of such purposes; provided, however, that until all of the Securities have -------- ------- been delivered to the Trustee for cancellation, or moneys sufficient to pay the principal of and premium, if any, and interest (including Liquidated Damages, if any) on the Securities have been made available for payment and either paid or returned to the Company pursuant to the provisions of Section 9.3, the Company will maintain in The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange, where Securities may be surrendered for 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, and notice to the Holders in accordance with Section 1.5, of the appointment or termination of any such agents and of the location and any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency in The City of New York, or shall fail to furnish the Trustee with the address thereof, presentations and surrenders may be made and notices and demands may be served on and Securities may be surrendered for conversion to the Corporate Trust Office of the Trustee. SECTION 9.3 Money for Security Payments To Be Held in Trust. ----------------------------------------------- If the Company shall act as a Paying Agent, it will, on or before each due date of the principal of and premium, if any, or interest (including Liquidated Damages, if any) on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and premium, if any, or interest (including Liquidated Damages, if any) so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and the Company will promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents, it will, one Business Day prior to each due date of the principal of and premium, if any, or interest (including Liquidated Damages, if any) on any Securities (or, if applicable, cash in lieu of conversion of any Security), deposit with a Paying Agent a sum sufficient to pay the principal and premium, if any, or interest (including Liquidated Damages, if any) so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium, if any, or interest (including Liquidated Damages, if any), and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of any failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: 50 (1) hold all sums held by it for the payment of the principal of and premium, if any, or interest (including Liquidated Damages, if any) on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company in the making of any payment of principal and premium, if any, or interest (including Liquidated Damages, if any); and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of and premium, if any, or interest on any Security and remaining unclaimed for two years after such principal and premium, if any, or interest (including Liquidated Damages, if any) and redemption or repurchase payments have become due and payable shall be paid to the Company on Company Request, subject to applicable abandoned property and escheat laws, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that (i) the Trustee or such Paying Agent, before -------- ------- being required to make any such repayment, may at the expense of the Company cause to be published or mailed notice as provided in Section 1.5, except that such notice need be given only once, (ii) such money remains unclaimed and (iii) after a date specified in such notice, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 9.4 Corporate Existence. ------------------- Subject to Article 6, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however, -------- ------- that the Company shall not be required to preserve any such right or franchise if the Company determines that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. 51 SECTION 9.5 Maintenance of Properties. ------------------------- The Company will, and will cause each Significant Subsidiary to, maintain and keep its properties and every part thereof in such repair, working order and condition, and make or cause to be made all such needful and proper repairs, renewals and replacements thereto, as in the judgment of the Company are necessary in the interests of the Company; provided, however, that nothing -------- ------- in this Section shall prevent the Company or any Significant Subsidiary from selling, abandoning or otherwise disposing of any of their respective properties or discontinuing a part of their respective businesses from time to time if, in the judgment of the Company, such sale, abandonment, disposition or discontinuance is advisable and does not materially adversely affect the interests or business of the Company or any of its Subsidiaries. SECTION 9.6 Payment of Taxes and Other Claims. --------------------------------- The Company will, and will cause each Significant Subsidiary to, promptly pay and discharge or cause to be paid and discharged all taxes, assessments and governmental charges or levies lawfully imposed upon it or upon its income or profits or upon any of its property, real or personal, or upon any part thereof, as well as all claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon its property; provided, -------- however, that neither the Company nor any Significant Subsidiary shall be - ------- required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge, levy, or claim if the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company or such Significant Subsidiary, as the case may be, shall have set aside on its books reserves deemed by it adequate with respect thereto. SECTION 9.7 Statement by Officers as to Default. ----------------------------------- The Company will deliver to the Trustee, on or before October 1 in each year ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture, without regard to any period of grace or requirement of notice provided hereunder and if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. In the event an officer of the Company comes to actually know of such a default, regardless of the date the Company will deliver an Officers' Certificate to the Trustee specifying such default and the nature and status thereof. 52 SECTION 9.8 Waiver of Certain Covenants. --------------------------- The Company may omit in any particular instance to comply with any term, provision or condition set forth in Sections 9.3 to 9.5, inclusive, if before the time for such compliance the Holders of at least a majority in aggregate principal amount of the Outstanding Securities (or such lesser amount as shall have acted at a meeting pursuant to the provisions of this Indenture) shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such term, provision or condition, but no waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. SECTION 9.9 Delivery of Certain Information. ------------------------------- At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, upon the request of a Holder of a Security, the Company will promptly furnish or cause to be furnished Rule 144A Information to such Holder or to a prospective purchaser of such Security designated by such Holder, as the case may be, in order to permit compliance by such Holder with Rule 144A under the Securities Act in connection with the resale of such Security by such Holder; provided, however, that the Company shall not be required to furnish -------- ------- such information in connection with any request made on or after the date which is two years from the date such Security (or any predecessor Security) was acquired from the Company. "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto). SECTION 9.10 Resale of Certain Securities. ---------------------------- During the period of two years after the Closing Date, the Company shall not, and shall not permit any of its "affiliates" (as defined under Rule 144 under the Securities Act) to, resell any Securities, or shares of Common Stock issuable upon conversion of the Securities, which constitute "restricted securities" under Rule 144, that are acquired by any of them within the United States or to U.S. persons (as defined in Regulation S) except pursuant to an effective registration statement under the Securities Act or an applicable exemption therefrom. The Trustee shall have no responsibility or liability in respect of the Company's performance of its agreement in the preceding sentence. ARTICLE 10 REDEMPTION OF SECURITIES SECTION 10.1 Right of Redemption. -------------------- The Company may, at its option, redeem all, or from time to time, any part of the Securities on any date prior to maturity, upon notice as set forth in Section 10.3, at the Redemption Prices specified in the form of Security set forth in Exhibit A hereto, together with accrued interest to the Redemption Date; provided, however, that prior to July 10, 2001, the Company may not redeem -------- ------- the Securities. 53 SECTION 10.2 Applicability of Article. ------------------------ Redemption of Securities at the election of the Company or otherwise as permitted or required by any provision of the Securities or this Indenture, shall be made in accordance with such provision and this Article. SECTION 10.3 Election to Redeem; Notice to Trustee. ------------------------------------- The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. The Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed. SECTION 10.4 Selection by Trustee of Securities to Be Redeemed. ------------------------------------------------- If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 45 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee may deem fair and appropriate. Such method of selection may provide for the selection for redemption of portions (equal to U.S. $1,000 or any integral multiple thereof) of the principal amount of Securities of a denomination larger than U.S. $1,000. If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed to be the portion selected for redemption (provided, however, that the Holder of -------- ------- such Security so converted and deemed redeemed shall not be entitled to any additional interest payment as a result of such deemed redemption than such Holder would have otherwise been entitled to receive upon conversion of such Security). Securities which have been converted during a selection of Securities to be redeemed may be treated by the Trustee as Outstanding for the purpose of such selection. The Trustee shall promptly notify the Company and the Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities in registered form selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 10.5 Notice of Redemption. -------------------- Notice of redemption shall be given in the manner provided in Section 1.5 to the Holders of Securities to be redeemed. Such notice shall be given not less than 30 nor more than 60 days prior to the Redemption Date. All notices of redemption shall state: (1) the Redemption Date, 54 (2) the Redemption Price, and accrued interest, if any, (3) if less than all the Outstanding Securities are to be redeemed, the aggregate principal amount of Securities to be redeemed and the aggregate principal amount of Securities which will be outstanding after such partial redemption, (4) that on the Redemption Date the Redemption Price, and accrued interest, if any, will become due and payable upon each such Security to be redeemed, and that interest thereon shall cease to accrue on and after said date, (5) the Conversion Price, the date on which the right to convert the principal of the Securities to be redeemed will terminate and the places where such Securities may be surrendered for conversation, (6) the place or places that the certificate required by Section 10.7 and Section 2.2 shall be delivered, and the form of such certificate, (7) the place or places where such Securities are to be surrendered for payment of the Redemption Price and accrued interest, if any, and (8) the CUSIP number of the Securities. In case of a partial redemption, the first notice given shall specify the last date on which exchanges or transfers of Securities may be made pursuant to Section 2.5, and the second notice shall specify the serial numbers of Securities and the portions thereof called for redemption. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name of and at the expense of the Company. SECTION 10.6 Deposit of Redemption Price. --------------------------- On any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 9.3) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the date of such deposit. 55 If any Security called for redemption is converted, any money deposited with the Trustee or with a Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the last paragraph of Section 2.7) be paid to the Company on Company Request or, if then held by the Company, shall be discharged from such trust. SECTION 10.7 Securities Payable on Redemption Date. ------------------------------------- Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; provided, however, the installments of interest on -------- ------- Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Record Date according to their terms and the provisions of Section 2.7. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and premium, if any, shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security. Upon presentation and surrender of any Security which is to be purchased in part only, upon its purchase, the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities in authorized denominations in aggregate principal amount equal to the portion of the Security not purchased. SECTION 10.8 Securities Redeemed in Part. --------------------------- Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 9.2 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or the Holder's 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 of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. ARTICLE 11 REPURCHASE UPON A DESIGNATED EVENT SECTION 11.1 Repurchase Right. ---------------- (a) If, at any time prior to July 1, 2005 there shall occur a Designated 56 Event, then each Holder shall have the right (the "Repurchase Right"), at such Holder's option, but subject to the provisions of Section 11.2, 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 repurchase date fixed by the Company that is not less than 30 days nor more than 45 days after the date of the Company Notice (as defined in Section 11.3 below) of such Designated Event (or, if such 45th day is not a Business Day, the next succeeding Business Day). The repurchase price shall be equal to 100% of the principal amount of Securities, together with accrued interest, if any, to, but excluding, the repurchase date (the "Repurchase Price"); provided that if such repurchase date is January 1 or July 1, then the interest payable on such date shall be paid to the holder of record of the Securities on the next preceding December 15 or June 15, respectively. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the fulfillment by the Company of the conditions set forth in Section 11.2, by delivery of shares of Common Stock having a fair market value equal to the Repurchase Price as described in Section 11.2(a). Whenever in this Indenture there is a reference in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Indenture shall not be construed as excluding the Repurchase Price in those provisions of this Indenture when such express mention is not made; provided, however, that for the purposes of Article 13, such reference -------- ------- shall be deemed to include reference to the Repurchase Price only if the Repurchase Price is payable in cash. SECTION 11.2 Conditions to the Company's Election to Pay the ----------------------------------------------- Repurchase Price in Common Stock. The Company may elect to pay the Repurchase - -------------------------------- Price by delivery of shares of Common Stock pursuant to Section 11.1 if and only if the following conditions have been satisfied: (a) 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 11.2, 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 Prices of the Common Stock for the five consecutive trading days ending on and including the third trading day immediately preceding the repurchase dates; (b) In the event any shares of Common Stock to be issued upon repurchase of Securities hereunder require registration under any Federal securities law before such shares may be freely transferrable without being subject to any transfer restrictions under the Securities Act upon repurchase, such registration shall have been completed and shall have become effective prior to the repurchase date; (c) In the event any shares of Common Stock to be issued upon repurchase of Securities hereunder require registration with or approval of any governmental authority under any State law or any other Federal law before such shares may be validly issued or delivered upon repurchase, such registration shall have been completed, have become effective and such approval shall have been obtained, in each case, prior to the repurchase date; (d) The shares of Common Stock deliverable in payment of the Repurchase Price shall be listed for trading on a U.S. national securities exchange or approved for trading on an established automated over-the-counter trading market in the United States, in either 57 case, immediately prior to the repurchase date; and (e) All shares of Common Stock deliverable in payment of the Repurchase Price shall be issued out of the Company's authorized but unissued Common Stock and will, upon issue, be duly and validly issued and fully paid and non-assessable and free of any preemptive rights. If all of the conditions set forth in this Section 11.2 are not satisfied in accordance with the terms thereof, the Repurchase Price shall be paid by the Company only in cash. SECTION 11.3 Notices; Method of Exercising Repurchase Right, Etc. ---------------------------------------------------- (a) Unless the Company shall have theretofore called for redemption all of the outstanding Securities, on or before the thirtieth (30th) calendar day after the Company becomes aware of the occurrence of a Designated Event, the Company or, at the request and expense of the Company, the Trustee, shall mail to all Holders a notice (the "Company Notice") of the occurrence of the Designated Event and of the Repurchase Right set forth herein arising as a result thereof. The Company shall also deliver a copy of such notice of a Repurchase Right to the Trustee and cause of such notice of a Repurchase Right, or a summary of the information contained therein, to be published in a newspaper of general circulation in The City of New York. 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, may be revoked, (4) the Repurchase Price, and whether the Repurchase Price shall be paid by the Company in cash or by delivery of shares of Common Stock, (5) a description of the procedure which a Holder must follow to exercise a Repurchase Right, and (6) the Conversion Price then in effect, the date on which the right to convert the principal amount of the Securities to be repurchased will terminate and the place or places where Securities may be surrendered for conversion. 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. (b) To exercise a Repurchase Right, a Holder shall deliver to the Trustee on or before the close of business on 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, 58 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. (c) In the event the Repurchase Right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the Trustee the Repurchase Price in cash or shares of Common Stock, as provided above, for payment to the Holder on the repurchase date or, if shares of Common Stock are to be issued, as promptly after the repurchase date as practicable. (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 (without giving effect to Section 11.2(b)) until the principal of such Security shall have been paid or duly provided for. (e) Any Security which is to be repurchased only in part shall be surrendered to the Trustee (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or its 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 the repurchase date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 9.3) an amount of money sufficient to pay the Repurchase Price of the Securities that are to be repaid on the repurchase date. (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. 59 (h) No fractional shares of Common Stock or scrip representing fractional 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 issued upon repurchase shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof to the extent permitted hereby) so repurchased. If any fractional share of stock otherwise would be issuable upon repurchase of any Security or Securities, the Company shall make an adjustment therefor in cash at the current market value thereof to the Holder of Securities. For these purposes, the current market value of a share of Common Stock shall be the Quoted Price on the first trading day immediately preceding the repurchase date. (i) The issue of stock certificates on repurchase of Securities shall be made without charge to the Holder of Securities being repurchased for any tax in respect of the issue thereof. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of stock in any name other than that of the Holder of any Security repurchased, and the Company shall not be required to issue or deliver any such stock certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. ARTICLE 12 CONVERSION OF SECURITIES SECTION 12.1 Conversion Privilege and Conversion Price. ----------------------------------------- Subject to and upon compliance with the provisions of this Article, at the option of the Holder thereof, any definitive Security or any portion of the principal amount thereof which is U.S. $1,000 or an integral multiple of U.S. $1,000 may be converted at the principal amount thereof, or of such portion thereof, into duly authorized, fully paid and nonassessable shares of Common Stock, at the Conversion Price, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall, with respect to all Securities, commence on the 60th day following the latest date of original issuance thereof and expire at the close of business July 1, 2005. In case a Security or portion thereof is called for redemption, such conversion right in respect of the Security or the portion so called, shall expire at the close of business on the second Business Day preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption. In the case of a Designated Event for which the Holder exercises its Repurchase Right with respect to a Security or portion thereof, such conversion right in respect of the Security or portion thereof shall expire upon receipt of the written notice of exercise of such Repurchase Right, provided that the expiration of a Holder's -------- conversion right hereunder is subject to such Holder's right to revoke the exercise of its Repurchase Right. The price at which shares of Common Stock shall be delivered upon conversion (herein called the "Conversion Price") shall be initially U.S. $64.50 per share of Common Stock. The Conversion Price shall be adjusted in certain instances as provided in paragraphs (a), (b), (c), (d), (e), (f) and (h) of Section 12.4. 60 SECTION 12.2 Exercise of Conversion Privilege. -------------------------------- In order to exercise the conversion privilege, the Holder of any definitive Security to be converted shall surrender such Security duly endorsed or assigned to the Company or in blank, at the office of any Conversion Agent (as specified and subject to the terms and limitations set forth in Section 9.2), accompanied by a duly signed conversion notice substantially in the form attached to the Security to the Company at such Conversion Agent stating that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted. Securities surrendered for conversion during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date (except in the case of any Security whose Maturity is prior to such Interest Payment Date) shall be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest to be received on such Interest Payment Date on the principal amount of Securities being surrendered for conversion. Securities shall be deemed to have been converted immediately prior to the close of business on the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of the Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall cause to be issued and delivered to such Conversion Agent a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share as provided in Section 12.3. In the event that the Company shall have failed to register the Common Stock into which the Restricted Securities may be converted pursuant to an effective registration statement under the Securities Act, all shares of Common Stock delivered upon such conversion shall bear a restrictive legend substantially in the form of the legend required to be set forth on the Restricted Securities pursuant to Sections 2.5 and as set forth in the form of Security in Exhibit A hereto and shall be subject to the restrictions on transfer provided in such legend. Neither the Trustee nor the Conversion Agent shall have any responsibility for the inclusion or content of any such restrictive legend on such Common Stock; provided, however, that the Trustee or -------- ------- such Conversion Agent, as the case may be, shall have provided, to the Company or to the Company's transfer agent for such Common Stock, prior to or concurrently with a request to the Company to deliver to the Conversion Agent certificates of such Common Stock, written notice that the Securities delivered for conversion are Restricted Securities. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in aggregate principal amount equal to the unconverted portion of the principal amount of such Securities. 61 If shares of Common Stock to be issued upon conversion of a Restricted Security, or Securities to be issued upon conversion of a Restricted Security in part only, are to be registered in a name other than that of the Holder of such Restricted Security, then such Holder must deliver to the Conversion Agent a certificate in substantially the form set forth in the form of Security set forth in Exhibit A hereto, dated the date of surrender of such Restricted Security and signed by such Holder, as to compliance with the restrictions on transfer applicable to such Restricted Security. Neither the Trustee nor any Conversion Agent, Registrar or Transfer Agent shall be required to register in a name other than that of the Holder shares of Common Stock or Securities issued upon conversion of any such Restricted Security not so accompanied by a properly completed certificate. SECTION 12.3 Fractions of Shares. ------------------- No fractional shares of Common Stock shall be issued upon any conversion of any Security or Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Security or Securities (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction (calculated to the nearest one-100th of a share) in an amount equal to the same fraction of the Quoted Price of the Common Stock as of the trading day before the date of conversion. SECTION 12.4 Adjustment of Conversion Price. ------------------------------ The Conversion Price shall be subject to adjustments, calculated by the Company, from time to time 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 date fixed for the determination of stockholders 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 (as defined in Section 12.4(g)) 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 12.4(a) is declared but not so paid or made, the Conversion Price shall again be adjusted to the Conversion Price which would then be in effect if such dividend or distribution had not been declared. (b) In case the Company shall issue rights or warrants to all holders of its outstanding shares of Common Stock entitling them (for a period expiring within forty-five (45) days after the date fixed for the determination of stockholders entitled to receive such rights or warrants) to subscribe for or purchase shares of Common Stock at a price per share less than the Current Market Price (as defined in Section 12.4(g)) on the Record Date fixed for the determination of stockholders 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 62 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 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 stockholders 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 which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made on the basis of the 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 which would then be in effect if such date fixed for the determination of stockholders 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 by the Board of Directors. (c) In case the outstanding shares of Common Stock shall be 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 12.4(a) applies) or evidences of its indebtedness, cash or other assets (including securities, but excluding (1) any rights or warrants referred to in Section 12.4(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 12.11 applies) (the foregoing hereinafter in this Section 12.4(d) called the "securities")) (unless the Company elects to reserve such 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 securities which such Holder would have received if such Holder had converted its Securities into Common Stock immediately prior to the Record Date (as defined in Section 12.4(g)) for such distribution of the securities)), then, in each such case, the Conversion Price shall be reduced so that the same shall be equal to the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on the Record Date (as defined in Section 12.4(g)) with respect to such distribution by a fraction of which the numerator shall be the Current 63 Market Price (determined as provided in Section 12.4(g)) on such date less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) on such date of the portion of the 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 (as so determined) of the portion of the securities so distributed applicable to one share of Common Stock is equal to or greater than the Current Market Price 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 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 would then be in effect if such dividend or distribution had not been declared. If the Board of Directors determines the fair market value of any distribution for purposes of this Section 12.4(d) by reference to the actual or when issued trading market for any securities comprising all or part of such distribution, it must in doing so consider the prices in such market over the same period (the "Reference Period") used in computing the Current Market Price pursuant to Section 12.4(g) to the extent possible, unless the Board of Directors in a Board Resolution determines in good faith that determining the fair market value during the Reference Period would not be in the best interest of the Holder. 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), which rights or warrants, until the occurrence of a specified event or events ("Trigger Event"); (i) are deemed to be transferred with such shares of Common Stock; (ii) are not exercisable; and (iii) are also issued in respect of future issuances of Common Stock, shall be deemed not to have been distributed for purposes of this Section 12.4(d) (and no adjustment to the Conversion Price under this Section 12.4(d) will be required) until the occurrence of the earliest Trigger Event. If 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 12.4(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 warrant (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 12.4(d) and Sections 12.4(a) and (b), any dividend 64 or distribution to which this Section 12.4(d) is applicable that also includes shares of Common Stock, or rights or warrants to subscribe for or purchase shares of Common Stock to which Section 12.4(b) 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 to which Section 12.4(b) applies (and any Conversion Price reduction required by this Section 12.4(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 12.4(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 stockholders entitled to receive such dividend or other distribution", "Record Date fixed for such determinations" and "Record Date" within the meaning of Section 12.4(a) and as "the date fixed for the determination of stockholders entitled to receive such rights or warrants", "the Record Date fixed for the determination of the stockholders entitled to receive such rights or warrants" and such "Record Date" within the meaning of Section 12.4(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 date fixed for such determination" within the meaning of Section 12.4(a). (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 12.11 applies or as part of a distribution referred to in Section 12.4(d)), in an aggregate amount that, combined together with (1) the aggregate amount of any other such distributions to all holders of Common Stock made exclusively in cash within the twelve (12) months preceding the date of payment of such distribution, and in respect of which no adjustment pursuant to this Section 12.4(e) has been made, and (2) the aggregate of any cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) of consideration payable in respect of any tender offer by the Company or any of its Subsidiaries for all or any portion of the Common Stock concluded within the twelve (12) months preceding the date of such distribution, and in respect of which no adjustment pursuant to Section 12.4(f) has been made, exceeds 10.0% of the product of the Current Market Price (determined as provided in Section 12.4(g)) on the Record Date with respect to such distribution times the number of shares of Common Stock outstanding on such date, then and in each such case, immediately after the close of business on such date, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the close of business on such Record Date by a fraction (i) the numerator of which shall be equal to the Current Market Price on the Record Date less an amount equal to the quotient of (x) the excess of such combined amount over such 10.0% 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. Any cash distribution to all holders of Common Stock as to which the Company makes the election 65 permitted by Section 12.4(l) and as to which the Company has complied with the requirements of such Section shall be treated as not having been made for all purposes of this Section 12.4(e). (f) In case a tender offer made by the Company or any of its Subsidiaries for all or any portion of the Common Stock shall expire and such tender offer (as amended upon the expiration thereof) shall require the payment to stockholders (based on the acceptance (up to any maximum specified in the terms of the tender offer) of Purchased Shares (as defined below)) of an aggregate consideration having a fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution) that combined together with (1) the aggregate of the cash plus the fair market value (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution), as of the expiration of such tender offer, 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 pursuant to this Section 12.4(f) has been made and (2) the aggregate amount of any distributions to all holders of the Company's Common Stock made exclusively in cash within twelve (12) months preceding the expiration of such tender offer and in respect of which no adjustment pursuant to Section 12.4(e) has been made, exceeds 10.0% of the product of the Current Market Price (determined as provided in Section 12.4(g)) as of the last time (the "Expiration Time") tenders could have been made pursuant to such tender offer (as it may be amended) times the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time, then, and in each such case, immediately prior to the opening of business on the day after the date of the Expiration Time, 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 close of business on the date of the Expiration Time by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered shares) on the Expiration Time multiplied by the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender offer) of all shares validly tendered and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) on the Expiration Time and the Current Market Price of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction (if any) to become effective immediately prior to the opening of business on the day following the Expiration Time. In the event that the Company is obligated to purchase shares pursuant to any such tender offer, but 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 12.4(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 12.4(f). Any cash distribution to all holders of Common Stock as to which the Company has made the election permitted by Section 12.4(m) and as to which the Company has complied with the requirements of such Section shall be treated as not having been made for all purposes of this Section 12.4(f). (g) For purposes of this Section 12.4, the following terms shall have the 66 meaning 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, if such security is not listed or admitted to trading on the Nasdaq National Market, on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to trading on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security on the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or if not so available, in such manner as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose, or a price determined in good 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 daily Closing Prices per share of Common Stock for the ten (10) consecutive Trading Days immediately prior to the date in question; 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 12.4(a), (b), (c), (d), (e) or (f) occurs during such ten (10) consecutive Trading Days, 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 12.4(a), (b), (c), (d), (e) or (f) occurs on or after the "ex" date for the issuance or distribution requiring such computation and prior to the 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, 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 (as determined by the Board of Directors in a manner consistent with any determination of such value for purposes of Section 12.4(d) or (f), whose determination shall be conclusive and described in a Board Resolution) of the evidences of indebtedness, shares of capital stock or assets being distributed applicable to one share of Common Stock as of the close of business on the day before such "ex" date. For purposes of any computation under Section 12.4(f), the Current Market Price of the Common Stock on any date shall be deemed to be the average of the daily Closing Prices per share of Common Stock for such day and the next two succeeding Trading Days; provided, however, that if the -------- ------- "ex" date for any event (other than the tender offer requiring such computation) that requires an adjustment to the Conversion Price pursuant to Section 12.4(a), (b), (c), (d), (e) or (f) occurs on or after the Expiration Time for 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 67 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 paragraph, 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. Notwithstanding the foregoing, whenever successive adjustments to the Conversion Price are called for pursuant to this Section 12.4, such adjustments shall be made to the Current Market Price as may be necessary or appropriate to effectuate the intent of this Section 12.4 and to avoid unjust or inequitable results as determined in good faith by the Board of Directors. (3) "fair market value" shall mean the amount which a willing buyer would pay a willing seller in an arm's length transaction. (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 stockholders 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 another national security exchange is open for business or (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 12.4(a), (b), (c), (d), (e) or (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. 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 each Holder at the address of such Holder as it appears in the Security appearing on the Register a notice of the reduction at least fifteen (15) days prior to the date the reduced Conversion Price takes 68 effect, and such notice shall state the reduced Conversion Price and the period during which it will be in effect. (i) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this Section -------- ------- 12.4(i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Article 12 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) In any case in which this Section 12.4 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 12.3. (k) For purposes of this Section 12.4, 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. (l) In lieu of making any adjustment to the Conversion Price pursuant to Section 12.4(d) or (e), the Company may elect to reserve an amount of cash for distribution to the Holders of the Securities upon the conversion of the Securities so that any such Holder converting Securities will receive upon such conversion, in addition to the shares of Common Stock and other items to which such Holder is entitled, the full amount of cash which such holder would have received if such Holder had, immediately prior to the Record Date for such distribution of cash, converted its Securities into Common Stock, together with any interest accrued with respect to such amount, in accordance with this Section 12.4(l). The Company may make such election by providing an Officers' Certificate to the Trustee to such effect on or prior to the payment date for any such distribution and depositing with the Trustee on or prior to such date an amount of cash equal to the aggregate amount the Holders of the Securities would have received if such Holders had, immediately prior to the Record Date for such distribution, converted all of the Securities into Common Stock. Any such funds so deposited by the Company with the Trustee shall be invested by the Trustee in marketable obligations issued or fully guaranteed by the United States government with a maturity not more than three (3) months from the date of issuance. Upon conversion of Securities by a Holder, the Holder will be entitled to receive, in addition to the Common Stock issuable upon conversion, an amount of cash equal to the amount such Holder would have received if such Holder had, immediately prior to the Record Date for such distribution, converted its Security into Common Stock, along with such Holder's pro rata share of any accrued interest earned as a consequence of the investment of such funds. Promptly after making an election pursuant to this Section 12.4(l), the Company shall give or shall cause to be given notice to all Holders of such election, which notice shall state the amount of cash per $1,000 principal amount of Securities such Holders shall be entitled to receive (excluding interest) upon conversion of the 69 Securities as a consequence of the Company having made such election. SECTION 12.5 Notice of Adjustments of Conversion Price. ----------------------------------------- Whenever the Conversion Price is adjusted as herein provided: (1) the Company shall compute the adjusted Conversion Price in accordance with Section 12.4 and shall prepare an Officers' Certificate signed by the Chief Financial Officer of the Company setting forth the adjusted Conversion Price and showing in reasonable detail the facts upon which such adjustment is based, and such Officers' Certificate shall forthwith promptly be filed with the Trustee and with each Conversion Agent; and (2) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price and the date on which each adjustment becomes effective shall forthwith be required, and such notice shall be provided by the Company to all Holders in accordance with Section 1.5. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to the validity, accuracy or sufficiency of any such Officers' Certificate, except to exhibit the same to any Holder of Securities desiring inspection thereof at its office during normal business hours. SECTION 12.6 Notice of Certain Corporate Action. ---------------------------------- In case at any time after the date hereof: (1) the Company shall declare a dividend (or any other distribution) on its Common Stock payable otherwise than in cash out of its capital surplus or the consolidated retained earnings of the Company and its Subsidiaries; or (2) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) there shall occur any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock), or any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or the conveyance, transfer or lease of all or substantially all of the assets of the Company; or (4) there shall occur the voluntary or involuntary dissolution, liquidation or winding up of the Company. then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of securities pursuant to Section 9.2, and shall cause to be provided to all Holders in accordance with Section 1.5, at least 20 days (or 10 days in any case specified in clause (1) or (2) above) prior to the applicable record or effective date hereinafter specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, rights or warrants, or, if a record is not to be taken, the date as of which the 70 holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined, or (B) the date on which such reclassification, consolidation, merger, conveyance, transfer, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, conveyance, transfer, lease, dissolution, liquidation or winding up. SECTION 12.7 Company to Reserve Common Stock. ------------------------------- The Company shall at all times use its best efforts to reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of fully paid and nonassessable Common Stock then issuable upon the conversion of all Outstanding Securities. SECTION 12.8 Taxes on Conversions. -------------------- Except as provided in the next sentence, the Company will pay any and all taxes (other than taxes on income) and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. A Holder delivering a Security for conversion shall be liable for and will be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue 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. SECTION 12.9 Covenant as to Common Stock. --------------------------- The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issue be fully paid and nonassessable and, except as provided in Section 12.8, the Company will pay all taxes, liens and charges with respect to the issue thereof. SECTION 12.10 Cancellation of Converted Securities. ------------------------------------ All Securities delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 2.9. SECTION 12.11 Effect of Reclassification, Consolidation, Merger or ---------------------------------------------------- Sale. - ---- If any of following events occur, namely (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 71 entitled to receive stock, securities or other property or assets (including cash) with respect to or in exchange for such Common Stock, then the Company or the successor or purchasing corporation, as the case may be, shall execute with the Trustee a supplemental indenture (which shall comply with the Trust Indenture Act as in force at the date of execution of such supplemental indenture if such supplemental indenture is then required to so comply) providing that such Security shall be convertible into the kind and amount of shares of stock and other securities or property or assets (including cash) which such Holder would have been entitled to receive upon such reclassification, change, consolidation, merger, combination, sale or conveyance had such Securities been converted into Common Stock immediately prior to such reclassification, change, consolidation, merger, combination, sale or conveyance assuming such holder of Common Stock did not exercise its 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 (provided that, if the kind or amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance is not the same for each share of Common Stock in respect of which such rights of election shall not have been exercised ("Non-Electing Share"), then for the purposes of this Section 12.11 the kind and amount of securities, cash or other property receivable upon such consolidation, merger, statutory exchange, sale or conveyance for each Non-Electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Non-Electing Shares). 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. 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 includes shares of stock or other securities and assets of a corporation 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 corporation and shall contain such additional provisions to protect the interests of the Holders of the Securities as the Board of Directors shall reasonably consider necessary by reason of the foregoing, including to the extent practicable the provisions providing for the Repurchase Rights set forth in Article 11 herein. The Company shall cause notice of the execution of such supplemental indenture to be mailed to each Holder, at the address of such Holder as it appears on the Security Register, within twenty (20) days after execution thereof. Failure to deliver such notice shall not affect the legality or validity of such supplemental indenture. The above provisions of this Section shall similarly apply to successive reclassifications, changes, consolidations, mergers, combinations, sales and conveyances. If this Section 12.11 applies to any event or occurrence, Section 12.4 shall not apply. SECTION 12.12 Responsibility of Trustee for Conversion Provisions. --------------------------------------------------- The Trustee, subject to the provisions of Section 5.1, and any Conversion Agent shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or intent of any such adjustments when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee, subject to the provisions of Section 5.1, nor any 72 Conversion Agent shall be accountable with respect to the validity or value (of the kind or amount) of any Common Stock, or of any other securities or property, which may at any time be issued or delivered upon the conversion of any Security; and it or they do not make any representation with respect thereto. Neither the Trustee, subject to the provisions of Section 5.1, nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of stock or share certificates or other securities or property upon the surrender of any Security for the purpose of conversion; and the Trustee, subject to the provisions of Section 5.1, and any Conversion Agent shall not be responsible or liable for any failure of the Company to comply with any of the covenants of the Company contained in this Article. ARTICLE 13 SUBORDINATION SECTION 13.1 Securities Subordinated to Senior Debt. -------------------------------------- The Company covenants and agrees, and each Holder of Securities, by such Holder's acceptance thereof, likewise covenants and agrees, that the indebtedness represented by the Securities and the payment of the principal of and premium, if any, and interest (including Liquidated Damages, if any) on each and all of the Securities is hereby expressly subordinate and junior, to the extent and in the manner hereinafter set forth and as set forth in Section 3.1, in right of payment to the prior payment in full of all Senior Debt. (a) In the event of any distribution of assets of the Company upon any dissolution, winding up, liquidation or reorganization of the Company, whether in bankruptcy, insolvency, reorganization or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of the Company or otherwise, then the holders of all Senior Debt shall first be entitled to receive payment of the full amount due thereon in respect of principal and premium, if any, and interest (including interest accruing after the commencement of any bankruptcy proceeding, regarding of whether such interests is an allowed claim in such proceeding) and all other amounts due or provision shall be made for such amount in cash before the Holders of any of the Securities are entitled to receive any payment or distribution of any character, whether in cash, securities or other property, on account of the principal of or premium, if any, or interest on the indebtedness evidenced by the Securities. (b) In the event of any default in payment of the principal of or premium, if any, or interest on any Senior Debt, then, unless and until all such payments due in respect of such Senior Debt have been paid in full or such default shall have been cured or waived or shall have ceased to exist, no payment shall be made by the Company with respect to the principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Securities or to acquire any of the Securities (including any redemption, cash conversion or repurchase pursuant to the exercise of the Repurchase Right). (c) During the continuance of any event of default with respect to any Senior Debt, as such event of default is defined under any such Senior Debt or in any agreement pursuant to which any Senior Debt has been issued (other than a default in payment of the principal of or premium, if any, or interest on any Senior Debt), permitting the holder or 73 holders of such Senior Debt to accelerate the maturity thereof, no payment shall be made by the Company, directly or indirectly, with respect to principal of, premium, if any, or interest (including Liquidated Damages, if any) on the Securities (including any redemption, cash conversion or repurchase pursuant to the exercise of the Repurchase Right) for 180 days following notice in writing to the Company, from any holder or holders of such Senior Debt or their representative or representatives or the trustee or trustees under any indenture or under which any instrument evidencing any such Senior Debt may have been issued, that such an event of default has occurred and is continuing, unless such event of default has been cured or waived or such Senior Debt has been paid in full; provided, however, if the maturity of such Senior Debt is -------- ------- accelerated, no payment may be made on the Securities until such Senior Debt has been paid or such acceleration has been cured or waived. For purposes of this Section 13.1(c), such notice shall be deemed to include notice of all other events of default under such indenture or instrument, which are continuing at the time of the event of default specified in such notice. The provisions of this Section 13.1(c) shall apply only to one such notice given in any period of nine consecutive months with respect to any issue of Senior Debt and no more than one such notice under this Section 13.1(c) only be given with respect to any such continuing event of default under any issue of Senior Debt for such nine-month period. (d) In the event that, notwithstanding the foregoing provisions of Sections 13.1(a), (b) and (c), any payment on account of principal, premium, if any, or interest (including Liquidated Damages, if any) on the Securities shall be made by or on behalf of the Company and received by the Trustee, by any Holder or by any Paying Agent (or, if the Company is acting as its own Paying Agent, money for any such payment shall be segregated and held in trust), (i) after the occurrence of an event specified in Section 13.1(a), then, unless and until all Senior Debt is paid in full in cash, or provision shall he made therefor, (ii) after the happening of an event of default under any Senior Debt of the type specified in Section 13.1(b) above, then, unless and until the amount of such Senior Debt then due shall have been paid in full, or provision made therefor or such event of default shall have been cured or waived, or (iii) after the happening of an event of default of the type specified in Section 13.1(c) above, unless and until such event of default shall have been cured or waived or the 180-day period specified in Section 13.1(c) shall have expired, such payment (subject, in each case, to the provisions of Section 13.7) shall he held in trust for the benefit of, and shall be immediately paid over to, the holders of Senior Debt or their representative or representatives or the trustee or trustees under any indenture under which any instruments evidencing any of the Senior Debt may have been issued, as their interests my appear. The Company shall give prompt written notice to the Trustee of any default under any Senior Debt or under any agreement pursuant to which Senior Debt may have been issued. SECTION 13.2 Subrogation. ----------- Subject to the payment in full of all Senior Debt to which the indebtedness evidenced by the Securities is in the circumstances subordinated as provided in Section 13.1, the Holders of the Securities shall be subrogated to the rights of the holders of such Senior Debt to receive payments or distributions of cash, property or securities of the Company applicable to such Senior Debt until all amounts owing on the Securities shall be paid in full, and, as between the Company, its creditors other than holders of such Senior Debt, and the Holders of the Securities, no such payment or distribution made to the holders of Senior Debt by virtue of this Article which otherwise would have been made to the holders of the Securities shall be deemed to be a payment by the Company on account of such Senior Debt, it being understood that the provisions of this Article are and are intended solely for the purpose of 74 defining the relative rights of the Holders of the Securities, on the one hand, and the holders of Senior Debt, on the other hand. SECTION 13.3 Obligation of Company Unconditional. ----------------------------------- Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as between the Company, its creditors other than the holders of Senior Debt, and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of and premium, if any, and interest (including Liquidated Damages, if any) on the Securities as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities and creditors of the Company other than the holders of Senior Debt, nor shall anything herein or therein prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Debt in respect of cash, property or securities of the Company received upon the exercise of any such remedy. SECTION 13.4 Maturity of or Default on Senior Debt. ------------------------------------- Upon the maturity of any Senior Debt by lapse of time, acceleration or otherwise, then all principal of and interest on all such matured Senior Debt shall first be paid in full, or such payment shall have been duly provided for, before any payment on account of principal, or premium, if any, or interest (including Liquidated Damages, if any) is made upon the Securities. SECTION 13.5 Payments on Securities Permitted. -------------------------------- Except as expressly provided in this Article, nothing contained in this Article shall affect the obligation of the Company to make, or prevent the Company from making, payments of the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on the Securities in accordance with the provisions hereof and thereof, or shall prevent the Trustee or any Paying Agent from applying any moneys deposited with it hereunder to the payment of the principal of, or premium, if any, or interest (including Liquidated Damages, if any) on the Securities. SECTION 13.6 Effectuation of Subordination by Trustee. ---------------------------------------- Each Holder of Securities, by such Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which any such dissolution, winding up, liquidation or reorganization proceeding affecting the affairs of the Company is pending or upon a certificate of the trustee in bankruptcy, receiver, assignee for the benefit of creditors, liquidating trustee or agent or other Person making any payment or distribution, delivered to the Trustee or to the Holders of the Securities, for the purpose of ascertaining the Persons 75 entitled to participate in such payment or distribution, and as to other facts pertinent to the right of such Persons under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Persons pending judicial determination as to the right of such Persons to receive such payment. SECTION 13.7 Knowledge of Trustee. -------------------- Notwithstanding the provision of this Article or any other provisions of this Indenture, the Trustee shall not be charged with knowledge of the existence of any Senior Debt, of any default in payment of principal of, premium, if any, or interest on any Senior Debt, or of any facts which would prohibit the making of any payment of moneys to or by the Trustee, or the taking of any other action by the Trustee, unless and until a Responsible Officer of the Trustee having responsibility for the administration of the trust established by this Indenture shall have received written notice thereof from the Company, any Holder of Securities, any Paying or Conversion Agent of the Company or the holder or representative of any class of Senior Debt, and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such default or facts exist; provided, however, that -------- unless on the third Business Day prior to the date upon which by the terms hereof any such moneys may become payable for any purpose the Trustee shall have received the notice provided for in this Section 13.7, then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such moneys and apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such date. SECTION 13.8 Trustee's Relation to Senior Debt. --------------------------------- The Trustee shall be entitled to all the rights set forth in this Article with respect to any Senior Debt at the time held by it, to the same extent as any other holder of Senior Debt and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of or payments to the Trustee under or pursuant to Section 5.7. With respect to the holders of Senior Debt, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and the Trustee shall not be liable to any holder of Senior Debt if it shall pay over or deliver to Holders, the Company or any other Person moneys or assets to which any holder of Senior Debt shall be entitled by virtue of this Article or otherwise. SECTION 13.9 Rights of Holders of Senior Debt Not Impaired. --------------------------------------------- No right of any present or future holder of any Senior Debt to enforce the subordination herein shall at any time or in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. 76 SECTION 13.10 Modification of Terms of Senior Debt. ------------------------------------ Any renewal or extension of the time of payment of any Senior Debt or the exercise by the holders of Senior Debt of any of their rights under any instrument creating or evidencing Senior Debt, including without limitation the waiver of default thereunder, may be made or done all without notice to or assent from the Holders of the Securities or the Trustee. No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liability or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Debt is outstanding or of such Senior Debt, whether or not such release is in accordance with the provisions or any applicable document, shall in any way alter or affect any of the provisions of this Article or of the Securities relating to the subordination thereof. 77 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed all as of the day and year first above written. COMVERSE TECHNOLOGY, INC. By_______________________________________ Name: David Kreinberg Title: Vice President of Finance and Treasurer Attest: By____________________________________ Name: William F. Sorin Title: Secretary THE CHASE MANHATTAN BANK, as Trustee By_______________________________________ Name: Title: Second Vice President 78 EXHIBIT A - FORM OF SECURITY [FORM OF FACE OF SECURITY] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY 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. THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS, AND 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 IN THE FOLLOWING SENTENCE. BY ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT); (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY RESELL OR OTHERWISE TRANSFER THE SECURITY EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH 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) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE), OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO 2(D) ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY EVIDENCED HEREBY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 2(D) ABOVE), THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE 2(C) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE CHASE MANHATTAN BANK, AS TRUSTEE (OR ANY SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY MAY REASONABLY REQUIRE TO CONFIRM A-1 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. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE SECURITY EVIDENCED HEREBY PURSUANT TO CLAUSE 2(D) ABOVE OR THE EXPIRATION OF TWO YEARS FROM THE ORIGINAL ISSUANCE OF THE SECURITY EVIDENCED HEREBY. AS USED HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. COMVERSE TECHNOLOGY, INC. 4-1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005 No. $_ A-2 COMVERSE TECHNOLOGY, INC., a corporation duly organized and existing under the laws of the State of New York (herein called the "Company," which term includes any successor corporation under the Indenture referred to on the reverse hereof), for value received, hereby promises to pay to , or registered assigns, the principal sum of U.S. Dollars on July 1, 2005 and to pay interest (including Liquidated Damages, if any) thereon, from June 30, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semiannually in arrears on January 1 and July 1 in each year (each an "Interest Payment Date"), commencing January 1, 1999, at the rate of 4-1/2% per annum, until the principal hereof is paid or made available for payment. The interest (including Liquidated Damages, if any) so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be December 15 (whether or not a Business Day) next preceding a January 1 Interest Payment Date and June 15 (whether or not a Business Day) next preceding a July 1 Interest Payment Date. Except as otherwise provided in the Indenture, any such interest (including Liquidated Damages, if any) not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. Payments of principal and premium, if any, shall be made upon the surrender of this Security at the option of the Holder at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company as may be designated by it for such purpose in The City of New York, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. Payment of interest (including Liquidated Damages, if any) on this Security may be made by U.S. Dollar check drawn on a bank in The City of New York mailed to the address of the Person entitled thereto as such address shall appear in the Security Register, or upon application by the Holder to the Security Registrar not later than the relevant Record Date, by wire transfer to a U.S. Dollar account (to Holders of an aggregate principal amount in excess of U.S. $5,000,000). Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by the manual signature of an authorized signatory, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Security to be duly executed under its corporate seal. Dated: June 30, 1998 A-3 COMVERSE TECHNOLOGY, INC. [Corporate Seal] By:______________________________________ Attest: __________________________ TRUSTEE'S CERTIFICATE OF AUTHENTICATION --------------------------------------- This is one of the Securities described in the within-named Indenture. THE CHASE MANHATTAN BANK, as Trustee By:__________________________________ Authorized Signatory A-4 REVERSE OF SECURITY COMVERSE TECHNOLOGY, INC. 4-1/2% CONVERTIBLE SUBORDINATED DEBENTURE DUE 2005 This Security is one of a duly authorized issue of Securities of the Company designated as its "4-1/2% Convertible Subordinated Debentures Due 2005" (herein called the "Securities"), limited in aggregate principal amount to U.S. $250,000,000 (subject to increase as provided in the Indenture (as hereinafter defined) of up to an additional $50,000,000 aggregate principal amount), issued and to be issued under an Indenture, dated as of June 30, 1998 (herein called the "Indenture"), between the Company and The Chase Manhattan Bank, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee, the holders of Senior Debt, and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities are issuable in registered form, without coupons, in denominations of U.S. $1,000 and integral multiples thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of any authorized denominations as requested by the Holder surrendering the same upon surrender of the Security or Securities to be exchanged, except as provided below, at the office or agency of the Company in The City of New York, or at such other offices or agencies as the Company may designate. The Securities are subject to redemption any time on or after July 10, 2001, in whole or in part, at the election of the Company, at Redemption Prices (expressed as percentages of the principal amount) set forth below if redeemed during the twelve-month period beginning July 1 of the years indicated (July 10 in the case of 2001) and ending June 30 of the following year: 2001............................101.8% 2002............................100.9% 2003 and thereafter.............100.0% Notice of redemption will be given as provided in the Indenture. Upon the occurrence of a "Designated Event" prior to July 1, 2005, the Holder has the right (the "Repurchase Right"), at such Holder's option, to require the Company to repurchase all or any portion of such Holder's Securities on the repurchase date established by the Company at a price equal to 100% of the principal amount of the Securities, together in each case with accrued interest to, but excluding, the date fixed for redemption; provided that if such repurchase date is January 1 or July 1, then the interest payable on such date shall be paid to the Holder on the next preceding December 15 or June 15, respectively. The Company shall mail to all Holders a notice of the occurrence of a Designated Event, of the repurchase date (which shall be not less than 30 nor more than 60 days after the notice) and of the Repurchase Right arising as a result thereof on or before 30 calendar days after the Company becomes aware of the occurrence of such Designated Event. At the option of the Company, the Repurchase Price may be paid in cash or, subject to the conditions provided in the Indenture, upon a Designated Event which constitutes a "Change in Control," by delivery of A-5 shares of Common Stock having a fair market value equal to the Repurchase Price. For purposes of this paragraph, 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 Quoted Prices of the Common Stock for the five consecutive trading days ending on and including the third trading day immediately preceding the repurchase date. Whenever in this Security there is a reference, in any context, to the principal of any Security as of any time, such reference shall be deemed to include reference to the Repurchase Price payable in respect of such Security to the extent that such Repurchase Price is, was or would be so payable at such time, and express mention of the Repurchase Price in any provision of this Security shall not be construed as excluding the Repurchase Price so payable in those provisions of this Security when such express mention is not made; provided, however, that for the purposes of the eighth succeeding paragraph, - -------- ------- such reference shall be deemed to include reference to the Repurchase Price only if the Repurchase Price is payable in cash. Subject to and upon compliance with the provisions of the Indenture, the Holder of this Security is entitled, at such Holder's option, at any time on or after the 60th day following the latest date of original issuance of the Securities and on or before the close of business on July 1, 2005, or in case this Security or a portion hereof is called for redemption, then in respect of this Security or such portion hereof until and including, but (unless the Company defaults in making the payment due upon redemption) not after, the close of business on the second Business Day preceding the Redemption Date, or in the case of a Designated Event for which the Holder exercises its Repurchase Right with respect to this Security or a portion hereof, then in respect of this Security or such portion hereof, until, but not after, receipt of the written notice of exercise of such Repurchase Right, to convert this Security (or any portion of the principal amount hereof which is U.S. $1,000 or an integral multiple thereof), at the principal amount hereof, or of such portion, into newly issued, fully paid and nonassessable shares of Common Stock of the Company at a Conversion Price equal to U.S. $64.50 aggregate principal amount of Securities for each share of Common Stock (or at the current adjusted Conversion Price if an adjustment has been made as provided in the Indenture), by surrender of this Security, duly endorsed or assigned to the Company or in blank and, in case such surrender shall be made during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date (unless this Security or the portion thereof being converted has been called for redemption on a Redemption Date within such period), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest (including Liquidated Damages, if any) payable on such Interest Payment Date on the principal amount of this Security then being converted, and also the conversion notice hereon duly executed to the Company at the Corporate Trust Office of the Trustee, or at such other office or agency of the Company as may be designated by it for such purpose in The City of New York. No payment or adjustment will be made on conversion of this Security for interest (including Liquidated Damages, if any) accrued hereon to the date of conversion or for dividends on the Common Stock issued on conversion. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest (calculated to the nearest 1/100th of a share) the Company shall pay a cash adjustment as provided in the Indenture. The Conversion Price is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations, mergers or conveyances to which the Company is a party or certain transfers of all or substantially all of the assets of the Company, the Indenture shall be amended, without the consent of any A-6 Holders of Securities, so that this Security, if then outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance or transfer by a holder of the number of shares of Common Stock of the Company into which this Security might have been converted immediately prior to such consolidation, merger, conveyance or transfer (assuming such holder of Common Stock failed to exercise any rights of election, if any, as to the kind or amount of securities, cash or other property receivable upon consolidation, merger, conveyance or transfer and received per share the kind and amount received per share by a plurality of nonelecting shares), assuming further, if such consolidation, merger, conveyance or transfer is consummated before the 60th day following the latest date of original issuance of the Securities, that this Security was convertible at the time of such consolidation, merger, conveyance or transfer at the initial Conversion Price specified above as adjusted from June 30, 1998 to the time of such consolidation, merger, conveyance or transfer pursuant to the Indenture and the Company must ensure that appropriate securities, cash or other property are placed in escrow or otherwise reserved through the 60th day following the latest date of original issuance of the Securities, for the benefit of Holders of Securities upon conversion of such Securities. Adjustments in the Conversion Price of less than one percent of such price will not be required, but any adjustment that would otherwise be required to be made will be carried forward and taken into account in the computation of any subsequent adjustment. In the event of a redemption in part, the Company will not be required (a) to register the transfer of, or exchange, Securities for a period of 15 days immediately preceding the date notice is given identifying the serial numbers of the Securities called for such redemption, or (b) to register the transfer of, or exchange, any such Securities, or portion thereof, called for redemption. In the event of redemption of the Securities or conversion or repurchase of this Security in part only, a new Security or Securities for the unredeemed or unconverted portion thereof will be issued in the name of the Holder hereof. Subject to certain limitations in the Indenture, at any time when the Company is not subject to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934, upon the request of a Holder of a Security, the Company will promptly furnish or cause to be furnished Rule 144A Information (as defined below) to such Holder or to a purchaser of such Security designated by such Holder, as the case may be, in order to permit compliance by such Holder with Rule 144A under the U.S. Securities Act of 1933, as amended (the "Securities Act"). "Rule 144A Information" shall be such information as is specified pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto). The indebtedness evidenced by this Security is, to the extent and in the manner provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all amounts then due on all Senior Debt of the Company, and this Security is issued subject to such provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. A-7 If an Event of Default shall occur and be continuing, the principal of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding (or such lesser amount as shall have acted at a meeting pursuant to the provisions of the Indenture). The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security or such other Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and premium, if any, and interest (including Liquidated Damages, if any) on this Security at the times, places and rate, and in the coin or currency, herein prescribed or to convert this Security (or pay cash in lieu of conversion) as provided in the Indenture. Pursuant to the Registration Rights Agreement, upon the effectiveness of the Shelf Registration Statement, each Holder must notify the Company not later than three Business Days prior to any proposed sale by such Holder of Securities pursuant to the Shelf Registration Statement (a "Sale Notice"), which notice shall be effective for five Business Days. The Company may, upon written notice to such Holder, suspend such Holder's use of the prospectus (which is part of the Shelf Registration Statement) for a reasonable period not to exceed 60 days if the Company in it reasonable judgment believes it may possess material non-public information the disclosure of which would have a material adverse effect on the Company and its subsidiaries taken as a whole. Each Holder of this Security, by accepting the same, agrees to hold any communication by the Company in response to a Sale Notice in confidence. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of Securities is registrable on the Security Register upon surrender of a Security for registration of transfer at the office or agency of the Company in The City of New York or, subject to any laws or regulations applicable thereto and to the right of the Company to terminate the appointment of any such Transfer Agent, at the Corporate Trust Office of the Trustee in The City of New York or at the offices of the Transfer Agents described herein or at such other offices or agencies as the Company may designate, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder thereof or the Holder's attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations A-8 and for the same aggregate principal amount, will be issued to the designated transferee or transferees. 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 recover any tax or other governmental charge payable in connection therewith. The Company, the Trustee and any agent of the Company or the Trustee may treat the person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security may be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. THE INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO SUCH STATE'S CONFLICT OF LAWS PRINCIPLES. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ASSIGNMENT ---------- For value received ____________________ hereby sell(s), assign(s) and transfer(s) unto ____________________ (Please insert social security or Taxpayer Identification Number of assignee) the within Security, and hereby irrevocably constitutes and appoints ___________________________________________________________ attorney to transfer the said Security on the books of the Company, with full power of substitution in the premises. In connection with any transfer of the within Security occurring within two years of the original issuance of such Security (unless such Security is being transferred pursuant to a registration statement that has been declared effective under the Securities Act), the undersigned confirms that such Security is being transferred: / / To the Company or a subsidiary thereof; or / / Pursuant to and in compliance with Rule 144A under the Securities Act of 1933, as amended; or / / Pursuant to and in compliance with Rule 144 under 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. A-9 Dated: Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Securities to be delivered, other than to and in the name of the required holder. Signature Guarantee NOTICE: The signature must correspond with the name as written upon the face of the Security in every particular without alternation or enlargement or any change whatever. A-10 [FORM OF CONVERSION NOTICE] CONVERSION NOTICE TO: COMVERSE TECHNOLOGY, INC. The undersigned registered owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion hereof (which is $1,000 principal amount or an integral multiple thereof) below designated, into shares of Common Stock in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon such conversion, together with any check in payment for fractional shares and any Securities representing any unconverted principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If shares or any portion of this Security not converted are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid to the undersigned on account of interest (including Liquidated Damages, if any) accompanies this Security. Dated: Signature(s) Signature(s) must be guaranteed by an eligible Guarantor Institution (banks, stock brokers, savings and loan associations and credit unions) with membership in an approved signature guarantee medallion program pursuant to Securities and Exchange Commission Rule 17Ad-15 if shares of Common Stock are to be issued, or Securities to be delivered, other than to and in the name of the required holder. Signature Guarantee NOTICE: The signature must correspond with the name as written upon the face of the Security in every particular without alternation or enlargement or any change whatever. A-11 Fill in for registration of shares if to be issued, and Securities if to be delivered, other than to and in the name of the registered holder: (Name) (Street Address) (City, State and Zip Code) Please print name and address Principal amount to be converted (if less than all): $_______,000 Social Security or Other Taxpayer Identification Number A-12 [FORM OF OPTION TO ELECT REPAYMENT UPON A DESIGNATED EVENT] TO: COMVERSE TECHNOLOGY, INC. The undersigned registered owner of this Security hereby acknowledges receipt of a notice from Comverse Technology, Inc. (the "Company") as to the occurrence of a Designated Event with respect to the Company and requests and instructs the Company to repay the entire principal amount of this Security, or the portion thereof (which is $1,000 principal amount or an integral multiple thereof) below designated, in accordance with the terms of the Indenture referred to in this Security, together with accrued interest (including Liquidated Damages, if any) to, but excluding, such date, to the registered holder hereof, in cash or, at the Company's election upon a Designated Event which constitutes a Change in Control and subject to certain conditions contained in the Indenture, in Common Stock. Dated:______________________ ______________________________ Signature(s) Social Security or Other Taxpayer Identification Number Principal amount to be repaid (if less than all): $_______,000 NOTICE: The above signatures of the holder(s) hereof must correspond with the name as written upon the face of the Security in every particular without alternation or enlargement or any change whatever. A-13 EXHIBIT B --------- FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER FROM GLOBAL SECURITY TO SECURITY IN CERTIFICATED FORM OR FROM CERTIFICATED FORM TO CERTIFICATED FORM (Pursuant to Section 2.5(b)(3), (5) or (8) of the Indenture) The Chase Manhattan Bank 450 West 33rd Street, 15th Floor New York, New York 10001 Attention: (Comverse Technology, Inc. 4-1/2% Convertible Subordinated Securities due 2005) Dear Ladies and Gentlemen: Reference is hereby made to the Indenture, dated as of June 30, 1998 (the "Indenture"), between Comverse Technology, Inc., as issuer (the "Company") and The Chase Manhattan Bank, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. This letter relates to U.S. $____________________ principal amount of securities which are evidenced by one or more Global Securities and held with the Depositary through the Depository Trust Company (the "Securities") in the name of ______________________________ (the "Transferor"). The Transferor has requested a transfer of such beneficial interest in the Securities to a Person who will take delivery thereof in the form of an equal principal amount of Securities evidenced by one or more Securities in certificated form, to be held with the Depositary. In connection with such request and in respect of such Securities, the Transferor hereby certifies that: [CHECK ONE] [_] such transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the Securities are being transferred to a Person that the Transferor reasonably believes is purchasing the Securities for its own account, or for one or more accounts with respect to which such person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A; or B-1 [_] such transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or [_] such transfer is being effected pursuant to an effective registration statement under the Securities Act; or [_] such transfer is being effected pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A or Rule 144, and the Transferor hereby further certifies that the Securities are being transferred in compliance with the transfer restrictions applicable to the Securities and in accordance with the requirements of the exemption claimed, which certification is supported by such legal opinions or other information provided by the Transferor or the transferee (a copy of which the Transferor has attached to this certification) in form reasonably acceptable to the Company, to the effect that such transfer is in compliance with the Securities Act; and such Securities are being transferred in compliance with any applicable blue sky securities laws of any state of the United States. Upon giving effect to this request (i) to exchange a beneficial interest in Global Securities for a beneficial interest in Securities in certificated form or (ii) to exchange a beneficial interest in Securities in certificated form for a beneficial interest in Securities in certificated form, the resulting beneficial interest shall be subject to the restrictions on transfer applicable to Global Securities pursuant to the Indenture and the Securities Act. B-2 This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Initial Purchaser, and you and each of them is entitled to rely on the contents of this certificate. Terms used in this certificate and not otherwise defined in the Indenture have the meanings set forth in Regulation S under the Securities Act. [Insert Name of Transferor] By: Name: Title: Dated: , ____ B-3 EX-10.1 3 PURCHASE AGREEMENT Exhibit 10.1 COMVERSE TECHNOLOGY, INC. 4-1/2% Convertible Subordinated Debentures due 2005 PURCHASE AGREEMENT ------------------ June 25, 1998 LEHMAN BROTHERS INC. 3 World Financial Center New York, New York 10285 Ladies and Gentlemen: Comverse Technology, Inc., a New York corporation (the "Company"), proposes to offer and sell to Lehman Brothers Inc. (the "Initial Purchaser") $250,000,000 principal amount of the Company's 4-1/2% Convertible Subordinated Debentures due 2005 (the "Firm Offered Securities") to be issued pursuant to the provisions of an Indenture to be dated as of June 30, 1998 (the "Indenture") between the Company and The Chase Manhattan Bank, as trustee (the "Trustee"). In addition, the Company proposes to grant to the Initial Purchaser an option to purchase up to an additional $50,000,000 principal amount of its 4-1/2% Convertible Subordinated Debentures due 2005 (the "Additional Offered Securities") on the terms and for the purposes set forth in Section 2(b) hereof. The Firm Offered Securities and any Additional Offered Securities purchased pursuant to this Agreement are herein called the "Offered Securities". The Offered Securities will be convertible into shares (the "Conversion Shares") of common stock, par value $.10 per share, of the Company (the "Common Stock"). It is understood that the Initial Purchaser will resell the Offered Securities only inside the United States to qualified institutional buyers (each, a "Qualified Institutional Buyer") in reliance on Rule 144A under the U.S. Securities Act of 1933, as amended (the "Securities Act"). 1. Representations, Warranties and Agreements of the Company. The --------------------------------------------------------- Company represents and warrants to the Initial Purchaser that: (a) The Company has prepared an Offering Memorandum dated the date hereof (the "Offering Memorandum") relating to the Offered Securities. Copies of the Offering Memorandum have been delivered by the Company to the Initial Purchaser and the Company authorizes the Initial Purchaser to distribute copies thereof in connection with the offering and resale of the Offered Securities as provided herein. Documents filed by the Company under the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), on or prior to the date of the Offering Memorandum and any documents filed by the Company under the Exchange Act after the date of the Offering Memorandum, in each case that are incorporated or deemed incorporated by reference in the Offering Memorandum, when they were or are filed with the U.S. Securities and Exchange Commission (the "Commission"), conformed or will conform, as the case may be, as to form in all material respects to the applicable requirements of the Exchange Act and the applicable rules and regulations of the Commission thereunder. The Offering Memorandum does not and will not prior to the completion of the distribution of the Offered Securities contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that the Company makes -------- no representation or warranty as to information contained in or omitted from the Offering Memorandum in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Initial Purchaser specifically for inclusion therein. For purposes of this Agreement, "Rules and Regulations" means the rules and regulations of the Commission under the Securities Act and the Exchange Act, as the context requires. Reference made herein to the Offering Memorandum shall be deemed to refer to and include any documents incorporated by reference therein as of the date of the Offering Memorandum and any reference to any amendment or supplement to the Offering Memorandum shall be deemed to refer to and include any documents filed under the Exchange Act after the date of the Offering Memorandum, as amended by subsequently dated documents, and incorporated by reference in the Offering Memorandum. (b) The Company and each of its Subsidiaries (as such term is defined in Rule 405 under the Securities Act) have been duly incorporated and are validly existing as corporations in good standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their business requires such qualification (except for where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole) and have all power and authority necessary to own or hold their respective properties and to conduct the business in which they are engaged; and none of the Subsidiaries of the Company (other than Efrat Future Technology Ltd. and Comverse Network Systems, Inc.) is a "significant subsidiary" (as such term is defined in Rule 405 under the Securities Act). (c) The Company has an authorized capitalization as set forth in the Offering Memorandum; all the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non- assessable and conform to the description thereof contained in the Offering Memorandum; all the shares of capital stock of each Subsidiary of the Company, owned by the Company, directly or indirectly, have been duly and validly authorized and issued and are fully paid and non-assessable and owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims except as described in the Offering Memorandum; the Conversion Shares have been duly authorized and validly reserved for issuance upon conversion of the Offered Securities and are free of preemptive rights, and all Conversion Shares, when so issued and delivered upon such conversion in accordance with the terms of the Indenture, will be duly and validly authorized and issued, fully paid and non-assessable 2 and free and clear of all liens, encumbrances, equities or claims. (d) The Offered Securities have been duly authorized by the Company and, when executed, authenticated and delivered in accordance with this Agreement and the Indenture, will be valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms, except (i) as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting rights of creditors and other obligees generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing, and will be entitled to the benefits of the Indenture. (e) The Company has full right, power and authority to execute and deliver this Agreement and the Registration Rights Agreement between the Company and the Initial Purchaser (the "Registration Rights Agreement") and perform its obligations hereunder and thereunder; and each of this Agreement and the Registration Rights Agreement has been duly authorized, executed and delivered by the Company and (assuming the due execution and delivery thereof by the Initial Purchaser) constitutes a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, except as the enforceability hereof and thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting rights of creditors' and other obligees generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing, and except, further, as enforceability of the indemnification and contribution provisions hereof and thereof may be limited by considerations of public policy. (f) The Company has full right, power and authority to execute and deliver the Indenture and perform its obligations thereunder; the Indenture has been duly authorized and, when duly executed and delivered by the Company (assuming the due execution and delivery thereof by the Trustee), will constitute a valid and legally binding agreement of the Company enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting rights of creditors and other obligees generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing. The Offered Securities and the Indenture conform in all material respects to the respective statements relating thereto contained in the Offering Memorandum. (g) The execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Indenture and the issuance of the Offered Securities and the Conversion Shares and the consummation of the transactions contemplated hereby and thereby will not conflict with, or result in a breach or violation of any of the terms or provisions of, or (including with the giving of notice or the lapse of time or both) constitute a default under, any indenture, mortgage, deed of trust, loan 3 agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the properties or assets of the Company or any of its Subsidiaries is subject which would, individually or in the aggregate, have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole, nor will such actions result in any violation of the provisions of the charter, by-laws or other constitutive documents of the Company or any of its Subsidiaries or any statute or any order, rule 7or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its Subsidiaries or any of their properties or assets; and no consent, approval, authorization or order of, or filing or registration with, any court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Indenture and the issuance of the Offered Securities and the Conversion Shares and the consummation of the transactions contemplated hereby and thereby except as may be required by the securities or "blue sky" laws of any state of the United States in connection with the sale of the Offered Securities and except as contemplated by the Registration Rights Agreement. (h) Except for the Company's 5-3/4% Convertible Subordinated Debentures due 2006 and as otherwise described or referred to in the Offering Memorandum, there are no outstanding warrants or options issued by the Company to purchase any shares of the capital stock of the Company or any security convertible into or exchangeable for capital stock of the Company except for stock options issued to employees of the Company and its Subsidiaries pursuant to the Company's stock option plans and stock purchase plans, and there are no preemptive or other rights to subscribe for or to purchase from the Company, and no restrictions upon the voting or transfer of, any shares of Common Stock pursuant to the Company's charter, by-laws or other constitutive documents or any agreement or other instrument to which the Company is a party or by which it is bound, and no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in any securities being registered pursuant to any registration statement filed by the Company under the Securities Act. (i) Neither the Company nor any of its Subsidiaries has sustained, since the date of the latest audited consolidated financial statements included or incorporated by reference in the Offering Memorandum, any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not actually covered by insurance, or any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Memorandum; and, since the respective dates as of which information is given in the Offering Memorandum, there has not been any change in the capital stock (except pursuant to the exercise of outstanding options or warrants or the conversion of the Company's 5-3/4% Subordinated Debentures due 2006) or long-term debt of the Company (other than scheduled redemptions or payments) or any material adverse change, or, to the best of the Company's knowledge, any development involving a prospective material adverse change, in or affecting the business, properties, financial condition, results of operations or prospects of the 4 Company and its Subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Offering Memorandum. (j) The consolidated financial statements included or incorporated by reference in the Offering Memorandum present fairly, in all material respects, the financial condition and results of operations of the Company and its Subsidiaries at the dates and for the periods indicated, and have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") applied on a consistent basis throughout the periods involved, except, with respect to interim financial statements, for omissions permissible under the Rules and Regulations under the Exchange Act applicable to a Quarterly Report on Form 10-Q. (k) Deloitte & Touche LLP, whose reports are included or incorporated by reference in the Offering Memorandum, are independent public accountants within the meaning of the Securities Act and the Exchange Act and the Rules and Regulations. (l) The Company and each of its Subsidiaries own or possess adequate and enforceable rights to use all material licenses, patents, patent applications, trademarks, trademark applications, service marks, service mark applications, copyrights, copyright applications, tradenames, know-how (including trade secrets and other unpatented or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "Intangibles") necessary for the conduct of their respective businesses as now being conducted and as described in the Offering Memorandum. Except as described in the Offering Memorandum, neither the Company nor any Subsidiary infringes or is in conflict with, any rights of others with respect to any Intangibles which, individually or in the aggregate, which is reasonably likely to have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole. (m) Except as described in the Offering Memorandum, there are no legal or governmental proceedings pending to which the Company or any of its Subsidiaries is a party or of which any property of the Company or any of its Subsidiaries is the subject which is reasonably likely to have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole; and to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or any other party. (n) No labor disturbance by the employees of the Company or any of its Subsidiaries exists or, to the best knowledge of the Company, is imminent which is reasonably likely to have, individually or in the aggregate, a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole. (o) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the regulations and published interpretations thereunder, and no "reportable event" (as defined in ERISA and the regulations and published interpretations thereunder) has occurred with respect to any "plan" (as defined in ERISA and the 5 regulations and published interpretations thereunder) of the Company, and the Company has not incurred and does not expect to incur liability under Title IV of ERISA which is reasonably likely to have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole. In addition, the execution and delivery of this Agreement, the Registration Rights Agreement and the Indenture, and the consummation of the transactions contemplated hereby and thereby, will not involve a "prohibited transaction" within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986, as amended. (p) The Company and its Subsidiaries have duly filed with the appropriate taxing authorities all income and franchise Tax Returns and all other Tax Returns involving the payment of more than nominal amounts, required to be filed by any of them, except as the date of the filing thereof has been duly extended and such extension is in effect; and such Tax Returns are each true, correct and complete, in all material respects; and, except as adequate reserves have been made in the Company's financial statements included or incorporated by reference in the Offering Memorandum, the Company and its Subsidiaries have paid all taxes due prior to the date hereof; and there is no tax deficiency that has been asserted against the Company or any Subsidiary that would materially adversely affect the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole (other than items for which adequate reserve has been made in the Company's financial statements). The term "Tax Returns" means any report, return, application or other information supplied by the Company or any of its subsidiaries to a taxing authority in the United States, Israel or elsewhere. (q) Since the date as of which information is given in the Offering Memorandum through the date hereof, and except as may otherwise be disclosed in the Offering Memorandum, neither the Company nor any of its Subsidiaries has (i) issued or granted any securities (except for stock options and stock purchase plans issued to employees pursuant to the Company's existing stock option plans and issuances of Common Stock pursuant to outstanding options and warrants), (ii) incurred any material liability or obligation, direct or contingent, other than liabilities and obligations that were incurred in the ordinary course of business, (iii) entered into any material transaction not in the ordinary course of business or (iv) declared or paid any dividend on its capital stock. (r) The books, records and accounts of the Company and its Subsidiaries accurately and fairly reflect, in reasonable detail and in all material respects, the transactions in and dispositions of the assets of, and the results of operations of, the Company and its Subsidiaries. The system of internal accounting controls maintained by the Company and its Subsidiaries is sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary (A) to permit preparation of financial statements in accordance with U.S. GAAP and generally accepted accounting principles in Israel as applicable, and (B) to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the 6 existing assets at reasonable intervals and appropriate action is taken with respect to any difference. (s) To the best knowledge of the Company, the Company and its Subsidiaries are in compliance with all applicable existing federal, state, local and foreign laws and regulations (collectively, "Environmental Laws") ------------------ relating to protection of human health or the environment or imposing liability or standards of conduct concerning any Hazardous Material (as defined below), except for such instances of noncompliance that, either individually or in the aggregate, would not have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company or its Subsidiaries taken as a whole. The term "Hazardous Material" means (i) any "hazardous substance" as defined by the ------------------- Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (iii) any petroleum or petroleum product, (iv) any polychlorinated biphenyl and (v) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance regulated under or within the meaning of any other Environmental Law. To the best knowledge of the Company, there is no alleged or potential liability (including, without limitation, alleged or potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) of the Company or any of its subsidiaries arising out of, based on, or resulting from (A) the presence or release into the environment of any Hazardous Material at any location currently owned by the Company or any of its subsidiaries or at any location currently used or leased by the Company or any of its subsidiaries, or (B) any violation or alleged violation of any Environmental Law, except, in each case, alleged or potential liabilities that, singly or in the aggregate, would not have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company or its Subsidiaries taken as a whole. (t) Except as, individually or in the aggregate, would not have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company or its Subsidiaries taken as a whole, (i) the Company and its Subsidiaries, have (A) such permits, licenses, franchises and authorizations of governmental or regulatory authorities (federal, foreign, state or local) ("Permits") as are necessary ------- to own, lease and operate their properties and to conduct their businesses as presently conducted, and (B) fulfilled and performed all of their material obligations with respect to the Permits, and (ii) no event has occurred that would allow, or after notice or lapse of time would allow, revocation or termination of any Permit or that would result in any other material impairment of the rights granted to the Company or any of its subsidiaries under any Permit, and the Company has no reason to believe that any governmental body or agency is considering limiting, suspending or revoking any Permit. (u) The Company and its subsidiaries maintain adequate insurance for their business and the value of their properties as is customary for the industry, and all such insurance is outstanding and in force as of the date hereof. (v) None of the Company or any of its Subsidiaries (i) is in violation of its charter, by-laws or other constitutive documents, (ii) is in default in any material respect, 7 and no event has occurred that, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any agreement, indenture or instrument, or (iii) is in violation in any respect of any law, ordinance, governmental rule, regulation or court decree to which it or its property may be subject or has failed to obtain any Permit necessary to the ownership of its property or to the conduct of its business, except for any violation, default or failure that would not reasonably be expected to have, singularly or in the aggregate with all such violations or failures, a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole. (w) None of the Company or any of its Subsidiaries, or any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its Subsidiaries, has used any corporate funds of the Company or any of its Subsidiaries for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (x) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities are, or, as of the date of issuance of the Offered Securities, will be, listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted in an automated inter-dealer quotation system. (y) No registration of the Offered Securities or the Conversion Shares under the Securities Act and no qualification of an indenture under the U.S. Trust Indenture Act of 1939, as amended, is required in connection with the offer, sale and delivery of the Offered Securities or in connection with the conversion of the Offered Securities into Conversion Shares, in each case, in the manner contemplated by the Offering Memorandum, this Agreement and the Indenture. (z) The Company is not an "investment company," or an entity "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"). (aa) The Company and each of its Subsidiaries which owns any facility which was granted an "approved enterprise" status under Israeli law is in material compliance with all conditions and requirements stipulated by the documents of approval granted to it and by Israeli laws and regulations relating to such approved enterprise status. All information supplied by the Company or any such Subsidiary with respect to such applications is true, correct and complete in all material respects. (ab) The Company understands that the Initial Purchaser and, for purposes of the opinions to be delivered to the Initial Purchaser pursuant hereto, counsel to the Company and counsel to the Initial Purchaser will rely upon the accuracy and truth as to factual matters of the foregoing representations and the Company hereby consents to such 8 reliance. 2. Purchase, Sale and Delivery of the Offered Securities. (a) On ----------------------------------------------------- the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Initial Purchaser, and the Initial Purchaser agrees to purchase from the Company, at a purchase price of 97.75% of the principal amount thereof plus accrued interest, if any, from June 30, 1998 to the Firm Closing Date (as hereinafter defined), $250,000,000 principal amount of Firm Offered Securities. (b) The Company hereby grants to the Initial Purchaser an option to purchase from the Company, solely for the purpose of covering over-allotments in the sale of Firm Offered Securities, all or any portion of the Additional Offered Securities. The option granted hereunder may be exercised at any time within thirty (30) days from the date hereof at a purchase price of 97.75% of the principal amount thereof plus accrued interest, if any, from June 30, 1998 to the Option Closing Date (as hereinafter defined). (c) Payment for the Firm Offered Securities shall be made against delivery of the Firm Offered Securities at a closing to be held at the offices of Weil, Gotshal & Manges LLP at 10:00 A.M., local time, on June 30, 1998, or at such other time on the same or such other date, as shall be determined by the Initial Purchaser and the Company. The time and date of such payment are herein referred to as the Firm Closing Date. (d) Payment for any Additional Offered Securities shall be made against delivery of the Additional Offered securities at a closing to be held at the offices of Weil, Gotshal & Manges LLP at 10:00 A.M., local time, on such date (which may be the same as the Closing Date but shall in no event be earlier than either the Closing Date or the second business day after the date on which the option shall have been exercised nor later than five business days after the giving of the notice hereinafter referred to) as shall be designated in a written notice from the Initial Purchaser to the Company of its determination to purchase an aggregate principal amount, specified in said notice, of Additional Offered Securities. The time and date of such payment are hereinafter referred to as the Option Closing Date. The Firm Closing Date and the Option Closing Date are herein individually referred to as the "Closing Date" and collectively referred to as the "Closing Dates". (e) On each Closing Date, payment for the Firm Offered Securities and Additional Offered Securities shall be made by certified or official bank check or checks, or by wire transfer, payable to the order of the Company, in Federal (same day) funds. On each Closing Date, payment will be made against delivery of one or more global debentures in registered form to be deposited with, on behalf of, The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee for DTC, in such denominations and registered in such names as the Initial Purchaser shall request. Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition to the obligation of the Initial Purchaser hereunder. With respect to each Closing Date, the Company shall make available the certificates representing the Offered Securities to be resold for inspection by the Initial Purchaser in New York, New York not later than 2:00 p.m., New York City time, on the business day prior to such Closing Date. 3. Representations, Warranties and Agreements of the Initial --------------------------------------------------------- Purchaser. - --------- 9 (a) The Initial Purchaser represents and warrants that it is a Qualified Institutional Buyer and that it will offer the Offered Securities for resale only upon the terms and conditions set forth in this Agreement and in the Offering Memorandum. (b) The Initial Purchaser acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the benefit of, U.S. persons except pursuant to an exemption from the registration requirements of the Securities Act. The Initial Purchaser represents, warrants and agrees that it has only offered the Offered Securities, and will only offer and sell the Offered Securities inside the United States to persons whom the Initial Purchaser reasonably believes to be Qualified Institutional Buyers. (c) The Initial Purchaser represents, warrants and agrees that it has not and will not solicit offers for, or offer or sell the Offered Securities purchased from the Company hereunder by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Securities Act), including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. The Initial Purchaser agrees, with respect to resales made in reliance on Rule 144A, other than through the Private Offerings Resales and Trading through Automated Linkages ("PORTAL") market, of any of the Offered Securities purchased from the Company hereunder, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A. (d) The Initial Purchaser understands that the Company and, for purposes of the opinions to be delivered to the Initial Purchaser pursuant hereto, counsel to the Company and counsel to the Initial Purchaser will rely upon the accuracy of the foregoing representations and the Initial Purchaser hereby consent to such reliance. 4. Certain Agreements of the Company. --------------------------------- (a) The Company agrees with the Initial Purchaser that: (i) The Company will advise the Initial Purchaser promptly of any proposed amendment or supplement to the Offering Memorandum and will not effect such amendment or supplement without the Initial Purchaser's consent, which consent shall not be unreasonably withheld. If at any time prior to the completion of the resale of the Offered Securities by the Initial Purchaser, any event occurs as a result of which the Offering Memorandum as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at such time to amend or supplement the Offering Memorandum to comply with any applicable law, the Company promptly will notify the Initial Purchaser of such event and promptly prepare an amendment or supplement which will correct such statement or omission or effect such compliance. Neither the Initial 10 Purchaser's consent to, nor the Initial Purchaser's delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 5 hereof. (ii) The Company will furnish to the Initial Purchaser copies of the Offering Memorandum and all amendments and supplements thereto, in each case as soon as available and in such quantities as it may reasonably request. (iii) During the period of two years after the Closing Date, the Company will, upon request, furnish to the Initial Purchaser and any holder of Offered Securities a copy of the restrictions on transfer applicable to such Offered Securities. (iv) The Company will not resell any Offered Securities which have been acquired by it during the period of two years after the Closing Date and which constitute "restricted securities" under Rule 144, otherwise than pursuant to an effective registration statement under the Securities Act. (v) During the period of two years after the Closing Date, the Company will not be or become an "investment company" within the meaning of, nor be or become subject to regulation under, the Investment Company Act. (vi) During the period beginning on the date hereof and continuing through the date which is 90 days after the date hereof, without the prior written consent of the Initial Purchaser, the Company will not offer, sell, contract to sell or otherwise dispose of, any shares of capital stock or securities convertible into or exchangeable for shares of capital stock or warrants or other rights to purchase capital stock, except (i) Common Stock pursuant to options or warrants outstanding on the date hereof or upon conversion of the Company's 5-3/4% Convertible Subordinated Debentures due 2006, (ii) stock options pursuant to employee benefit plans, stock purchase plans, stock option plans or other employee compensation plans existing on the date hereof maintained for the officers, directors or employees of the Company, (iii) Common Stock or other securities constituting all or part of the consideration for the acquisition of any property or business by the Company or any of its Subsidiaries, (iv) the Offered Securities and (v) the Conversion Shares. (vii) The Company will reserve and keep available at all times, free of preemptive rights, the full number of Conversion Shares issuable upon conversion of the Offered Securities. (viii) The Company will use all reasonable efforts to effect, prior to the time the Offered Securities may be converted, the designation or listing subject to notice of issuance, of the Conversion Shares issuable upon such conversion on the Nasdaq National Market or on such market or exchange on which the Common Stock is then quoted or listed. (ix) The Company will use all reasonable efforts to arrange for qualification of the Offered Securities for sale under the laws of such jurisdictions as the Initial Purchaser may reasonably designate and to maintain such qualifications in effect so long as reasonably required for the distribution of the Offered Securities; provided, -------- 11 however, that the Company will not be obligated to qualify to do business ------- as a foreign corporation in any state in which it is not so qualified or to file a general consent to service of process in any jurisdiction. (x) The Company agrees to pay (A) the fees and expenses of its counsel and accountants and the Trustee and any transfer agents, conversion agents and paying agents; (B) costs associated with the packaging and initial delivery of the certificates evidencing the Offered Securities and the preparation and printing of the certificates evidencing the Offered Securities, this Agreement, the Indenture, the Registration Rights Agreement, the Offering Memorandum and any information provided by the Company pursuant to Section 4(a)(ii) and (xi) hereof and any other document relating to the issuance of the Offered Securities; (C) the cost of obtaining approval for the trading of the Offered Securities through the PORTAL market and the designation or listing of the Common Stock issuable upon the conversion of the Offered Securities on the Nasdaq National Market or on such market or exchange on which the Common Stock is then quoted or listed; (D) all fees and expenses of DTC; (E) the costs of qualifying the Offered Securities for offering and sale under any state securities or blue sky laws, including reasonable legal fees and expenses of counsel for the Initial Purchaser in connection therewith; (F) the cost of having the Offered Securities rated by any rating agency; and (G) all other costs, fees and expenses incident to the performance of its obligations hereunder which are not specifically provided for above. (xi) So long as any of the Offered Securities are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, the Company will, during any period in which it is not subject to and in compliance with Section 13 or 15(d) of the Exchange Act, provide to each holder of such restricted securities and to each prospective purchaser (as designated by such holder) upon request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Securities Act. This covenant is intended to be for the benefit of the holders, and the prospective purchasers designated by such holders, from time to time of such restricted securities. (xii) The Company will use all reasonable efforts to cause the Offered Securities to be eligible for the PORTAL trading system of the National Association of Securities Dealers, Inc. and to cause the Offered Securities to be eligible for clearance and settlement through the facilities of DTC. (xiii) For a period of five years following the Closing date, the Company shall furnish to the Initial Purchaser copies of any annual reports, quarterly reports and current reports filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar forms as may be designated by the Commission, and such other documents, reports and information as shall be furnished by the Company to the Trustee or to the holders of the Offered Securities pursuant to the Indenture. (xiv) If the sale of Offered Securities is not consummated hereunder for any reason other than the occurrence of an event referred to in Section 5(h) hereof or a default by the Initial Purchaser in the performance of its obligations under this Agreement, the Company will reimburse the Initial Purchaser upon demand for all 12 reasonable out-of-pocket expenses (including the reasonable fees and disbursements of counsel to the Initial Purchaser) that shall have been incurred by it in connection with the proposed purchase and issue of the Offered Securities. 5. Conditions of the Obligations of the Initial Purchaser. The ------------------------------------------------------ obligations of the Initial Purchaser to purchase and pay for the Firm Offered Securities on the Firm Closing Date and the Additional Offered Securities on the Option Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company when made and as of such respective dates, to the accuracy of the statements of officers of the Company made in certificates delivered pursuant to the provisions hereof, to the performance by the Company of its respective obligations hereunder and to the following additional conditions precedent: (a) No Initial Purchaser shall have been advised by the Company or shall have discovered and disclosed to the Company that the Offering Memorandum or any amendment or supplement thereto, contains an untrue statement of fact which, in the opinion of counsel for the Initial Purchaser, is material, or omits to state a fact which, in the opinion of counsel for the Initial Purchaser, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (b) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Indenture, the Registration Rights Agreement, the Offered Securities and the Offering Memorandum, and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all respects to counsel for the Initial Purchaser. (c) On each Closing Date there shall have been furnished to you the opinion (addressed to the Initial Purchaser) of Kramer, Levin, Naftalis & Frankel, special counsel for the Company, dated such Closing Date and in form and substance reasonably satisfactory to counsel for the Initial Purchaser, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of New York and has all corporate power and authority necessary to own or hold its properties and to conduct the business in which it is engaged; (ii) The Company has an authorized capitalization as set forth in the Offering Memorandum; all the issued shares of capital stock of the Company conform in all material respects to the description thereof contained in the Offering Memorandum; (iii) The Conversion Shares have been duly authorized and validly reserved for issuance upon conversion of the Offered Securities and are free of preemptive rights; and all Conversion Shares, when so issued and delivered upon such conversion in accordance with the terms of the Indenture, will be duly and validly authorized and issued, fully paid and non-assessable; (iv) The statements in the Offering Memorandum under the captions "Description of Debentures", "Description of Capital Stock" and "Transfer 13 Restrictions" insofar as they purport to summarize the provisions of the Indenture, the Offered Securities and the Common Stock (including the Conversion Shares) are accurate and complete in all material respects; (v) There are no preemptive or other rights to subscribe for or to purchase from the Company, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's charter or by-laws; (vi) This Agreement has been duly authorized, executed and delivered by the Company; (vii) Each of the Indenture and the Registration Rights Agreement has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the other parties thereto, constitutes the valid and legally binding agreement of the Company. The Indenture is enforceable against the Company in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting rights of creditors and other obligees generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing; (viii) The Offered Securities have been duly authorized by the Company and, when executed, authenticated and delivered in accordance with this Agreement and the Indenture, will be valid and legally binding obligations of the Company enforceable against the Company in accordance with their terms, except in all cases as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting rights of creditors and other obligees generally, by general equitable principles (regardless of whether such enforceability is considered in a proceeding in equity or at law) or by an implied covenant of good faith and fair dealing, and will be entitled to the benefits of the Indenture; (ix) The execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Indenture and the issuance of the Offered Securities and the Conversion Shares and the consummation of the transactions contemplated hereby and thereby do not result in any violation of the provisions of the charter or by-laws of the Company; and no consent, approval, authorization or order of, or filing or registration with, any U.S. court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Indenture and the issuance of the Offered Securities and the Conversion Shares and the consummation of the transactions contemplated hereby and thereby except as may be required by the securities or "blue sky" laws of any state of the United States in connection with the sale of the Offered Securities and except as contemplated by the Registration Rights Agreement. (x) The statements in the Offering Memorandum under the caption "Certain Federal Income Tax Considerations" as to matters of U.S. tax law and 14 regulation are confirmed in all material respects; (xi) No registration of the Offered Securities or the Conversion Shares under the Securities Act and no qualification of the Indenture or an indenture under the U.S. Trust Indenture Act of 1939, as amended, is required in connection with the offer, sale and delivery of the Offered Securities or in connection with the conversion of the Offered Securities into Conversion Shares, in each case, in the manner contemplated by the Offering Memorandum, this Agreement and the Indenture; (xii) The Company is not an "investment company," or an entity "controlled" by "investment company," within the meaning of the Investment Company Act; and (xiii) The Offered Securities satisfy the eligibility requirements of Rule 144A(d)(3) under the Securities Act. Such counsel shall also deliver a statement (addressed to the Initial Purchaser) to the effect that no facts have come to the attention of such counsel that have led it to believe that the Offering Memorandum (other than the financial statements and the financial data included therein, as to which such counsel need express no opinion or belief), as of its date, and at the applicable Closing Date, contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing opinion and statement may each be qualified by a statement to the effect that such counsel does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum except for statements of United States law or legal conclusions with respect thereto made in the Offering Memorandum under the captions "Description of Debentures," "Description of Capital Stock" and "Certain Federal Income Tax Consequences" insofar as such statements relate to the Offered Securities or the Common Stock. In rendering such opinion, such counsel may rely as to matters involving the application of laws other than the laws of New York and federal laws of the United States, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the counsel for the Initial Purchaser) of other counsel reasonably acceptable to the counsel for the Initial Purchaser familiar with the applicable laws and admitted to practice in the applicable jurisdiction. In rendering such opinion, such counsel for the Company shall have no reason to believe that it is not justified in relying on the opinion of any such other counsel. Such counsel may also rely as to matters of fact upon certificates of officers and other representatives of the Company and public officials. (d) On each Closing Date, there shall have been furnished to you the opinion (addressed to the Initial Purchaser) of William F. Sorin, Esq., General Counsel of the Company, dated such Closing Date, in form and substance reasonably satisfactory to counsel for the Initial Purchaser to the effect that: (i) Each of the Company and its Subsidiaries that are organized under the laws of the United States or any state thereof (the "U.S. Subsidiaries") has been duly incorporated and is validly existing as a corporation in good 15 standing under the laws of their respective jurisdictions of incorporation, are duly qualified to do business and are in good standing as foreign corporations in each jurisdiction in which their respective ownership or lease of property or the conduct of their business requires such qualification (except for where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole) and have all corporate power and authority necessary to own or hold their respective properties and to conduct the business in which they are engaged; (ii) Except as set forth in the Offering Memorandum, to the best knowledge of such counsel, there are no outstanding warrants or options issued by the Company or any of its Subsidiaries to purchase any shares of the capital stock of the Company or its Subsidiaries or any security convertible into or exchangeable for capital stock of the Company or its Subsidiaries and there are no preemptive or other rights to subscribe for or to purchase from the Company, or any restriction upon the voting or transfer of, any shares of Common Stock pursuant to the Company's charter or by-laws or other constitutive documents or any agreement or other instrument known to such counsel to which the Company is a party or by which it is bound; (iii) All the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non- assessable and conform to the description thereof contained in the Offering Memorandum; except as described in the Offering Memorandum, all the issued shares of capital stock of each U.S. Subsidiary of the Company have been duly and validly authorized and issued and are fully paid and non- assessable and owned of record by the Company, to the best of such counsel's knowledge, free and clear of all liens, encumbrances, equities or claims; (iv) Except as described in the Offering Memorandum, to the best knowledge of such counsel, there are no legal or governmental proceedings pending to which the Company or any of its Subsidiaries is a party or of which any property of the Company or any of its Subsidiaries is the subject which, if determined adversely to the Company or any of its Subsidiaries, would, individually or in the aggregate, have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole; and to the best knowledge of such counsel, no such proceedings are threatened or contemplated by governmental authorities or any other party; (v) The execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Indenture and the issuance of the Offered Securities and the Conversion Shares and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its U.S. Subsidiaries is a party or by which the Company or any of its U.S. Subsidiaries is bound or to which any of the properties or assets of the Company or any of its U.S. Subsidiaries is subject, nor will such actions result in any violation of the provisions of the charter, by-laws or other constitutive 16 documents of the Company or any of its U.S. Subsidiaries or any U.S. statute or any order, rule or regulation of any U.S. court or governmental agency or body having jurisdiction over the Company or any of its U.S. Subsidiaries or any of their properties or assets; and no U.S. consent, approval, authorization or order of, or filing or registration with, any court or governmental agency or body is required for the execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Indenture and the issuance of the Offered Securities and the Conversion Shares and the consummation of the transactions contemplated hereby and thereby except as may be required by the securities or "blue sky" laws of any state of the United States in connection with the sale of the Offered Securities or as contemplated by the Registration Rights Agreement; (vi) To the best knowledge of such counsel, none of the Company or the Subsidiaries (i) is in violation of its charter or by-laws (ii) is in default, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any time period, covenant or condition contained in this Agreement, the Registration Rights Agreement or the Indenture, or (iii) is in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its properties or assets may be subject or has failed to obtain any material license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its properties or assets or to the conduct of its business; (vii) To the best of such counsel's knowledge, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in any registration statement filed by the Company under the Securities Act; and (viii) Each document incorporated by reference in the Offering Memorandum (except for financial statements and schedules included therein as to which such counsel need not express any opinion), when filed with the Commission complied as to form in all material respects with the Exchange Act and the Rules and Regulations. The written opinion of such counsel shall also contain a statement to the effect that no facts have come to the attention of such counsel that have led him to believe that the Offering Memorandum (other than the financial statements and the financial data included therein, as to which such counsel need express no opinion or belief), as of its date, and at the applicable Closing Date, contained or contains an untrue statement of a material fact, omitted or omits to state a material fact or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. In rendering such opinion, such counsel may rely as to matters involving the application of laws other than the laws of New York and federal laws of the United States, to the extent such counsel deems proper and to the extent specified in such opinion, if at all, upon an opinion or opinions (in form and substance reasonably satisfactory to the counsel for the Initial Purchaser) of other counsel reasonably acceptable to the counsel for the Initial Purchaser familiar with the 17 applicable laws and admitted to practice in the applicable jurisdiction. The opinion of such counsel for the Company shall state that the opinion of any such other counsel is in form satisfactory to such counsel and that in their opinion the Initial Purchaser and they are justified in relying thereon. Such counsel may also rely as to matters of fact upon certificates of officers and other representatives of the Company and public officials. (e) On each Closing Date, there shall have been furnished to you the opinion (addressed to the Initial Purchaser) of Kleinhendler & Halevy, Israeli counsel for the Company, dated such Closing Date, in form and substance reasonably satisfactory to counsel for the Initial Purchaser to the effect that: (i) Each of the Company's Subsidiaries which is organized under the laws of Israel (the "Israeli Subsidiaries") has been duly incorporated and is validly existing as a corporation in good standing under the laws of Israel, is duly qualified to do business and is in good standing in each jurisdiction in which its ownership or lease of property or the conduct of its business requires such qualification (except for where the failure to be so qualified or in good standing would not, individually or in the aggregate, have a material adverse effect on the business, properties, financial condition, results of operations or prospects of the Company and its Subsidiaries taken as a whole) and has all corporate power and authority necessary to own or hold its properties and to conduct the business in which it is engaged; (ii) No proceeding has been instituted by the Registrar of Companies in Israel for the dissolution of any of the Israeli Subsidiaries; (iii) Except as described in the Offering Memorandum, all the shares of capital stock of each Israeli Subsidiary owned, directly or indirectly, by the Company have been duly and validly authorized and issued, are fully paid and non-assessable and owned of record and, to the best knowledge of such counsel, beneficially by the Company and, to the best of such counsel's knowledge, free and clear of all liens, encumbrances, equities or claims; (iv) The issuance and delivery to the Initial Purchaser of the Offered Securities and the Conversion Shares and the consummation of the transactions contemplated by this Agreement, the Registration Rights Agreement and the Indenture are not subject to any tax imposed by Israel or any political subdivision thereof; (v) The statements in the Offering Memorandum under the captions "Risk Factors-Subsidiary Operations" and "Risk Factors-Operations in Israel," insofar as they purport to summarize statutes, laws and regulations of the State of Israel and programs of the government of Israel relating to or affecting the Company or its Israeli Subsidiaries, are accurate and complete in all material respects; (vi) Efrat Future Technology, Ltd. is an "approved enterprise" under Israeli law; (vii) No governmental authorizations, consents or exemptions in Israel are necessary for the execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Indenture and the consummation of the transactions 18 contemplated hereby and thereby (including, but not limited to, the issuance and sale of the Offered Securities and the issuance upon conversion of the Offered Securities as contemplated by this Agreement and the Indenture); and (viii) The execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Indenture and the issuance of the Offered Securities and the Conversion Shares and the consummation of the transactions contemplated hereby and thereby will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument known to such counsel to which the Company or any of its Israeli Subsidiaries is a party or by which the Company or any of its Israeli Subsidiaries is bound or to which any of the properties or assets of the Company or its Israeli Subsidiaries is subject, nor will such actions result in any violation of the provisions of the Memorandum or Articles of Association of the Israeli Subsidiaries or any statute or any order, rule or regulation of any Israeli court, governmental agency or body having jurisdiction over the Israeli Subsidiaries or any of their properties or assets. (f) The Company shall have furnished to the Initial Purchaser a certificate, dated such Closing Date, signed on behalf of the Company by the Chief Executive Officer and by the Vice President-Finance and Treasurer of the Company to the effect that: (i) the representations and warranties of the Company contained in this Agreement are true and correct, as if made at and as of such Closing Date, and the Company has complied with all the agreements and satisfied all the conditions on its part to be complied with or satisfied at or prior to such Closing Date; (ii) the signers of said certificate have carefully examined the Offering Memorandum, and any amendments or supplements thereto (including any documents filed under the Exchange Act and deemed to be incorporated by reference in the Offering Memorandum), and to their knowledge do not include any untrue statement of material fact or omit to state any material fact required to be included therein in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (iii) since the date of the most recent financial statements incorporated by reference in the Offering Memorandum there has occurred no event required to be set forth in an amendment or supplement to the Offering Memorandum which has not been so set forth. (g) On each Closing Date you shall have received a letter of Deloitte & Touche LLP, dated such Closing Date and addressed to the Initial Purchaser, confirming that they are independent certified public accountants with respect to the Company within the meaning of the Securities Act and the Rules and Regulations, and stating, as of the date of such letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given or incorporated in the Offering Memorandum, as of a date not more than five days prior to the date of such letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by its letter delivered to you concurrently with the execution of this Agreement, and confirming the conclusions and findings set forth in such prior letter. (h) Subsequent to the execution and delivery of this Agreement, there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the American Stock Exchange or the over-the-counter market shall have been 19 suspended or minimum prices shall have been established on either of such exchanges or such market by the Commission or such exchange or other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium is declared by either Federal or New York State authorities, (iii) the United States or Israel becomes engaged in hostilities or there is an escalation of hostilities involving the United States or Israel or there is a declaration of a national emergency or war by the United States or Israel, (iv) a material adverse change in general economic, political or financial conditions, or the effect of international or national conditions on the financial markets in the United States which change shall be such as to, in the judgment of the Initial Purchaser, make it inadvisable or impracticable to proceed with the payment for and delivery of the Offered Securities, or (v) a material adverse change in the operations, business, prospects, capitalization or financial condition of the Company, whether or not arising in the ordinary course of business, which change, in the reasonable judgment of the Initial Purchaser, shall render it impracticable or inadvisable to proceed with the payment for and delivery of the Offered Securities. (i) The Initial Purchaser shall have received from Weil, Gotshal & Manges LLP, counsel for the Initial Purchaser, such opinion or opinions, dated such Closing Date, with respect to the validity of the Indenture, the Offered Securities, the Conversion Shares, the Offering Memorandum, and other related matters as they may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. (j) The Offered Securities shall have been (i) approved by the National Association of Securities Dealers, Inc., as being eligible for trading in the PORTAL market and (ii) accepted for settlement through the facilities of DTC. (k) The Registration Rights Agreement shall have been executed and delivered and be substantially in the form of Exhibit A hereto. 20 All such opinions, certificates, letters and documents shall be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to counsel for the Initial Purchaser. The Company shall furnish to the Initial Purchaser conformed copies of such opinions, certificates, letters and other documents in such number as the Initial Purchaser shall reasonably request. If any of the conditions specified in this Section 5 shall not have been fulfilled when and as required by this Agreement, this Agreement and all obligations of the Initial Purchaser hereunder may be canceled at, or at any time prior to, each Closing Date, by the Initial Purchaser. Any such cancellation shall be without liability of the Initial Purchaser to the Company. Notice of such cancellation shall be given to the Company in writing, or by telegraph or telephone and confirmed in writing. 6. Indemnification and Contribution. --------------------------------- 21 (a) The Company shall indemnify and hold harmless the Initial Purchaser, its directors, officers and employees and each person, if any, who controls the Initial Purchaser within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Offered Securities), to which the Initial Purchaser or any such director, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in the Offering Memorandum, or any amendment or supplement thereto or the reports filed pursuant to the Exchange Act incorporated by reference in the Offering Memorandum or (B) in any blue sky application or other document prepared or executed by the Company (or based upon any written information furnished by the Company) specifically for the purpose of qualifying any or all of the Offered Securities under the securities laws of any state or other jurisdiction (any such application, document or information being hereinafter called a "Blue Sky Application"), or (ii) the omission or alleged omission to state in the Offering Memorandum, or any amendment or supplement thereto or the reports filed pursuant to the Exchange Act incorporated by reference in the Offering Memorandum, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and shall reimburse the Initial Purchaser and each such director, officer, employee or controlling persons promptly upon demand for any reasonable legal or other expenses reasonably incurred by the Initial Purchaser, director, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, -------- ------- that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action (i) arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information concerning the Initial Purchaser furnished to the Company by or on behalf of the Initial Purchaser specifically for inclusion therein or (ii) results from the fact the Initial Purchaser sold Offered Securities to a person as to whom it is established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Offering Memorandum, as then amended or supplemented, in any case where the Company has previously furnished copies thereof in sufficient quantity to the Initial Purchaser and the loss, claim, damage or liability of the Initial Purchaser results from an untrue statement or omission of a material fact contained in the Offering Memorandum which was corrected in the Offering Memorandum as then amended or supplemented. The foregoing indemnity agreement is in addition to any liability which the Company may otherwise have to the Initial Purchaser or to any officer, employee or controlling person of the Initial Purchaser. (b) The Initial Purchaser shall indemnify and hold harmless the Company, its directors, officers and employees and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in the Offering Memorandum, or any amendment or supplement thereto, or (B) in any Blue Sky Application or (ii) the omission or alleged omission to state in the Offering Memorandum or any amendment or 22 supplement thereto or any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning the Initial Purchaser furnished to the Company by or on behalf of the Initial Purchaser specifically for inclusion therein; and shall reimburse the Company and any such director, officer, employee or controlling persons for any reasonable legal or other expenses reasonably incurred by the Company or any such director, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which the Initial Purchaser may otherwise have to the Company or any such director, officer, employee or controlling person. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 6, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that -------- ------- the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 6, except to the extent it has been materially prejudiced by such failure, or from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that -------- ------- the indemnified party shall have the right to employ counsel to represent such indemnified party and its respective directors, officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by such indemnified party against the indemnifying party under this Section 6 if an indemnified party shall have been advised by counsel in writing that representation of such indemnified party and those directors, officers, employees and controlling persons by the same counsel would be inappropriate under applicable standards of professional conduct due to actual or potential conflicting interests and the indemnified party so notifies the indemnifying party, and in that event the fees and expenses of not more than one such separate counsel (in addition to local counsel) shall be paid by the indemnifying party. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such claim, action, suit or proceeding effected without its written consent (which consent shall not be unreasonably withheld), but if settled with the written consent of the indemnifying party or if there be a final judgment in favor of the plaintiff in any such action, the indemnifying party 23 agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 6 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchaser on the other hand from the offering of the Offered Securities 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 Company on the one hand and the Initial Purchaser on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchaser on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Offered Securities purchased under this Agreement (before deducting expenses) received by the Company, on the one hand, and the total underwriting discounts and commissions received by the Initial Purchaser with respect to the Offered Securities purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the Offered Securities under this Agreement. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or the Initial Purchaser, on the other hand, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchaser agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were to be determined by pro rata allocation (even if either the Initial Purchaser or the Company, as the case may be, were treated as one entity for such purposes) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 6(d) shall be deemed to include, subject to the limitations set forth above, for purposes of this Section 6(d), any reasonable legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), the Initial Purchaser shall not be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities purchased and resold by it exceeds the amount of any damages which the Initial Purchaser has otherwise paid or become liable to pay by reason of any 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. Each party entitled to contribution agrees that upon the service of a summons or other initial legal process upon it in any action instituted against it in respect to which contribution may be sought, it shall promptly give written notice of such service to the party or parties from which contribution may be sought, but the omission so to notify such party or parties of any such service shall not relieve the party from whom contribution may be sought for any obligation it may have hereunder or otherwise (except as specifically provided in subsection (c) hereof). The 24 remedies provided for in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to any indemnified party in equity or at law. (e) The Initial Purchaser confirms and the Company acknowledges that (i) the last paragraph on the cover page, (ii) the stabilization legend on page 3 and (iii) the fifth, seventh and tenth paragraphs under the caption "Plan of Distribution" constitute the only information concerning the Initial Purchaser furnished in writing to the Company by or on behalf of the Initial Purchaser specifically for inclusion in the Offering Memorandum. 7. Survival of Certain Representations and Obligations. The ---------------------------------------------------- respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the Initial Purchaser set forth in or made in certificates delivered pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Initial Purchaser, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of any payment for the Offered Securities. 8. Notices. All communications hereunder will be in writing and ------- will be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Initial Purchaser shall be directed to Lehman Brothers Inc. at 3 World Financial Center, New York, NY 10285, Attention: Investment Banking Group (facsimile: (212) 526-3738), with a copy, in case of any notice pursuant to Section 6(c), to the Director of Litigation, Office of the General Counsel, Lehman Brothers Inc., 3 World Financial Center, 10th Floor, New York, NY 10285; notices to the Company shall be directed to it at Comverse Technology, Inc., 170 Crossways Park Drive, Woodbury, New York 11797, Attention: William F. Sorin, Esq. (facsimile: (516) 677-7323). 9. Persons Entitled to Benefit of Agreement. This Agreement shall ---------------------------------------- inure to the benefit of and be binding upon the Initial Purchaser, the Company and their respective successors and the controlling persons referred to in Section 6. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (x) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the directors, officers and employees of the Initial Purchaser and the person or persons, if any, who control the Initial Purchaser within the meaning of Section 15 of the Securities Act and (y) the representations, warranties, indemnities and agreements of the Initial Purchaser contained in this Agreement shall be deemed to be for the benefit of directors, officers and employees of the Company and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 9, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED ------------- IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS OF THE STATE OF NEW YORK. 11. Counterparts. This Agreement may be executed in any number of ------------ 25 counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. 12. Headings. The headings herein are inserted for convenience of -------- reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. [Remainder of page intentionally left blank] 26 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us one of the counterparts hereof, whereupon it will become a binding agreement among the Company and the Initial Purchaser in accordance with its terms. COMVERSE TECHNOLOGY, INC. By: ____________________________________ Name: Title: The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written. LEHMAN BROTHERS INC. By: _____________________________________ Name: Title: EX-10.2 4 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.2 REGISTRATION RIGHTS AGREEMENT ----------------------------- This Registration Rights Agreement is made and entered into as of June 30, 1998, by and between Comverse Technology, Inc., a New York corporation (the "Company"), and Lehman Brothers Inc. (the "Initial Purchaser") who has purchased or has the right to purchase up to $250,000,000 (up to $300,000,000 if the over- allotment option is exercised) in aggregate principal amount of 4-1/2% Convertible Subordinated Debentures due 2005 (the "Debentures") of the Company pursuant to the Purchase Agreement (as such term is defined below). This Agreement is made pursuant to the Purchase Agreement, dated June 25, 1998, between the Company and the Initial Purchaser (the "Purchase Agreement"). In order to induce the Initial Purchaser to enter into the Purchase Agreement, the Company has agreed to provide the registration rights provided for in this Agreement to the Initial Purchaser and its respective direct and indirect transferees (i) for the benefit of the Initial Purchaser, (ii) for the benefit of the holders from time to time of the Debentures (including the Initial Purchaser) and the holders from time to time of the Common Stock issuable or issued upon conversion of the Debentures and (iii) for the benefit of the securities constituting the Transfer Restricted Securities (as defined below). The execution of this Agreement is a condition to the closing of the transactions contemplated by the Purchase Agreement. The parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms ----------- shall have the following meanings: Advice: As defined in Section 2(d) hereof. ------ Affiliate: An affiliate of any specified person shall mean any other --------- person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control," when used with respect to any person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing. Agreement: This Registration Rights Agreement, as the same may be --------- amended, supplemented or modified from time to time in accordance with the terms hereof. Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday ------------ that is not a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close. Closing Date: June 30, 1998. ------------ Common Stock: common stock, $.10 par value per share, of the Company ------------ and any other shares of common stock as may constitute "Common Stock" for purposes of the Indenture, in each case, as issuable or issued upon conversion of the Debentures. Company: Comverse Technology, Inc., a New York corporation, and any ------- successor corporation thereto. controlling person: As defined in Section 6(a) hereof. ------------------ Debentures: The $250,000,000 aggregate principal amount of 4-1/2% ---------- Convertible Subordinated Debentures due 2005 of the Company being issued pursuant to the Indenture (together with the up to $50,000,000 aggregate principal amount of such Debentures if, and to the extent, the Initial Purchaser's over-allotment option is exercised). Effectiveness Period: As defined in Section 2(a) hereof. -------------------- Effectiveness Target Date: The 180th day following the Closing Date. ------------------------- Exchange Act: The Securities Exchange Act of 1934, as amended, and ------------ the rules and regulations promulgated by the SEC pursuant thereto. Filing Date: The 90th day after the Closing Date. ----------- Holder: Each owner of any Transfer Restricted Securities. ------ Indemnified Person: As defined in Section 6(a) hereof. ------------------ Indenture: The Indenture, dated as of the date hereof, between the --------- Company and the Trustee thereunder, pursuant to which the Debentures are being issued, as 2 amended, modified or supplemented from time to time in accordance with the terms thereof. Initial Purchaser: As defined in the first paragraph hereof. ----------------- Liquidated Damages: As defined in Section 3 hereof. ------------------ Proceeding: An action, claim, suit or proceeding (including, without ---------- limitation, an investigation or partial proceeding, such as disposition), whether commenced or threatened. Prospectus: The prospectus included in any Registration Statement ---------- (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated pursuant to the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the resale of any of the Transfer Restricted Securities covered by such Registration Statement, and all other amendments and supplements to any such prospectus, including post-effective amendments, and all materials incorporated by reference or deemed to be incorporated by reference, if any, in such prospectus. Purchase Agreement: As defined in the second paragraph hereof. ------------------ Registration Statement: Any registration statement of the Company ---------------------- filed with the SEC pursuant to the Securities Act that covers the resale of any of the Transfer Restricted Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference or deemed to be incorporated by reference, if any, in such registration statement. Rule 144: Rule 144 promulgated by the SEC pursuant to the Securities -------- Act, as such Rule may be amended from time to time, or any successor rule or regulation. Rule 144A: Rule 144A promulgated by the SEC pursuant to the --------- Securities Act, as such Rule may be amended from time to time, or any successor rule or regulation. 3 Rule 158: Rule 158 promulgated by the SEC pursuant to the Securities -------- Act, as such Rule may be amended from time to time, or any successor rule or regulation. Rule 174: Rule 174 promulgated by the SEC pursuant to the Securities -------- Act, as such Rule may be amended from time to time, or any successor rule or regulation. Rule 415: Rule 415 promulgated by the SEC pursuant to the Securities -------- Act, as such Rule may be amended from time to time, or any successor rule or regulation. Rule 424: Rule 424 promulgated by the SEC pursuant to the Securities -------- Act, as such Rule may be amended from time to time, or any successor rule or regulation. Sale Notice: As defined in Section 2(d) hereof. ----------- SEC: The Securities and Exchange Commission. --- Securities Act: The Securities Act of 1933, as amended, and the rules -------------- and regulations promulgated by the SEC thereunder. Shelf Registration Statement: As defined in Section 2(a) hereof. ---------------------------- Special Counsel: Any special counsel to the holders of Transfer --------------- Restricted Securities. TIA: The Trust Indenture Act of 1939, as amended. --- Transfer Restricted Securities: The Debentures and the shares of ------------------------------ Common Stock into which the Debentures are converted or convertible (including any shares of Common Stock issued or issuable thereon upon any stock split, stock combination, stock dividend or the like), upon original issuance thereof, and at all times subsequent thereto, and associated related rights, if any, until, in the case of any such Debenture or share (and associated rights) (i) the date on which the resale thereof has been registered effectively pursuant to the Securities Act and have been disposed of in accordance with the Registration Statement relating thereto, (ii) the date on which either such Debenture or the shares of Common Stock issued upon conversion of such Debenture are distributed to the public pursuant to Rule 144 (or any similar provisions then in effect) or are saleable pursuant to Rule 144(k) promulgated by the SEC pursuant to the 4 Securities Act or (iii) the date on which it ceases to be outstanding, whichever date is earliest. Trustee: The Trustee under the Indenture. ------- Underwritten registration or underwritten offering: A registration in -------------------------------------------------- connection with which securities of the Company are sold to an underwriter for reoffering to the public pursuant to an effective Registration Statement. References herein to the term "Holders of a majority in aggregate principal amount of Transfer Restricted Securities" or words to a similar effect shall mean, with respect to any request, notice, demand, objection or other action by the holders of Transfer Restricted Securities hereunder or pursuant hereto (each, an "Act"), registered holders of a number of shares of then outstanding Common Stock constituting Transfer Restricted Securities and an aggregate principal amount of then outstanding Debentures constituting Transfer Restricted Securities, such that the sum of such shares of Common Stock and the shares of Common Stock issuable upon conversion of such Debentures constitute in excess of 50% of the sum of all of the then outstanding shares of Common Stock constituting Transfer Restricted Securities and the number of shares of Common Stock issuable upon conversion of then outstanding Debentures constituting Transfer Restricted Securities. For purposes of the immediately preceding sentence, (i) any Holder may elect to take any Act with respect to all or any portion of Transfer Restricted Securities held by it and only the portion as to which such Act is taken shall be included in the numerator of the fraction described in the preceding sentence and (ii) Transfer Restricted Securities owned, directly or indirectly, by the Company or its Affiliates shall be deemed not to be outstanding. 2. Shelf Registration Statement. (a) The Company agrees to file ---------------------------- with the SEC as soon as practicable after the Closing Date, but in no event later than the Filing Date, a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Transfer Restricted Securities (the "Shelf Registration Statement"). The Shelf Registration Statement shall be on Form S-3 under the Securities Act or another appropriate form selected by the Company permitting registration of such Transfer Restricted Securities for resale by the Holders in the manner or manners reasonably designated by them (including, without limitation, one or 5 more underwritten offerings). The Company shall not permit any securities other than the Transfer Restricted Securities to be included in the Shelf Registration Statement. The Company shall use all reasonable efforts to cause the Shelf Registration Statement to be declared effective pursuant to the Securities Act as promptly as practicable following the filing thereof, but in no event later than the Effectiveness Target Date, and to keep the Shelf Registration Statement continuously effective under the Securities Act until the date that is 24 months after the date on which all of the Debentures are sold (including those sold pursuant to the over-allotment option granted to the Initial Purchaser in the Purchase Agreement) to the Initial Purchaser (the "Effectiveness Period"), or such shorter period ending when there cease to be outstanding any Transfer Restricted Securities. (b) Supplements and Amendments. Subject to Section 2(d) hereof, the -------------------------- Company shall use its reasonable efforts to keep the Shelf Registration Statement continuously effective by supplementing and amending the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration Statement, if required by the Securities Act, or if reasonably requested by the Holders of a majority in aggregate principal amount, in the case of the Debentures, or the number, in the case of the Common Stock, of the Transfer Restricted Securities or by any underwriter of such Transfer Restricted Securities. (c) Selling Securityholder Information. The Company may require each ---------------------------------- Holder of Transfer Restricted Securities to be sold pursuant to the Shelf Registration Statement to furnish to the Company such information regarding the Holder and the distribution of the Transfer Restricted Securities as the Company may from time to time reasonably require for inclusion in the Shelf Registration Statement, and the Company may exclude from such registration the Transfer Restricted Securities of any Holder that fails to furnish such information within a reasonable time after receiving such request. Each Holder of Transfer Restricted Securities to be sold pursuant to a Shelf Registration Statement agrees to furnish to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not misleading. (d) Certain Notices; Suspension of Sales. Each Holder of Transfer ------------------------------------ Restricted Securities agrees by its 6 acquisition of such Transfer Restricted Securities to notify the Company (a "Sale Notice") not later than three (3) Business Days prior to any proposed sale by such Holder of Transfer Restricted Securities pursuant to the Shelf Registration Statement, which notice shall be effective for five (5) Business Days. The Company may, upon written notice to such Holder, suspend such Holder's use of the Prospectus (which is a part of the Shelf Registration Statement) for a reasonable period not to exceed sixty (60) days if the Company in its reasonable judgment believes it may possess material non-public information the disclosure of which in its reasonable judgment would have a material adverse effect on the Company and its subsidiaries taken as a whole. Each Holder of Transfer Restricted Securities agrees by its acquisition of such Transfer Restricted Securities to hold any communication by the Company in response to a Sale Notice in confidence. Each Holder of Transfer Restricted Securities further agrees by its acquisition of such Transfer Restricted Securities that, upon 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), 4(c)(v) or 4(c)(vi) hereof, such Holder will forthwith discontinue disposition of such Transfer Restricted Securities covered by such Registration Statement or Prospectus (other than in lawful transactions exempt from the registration requirements under the Securities Act) until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(j) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. (e) Compliance. The Company shall cause the Shelf Registration ---------- Statement and the Prospectus and any amendment or supplement thereto, as of the effective date of the Shelf Registration Statement, amendment or supplement, (i) to comply as to form in all material respects with the applicable requirements of the Securities Act and the rules and regulations of the SEC and (ii) not to contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 3. Liquidated Damages. If (a) the Shelf Registration Statement is ------------------ not filed with the SEC on or prior 7 to the Filing Date or (b) the Shelf Registration Statement has not been declared effective by the SEC on or prior to the Effectiveness Target Date (each such event referred to in clauses (a) and (b), a "Registration Default"), then the Company will pay to each Holder, for the first 90-day period immediately following the occurrence of such Registration Default, liquidated damages ("Liquidated Damages") in an amount equal to one-quarter of one percent (0.25%) per annum times the principal amount of the Transfer Restricted Securities held by such Holder for so long as the Registration Default continues. The amount of Liquidated Damages payable to each Holder shall increase by an additional one- quarter of one percent (0.25%) per annum times the principal amount of Transfer Restricted Securities held by such Holder from and after the 91st day following such Registration Default; provided, however, that (1) upon filing of the Shelf -------- ------- Registration Statement, in the case of (i) above, or (2) upon the effectiveness of the Shelf Registration Statement, in the case of (ii) above, the Liquidated Damages payable with respect to such Transfer Restricted Securities as a result of such clause (i) or (ii), as applicable, shall cease; and, provided, further, -------- ------- that the amount of Liquidated Damages shall never exceed one-half of one percent (0.5%) per annum. Liquidated Damages shall be paid semi-annually in arrears, with the first semi-annual payment due on the first interest payment date, as applicable, following the date on which such Liquidated Damages begin to accrue, and shall be paid to holders of record of such Transfer Restricted Securities on such interest payment date in the same manner as interest is paid under the Indenture. The payment of any such Liquidated Damages shall in all respects be subject to the terms and conditions set forth in the Indenture, including, without limitation, the subordination provisions thereof. All obligations of the Company set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such security shall have been satisfied in full. 4. Registration Procedures. In connection with the Company's ----------------------- registration obligations hereunder, the Company shall effect such registrations on the appropriate form selected by the Company available for the sale of the Transfer Restricted Securities to permit the sale of Transfer Restricted Securities in accordance with the intended method or methods of disposition thereof, and 8 pursuant thereto the Company shall as expeditiously as possible: (a) No fewer than five Business Days prior to the initial filing of a Registration Statement or Prospectus and no fewer than two Business Days prior to the filing of any amendment or supplement thereto (including any document that would be incorporated or deemed to be incorporated therein by reference), furnish to the registered (as of the most recent reasonably practicable date which shall not be more than two Business Days prior to the date such notice is personally delivered, delivered to a next-day courier, deposited in the mail or telecopied, as the case may be) Holders of the Transfer Restricted Securities, Special Counsel and the managing underwriters, if any, copies of all such documents proposed to be filed, which documents (including those incorporated or deemed to be incorporated by reference) will be subject to the review of such Holders, Special Counsel and such underwriters, if any, and cause the officers and directors of the Company, counsel to the Company and independent certified public accountants to the Company to respond to such inquiries as shall be necessary in connection with such Registration Statement, in the opinion of respective counsel to such Holders and such underwriters, to conduct a reasonable investigation within the meaning of the Securities Act. The Company shall not file any such Registration Statement or related Prospectus or any amendments or supplements thereto to which the Holders of a majority in aggregate principal amount, in the case of the Debentures, or the number, in the case of the Common Stock, of the Transfer Restricted Securities, Special Counsel, or the managing underwriters, if any, shall reasonably object on a timely basis; (b) Subject to Section 2(d) hereof, prepare and file with the SEC such amendments, including post-effective amendments, to each Registration Statement as may be necessary to keep such Registration Statement continuously effective for the applicable time period set forth in Section 2(a) hereof; and cause the related Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Securities Act and the Exchange Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; 9 (c) Notify the registered (as of the most recent reasonably practicable date which shall not be more than two Business Days prior to the date such notice is personally delivered, delivered to a next-day courier, deposited in the mail or telecopied, as the case may be) Holders of Transfer Restricted Securities to be sold or Special Counsel and the managing underwriters, if any, promptly (and in the case of an event specified by clause (i)(A) of this paragraph in no event fewer than two Business Days prior to such filing), and (if requested by any such person), confirm such notice in writing, (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment is proposed to be filed, and, (B) with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request of the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information related thereto, (iii) of the issuance by the SEC, any state securities commission, any other governmental agency or any court of any stop order, order or injunction suspending or enjoining the use or the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, (iv) if at any time any of the representations and warranties of the Company contained in any agreement (including any underwriting agreement) contemplated by Section 4(l) hereof are not true and correct in all material respects, (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Transfer Restricted Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, and (vi) of the existence of any fact and the happening of any event that makes any statement made in such Registration Statement or related Prospectus untrue in any material respect, or that requires the making of any changes in such Registration Statement or Prospectus 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, such Prospectus 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, except if the existence of such fact or the happening of any such event results from a corporate development that is being pursued 10 by the Company (A) the disclosure of which in the Company's reasonable judgment would have a material adverse effect on the Company and its subsidiaries taken as a whole and (B) which, in the Company's reasonable judgment after consultation with counsel would not, in the absence of an effective Registration Statement, be required to be disclosed by the Company; (d) Use all reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of any order enjoining or suspending the use or effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Transfer Restricted Securities for sale in any jurisdiction, at the earliest practicable moment; (e) Subject to Section 2(c) hereof, if reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount, in the case of the Debentures, or the number, in the case of the Common Stock, of the Transfer Restricted Securities being sold in connection with such offering, (i) promptly incorporate in a Prospectus supplement or post- effective amendment such information as the managing underwriters, if any, and such Holders agree should be included therein, and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action - -------- ------- pursuant to this Section 4(e) that would, in the opinion of counsel for the Company, violate applicable law; (f) Furnish to each Holder who so requests, Special Counsel and each managing underwriter, if any, without charge, at least one conformed copy of each Registration Statement and each 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 by such Holder, counsel or managing underwriter); (g) Deliver to each Holder, Special Counsel, and the underwriters, if any, without charge, as many copies of the Prospectus or Prospectuses (including each form of prospectus) and each amendment or supplement thereto to such persons who reasonably request; and, unless the Company shall have given notice to such Holder pursuant to Section 11 4(c)(vi), the Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders of Transfer Restricted Securities and the underwriters, if any, in connection with the offering and sale of the Transfer Restricted Securities covered by such Prospectus and any amendment or supplement thereto; (h) Prior to any public offering of Transfer Restricted Securities, use all reasonable efforts to register or qualify, or cooperate with the Holders of Transfer Restricted Securities to be sold, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of, such Transfer Restricted Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder or underwriter reasonably requests in writing, 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 necessary legally to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to qualify generally - -------- ------- to do business in any jurisdiction where it is not then so qualified or take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject; (i) In connection with any sale or transfer of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, and unless any Transfer Restricted Securities shall be in only book-entry form, cooperate with the Holders and the managing underwriters, if any, to (A) facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold, which certificates shall not bear any restrictive legends, shall bear a CUSIP number different from the CUSIP number for the Transfer Restricted Securities and shall be in a form eligible for deposit with The Depository Trust Company and (B) enable such Transfer Restricted Securities to be in such denominations and registered in such names as the managing underwriters, if any, or Holders may request at least two Business Days prior to any sale of Transfer Restricted Securities; (j) Upon the occurrence of any event contemplated by Section 4(c)(vi) hereof, as promptly as practicable, 12 prepare a supplement or amendment, including, if appropriate, a post-effective amendment, to each Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, 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; (k) Prior to the effective date of the first Registration Statement relating to the Transfer Restricted Securities, to provide a CUSIP number for the Transfer Restricted Securities to be sold pursuant to the Registration Statement; (l) Enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten offerings) reasonably satisfactory to the Company and take all such other reasonable actions in connection therewith (including those reasonably requested by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount, in the case of the Debentures, or the number, in the case of the Common Stock, of the Transfer Restricted Securities being sold) in order to expedite or facilitate the disposition of such Transfer Restricted Securities, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an underwritten registration, (i) make such representations and warranties to the Holders of such Transfer Restricted Securities and the underwriters, if any, with respect to the business of the Company and its subsidiaries (including with respect to businesses or assets acquired or to be acquired by any of them), and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings and reasonably acceptable to the Company, and confirm the same if and when requested; (ii) seek to obtain opinions of counsel to the Company and updates thereof, which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and Special Counsel to the Holders of the Transfer Restricted Securities being sold, addressed to each of the underwriters, if any, covering the matters customarily covered in opinions requested in underwritten 13 offerings (including any such matters as may be reasonably requested by such Special Counsel and underwriters); (iii) use all reasonable efforts to obtain customary "cold comfort" letters and updates thereof 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 or to be acquired by the Company for which financial statements and financial data is, or is required to be, included in the Registration Statement), addressed (where reasonably possible) to each selling Holder of Transfer Restricted Securities and each of the underwriters, if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings; (iv) if an underwriting agreement is entered into, the same shall contain indemnification provisions and procedures no less favorable to the selling Holders of Transfer Restricted Securities and the underwriters, if any, than those set forth in Section 6 hereof (or such other provisions and procedures acceptable to the Company and Holders of a majority in aggregate principal amount of the Transfer Restricted Securities covered by such Registration Statement and the managing underwriters); and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority in aggregate principal amount, in the case of the Debentures, or the number, in the case of the Common Stock, of the Transfer Restricted Securities being sold, Special Counsel or the managing underwriters, if any, to evidence the continued validity of the representations and warranties made pursuant to clause (i) of this Section 4(l) and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company; (m) Make available for inspection by a representative of the Holders of Transfer Restricted Securities being sold, any underwriter participating in any such disposition of Transfer Restricted Securities, if any, and any attorney, consultant or accountant retained by such selling Holders or underwriter, at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries as they may reasonably request (including with respect to business and assets acquired or to be acquired to the extent that such information is available to the Company), and cause the officers, directors, agents and employees of the Company and its subsidiaries (including with respect to business assets 14 acquired or to be acquired to the extent that such information is available to the Company) to supply all information in each case reasonably requested by any such representative, underwriter, attorney, consultant or accountant in connection with such Registration Statement; provided, however, that any information that is reasonably and in good faith designated by the Company in writing as confidential at the time of delivery of such information shall be kept confidential by such persons (and such persons shall so agree in writing), unless (i) disclosure of such information is required by court or administrative order or is necessary to respond to inquiries of regulatory authorities, (ii) disclosure of such information is required by law (including any disclosure requirements pursuant to Federal securities laws in connection with the filing of any Registration Statement or the use of any prospectus referred to in this Agreement), (iii) such information becomes generally available to the public other than as a result of a disclosure or failure to safeguard by any such person or (iv) such information becomes available to any such person from a source other than the Company and such source is not bound by a confidentiality agreement; (n) Cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement relating to the Transfer Restricted Securities; and in connection therewith, cooperate with the Trustee under the Indenture and the Holders of the Transfer Restricted Securities to effect such changes to the Indenture, if any, as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute, and use all reasonable efforts to cause the Trustee to execute, all customary documents as may be required to effect such changes, and all other forms and documents (including the Form T-1) required to be filed with the SEC to enable the Indenture to be so qualified under the TIA in a timely manner; (o) Comply with applicable rules and regulations of the SEC and make generally available to its security holders 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), commencing on the first day of the first fiscal quarter after the effective date of a Registration Statement, which statement shall cover said period, consistent with the requirements of Rule 158; and 15 (p) (i) list all Common Stock covered by such Registration Statement on any securities exchange on which the Common Stock is then listed or (ii) authorize for quotation on The Nasdaq Stock Market all Common Stock covered by such Registration Statement if the Common Stock is then so authorized for quotation. 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 it whether or not any Registration Statement is filed or becomes effective and whether or not any securities are issued or sold pursuant to any Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filings fees (including without limitation, fees and expenses (A) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (B) in compliance with securities or Blue Sky laws (including, without limitation and in addition to that provided for in (b) below, reasonable fees and disbursements of counsel for the underwriters or Special Counsel for the Holders in connection with Blue Sky qualifications of the Transfer Restricted Securities and determination of the eligibility of the Transfer Restricted Securities for investment under the laws of such jurisdictions as the managing underwriters, if any, or Holders of a majority in aggregate principal amount of Transfer Restricted Securities, may reasonably designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Transfer Restricted Securities in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses if the printing of Prospectuses is required by the managing underwriters, if any, or by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in any Registration Statement, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and Special Counsel for the Holders (plus any local counsel, deemed appropriate by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities) in accordance with the provisions of Section 5(b) hereof, (v) fees and disbursements of all independent certified public accountants referred to in Section 4(l)(iii) (including, without limitation, the expenses of any special audit and "cold comfort" letters required by or incident to such 16 performance), (vi) Securities Act liability insurance, if the Company so desires such insurance, and (vii) fees and expenses of all other persons retained by the Company. In addition, the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of an annual audit, and the fees and expenses incurred in connection with the listing of the securities to be registered on any securities exchange. Notwithstanding the foregoing or anything in this Agreement to the contrary, each Holder shall pay all underwriting discounts and commissions of any underwriters with respect to any Transfer Restricted Securities sold by it. (b) In connection with any registration hereunder, the Company shall reimburse the Holders of the Transfer Restricted Securities being registered or tendered for in such registration for the fees and disbursements of not more than one firm of attorneys representing the selling Holders (in addition to any local counsel), in an amount not to exceed $25,000 in the aggregate for all such registrations, which firm shall be chosen by the Holders of a majority in aggregate principal amount, in the case of the Debentures, or the number, in the case of the Common Stock, of the Transfer Restricted Securities. Weil, Gotshal & Manges LLP shall be Special Counsel for all purposes hereof unless and until another Special Counsel shall have been selected by a majority in aggregate principal amount of the Transfer Restricted Securities and notice hereof shall have been given to the Company. 17 6. Indemnification. --------------- (a) The Company agrees to indemnify and hold harmless (i) the Initial Purchaser, (ii) each Holder of Transfer Restricted Securities, (iii) each person, if any, who controls (within the meaning of 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"), and (iv) the respective officers, directors, partners, employees, representatives and agents of the Initial Purchaser, each Holder of Transfer Restricted Securities, or any controlling person (any person referred to in clause (i), (ii), (iii) or (iv) may hereinafter be referred to as an "Indemnified Person"), from and against any and all losses, claims, damages, liabilities, expenses and judgments caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus or form of Prospectus or in any amendment or supplement thereto or in any 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 the case of any Prospectus or form of Prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except insofar as such losses, claims, damages, liabilities, expenses or judgments are caused by any such untrue statement or omission or alleged untrue statement or omission based upon information relating to any Indemnified Person furnished in writing to the Company by or on behalf of such Indemnified Person expressly for use therein; provided that the foregoing -------- indemnity with respect to any preliminary Prospectus shall not inure to the benefit of any Indemnified Person from whom the person asserting such losses, claims, damages, liabilities, expenses and judgments purchased securities if such untrue statement or omission or alleged untrue statement or omission made in such preliminary Prospectus is eliminated or remedied in the Prospectus and a copy of the Prospectus shall not have been furnished to such person in a timely manner, unless such Prospectus was not furnished because the Company failed to provide the Indemnified Person with sufficient copies of such corrected Prospectus within the time period required. (b) In case any action shall be brought against any Indemnified Person, based upon any Registration Statement or any such Prospectus or any amendment or supplement thereto and with respect to which indemnity may be sought against the Company, such Indemnified Person shall 18 promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person and payment of all fees and expenses. Any Indemnified Person shall have the right to employ separate counsel in any such action and participate in (but not control) the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person, unless (i) the employment of such counsel shall have been specifically authorized in writing by the Company, (ii) the Company shall have failed to assume the defense and employ counsel or (iii) such Indemnified Person or Persons shall have been advised by counsel that there may be a conflict between the positions of the indemnifying party or parties and of the indemnified party or parties in conducting the defense of such action or that there may be legal defenses available to such Indemnified Person or Persons different from or in addition to those available to the indemnifying party or parties (in which case the Company shall not have the right to assume the defense of such action on behalf of such Indemnified Person, it being understood, however, that the Company shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys, (in addition to any local counsel) for all such Indemnified Persons, which firm shall be designated in writing by such Indemnified Persons and shall be reasonably satisfactory to the Company, and that all such fees and expenses shall be reimbursed as they are incurred). The Company shall not be liable for any settlement of any such action effected without its written consent but if settled with the written consent of the Company, the Company agrees to indemnify and hold harmless any Indemnified Person from and against any loss or liability by reason of such settlement. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such action. (c) In connection with any Registration Statement in which the Holder of Transfer Restricted Securities is participating, such Holder of Transfer Restricted Securities 19 agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers and any person controlling the Company within the meaning of 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 Indemnified Person but only with reference to information relating to such Indemnified Person furnished in writing by or on behalf of such Indemnified Person expressly for use in such Registration Statement. In case any action shall be brought against the Company, any of its directors, any such officer or any person controlling the Company based on such Registration Statement and in respect of which indemnity may be sought against any Indemnified Person, the Indemnified Person shall have the rights and duties given to the Company (except that if the Company shall have assumed the defense thereof, such Indemnified Person shall not be required to do so, but may employ separate counsel therein and participate in (but not control) the defense thereof but the fees and expenses of such counsel shall be at the expense of such Indemnified Person), and the Company, its directors, any such officers and any person controlling the Company shall have the rights and duties given to the Indemnified Person, by Section 6(b) hereof. (d) If the indemnification provided for in this Section 6 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities, expenses or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities, expenses and judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and each Indemnified Person on the other hand from the offering of the Transfer Restricted Securities 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 Company and each such Indemnified Person in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities, expenses or judgments, as well as any other relevant equitable considerations. The relative fault of the Company and each such Indemnified Person shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by 20 the Company or such Indemnified Person and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation (even if the Indemnified Persons were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities, expenses or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, no Indemnified Person shall be required to contribute any amount in excess of the amount by which the total proceeds received by it in connection with the sale of the Transfer Restricted Securities pursuant to this Agreement exceeds the amount of any damages which such Indemnified Person has 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 Indemnified Persons' obligations to contribute pursuant to this Section 6(d) are several in proportion to the respective amount of Transfer Restricted Securities included in and sold pursuant to any such Registration Statement by each Indemnified Person and not joint. (e) The agreements contained in this Section 6 shall survive the sale of the Transfer Restated Securities pursuant to any Registration Statement and shall remain in full force and effect, regardless of any investigation made by or on behalf of any Indemnified Person. 21 7. Rules 144 and 144A. ------------------ The Company shall use all reasonable efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Holder, make available other information as required by, and so long as necessary to permit sales of, its Transfer Restricted Securities pursuant to Rule 144 and Rule 144A. 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 Transfer Restricted Securities covered by the Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be investment bankers of recognized national standing selected by the Holders of a majority in aggregate principal amount, in the case of the Debentures, or the number, in the case of the Common Stock, of such Transfer Restricted Securities included in such offering, subject to the consent of the Company (which will not be unreasonably withheld or delayed). No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Securities on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) 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) Remedies. In the event of a breach by the Company, or by a Holder -------- of Transfer Restricted Securities, of any of their obligations under this Agreement, each Holder of Transfer Restricted Securities or the Company, respectively, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder of Transfer 22 Restricted Securities agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, they shall waive the defense that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company shall not enter into any -------------------------- agreement with respect to its securities that is inconsistent with the rights granted to the holders of Transfer Restricted Securities in this Agreement or otherwise conflicts with the provisions hereof. Other than registration rights granted to holders of the Company's 5-3/4% Convertible Subordinated Debentures due 2006, the Company is not currently a party to any agreement granting any registration rights with respect to any of its securities to any person which conflicts with the Company's obligations hereunder or gives any other party the right to include any securities in any Registration Statement filed pursuant hereto, except for such rights and conflicts as have been irrevocably waived. Without limiting the generality of the foregoing, without the written consent of the Holders of a majority in aggregate principal amount in the case of the Debentures, or the number, in the case of Common Stock, of the Transfer Restricted Securities, the Company shall not grant to any person the right to request it to register any of its securities under the Securities Act unless the rights so granted are subject in all respect to the prior rights of the holders of Transfer Restricted Securities set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement. (c) No Adverse Action Affecting the Transfer Restricted Securities. -------------------------------------------------------------- Subject to the Company's right to suspend use of the Prospectus pursuant to Section 2(d) hereof, or give a notice pursuant to Section 4(c)(vi) hereof, the Company will not take any action with respect to the Transfer Restricted Securities which would adversely affect the ability of any of the Holders of Transfer Restricted Securities to include such Transfer Restricted Securities in a registration undertaken pursuant to this Agreement. (d) No Piggyback on Registrations. The Company shall not grant to any ----------------------------- of its security holders (other than the Holders of Transfer Restricted Securities in such capacity) the right to include any of its securities in any 23 Shelf Registration Statement other than Transfer Restricted Securities. (e) Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, without the written consent of the Holders of a majority in aggregate principal amount, in the case of the Debentures, or the number, in the case of the Common Stock, of the Transfer Restricted Securities. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Transfer Restricted Securities whose securities are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders of Transfer Restricted Securities may be given by Holders of a majority in aggregate principal amount, in the case of the Debentures, or the number, in the case of the Common Stock, of the Transfer Restricted Securities being sold by such Holders pursuant to such Registration Statement; provided, however, that the provisions of this sentence may not be -------- ------- amended, modified, or supplemented except in accordance with the provisions of the immediately preceding sentence. (f) Notices. All notices and other communications provided for herein ------- shall be made in writing by hand-delivery, next-day air courier, certified first-class mail, return receipt requested or telecopy: (i) if to a Holder of Transfer Restricted Securities, to the address of such Holder as it appears in the Debenture or Common Stock register of the Company, as 24 applicable; and (ii) if to the Company, to: Comverse Technology, Inc. 170 Crossways Park Drive Woodbury, NY 11797 Telecopy: (516) 677-7323 Attention: William F. Sorin, Esq. with a copy to: Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022 Telecopy: (212) 715-8000 Attention: Peter S. Kolevzon, Esq. (iii) if to the Special Counsel, to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153-0119 Telecopy: (212) 310-8007 Attention: Stephen M. Besen, Esq. or such other Special Counsel at such other address and telecopy number as a majority in aggregate principal amount of the Transfer Restricted Securities shall have given notice to the Company as contemplated by Section 5(b) hereof. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given, when delivered by hand, if personally delivered; one Business Day after being timely delivered to a next-day air courier, five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the recipient's telecopier machine, if telecopied. (g) Successors and Assigns. This Agreement shall inure to the benefit ---------------------- of and be binding upon the successors and permitted assigns of each of the parties and shall inure to the benefit of each existing and future Holder of Transfer Restricted Securities. The Company may not assign its rights or obligations hereunder without the prior written consent of each Holder of Transfer Restricted Securities, other than by operation of law pursuant to a 25 merger or consolidation to which the Company is a party. In the event the Debentures become convertible into common stock of another person pursuant to Section 12.11 of the Indenture, the Company shall cause such person to assume the Company's obligations hereunder. (h) 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. (i) Governing Law; Submission to Jurisdiction. ----------------------------------------- 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 WITHIN THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. (j) Severability. The remedies provided herein are cumulative and not ------------ exclusive of any remedies provided by law. 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 hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any 26 of such that may be hereafter declared invalid, illegal, void or unenforceable. (k) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. All references made in this Agreement to "Section" and "paragraph" refer to such Section or paragraph of this Agreement, unless expressly stated otherwise. (l) Attorneys' Fees. In any action or proceeding brought to enforce --------------- any provision of this Agreement, or where any provision hereof is validly asserted as a defense, the prevailing party, as determined by the court, shall be entitled to recover its reasonable attorneys' fees in addition to any other available remedy. 27 IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of the date first written above. COMVERSE TECHNOLOGY, INC. By: ---------------------------------- Name: Title: LEHMAN BROTHERS INC. By: ---------------------------------- Name: Title: EX-99 5 PRESS RELEASE EXHIBIT 99 June 25, 1998--Comverse Technology, Inc. (NASDAQ:CMVT) announced the private placement, to certain institutional investors, of $250 million principal amount of its 4.50% convertible subordinated debentures due 2005. The debentures are convertible, at the option of the holder, into shares of Common Stock at a conversion price of $64.50. The Company intends to use the proceeds of this offering for general corporate purposes, including possible investments in, or acquisitions of, other companies, businesses, technologies or product lines. The Company expects the debentures to be anti-dilutive to earnings per share for the remainder of fiscal 1998, ending January 31, 1999, and at least through the end of fiscal 1999, ending January 31, 2000. The debentures were sold by the company to Lehman Brothers as initial purchaser who re-offered the debentures to institutional investors pursuant to Rule 144A. This press release shall not constitute an offer to sell or the solicitation of an offer to buy the debentures. The securities offered will not be and have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. Statements in this news release which relate to the future are subject to risk factors and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements. Additional information regarding these and other risk factors and uncertainties may be found in the Company's filings with the Securities and Exchange Commission. Comverse Technology, Inc., headquartered in Woodbury, NY, designs, develops, manufactures and markets computer and telecommunications systems and software for communications and information processing applications. Comverse's products include: multimedia enhanced services platforms marketed under the names Access NP(R) and TRILOGUE(R) Infinity(TM), which are currently used by more than 250 wireless and wireline telecommunications network operators to provide revenue- generating services such as call answering, voice/fax/text messaging, pre-paid services, and other personal communications services; multiple channel, multimedia digital monitoring systems marketed to law enforcement and intelligence agencies under the name AUDIODISK(TM); and multiple channel, multimedia recording systems marketed to call centers, financial institutions and other organizations under the name ULTRA(TM). - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----