Re: Convertible Bond Hedge Transaction

Hedge Agreement

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VIROPHARMA INC

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Title: Re: Convertible Bond Hedge Transaction
Governing Law: New York Date: 3/26/2007
Industry: BIOTRX

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Confirmation of Convertible Bond Hedge Transaction

Exhibit 10.2

EXECUTION COPY

Opening Transaction


To:		ViroPharma Incorporated

A/C:		[Insert Account Number]

From:		Wells Fargo Bank, National Association

Re:		Convertible Bond Hedge Transaction

Ref. No:		[Insert Reference Number]

Date:		March 20, 2007

Dear Sir(s):

The purpose of this communication (this “Confirmation”) is to set forth the terms and conditions of the above-referenced transaction entered into on the Trade Date specified below (the “Transaction”) between Wells Fargo Bank, National Association (“Dealer”) and ViroPharma Incorporated (“Counterparty”). This communication constitutes a “Confirmation” as referred to in the ISDA Master Agreement specified below.

1. This Confirmation is subject to, and incorporates, the definitions and provisions of the 2000 ISDA Definitions (including the Annex thereto) (the “2000 Definitions”) and the definitions and provisions of the 2002 ISDA Equity Derivatives Definitions (the “Equity Definitions”, and together with the 2000 Definitions, the “Definitions”), in each case as published by the International Swaps and Derivatives Association, Inc. (“ISDA”). In the event of any inconsistency between the 2000 Definitions and the Equity Definitions, the Equity Definitions will govern. Certain defined terms used herein have the meanings assigned to them in the First Supplemental Indenture to be dated as of March 26, 2007 between Counterparty and Wilmington Trust Company, as trustee (the “Indenture”) relating to the USD225,000,000 principal amount of 2.00% convertible senior notes due 2017 (the “Convertible Notes”). In the event of any inconsistency between the terms defined in the Indenture and this Confirmation, this Confirmation shall govern. For the avoidance of doubt, (i) the Transaction shall be the only transaction under the Agreement and (ii) references herein to sections of the Indenture are based on the draft of the Indenture most recently reviewed by the parties at the time of execution of this Confirmation. If any relevant sections of the Indenture are changed, added or renumbered between the execution of this Confirmation and the execution of the Indenture, the parties will amend this Confirmation in good faith to preserve the economic intent of the parties. The parties further acknowledge that references to the Indenture herein are references to the Indenture as in effect on the date of its execution and if the Indenture is amended following its execution, any such amendment will be disregarded for purposes of this Confirmation unless the parties agree otherwise in writing. The Transaction is subject to early unwind if the closing of the Convertible Notes is not consummated for any reason, as set forth below in Section 8(l).

Each party is hereby advised, and each such party acknowledges, that the other party has engaged in, or refrained from engaging in, substantial financial transactions and has taken other material actions in reliance upon the parties’ entry into the Transaction to which this Confirmation relates on the terms and conditions set forth below.

This Confirmation evidences a complete and binding agreement between Dealer and Counterparty as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall be subject to an agreement (the “Agreement”) in the form of the 1992 ISDA Master Agreement as if Dealer and Counterparty had executed an agreement in such form on the date hereof (but without any Schedule except for (i) the election of Loss and Second Method and US Dollars (“USD”) as the Termination Currency, (ii) the replacement of the word “third” in the last line of Section 5(a)(i) with the word “first” and (iii) the election that the “Cross Default” provisions of Section 5(a)(vi) shall apply to Counterparty with a “Threshold Amount” of USD 10 million).

All provisions contained in, or incorporated by reference to, the Agreement will govern this Confirmation except as expressly modified herein. In the event of any inconsistency between this Confirmation and either the Definitions or the Agreement, this Confirmation shall govern.

2. The Transaction constitutes a Share Option Transaction for purposes of the Equity Definitions. The terms of the particular Transaction to which this Confirmation relates are as follows:

General Terms:



Trade Date:		March 20, 2007

Effective Date:		March 26, 2007

Option Style:		Modified American, as described under “Procedures for Exercise” below.

Option Type:		Call

Seller:		Dealer

Buyer:		Counterparty

Shares:		The Common Stock of Counterparty, par value USD0.002 per share (Ticker Symbol: “VPHM”).

Number of Options:		The number of Convertible Notes in denominations of USD1,000 principal amount issued by Counterparty on the closing date for the initial issuance of the Convertible Notes; provided that the Number of Options shall be automatically increased as of the date of exercise by Goldman, Sachs & Co. (“GS&Co.”), as representative of the Underwriters (as defined in the Underwriting Agreement), of their option pursuant to Section 2 of the Underwriting Agreement dated as of March 20, 2007 between Counterparty and GS&Co. as representative of the Underwriters party thereto (the “Underwriting Agreement”) by the number of Convertible Notes in denominations of USD1,000 principal amount issued pursuant to such exercise (such Convertible Notes, the “Additional Convertible Notes”). For the avoidance of doubt, the Number of Options outstanding shall be reduced by each exercise of Options hereunder.

Option Entitlement:		As of any date, a number of Shares per Option equal to the Applicable Conversion Rate (as defined in the Indenture, but without regard to any adjustments to the Applicable Conversion Rate pursuant to Sections 12.01(f) or 12.04(f) of the Indenture) as of such date.



Strike Price:		As of any date, an amount in USD, rounded to the nearest cent (with 0.5 cents being rounded upwards), equal to USD1,000 divided by the Option Entitlement as of such date.

Applicable Percentage:		25%

Number of Shares:		The product of the Number of Options, the Option Entitlement and the Applicable Percentage.

Premium:		USD 21,324,375.00 (Premium per Option USD 94.775); provided that if the Number of Options is increased pursuant to the proviso to the definition of “Number of Options” above, an additional Premium equal to the product of the number of Options by which the Number of Options is so increased and the Premium per Option shall be paid on the Additional Premium Payment Date.

Premium Payment Date:		The Effective Date

Additional Premium Payment Date:		The closing date for the purchase and sale of the Additional Convertible Notes.

Exchange:		The NASDAQ Global Select Market

Related Exchange:		All Exchanges

Procedures for Exercise:


Exercise Date:		Each Conversion Date.

Conversion Date:		Each “Conversion Date”, as defined in the Indenture, occurring during the Exercise Period for Convertible Notes other than Convertible Notes with respect to which Counterparty makes the direction described in Section 12.02(c) of the Indenture and the financial institution designated by Counterparty accepts such Convertible Notes in accordance with Section 12.02(c) of the Indenture (such Convertible Notes, other than those excluded above (each in denominations of USD1,000 principal amount), the “Relevant Convertible Notes” for such Conversion Date). For the avoidance of doubt, Convertible Notes are “accepted” for purposes of the foregoing upon the earlier of the declaration of the designated financial institution’s agreement to exchange such Convertible Notes or delivery of such Convertible Notes to such financial institution for purposes of such exchange.

Exercise Period:		The period from and excluding the Trade Date to and including the Expiration Date.

Expiration Date:		The earlier of (i) the last day on which any Convertible Notes remain outstanding and (ii) the third “Scheduled Trading Day”, as defined in the Indenture, immediately preceding the “Maturity Date”, as defined in the Indenture.

Automatic Exercise on Conversion Dates:		On each Conversion Date, a number of Options equal


		to the number of Relevant Convertible Notes for such Conversion Date in denominations of USD1,000 principal amount shall be automatically exercised, subject to “Notice of Exercise” below.

Notice Deadline:		In respect of any exercise of Options hereunder, the Scheduled Trading Day following the relevant Conversion Date; provided that if such exercise is a Net Share Exercise, the Notice Deadline shall be the Scheduled Trading Day immediately preceding the first Scheduled Trading Day of the relevant Observation Period, as defined in the Indenture, subject to “Notice of Exercise” below.

Net Share Exercise:		Any exercise of Options that relates to the Relevant Convertible Notes for any Conversion Date (i) following the date on which Counterparty has made the irrevocable election to satisfy its conversion obligation by paying principal in cash and any excess of the conversion obligation over the principal amount in Shares in accordance with Section 12.02(b) of the Indenture (such election, the “Net Share Conversion Election,” and any such Relevant Convertible Notes, “Net Share Settled Relevant Convertible Notes”), or (ii) not following the date on which Counterparty has made the Net Share Conversion Election and (a) occurring prior to the period starting on the 30th Scheduled Trading Day immediately preceding the Maturity Date and ending on the Maturity Date (such period, the “Final Conversion Period”) or (b) occurring during the Final Conversion Period if the Settlement Method Reference Price is greater than 90% of the Strike Price as of the last Settlement Method Reference Date and less than 110% of such Strike Price. In the case of clause (ii), the Relevant Convertible Notes for the relevant Conversion Date shall be considered Net Share Settled Relevant Convertible Notes. for purposes hereof, and the Observation Period for such Relevant Convertible Notes shall be deemed to be the Observation Period for such Relevant Convertible Notes that would apply if Counterparty had made the Net Share Conversion Election.

Settlement Method Reference Price:		For any Settlement Method Reference Date, the arithmetic average of the “Daily VWAP”, as defined in the Indenture, for all of the Settlement Method Reference Dates as if each such date were a “VWAP Trading Day,” as defined in the Indenture, occurring during an Observation Period.

Settlement Method Reference Dates:		The ten consecutive VWAP Trading Days ending on the first day of the Final Conversion Period (or, if such day is not a VWAP Trading Day, ending on the immediately preceding VWAP Trading Day).


Notice of Exercise:	Notwithstanding anything to the contrary in the Equity Definitions, Dealer shall have no obligation to make any payment or delivery in respect of any exercise of Options hereunder unless Counterparty notifies Dealer and the Calculation Agent in writing prior to 5:00 PM, New York City time, on the Notice Deadline in respect of such exercise of (i) the number of Options being exercised on such Exercise Date, (ii) the scheduled settlement date under the Indenture for the Relevant Convertible Notes for the related Conversion Date, (iii) whether such Relevant Convertible Notes are Net Share Settled Relevant Convertible Notes and (iv) if such exercise is a Net Share Exercise, the first Scheduled Trading Day of the relevant Observation Period. Notwithstanding the foregoing, in the case of any Net Share Exercise of Options hereunder in connection with the conversion of any Relevant Convertible Notes for any Conversion Dates occurring during the Final Conversion Period, (a) the Notice Deadline shall be 12:00 p.m. (New York City time) on the Scheduled Trading Day immediately following the relevant Exercise Date and the content of such notice shall be as set forth in clauses (i), (ii) and (iii) above. For the avoidance of doubt, if Counterparty fails to give such notice when due in respect of any exercise of Options hereunder, Dealer’s obligation to make any payment or delivery in respect of such exercise shall be permanently extinguished, and late notice shall not cure such failure; provided that, in the case of any Net Share Exercise hereunder, notwithstanding the foregoing, such notice (and the related automatic exercise of Options) shall be effective if given after the relevant Notice Deadline but prior to 5:00 PM New York City time, on the fifth Exchange Business Day of the relevant Observation Period, in which event the Calculation Agent shall have the right to adjust the Delivery Obligation (as defined below) as appropriate to reflect the additional costs (including, but not limited to, hedging mismatches and market losses) and expenses incurred by Dealer or Hedging Party or any of their respective affiliates in connection with their hedging activities (including the unwinding of any hedge position) as a result of their not having received such notice prior to the applicable Notice Deadline.

Dealer’s Telephone Number and Telex and/or Facsimile Number and Contact Details for purpose of Giving Notice:	To:	Wells Fargo Bank, N.A.
		550 California Street
		14th Floor
		San Francisco, CA 94104

	Attn:	Financial Products Documentation Group


	Equities Trading Manager
	Telephone:	(415) 396-3962
	Facsimile:	(415) 646-9208

	With a copy to:

	Attn:	Michele Beasley
	Facsimile:	(415) 646-9208

Calculation Agent’s Telephone Number and Telex and/or Facsimile Number and Contact Details for purposes of
Giving Notice:	All communications relating to the Transaction or the Agreement shall be transmitted exclusively:

	Through:	Goldman, Sachs & Co.
		One New York Plaza
		New York, NY 10004

	Attn:	Equity Operations:
		Options and Derivatives
	Telephone:	(212) 902-8996
	Facsimile:	(212) 902-0112

	With a copy to:

	Attn:	Tracey McCabe
		Equity Capital Markets
	Telephone:	(212) 357-0428
	Facsimile:	(212) 902-3000

Settlement Terms:



Settlement Date:		For any Exercise Date, the settlement date for the Shares to be delivered in respect of the Convertible Notes for the relevant Conversion Date under the terms of the Indenture; provided that the Settlement Date shall not be prior to the latest of (i) the date one Settlement Cycle following such Conversion Date (or, in the case of a Net Share Exercise, the final day of the relevant Observation Period), (ii) the Exchange Business Day immediately following the date on which Counterparty gives notice to Dealer of such Settlement Date prior to 5:00 PM, New York City time, and (iii) the Exchange Business Day immediately following the date Counterparty provides the Notice of Delivery Obligation prior to 5:00 PM, New York City time.

Delivery Obligation:		In lieu of the obligations set forth in Sections 8.1 and 9.1 of the Equity Definitions, and subject to “Notice of Exercise” above, in respect of any Exercise Date, Dealer will deliver to Counterparty on the related Settlement Date a number of Shares equal to the


		product of (x) the Applicable Percentage and (y) the aggregate number of Shares, if any, that Counterparty is obligated to deliver to the holder(s) of the Relevant Convertible Notes for such Conversion Date pursuant to Section 12.02(a) of the Indenture or, if the exercise of Options hereunder occurring on such Exercise Date is a Net Share Exercise, pursuant to Section 12.02(b) of the Indenture (except that such aggregate number of Shares shall be determined without taking into consideration any rounding pursuant to Section 12.02(a) or 12.02(b), as the case may be, of the Indenture and shall be rounded down to the nearest whole number) and cash in lieu of fractional shares, if any, resulting from such rounding (such Shares and cash, if any, in lieu of fractional Shares collectively, the “Convertible Obligation”); provided that the Convertible Obligation shall be determined excluding any Shares (and cash in lieu of fractional Shares, if any) that Counterparty is obligated to deliver to holder(s) of the Relevant Convertible Notes as a direct or indirect result of any adjustments to the Conversion Rate pursuant to Sections 12.01(f) or 12.04(f) of the Indenture and any interest payment that the Counterparty is (or would have been) obligated to deliver to holder(s) of the Relevant Convertible Notes for such Conversion Date; and provided further that, if the exercise of Options hereunder occurring on such Exercise Date is a Net Share Exercise of the type described in clause (ii) of the definition of Net Share Exercise, the Delivery Obligation shall be determined as if Counterparty had made the Net Share Conversion Election, except that, if such Exercise Date occurs during the Final Conversion Period and the Delivery Obligation Value would otherwise exceed the Convertible Obligation Value, the number of Shares comprising the Delivery Obligation shall be reduced (and the amount of cash in respect of fractional Shares shall be adjusted) so that the resulting Delivery Obligation Value equals the Convertible Obligation Value; and provided further that if such exercise relates to the conversion of Relevant Convertible Bonds in connection with which holders thereof are entitled to receive additional Shares pursuant to the adjustments to the Applicable Conversion Rate set forth in Section 12.01(f) of the Indenture, then, notwithstanding the foregoing, the Delivery Obligation shall include such additional Shares, except that the Delivery Obligation shall be capped so that the value of the Delivery Obligation (as determined by the Calculation Agent using the VWAP Price on the relevant Obligation Value Date) does not exceed (A) if such exercise is not a Net Share Exercise, the sum of (x) the amount as determined by the Calculation Agent using the VWAP Price on the relevant Obligation Value Date that would be payable by Dealer pursuant to Section


		6 of the Agreement if such Conversion Date were an Early Termination Date resulting from an Additional Termination Event with respect to which the Transaction (except that, for purposes of determining such amount, the Number of Options shall be deemed to be equal to the number of Options exercised on such Exercise Date) was the sole Affected Transaction and Counterparty was the sole Affected Party (determined without regard to Section 8(c) of this Confirmation) (the “Unwind Value”) and (y) the aggregate principal amount of such Relevant Convertible Bonds, or (B) if such exercise is a Net Share Exercise, the Unwind Value. For the avoidance of doubt, in the case of any Net Share Exercise hereunder, if the “Daily Conversion Value”, as defined in the Indenture, for each of the VWAP Trading Days occurring in the relevant Observation Period is less than or equal to USD40, Dealer will have no delivery obligation hereunder in respect of the related Exercise Date. For the avoidance of doubt, Dealer’s obligations set forth in this paragraph are conditioned on Counterparty’s satisfaction of its obligations, if any, set forth below under “Counterparty Payment Obligation On Certain Settlement Dates”.

Delivery Obligation Value:		The value of the Delivery Obligation (determined without regard to the exception at the end of the first further proviso to the first sentence of “Delivery Obligation” above), as determined by the Calculation Agent using a per Share value for any Shares comprising the Delivery Obligations equal to the Relevant Price on the Obligation Value Date as if such date were a Valuation Date (the “Obligation Value Price”).

Convertible Obligation Value:		The Applicable Percentage of the difference of (i) the value of the Convertible Obligation, as determined by the Calculation Agent using a per Share value for any Shares comprising the Convertible Obligation equal to the Obligation Value Price, minus (ii) the principal amount of the Relevant Convertible Notes for the related Conversion Date. For the avoidance of doubt, the Convertible Obligation Value shall be determined based on the actual Convertible Obligation, and Counterparty shall not be deemed to have made the Net Share Conversion Election, and the Relevant Convertible Notes shall not be deemed to be Net Share Settled Relevant Convertible Notes, for purposes of such determination.

Obligation Value Date:		The second Exchange Business Day immediately preceding the relevant Settlement Date.

Notice of Delivery Obligation:		No later than the Exchange Business Day immediately following the Conversion Date (or, in


		the case of a Net Share Exercise, the last day of the relevant Observation Period), Counterparty shall give Dealer and the Calculation Agent notice of the final number of Shares (and cash in lieu of fractional Shares, if any) comprising the relevant Convertible Obligation; provided that, with respect to any Exercise Date for a Net Share Exercise occurring during the Final Conversion Period, Counterparty may provide Dealer and the Calculation Agent each with a single notice of the aggregate number of Shares (and cash in lieu of fractional Shares, if any) comprising the Convertible Obligations for all Exercise Dates occurring during such period (it being understood, for the avoidance of doubt, that the requirement of Counterparty to deliver such notice shall not limit Counterparty’s obligations with respect to Notice of Exercise or Dealer’s obligations with respect to Delivery Obligation, each as set forth above, in any way).

Counterparty Payment On Certain
Settlement Dates:		In the case of any exercise of Options hereunder other than a Net Share Exercise, in lieu of the obligations set forth in Sections 8.1 and 9.1 of the Equity Definitions, Counterparty shall pay to Dealer on the related Settlement Date in immediately available funds an amount in cash equal to the product of the number of Options being exercised on such Exercise Date and USD1,000.

Other Applicable Provisions: