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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (Fee Required)
For the fiscal year ended December 31, 1999
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from ___________ to ___________
Commission File No. 0-16132
CELGENE CORPORATION
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(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 22-2711928
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(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
7 Powder Horn Drive
Warren, New Jersey 07059
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(Address of principal executive offices) (Zip Code)
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(732) 271-1001
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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Aggregate market value of voting stock held by non-affiliates of
registrant as of March 1, 2000: $3,530,935,951
Number of shares of Common Stock outstanding as of March 1, 2000:
21,363,806
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CELGENE CORPORATION ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
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ITEM NO. PAGE
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Part I
1. Business ................................................ 2
2. Properties .............................................. 22
3. Legal Proceedings ....................................... 22
4. Submission of Matters to a Vote of Security Holders...... 22
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters ..................................... 23
6. Selected Consolidated Financial Data .................... 24
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 25
7a. Quantitative and Qualitative Disclosures about Market
Risk .................................................... 27
8. Financial Statements and Supplementary Data ............. 27
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ..................... 28
Part III
10. Directors and Executive Officers of the Registrant ...... 29
11. Executive Compensation .................................. 31
12. Security Ownership of Certain Beneficial Owners and
Management .............................................. 34
13. Certain Relationships and Related Transactions .......... 35
Part IV
14. Exhibits, Financial Statements, and Reports on Form
8-K ..................................................... 35
Signatures .............................................. 36
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PART I
ITEM 1. BUSINESS
Celgene Corporation, a Delaware Corporation incorporated in 1986, is an
independent biopharmaceutical company engaged primarily in the discovery,
development and commercialization of orally administered, small molecule drugs
for the treatment of cancer and immunological diseases. The key mechanisms of
action for our drugs are modulation of the overproduction of TNF-- and
inhibition of angiogenesis. Additionally, our chiral chemistry program develops
chirally pure versions of existing compounds for both pharmaceutical and
agrochemical markets. We had total revenues of $26.2 million in 1999.
The FDA approved our first commercialized product, THALOMID, for sale in
the United States in July 1998. The approved indication for THALOMID is for the
treatment of acute cutaneous manifestations of moderate to severe ENL and as
maintenance therapy for prevention and suppression of cutaneous manifestation
recurrences. ENL is an inflammatory complication of leprosy. We sell this
product in the United States through our 60 person sales and commercialization
organization.
Our pipeline of new drugs is highlighted by two classes of orally
administered therapeutic agents: IMiDs and SelCIDs. The IMiD class is based on
the activity of THALOMID in modulating the overproduction of TNF-- and
inhibiting angiogenesis. In preclinical studies, our IMiDs have demonstrated a
higher level of activity than thalidomide. In animal models, these compounds
did not cause birth defects or sedation. We completed Phase I trials in the
fourth quarter of 1999 for each of our lead IMiDs. The results, announced in
February, 2000, found that both IMiDs were well-tolerated in healthy human
volunteers.
The second class of compounds, SelCIDs, is designed to modulate TNF-- by
selectively inhibiting PDE 4, a key cell-signaling enzyme. Our SelCIDs are
targeted to control inflammation without broad suppression of the immune
system. Phase I trials demonstrated our lead SelCID compound, CDC 801, was safe
and well tolerated. There were no signs of nausea or vomiting, common side
effects of known PDE 4 inhibitors. CDC 801 is being tested in a Phase II pilot,
placebo controlled trial for the treatment of Crohn's disease. This trial is
expected to be completed in the first half of 2000.
In the third quarter of 1999, we announced favorable clinical results of
two Phase III pivotal efficacy trials for ATTENADE, a chirally pure version of
dl-methylphenidate. dl-methylphenidate is commonly marketed as Ritalin.
ATTENADE is designed to treat the symptoms of Attention Deficit Disorder, or
ADD and Attention Deficit Hyperactivity Disorder, or ADHD. We expect that the
final 12-month safety trial will be completed in the first half of 2000 and we
plan to submit an NDA to the FDA in the second half of 2000.
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CELGENE PRODUCT OVERVIEW
The target disease states for, and clinical trial status of, THALOMID and
our products and compounds currently under development are outlined in the
following table:
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PRODUCT INDICATION/INTENDED USE STATUS
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THALOMID Erythema Nodosum Leprosum (ENL) Approved
Multiple Myeloma Phase II trial data published and
presented at the American Society of
Hematology. Phase III pivotal trial
protocol in preparation.
Myelodysplastic Syndrome Phase II trial ongoing and initial data
presented at the American Society of
Hematology.
Leukemia Multiple Phase II trials underway.
Glioblastoma(1) Initial Phase II trials completed. Other
Phase II trials underway.
Liver Cancer Phase II trial underway.
Kidney Cancer Phase II trial underway.
Prostate Cancer(1) Initial Phase II trial completed. Other
Phase II trials underway.
Kaposi's Sarcoma(1) Phase II trial completed.
Cancer Cachexia Initial Phase II trial completed.
Sarcoidosis Initial Phase II trial completed. Other
Phase II trials underway.
Scleroderma Initial Phase II trial completed.
Recurrent Aphthous Stomatitis Phase III pivotal trial completed in
AIDS patients.
Crohn's disease Phase II trial completed and initial
data published.
Ulcerative Colitis Phase II trial underway.
Colon and Rectal Cancer(1) Phase II trial announced.
SelCIDs
CDC 801 Crohn's disease Phase II trial underway.
CC 7085 Crohn's disease Preclinical toxicology.
IMiDs
CDC 501 Blood cancers Initial Phase I trial completed.
CC 4047 Blood cancers Initial Phase I trial completed.
ATTENADE Attention Deficit Disorder and Attention Phase III pivotal efficacy trials
Deficit Hyperactivity Disorder completed. Phase III safety trials
ongoing.
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(1) At least one study supported by the National Cancer Institute
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OVERVIEW OF ONCOLOGY AND IMMUNOLOGY
Our clinical and commercial focus is to produce a portfolio of highly
potent, selective drugs that have the potential to regulate the overproduction
of TNF-- and are anti-angiogenic.
TNF--, produced primarily by certain white blood cells, is one of a number
of proteins called cytokines that act as chemical messengers throughout the
body to regulate many aspects of the immune system. TNF-- is essential to
mounting an inflammatory response, which is the normal immune system reaction
to infection or injury that rids the body of foreign agents and promotes tissue
repair. However, chronic or excessive production of TNF-- has been implicated
in a number of acute and chronic inflammatory diseases. These disease states,
which are inadequately treated with existing therapies, include non-insulin
dependent diabetes, Alzheimer's disease, congestive heart failure, inflammatory
bowel disease, rheumatoid arthritis, cancer cachexia, Parkinson's disease,
multiple sclerosis and lupus.
Traditional therapies for these disease states include anti-inflammatory
drugs and immunosuppressive agents. These therapies often fail to achieve
significant clinical benefits and can cause serious side effects such as severe
drops in certain blood component counts, liver toxicity, osteoporosis,
teratogenicity and various endocrine abnormalities. We believe that selective
control and reduction of TNF-- represents a promising new strategy for treating
chronic inflammatory diseases. In pursuit of this strategy, two broad classes
of compounds have been investigated: proteins and small synthetic molecules.
Anti-TNF-- proteins, including anti-TNF-- antibodies and TNF-- soluble
receptors, have demonstrated efficacy in the treatment of such chronic
inflammatory diseases as rheumatoid arthritis and Crohn's disease. While
initial doses of these anti-TNF-- proteins have been well tolerated and have
reduced disease activity in clinical studies, these proteins exhibit certain
shortcomings linked to their nature as proteins. First, they are large
molecules that must currently be injected or infused. Second, the period of
efficacy of a given dosage of a protein-based drug can decline with repeated
administration, rendering protein-based drugs more suitable for treatment of
acute pathological conditions rather than chronic disease states. This
limitation is due in part to increasing production by a patient's immune system
of antibodies that neutralize administered proteins.
There are a number of large molecule, protein-based therapeutic products
under development by other companies for TNF-- modulation. One product has
received approval from the FDA for the treatment of Crohn's disease and
rheumatoid arthritis, and another has received approval for rheumatoid
arthritis. Synthetic small molecule drugs, however, if successfully developed,
may prove to be preferable in the treatment of chronic inflammatory diseases,
due to factors such as oral dosing, lower cost of therapy and avoidance of
undesirable immune response that results in adverse side effects and reduced
efficacy. We believe that our small molecule immunotherapeutic compounds have
the potential to selectively modulate TNF-- while affording these benefits.
In addition, research has indicated that our small molecule drug,
THALOMID, is anti-angiogenic. Angiogenesis is the fundamental biological
process by which new blood vessels are formed. Cancer cells require oxygen and
nutrients and initiate a biochemical mechanism that stimulates angiogenesis
which, in turn, provides the cancerous cells with the blood supply that they
need to grow. Inhibition of angiogenesis could adversely affect the graft of a
tumor and be a potential anti-cancer therapy. This therapy could be also used
in conjunction with radiation or more traditional chemotherapeutic agents.
Currently, a number of anti-angiogenic agents are being developed by a number
of companies. However, we believe that THALOMID is the only product on the
market that has a direct anti-angiogenic effect. Moreover, preliminary research
suggests that our two new classes of small molecule immunotherapeutic compounds
- -- one of which is based on thalidomide's activity -- may be anti-angiogenic.
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THALOMID
In July 1998, we received FDA approval to market THALOMID for treatment of
ENL and the product was launched in late September 1998. THALOMID is the first
drug approved under a special "Restricted Distribution for Safety" regulation
and is distributed through our S.T.E.P.S. program. Our program is designed to
support the safe and appropriate use of THALOMID and has been made a part of
the approved labeling for THALOMID. We are currently developing THALOMID for
the treatment of a variety of serious disease states for which we believe there
are currently no adequate approved therapies. Our current intent is to seek FDA
approval for THALOMID for at least one cancer of the blood, such as multiple
myeloma, one solid tumor cancer and an AIDS-related indication.
The immunological and anti-angiogenic properties of THALOMID are being
investigated as the basis for treatment of a variety of oncological diseases,
and a number of trials are ongoing, some in cooperation with the NCI, to
evaluate the potential of the drug in cancer. Key investigations include
multiple myeloma, which was the subject of an article and editorial in the
November 18, 1999 issue of The New England Journal of Medicine, Volume 341,
Number 21, and glioblastoma multiforme, for which initial data were presented
in November 1999 at the Chemotherapy Foundation Symposium XVII in New York.
Additional presentations have been made at the 41st ASH Symposium in December
1999.
Our work with thalidomide was originally based on a scientific
collaboration with The Rockefeller University's Laboratory of Cellular
Physiology and Immunology. In the early 1990s, researchers at The Rockefeller
University discovered that thalidomide is a selective modulator of TNF-- and,
therefore, could be of potential benefit in many serious immune-related disease
states, including cachexia and other AIDS-related conditions. We believe that,
in serious and debilitating disease states, the risk of birth defects and other
potential side effects related to thalidomide is outweighed by the drug's
potential clinical benefits. The Rockefeller University has granted to us
certain exclusive rights and licenses to manufacture, use and sell thalidomide
for treating the toxicity associated with high concentrations of TNF-- in
septic shock, cachexia and HIV-related disease states. Researchers at the
Children's Medical Center, which is affiliated with Harvard University,
discovered that thalidomide is anti-angiogenic and filed patents on this
utility. These patents, some of which have not issued in the United States, are
exclusively licensed to EntreMed, Inc. We were granted an exclusive sublicense
to all of EntreMed's thalidomide patents in December 1998.
As a result of our own applications and designations acquired from
EntreMed, we now have Orphan Drug designations from the FDA for THALOMID
covering: primary brain malignancies; HIV associated wasting syndrome; severe
Recurrent Aphthous Stomatitis, or RAS, in severely, terminally
immunocompromised patients; clinical manifestations of mycobacterial infections
caused by Mycobacterium tuberculosis and non-tuberculous mycobacteria; ENL;
multiple myeloma; Crohn's disease and Kaposi's sarcoma. If the FDA approves any
of these indications for THALOMID, we will be granted a seven-year period of
exclusivity during which time the FDA is prohibited, except under some
conditions, from approving another version of thalidomide for the approved
indication.
Thalidomide was developed initially as a sedative, and was also widely
prescribed by doctors in Europe in the late 1950s and early 1960s to pregnant
women for relief of morning sickness. After severe birth defects were later
observed with use of the drug, it was virtually removed from the world market.
Thalidomide was later discovered to have therapeutic effects in the treatment
of ENL, a disease that is rare in the United States but common in many parts of
the developing world. Although the FDA had never approved the marketing of
thalidomide, the U.S. Public Health Service has dispensed the drug for the
treatment of ENL for the past 25 years. We note that thalidomide's history may
limit market acceptance of THALOMID.
ONCOLOGY
Cancer tissue has many blood vessels. This observation has led to the
realization that growth of blood vessels is essential for tumor growth,
invasion and metastasis. Specifically, developing solid primary tumors are
believed to remain clinically insignificant unless they can arrange to obtain
nourishment from their host. Biochemically, an invasive tumor acts by altering
a complex system of factors causing the
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formation of new blood vessels from existing ones. Almost three decades ago, it
was proposed that this tumor angiogenesis could be a target of cancer therapy.
Anti-angiogenic compounds were believed to be able to work by reducing or
halting remaining tumor growth and could also be used in conjunction with more
traditional chemotherapeutic agents. Thalidomide was discovered to be
anti-angiogenic at the Children's Medical Center in Boston.
We are currently working with the NCI and a number of clinical
investigators to assess the potential of THALOMID in the treatment of various
cancers. In the first 12 months after THALOMID was commercially launched in the
United States, approximately 70% of the product's prescriptions were in
oncology, as reported by prescribers on our S.T.E.P.S. program enrollment
surveys.
Multiple Myeloma. Multiple myeloma is a malignant proliferation of plasma
cells and plasmacytoid cells. It is the second most common blood borne
malignancy and is invariably fatal. According to the Leukemia Society of
America, multiple myeloma accounts for about 13% of blood borne disease and
affects approximately 40,000 people in the United States. The incidence of this
disease is approximately four per 100,000, and approximately 14,400 cases are
reported annually with approximately 11,000 deaths associated with the disease
every year.
Clinical research published in the November 18, 1999 edition of The New
England Journal of Medicine, Volume 341, Number 21, reported results of a study
conducted at the University of Arkansas on the use of THALOMID in 84 multiple
myeloma patients with advanced stage disease and histories of extensive prior
chemotherapeutic interventions, radiation treatments and multiple bone marrow
transplants. This Phase II study found that 32% of the patients had a partial
response and 10% of the patients had a complete or nearly complete remission
based on decreases in paraprotein, the myeloma protein in serum, or Bence Jones
protein in urine, important markers of the progression of the disease. Clinical
data from 180 patients in this study was presented at the December 1999 ASH
meeting by researchers at the University of Arkansas who reported that 36% of
the patients achieved a 25% reduction in tumor burden. Eighteen patients
achieved paraprotein response of at least 90%, 14 patients achieved at least a
75% paraprotein response, 16 patients achieved at least a 50% paraprotein
response and four patients achieved a complete response. Side effects reported
by the investigators were constipation, weakness/fatigue and somnolence. A
number of additional presentations and posters presented confirmatory evidence
at the ASH meeting regarding the efficacy of THALOMID. In September 1999,
similar findings were reported at the International Myeloma Workshop in
Stockholm, Sweden on trials conducted at Cedars-Sinai Medical Center, Los
Angeles. In this Phase II, open label study of 20 relapsing or progressive
multiple myeloma patients utilizing low-dose THALOMID administered over an
eight-week trial period, 30% of patients experienced a greater than 50%
reduction of tumor burden. Further data confirming earlier trials was presented
at the Chemotherapy Foundation Symposium XVII in November 1999 in New York on
15 refractory patients treated at Saint Vincent's Medical Center, New York in
which there was observed a 67% overall response with THALOMID alone or in
combination with chemotherapy.
In the 12 months following the launch of THALOMID, as reported by
prescribers on our S.T.E.P.S. program enrollment surveys, approximately 30% of
total usage was in multiple myeloma. Based on this information and on the
growing volume of clinical trial data, our plan is to develop a
regulatory/clinical program based on what has been learned from these studies
and file a supplemental NDA for THALOMID for the treatment of multiple myeloma.
Glioblastoma Multiforme. Glioblastomas are the most common brain tumors
and account for 50% of all gliomas, an aggressive form of brain cancer. The
usual treatment of high-grade gliomas is surgical removal followed by radiation
therapy.
Studies at the New York University School of Medicine and at the Dana
Farber Institute have demonstrated the potential for thalidomide as a treatment
for glioblastoma multiforme. Phase I/II data from the New York University trial
were presented in November 1999 at the Chemotherapy Foundation Symposium XVII
in New York. THALOMID in combination with carboplatin was administered to 71
patients with recurrent glioblastoma multiforme. At the maximum tolerated dose
of THALOMID, 53 of the patients were evaluated for efficacy, with 70%
experiencing responses, two with partial responses, 35
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with disease stabilization. The trial's most commonly reported side effects
were constipation and drowsiness. A Phase III trial will assess whether
patients benefited because of the higher carboplatin doses or if there was any
synergy between thalidomide and carboplatin. Additionally, a Phase II trial has
been initiated in collaboration with the NCI's Radiation Therapy Oncology Group
to investigate the effect of THALOMID and radiation as co-therapy for the
treatment of glioblastoma.
Other Oncology Indications. In addition to glioblastoma multiforme, the
NCI is currently investigating THALOMID in clinical trials on prostate,
colorectal, head and neck and non-small cell lung cancer. Other trials such as
those in liver cancer, kidney cancer and leukemia are being run by key
investigators. Recently, researchers in London reported that continuous,
low-dose thalidomide is useful as an agent in patients with advanced cancers as
a palliative. That study showed that three of 18 patients with kidney cancer
also showed a response benefit and three patients had stabilization of their
disease for periods of up to six months. In addition, four of 17 melanoma
patients experienced stable disease for up to six months. According to a report
in the medical journal Lancet, follow-up studies using higher doses have also
shown "encouraging results" in patients with kidney cancer. These researchers
are now testing thalidomide in combination with interferon or interleukin 2 in
this group. Similarly, the NCI reported trial results in which 63 patients were
treated with either a low dose or a high dose of thalidomide. Approximately 53%
of the low dose and 68% of the high dose patients had declines in prostate
specific antigen, a recognized marker for prostate cancer. If successful, these
studies would establish proof of principle, leading to the design of additional
trials, including pivotal studies.
IMMUNOLOGY
THALOMID has been shown to impact the immune system both in vitro and in
vivo. Examples of such biological activities include the inhibition of TNF--,
stimulation of the anti-inflammatory cytokine IL-10 and activation of T-cell
function. These types of activities could prove to have therapeutic benefit in
a variety of inflammatory, infectious and autoimmune diseases. The two key
areas of investigation at present involve inflammatory bowel disease and
serious complications associated with HIV/AIDS. In addition, other areas of
investigation include sarcoidosis, an inflammation of body tissue which often
attacks the lungs and lymph nodes, and scleroderma, a chronic tissue disorder.
Erythema Nodosum Leprosum. ENL is a complication of leprosy, a chronic
bacterial disease. Although the disease is relatively rare in the United
States, leprosy afflicts millions worldwide. ENL occurs in about 30% of leprosy
patients and is characterized by cutaneous lesions, acute inflammation, fever
and anorexia. On July 16, 1998, we received approval from the FDA to market
THALOMID for the treatment of ENL.
Inflammatory Bowel Disease. According to the Crohn's and Colitis
Foundation of America, there are approximately one million Americans with
active inflammatory bowel disease. Inflammatory bowel disease is characterized
by serious chronic inflammation of the wall or any part of the gastrointestinal
tract and results in pain, bloating and diarrhea. In addition, the chronic
inflammation may result in abscesses and fistula formation. The most serious
form of inflammatory bowel disease is known as Crohn's disease with an
estimated 70,000 to 125,000 U.S. patients diagnosed with active moderate to
severe manifestation of the disease.
A Phase II pilot study using THALOMID in patients with severe Crohn's
disease has been concluded at the Cedars-Sinai Medical Center, Los Angeles, and
reported in the journal Gastroenterology. About 70% of the patients suffering
from moderate to severe Crohn's disease who completed at least five weeks of
the 12-week trial demonstrated a response when treated with low dose THALOMID,
with 20% of these patients experiencing remission. All patients were able to
reduce their steroid regimen by at least 50%, with 44% of patients
discontinuing steroids. Data from this trial suggests that THALOMID may provide
clinical benefit and potentially reduce the need for steroid treatment. This
combination of effects could mean improvement over current therapeutic options.
A similar Phase II pilot study has been initiated at Cedars-Sinai Medical
Center using THALOMID for chronically active ulcerative colitis, which is
another form of inflammatory bowel disease. Estimates of the prevalence of
ulcerative colitis in the United States generally range between 250,000 and
500,000. Recent preliminary data has shown that eight of 11 patients with
intractable bowel disease benefited from THALOMID.
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HIV/AIDS. Recurrent Aphthous Stomatitis, or RAS, is a complication of AIDS
characterized by lesions of the oral cavity, esophagus and gastrointestinal
tract and may interfere with normal eating. We believe RAS currently afflicts
an estimated 5,000 AIDS patients in the United States. Positive results have
been reported in a study conducted by the AIDS Clinical Trials Group of the
National Institutes of Health using a formulation of thalidomide manufactured
by a third party. In mid-1997, we began a pivotal clinical trial involving 84
patients for the evaluation of THALOMID in the treatment of RAS, using the same
principal investigator as the AIDS Clinical Trials Group study. We will be
analyzing this clinical trial data in 2000 with a view toward the possibility
of a supplemental NDA submission to the FDA.
S.T.E.P.S. PROGRAM
Working with the FDA and other governmental agencies as well as certain
advocacy groups, we designed and implemented our S.T.E.P.S. program, the
objective of which is the safe and appropriate use of THALOMID. This
proprietary program includes comprehensive physician, pharmacist and patient
education. Female patients are required to use contraception and are given
pregnancy tests regularly. All patients are also subject to other requirements,
including informed consent and participation in a confidential outcomes
registry managed on our behalf by an academic epidemiology research group.
Physicians are also required to comply with the educational, contraception
counseling, informed consent and pregnancy testing and other elements of the
program. Dispensing pharmacists are required to confirm that the physician is a
registered participant in the program, and that the patient has signed an
informed consent. Automatic refills are not permitted under the program and
each prescription may not exceed four weeks dosing. A new prescription is
required each month.
SALES AND COMMERCIALIZATION
We have established an organization of approximately 60 persons to sell
and commercialize THALOMID. These individuals have considerable experience in
the pharmaceutical industry and many have experience with oncological and
immunological products. We expect to expand our THALOMID sales and
commercialization group to support products we develop to treat oncological and
immunological diseases. We intend to market and sell the products we develop
for indications with accessible patient populations. For drugs with indications
with larger patient populations, we anticipate partnering with other
pharmaceutical companies. In addition, we are positioned to accelerate the
expansion of these sales resources as appropriate to take advantage of product
in-licensing and product acquistion opportunities. We intend to establish
commercial relationships with selected companies in other countries to market
THALOMID.
MANUFACTURING
THALOMID is formulated and encapsulated for us by Penn Pharmaceuticals
Ltd. of Great Britain in an FDA approved facility devoted exclusively to the
production of THALOMID capsules. Both the bulk manufacturing facility that
produces the drug substance for THALOMID and the Penn facility have been
certified as cGMP compliant. In certain instances, we may be required to make
substantial capital expenditures to access additional manufacturing capacity.
In addition, we have established a contract with another cGMP certified bulk
drug substance supplier for THALOMID that will begin in 2001 once the
regulatory process is completed. We are also actively seeking an alternate
manufacturer to provide additional capacity for the formulation and
encapsulation of THALOMID and expect that this will be concluded in 2000.
IMIDS
We have designed and synthesized a number of novel structural analogues of
thalidomide called IMiDs which have been demonstrated in in vitro tests to be
substantially more potent than thalidomide. There can be no assurance, however,
that the same effect can be duplicated in humans. Animal models have suggested
that our IMiDs do not cause the birth defects associated with thalidomide.
Research on these compounds has identified two clinical trial candidates and
each has completed a Phase I trial. Research continues on follow-on compounds
with enhanced immunological and anti-angiogenic activity.
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IMiDs may have potential for treating conditions where there is a deficiency in
T-cell activity, such as viral diseases including HIV-related diseases, or for
enhancing potential IL-12 mediated anti-tumor activities. In preclinical
studies, our lead IMiD compound has been shown to inhibit interleukins 1-beta,
6 and 12 while stimulating the production of interleukins 10 and 2 as well as
interferon gamma. The activity of T-cells is enhanced by the compound up to
1,000 times more than with thalidomide. We expect to advance our lead IMiD, CDC
501, into a Phase II pilot trial in a blood cancer during 2000. The U.S. Patent
and Trademark Office has issued composition of matter and use patents to us
relating to our IMiDs.
SELCIDS
We have designed, synthesized and tested a large number of SelCIDs. These
compounds have demonstrated the ability to be highly specific inhibitors of
TNF-- overproduction in in vitro bioassays of human cells. SelCIDs appear to
have a specific inhibitory effect on PDE 4, which is linked to the
overproduction of TNF--. Studies have determined that many of the SelCIDs
decrease synthesis of TNF-- through selective inhibition of PDE 4. Preclinical
and animal tests have shown this class of compounds to be up to 10,000 times
more active with a longer half-life than THALOMID. We believe that control of
TNF-- at its source, versus simple removal of circulating levels of the
cytokine, may facilitate more effective therapy without immune suppression.
There can be no assurance, however, that the same effect can be duplicated in
humans.
Our lead SelCID, CDC 801, was found to be well tolerated in two Phase I
trials completed in 1999 in the United Kingdom. A Phase II pilot trial for this
compound in Crohn's disease commenced in 1999 at the Cedars-Sinai Medical
Center and results are expected in the first half of 2000. In addition, we
expect to initiate a Phase II pilot trial for CDC 801 in a blood cancer during
2000. Other SelCIDs have been identified and the most advanced of these is
undergoing toxicological evaluation in preparation for the initiation of Phase
I trials. Unlike many therapeutics which inhibit PDE 4, SelCIDs have not shown
any evidence of acute nausea and vomiting in patients. The U.S. Patent and
Trademark Office has issued to us composition of matter and use patents
relating to our SelCIDs.
CHIRAL CHEMISTRY
Many human pharmaceuticals and agrochemicals exist in two different
three-dimensional configurations that are identical in chemical structure but
are mirror images of each other. These conformations, known as enantiomers, or
isomers, generally interact differently with biological targets. In clinical
applications, one isomer may result in the desired therapeutic effect by
stimulating or inhibiting a targeted biological function, while the other
isomer may be inactive or cause undesirable side effects. In contrast to
racemic compositions which contain both isomers, the use of chirally pure
pharmaceuticals can result in significant clinical benefits such as reduced
toxicity and increased efficacy. In agrochemical applications, the use of
chirally pure chemicals can result in a substantially reduced volume of product
required to achieve the desired benefit, thereby potentially lowering
manufacturing costs and reducing the environmental burden as compared with
racemic chemicals.
Our biocatalytic process enables the efficient production of chirally pure
compounds. This patented process is based primarily on the use of enzymes
called aminotransaminases, which are optimized by us through a variety of
techniques including genetic engineering. These enzymes catalyze the production
of only the desired stereoisomer of a chiral compound and can be used in
conventional chemical synthesis reactors at room temperature.
Our biocatalytic process for producing chirally pure compounds differs
from the more common approach of producing racemic mixtures followed by
separation of the desired stereoisomer through resolution techniques such as
crystallization or chromatography. These traditional approaches to producing
chirally pure compounds can be cumbersome, result in low yields, use
substantial amounts of raw materials and involve the disposition of waste
product. Traditional approaches also are generally less economical than our
process. We believe that our biocatalytic process can be applied to the
manufacture of a wide variety of organic chemicals.
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We believe there is a significant incremental opportunity in developing
selected, chirally pure versions of approved drugs currently sold in racemic
form. Compounds that have been approved and marketed have a significant body of
information regarding their safety and efficacy and consequently:
- the cost and duration of preclinical evaluations and clinical trials may
be reduced if reference may be made to data used in the course of
obtaining regulatory approval for the racemic parent compound;
- the risk of not obtaining regulatory approval may be reduced; and
- marketing risks may also be reduced due to the established market for the
parent compound.
We have made significant progress over the past year in the development of
ATTENADE, the chirally pure version of Ritalin. We have also made significant
progress in the development and production of chirally pure agrochemicals. We
believe that the agrochemical market presents a substantial opportunity because
many agrochemicals produced in racemic form could be manufactured in chirally
pure form.
ATTENADE
We have completed two pivotal Phase III efficacy trials for ATTENADE.
These trials found that ATTENADE met all efficacy parameters for controlling
symptoms of ADD and ADHD in school-age children. Drugs containing
dl-methylphenidate such as Ritalin have been used for decades for the treatment
of ADD and ADHD. We believe that one million children in the United States were
treated with dl-methylphenidate and other psychostimulants in 1998. Total U.S.
sales in 1998 of drugs used to treat the symptoms of ADD and ADHD were
approximately $500 million.
More than 200 children participated in our pivotal trials. Both
multi-center trials compared ATTENADE to placebo; the second trial directly
compared the efficacy of both ATTENADE and dl-methylphenidate to placebo. As
compared to placebo, ATTENADE demonstrated a statistically significant longer
duration of action than dl-methylphenidate. ATTENADE controlled the symptoms of
ADD and ADHD at all times measured in the study while dl-methylphenidate did
not control the symptoms at the last measurement. In both trials, behavioral
and objective measures were examined. ATTENADE had favorable scores over
dl-methylphenidate in all parameters measured. The results of the primary
efficacy analysis indicated that ATTENADE was significantly more effective than
placebo as evaluated by a behavioral scale, signifying an improvement in the
clinical status of the children. The results of the second trial confirmed the
drug's efficacy and indicated a significantly longer duration of action for
ATTENADE compared to dl-methlyphenidate as measured by a behavioral scale. The
Phase III safety trial is scheduled for completion in the first quarter of 2000
and an NDA submission is anticipated later in the year. Clinical trials on a
pulsed release formulation are planned to commence in the first half of 2000.
We are in discussions regarding partnerships for ATTENADE in the United
States and Europe. In Canada, where it is awaiting registration, ATTENADE is
licensed to Biovail Corporation, which purchased $2.5 million dollars worth of
our stock and will pay to us licensing fees, milestone payments and royalties.
We have been issued patents for the use of ATTENADE for the treatment of ADD
and ADHD, and for the once-a-day administration of methylphenidate drugs in a
controlled or pulsed release formulation that includes both the chirally pure
d-methylphenidate and the racemic form. In addition, we have been issued
process patents covering our manufacturing process for the active substance.
CHIRALLY PURE AGROCHEMICALS
Celgro is applying our proprietary biocatalytic synthesis technology to
agrochemicals. Celgro's approach is to work with agrochemical companies to
adapt our biocatalytic technology to the manufacture of chirally pure versions
of their existing crop protection product and then license the technology to
these companies in exchange for royalties. Celgro will also seek to develop
chirally pure versions of existing agrochemicals on its own and then enter into
license agreements with third parties, who would manufacture and sell the
agrochemicals. We expect that these arrangements typically will
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include milestone payments, reimbursement of research and development expenses
and royalty arrangements. We have entered into research and development
agreements with two leading agrochemical companies and initiatives are underway
to secure additional collaborations.
We also believe that our chiral technology can be enabling in agrochemical
applications because it has the potential to significantly lower manufacturing
costs compared to conventional technologies and other chiral technologies.
Compared to our biocatalytic process, conventional technologies require more
raw materials and greater plant capacity to produce the same effective quantity
of product, while other chiral technologies require specialized equipment, more
expensive chiral agents, more raw material and greater capacity for handling
hazardous wastes produced in the separation process. In addition, it is
anticipated that the required application amount of a chirally pure form of an
agrochemical could be substantially less than the racemic form and achieve the
same or better results, thereby reducing environmental burden. Agrochemicals
are highly price sensitive and, therefore, a process that produces chirally
pure products at significant cost savings could be in substantial demand.
PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are important to our business. It is
our policy to seek patent protection for our inventions, and also to rely upon
trade secrets, know-how, continuing technological innovations and licensing
opportunities to develop and maintain our competitive position.
Under an agreement with The Rockefeller University, we have obtained
certain exclusive rights and licenses to manufacture, have manufactured, use
and sell products that are based on compounds that were identified in research
carried out by The Rockefeller University and us, that have activity associated
with TNF(alpha). The Rockefeller University has identified a method of using
thalidomide and certain thalidomide-like compounds to treat certain symptoms
associated with abnormal concentrations of TNF(alpha), including those
manifested in septic shock, cachexia and HIV infection. In 1995, The
Rockefeller University was issued a U.S. patent which claims such methods. This
U.S. patent expires in 2012 and is included in the patent rights exclusively
licensed to us under the license from The Rockefeller University. However, The
Rockefeller University did not seek corresponding patents in any other country
in respect of this invention. The Rockefeller University has filed an
additional U.S. patent application and an international patent application
relating to the activity of thalidomide related to interleukin-12. Under the
license from The Rockefeller University, we were obligated to pay certain
specified royalties to The Rockefeller University on net sales of licensed
products for covered indications. In November 1999, we agreed with The
Rockefeller University to substitute a lump sum payment and issue stock options
to The Rockefeller University and the inventors in lieu of the royalties
previously payable under the license. The license from The Rockefeller
University is coterminous with the last to expire of the licensed patents and
is terminable by The Rockefeller University only in the event of a breach of
the agreement's terms by us which breach shall fail to be remedied for more
than sixty days after notice thereof. Any termination of the license from The
Rockefeller University could have a material adverse effect on our business,
financial condition and results of operations.
In 1998, we were granted an exclusive sublicense to all of the thalidomide
patents and patent applications worldwide, exclusively licensed to EntreMed by
the Children's Medical Center Corp., which is affiliated with Harvard
University, related to the anti-angiogenic action of thalidomide. Three U.S.
patents issued to Children's Medical Center Corp. will expire in 2014.
Corresponding foreign patent applications and additional U.S. patent
applications are still pending. Further, we have also exclusively sublicensed
pending U.S. and foreign patent applications related to the use of thalidomide
in combination with other therapeutic agents. There can be no assurance that
additional patents will issue, or that if patents issue, that such patents will
provide us with significant proprietary protection or commercial advantage. The
license from EntreMed is coterminous with the last to expire of the licensed
patents and we must pay royalties for at least 12 years from our first
commercial sale in the United States. The EntreMed license is terminable in the
event of a breach by us, which breach shall fail to be remedied for 60 days
after notice thereof. Any termination of the license from EntreMed could have a
material adverse affect on our business, financial condition and results of
operations.
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We have been issued a total of 36 U.S. patents and have filed an
additional 15 U.S. patent applications. Of the issued patents, 14 relate to our
oncologic or immunologic compounds and uses and six are directed to
methylphenidate therapeutic compositions and processes. Our U.S. patents expire
between 2001 and 2019. We have filed patient applications and in some instances
have obtained patents in certain other countries which correspond to some, but
not all of our U.S. patents. We expect to continue to file patent applications
covering the use of our proprietary inventions.
Prior to the enactment in the United States of new laws adopting certain
changes mandated by the General Agreement on Tariffs and Trade, the exclusive
rights afforded by a U.S. patent were for a period of 17 years measured from
the date of grant. Under these new laws, the term of any U.S. patent granted on
an application filed subsequent to June 8, 1995 will terminate 20 years from
the date on which the patent application was filed in the United States or the
first priority date, whichever occurs first. Future patents granted on an
application filed before June 8, 1995 will have a term that terminates 20 years
from such date, or 17 years from the date of grant, whichever date is later.
Under the Drug Price Competition and Patent Term Restoration Act of 1984,
a U.S. product patent or use patent may be extended for up to five years under
certain circumstances to compensate the patent holder for the time required for
FDA regulatory review of the product. The benefits of this act are available
only to the first approved use of the active ingredient in the drug product and
may be applied only to one patent per drug product. There can be no assurance
that we will be able to take advantage of this law.
Our success will depend, in part, on our ability to obtain and enforce
patents, protect trade secrets, obtain licenses to technology owned by third
parties when necessary and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical and
biotechnology firms, including ours, can be uncertain and involve complex legal
and factual questions. In addition, the coverage sought in a patent application
can be significantly reduced before the patent is issued. Consequently, we do
not know whether any of our owned or licensed pending applications will result
in the issuance of patents or, if any patents are issued, whether they will
provide significant proprietary protection or commercial advantage, or whether
they will be circumvented or infringed upon by others. Since patent
applications in the United States are maintained in secrecy until patents issue
and since publication of discoveries in the scientific or patent literature
often lag behind actual discoveries, we cannot be certain that we, or our
licensors, were the first to make the inventions covered by each of the pending
patent applications or that we, or our licensors, were the first to file patent
applications for such inventions. In the event a third party has also filed a
patent for any of its inventions, we, or our licensors, may have to participate
in interference proceedings declared by the U.S. patent and Trademark Office to
determine priority of invention, which could result in the loss of a U.S.
patent or loss of any opportunity to secure U.S. patent protection for the
invention. Even if the eventual outcome is favorable to us, such interference
proceedings could result in substantial cost to us. Prosecution of patent
applications and litigation to establish the validity and scope of patents, to
assert patent infringement claims against others and to defend against patent
infringement claims by others can be expensive and time-consuming. There can be
no assurance that, in the event that claims of any of our owned or licensed
patents are challenged by one or more third parties, any court or patent
authority ruling on such challenge will determine that such patent claims are
valid and enforceable. An adverse outcome in such litigation could cause us to
lose exclusivity relating to the subject matter delineated by such patent
claims and may have a material adverse effect on our business. If a third party
is found to have rights covering products or processes used by us, we could be
forced to cease using the products or processes covered by the disputed rights,
subject to significant liabilities to such third party and/or required to
license technologies from such third party. Also, different countries have
different procedures for obtaining patents and patents issued by different
countries provide different degrees of protection against the use of a patented
invention by others. There can be no assurance, therefore, that the issuance to
us in one country of a patent covering an invention will be followed by the
issuance in other countries of patents covering the same invention or that any
judicial interpretation of the validity, enforceability or scope of the claims
in a patent issued in one country will be similar to the judicial
interpretation given to a corresponding patent issued in another country.
Furthermore, even if our owned or licensed patents are determined to be valid
and enforceable, there can be no assurance that competitors will not be able to
design around such patents and compete with us using the resulting alternative
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technology. We do not currently have, nor do we intend to seek, patent
protection relating to the use of THALOMID to treat ENL.
We also rely upon unpatented, proprietary and trade secret technology that
we seek to protect, in part, by confidentiality agreements with our
collaborative partners, employees, consultants, outside scientific
collaborators, sponsored researchers and other advisors. There can be no
assurance that these agreements provide meaningful protection or that they will
not be breached, that we would have adequate remedies for any such breach or
that our trade secrets, proprietary know-how and technological advances will
not otherwise become known to others. In addition, there can be no assurance
that, despite precautions taken by us, others have not and will not obtain
access to our proprietary technology or that such technology will not be found
to be non-proprietary or not a trade secret.
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GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and other
countries is a significant factor in the manufacture and marketing of
pharmaceuticals and in our ongoing research and development activities. All of
our therapeutic products will require regulatory approval by governmental
agencies prior to commercialization. In particular, human therapeutic products
are subject to rigorous preclinical testing and clinical trials and other
pre-marketing approval requirements by the FDA and regulatory authorities in
other countries. In the United States, various federal, and in some cases state
statutes and regulations also govern or impact upon the manufacturing, safety,
labeling, storage, record-keeping and marketing of such products. The lengthy
process of seeking required approvals and the continuing need for compliance
with applicable statutes and regulations, require the expenditure of
substantial resources. Regulatory approval, when and if obtained, may be
limited in scope which may significantly limit the indicated uses for which a
product may be marketed. Further, approved drugs, as well as their
manufacturers, are subject to ongoing review and discovery of previously
unknown problems with such products may result in restrictions on their
manufacture, sale or use or in their withdrawal from the market. Any failure by
us, our collaborators or licensees to obtain or maintain, or any delay in
obtaining regulatory approvals could adversely affect the marketing of our
products, and our ability to receive product revenue, royalty revenue or profit
sharing payments.
The activities required before a pharmaceutical may be marketed in the
United States begin with preclinical testing not involving human subjects.
Preclinical tests include laboratory evaluation of product chemistry and animal
studies to assess the potential safety and efficacy of a product and its
formulations. The results of these studies must be submitted to the FDA as part
of an Investigational New Drug application, or IND, which must be reviewed by
the FDA primarily for safety considerations before proposed clinical trials in
humans can begin.
Typically, clinical trials involve a three-phase process. In Phase I,
clinical trials are generally conducted with a small number of individuals to
determine the early safety and tolerability profile and the pattern of drug
distribution and metabolism within the body. If the Phase I trials are
satisfactory, Phase II clinical trials are conducted with groups of patients in
order to determine preliminary efficacy, dosing regimes and expanded evidence
of safety. In Phase III, large-scale, multi-center, adequately powered and
well-controlled, comparative clinical trials are conducted with patients in
effort to provide enough data for the statistical proof of efficacy and safety
required by the FDA and others. However, in some limited circumstances Phase
III trials may be modified to allow evaluation of safety and efficacy in a less
regimented manner, which may allow us to rely on historical data relating to
the natural course of disease in untreated patients. In some cases, as a
condition of NDA approval, confirmatory trials are required to be conducted
after the FDA's approval of an NDA in order to resolve any open issues. The FDA
requires monitoring of all aspects of clinical trials and reports of all
adverse events must be made to the agency, both before and after drug approval.
The results of the preclinical testing and clinical trials are submitted
to the FDA as part of an NDA for evaluation to determine if the product is
adequate for approval to commence commercial sales. In responding to an NDA,
the FDA may grant marketing approval, request additional information or deny
the application if it determines that the application does not satisfy its
regulatory approval criteria. When an NDA is approved, the manufacturer must
employ a system for obtaining reports of experience and side effects that are
associated with the drug and make appropriate submissions to the FDA.
Pursuant to the Orphan Drug Act, a sponsor may request that the FDA
designate a drug intended to treat a "rare disease or condition" as an "orphan
drug." A "rare disease or condition" is defined as one which affects less than
200,000 people in the United States or which affects more than 200,000 people,
but for which the cost of development and making available the drug is not
expected to be recovered from sales of the drug in the United States. Upon the
approval of the first NDA for a drug designated as an orphan drug for a
specified indication, the sponsor of the NDA is entitled to exclusive marketing
rights in the United States for such drug for that indication for seven years.
Orphan drugs may also be eligible for federal income tax credits for costs
associated with the drug's development. Possible amendment of the Orphan Drug
Act by the United States Congress and possible reinterpretation by the
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FDA are the subject of frequent discussion. FDA regulations reflecting certain
definitions, limitations and procedures initially went into effect in January
1993 and were amended in certain respects in 1998. Therefore, there is no
assurance as to the precise scope of protection that may be afforded by orphan
drug status in the future or that the current level of exclusivity and tax
credits will remain in effect. We have received from the FDA orphan drug
approval for thalidomide for the treatment of ENL. Celgene also has received
orphan drug designations for thalidomide: for the treatment of multiple
myeloma; for the treatment of HIV-associated wasting syndrome; for the
treatment of the clinical manifestations of mycobacterial infection caused by
Mycobacterium tuberculosis and non-tuberculosis mycobacteria; for the treatment
of severe recurrent apthous stomatitis in severely, terminally compromised
patients; and for the treatment of Crohn's disease. We also obtained orphan
drug designation in Kaposi's sarcoma and primary brain malignancies as part of
our agreement with EntreMed. However, there can be no assurance that another
company also holding orphan drug designation will not receive approval prior to
us for the use of thalidomide for the treatment of one or more of these
indications, other than ENL. If that were to happen, our applications for that
indication could not be approved until the competing company's seven-year
period of exclusivity expired.
Among the conditions for NDA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures
continually conform with the FDA's cGMP. In complying with cGMP, manufacturers
must devote extensive time, money and effort in the area of production and
quality control and quality assurance to maintain full technical compliance.
Manufacturing facilities and company records are subject to periodic
inspections by the FDA to ensure compliance. If a manufacturing facility is not
in substantial compliance with these requirements, regulatory enforcement
action may be taken by the FDA which may include seeking an injunction against
shipment of products from the facility and recall of products previously
shipped from the facility.
Failure to comply with applicable FDA regulatory requirements can result
in informal administrative enforcement actions such as warning letters, recalls
or adverse publicity issued by the FDA or in legal actions such as seizures,
injunctions, fines based on the equitable remedy of disgorgement, restitution
and criminal prosecution.
Steps similar to those in the United States must be undertaken in
virtually every other country comprising the market for our products before any
such product can be commercialized in those countries. The approval procedure
and the time required for approval vary from country to country and may involve
additional testing. There can be no assurance that approvals will be granted on
a timely basis or at all. In addition, regulatory approval of prices is
required in most countries other than the United States. There can be no
assurance that the resulting prices would be sufficient to generate an
acceptable return to us.
COMPETITION
The pharmaceutical and agrochemical industries in which we compete are
each highly competitive. Our competitors include major pharmaceutical and
biotechnology companies, most of which have considerably greater financial,
technical and marketing resources than us. We also experience competition in
the development of our products and processes from universities and other
research institutions and, in some instances, compete with others in acquiring
technology from such sources.
Competition in the pharmaceutical industry, and specifically in the
oncology and immunology areas being addressed by us, is particularly intense.
Numerous companies are pursuing techniques to modulate TNF-- production through
various combinations of monoclonal antibodies, TNF-- receptors and small
molecule approaches. Two U.S. companies, Centocor Inc., a wholly owned
subsidiary of Johnson & Johnson, and Immunex Corporation, have registered drugs
that block the disease-causing effects of TNF-- in inflammatory arthritis and
bowel disease. Both drug products are registered in the United States and in
Europe and have been marketed since 1998. In the United States the present cost
of TNF-- modulating drugs, not including medical or other charges, is between
$7,000 and $11,500 per patient year. Amgen Inc. is currently also developing a
soluble TNF-- receptor. BASF A.G. has a human antibody in development and
Celltech Group plc has a humanized antibody. In addition, a number of other
companies are attempting to address, with other technologies and products, the
disease states currently
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being targeted by us. EntreMed is researching the effectiveness of its own
thalidomide analogues as anti-angiogenic agents in the treatment of retinal
disease and cancer. Andrulis Pharmaceuticals Corp., a small, privately held
company, is attempting to develop thalidomide for the treatment of AIDS-related
complications.
Several companies have established chiral products and chiral
technologies. Sepracor Inc. and Chiroscience Group plc are actively developing
chirally pure versions of pharmaceuticals currently marketed in racemic form.
Chiroscience has completed Phase I trials in the United Kingdom for a chirally
pure version of dl-methylphenidate and is working with Medeva plc, a leading
supplier of dl-methylphenidate in the United States, towards full clinical
development. Chiroscience has also taken certain steps to assert patent and
proprietary rights with respect to its formulation of a chirally pure version
of dl-methylphenidate. The agrochemical market is large and, within this
market, efforts are underway by the in-house development staffs of agrochemical
companies to produce chirally pure versions of their existing racemic crop
protection agents.
The pharmaceutical and agrochemical industries have undergone, and are
expected to continue to undergo, rapid and significant technological change,
and competition is expected to intensify as technical advances in each field
are made and become more widely known. In order to compete effectively, we will
be required to continually upgrade our scientific expertise and technology,
identify and retain capable management, and pursue scientifically feasible and
commercially viable opportunities.
Our competition will be determined in part by the indications for which
our products are developed and ultimately approved by regulatory authorities.
An important factor in competition will be the timing of market introduction of
our or our competitors' products. Accordingly, the relative speed with which we
can develop products, complete clinical trials and approval processes and
supply commercial quantities of products to the market will be expected to be
important competitive factors. Competition among products approved for sale
will be based, among other things, on product efficacy, safety, convenience,
reliability, availability, price and patent position.
MANUFACTURING
THALOMID is formulated and encapsulated for us by Penn Pharmaceuticals
Ltd. of Great Britain in an FDA approved facility devoted exclusively to the
production of THALOMID capsules. Both the bulk manufacturing facility that
produces the drug substance for THALOMID and the Penn facility have been
certified as cGMP compliant. In certain instances, we may be required to make
substantial capital expenditures to access additional manufacturing capacity.
In addition, we have established a contract with another cGMP certified bulk
drug substance supplier for THALOMID that will begin in 2001 once the
regulatory process is completed. We are also actively seeking an alternate
manufacturer to provide additional capacity for the formulation and
encapsulation of THALOMID and expect that this will be concluded in 2000.
SALES AND COMMERCIALIZATION
We have established an organization of approximately 60 persons to sell
and commercialize THALOMID. These individuals have considerable experience in
the pharmaceutical industry and many have experience with oncological and
immunological products. We expect to expand our THALOMID sales and
commercialization group to support products we develop to treat oncological and
immunological diseases. We intend to market and sell the products we develop
for indications with accessible patient populations. For drugs with indications
with larger patient populations, we anticipate partnering with other
pharmaceutical companies. In addition, we are positioned to accelerate the
expansion of these sales resources as appropriate to take advantage of product
in-licensing and product acquisition opportunities. We intend to establish
commercial relationships with selected companies in other countries to market
THALOMID.
EMPLOYEES
As of March 15, 2000, we had 151 full-time employees, 47 of whom were
engaged primarily in research and development activities, 60 of whom were
engaged in sales and commercialization activities
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and the remainder of whom were engaged in executive and administrative
activities. Of these employees, 55 have advanced degrees, including 26 who have
Ph.D. degrees. We also maintain consulting arrangements with a number of
scientists at various universities and other research institutions in Europe
and the United States.
FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this annual
report are forward-looking statements concerning our business, financial
condition, results of operations, economic performance and financial condition.
Forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and within the meaning of Section 21E of the Securities Exchange
Act of 1934 are included, for example, in the discussions about:
- our strategy;
- new product development or product introduction;
- product sales, royalties and contract revenues;
- expenses and net income;
- our credit risk management;
- our liquidity;
- our asset/liability risk management; and
- our operational and legal risks.
These statements involve risks and uncertainties. Actual results may
differ materially from those expressed or implied in those statements. Factors
that could cause such differences include, but are not limited to, those
discussed under "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
RISK FACTORS
IF WE ARE UNSUCCESSFUL IN DEVELOPING AND COMMERCIALIZING OUR PRODUCTS, OUR
BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY
ADVERSELY AFFECTED.
Many of our products and processes are in the early or mid-stages of
development and will require the commitment of substantial resources, extensive
research, development, preclinical testing, clinical trials, manufacturing
scale-up and regulatory approval prior to being ready for sale. We have not yet
sold any of our products other than THALOMID. All of our other products will
require further development, clinical testing and regulatory approvals, and
there can be no assurance that commercially viable products will result from
these efforts. If any of our products, even if developed and approved, cannot
be successfully commercialized, our business, financial condition and results
of operations could be materially adversely affected.
DURING THE NEXT SEVERAL YEARS, WE WILL BE VERY DEPENDENT ON THE COMMERCIAL
SUCCESS OF THALOMID.
At our present level of operations, we may not be able to attain
profitability if physicians prescribe THALOMID only for those who are diagnosed
with ENL. Under current FDA regulations, we are limited in our ability to
promote THALOMID outside this approved use. The market for the use of THALOMID
in patients suffering from ENL is relatively small. We have initiated clinical
studies to examine whether or not THALOMID is effective and safe when used to
treat disorders other than ENL, but we do not know whether these studies will
in fact demonstrate safety and efficacy, or if they do, whether we will succeed
in receiving regulatory approval to market THALOMID for additional indications.
If the results of these studies are negative, or if adverse experiences are
reported in these clinical studies or otherwise in connection with the use of
THALOMID by patients, this could undermine physician and patient comfort with
the product, could limit the commercial success of the product and
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could even impact the acceptance of THALOMID in the ENL market. FDA regulations
restrict our ability to communicate the results of additional clinical studies
to patients and physicians without first obtaining approval from the FDA to
expand the authorized uses for this product.
IF OUR PRODUCTS ARE NOT ACCEPTED BY THE MARKET, OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.
There can be no assurance that those of our products that receive
regulatory approval, including THALOMID, or those products for which no
regulatory approval is required, will achieve market acceptance. A number of
factors render the degree of market acceptance of our products uncertain,
including the extent to which we can demonstrate the products' efficacy, safety
and advantages, if any, over competing products, as well as the reimbursement
policies of third party payors, such as government and private insurance plans.
Failure of our products to achieve market acceptance would have a material
adverse effect on our business, financial condition and results of operations.
WE FACE A RISK OF PRODUCT LIABILITY CLAIMS AND MAY NOT BE ABLE TO OBTAIN
INSURANCE.
We may be subject to product liability or other claims based on
allegations that the use of our technology or products has resulted in adverse
effects, whether by participants in our clinical trials or by patients using
our products. Thalidomide, when used by pregnant women, has resulted in serious
birth defects. Therefore, necessary and strict precautions must be taken by
physicians prescribing the drug to women with childbearing potential, and there
can be no assurance that such precautions will be observed in all cases or, if
observed, will be effective. Use of thalidomide has also been associated, in a
limited number of cases, with other side effects, including nerve damage.
Although we have product liability insurance that we believe is appropriate,
there can be no assurance that we will be able to obtain additional coverage if
required, or that such coverage will be adequate to protect us in the event
claims are asserted against us. Our obligation to defend against or pay any
product liability or other claim may have a material adverse effect on our
business, financial condition and results of operations.
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT AND MAY
NEED TO SEEK ADDITIONAL FUNDING.
We have sustained losses in each year since our incorporation in 1986. We
sustained net losses of $21.8 million, $25.1 million and $25.4 million for the
years ended December 31, 1999, 1998 and 1997. We had an accumulated deficit of
$166.4 million and $144.6 million at December 31, 1999 and 1998. We expect to
make substantial expenditures to further develop and commercialize our
products, and, based on these expenditures, it is probable that losses will
continue for at least the next six months. We expect that our rate of spending
will accelerate as the result of increased clinical trial costs and expenses
associated with regulatory approval and commercialization of products now in
development. In order to fund our future operations, we will likely seek
additional capital. We may not be able to raise additional capital on
reasonable terms, if at all. There can be no assurance, assuming we
successfully raise additional funds, that we will achieve profitability or
positive cash flow.
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY OPERATING
RESULTS.
We have historically experienced, and expect to continue for the
foreseeable future to experience, significant fluctuations in our quarterly
operating results. These fluctuations are due to a number of factors, many of
which are outside our control, and may result in volatility of our stock price.
Future operating results will depend on many factors, including:
- demand for our products;
- regulatory approvals for our products;
- the timing of the introduction and market acceptance of new products by
us or competing companies;
- the timing of certain research and development milestones; and
- our ability to control our costs.
18
<PAGE>
WE HAVE NO MANUFACTURING CAPABILITIES AND WE ARE DEPENDENT ON ONE SUPPLIER
FOR THE RAW MATERIAL AND ONE MANUFACTURER FOR THE FORMULATION AND ENCAPSULATION
OF THALOMID.
We currently have no experience in, or our own facilities for,
manufacturing any products on a commercial scale. Currently, we obtain all of
our bulk drug material for THALOMID from a single supplier and rely on a single
manufacturer to formulate and encapsulate THALOMID. The FDA requires that all
suppliers of pharmaceutical bulk material and all manufacturers of
pharmaceuticals for sale in or from the United States achieve and maintain
compliance with the FDA's current Good Manufacturing Practice, or cGMP,
regulations and guidelines. If the operations of the sole supplier or the sole
manufacturer were to become unavailable for any reason, the required FDA review
and approval of the operations of a new supplier or new manufacturer could
cause a delay in the manufacture of THALOMID which could have a material
adverse effect on our business, financial condition and results of operations.
We intend to continue to utilize outside manufacturers if and when needed to
produce our other products on a commercial scale. If our outside manufacturers
do not meet our requirements for quality, quantity or timeliness, or do not
achieve and maintain compliance with all applicable regulations, our business,
financial condition and results of operations could be materially adversely
affected.
WE HAVE LIMITED MARKETING AND DISTRIBUTION CAPABILITIES.
Although we have a 60 person sales and commercialization group to sell
THALOMID, we may be required to seek a corporate partner to provide marketing
services with respect to our other products. Any delay in developing these
resources could have a material adverse impact on our results of operations. We
have contracted with a specialty distributor to distribute THALOMID. Failure of
this specialty distributor to perform its obligations could have a material
adverse effect on our business, financial condition and results of operations.
WE ARE DEPENDENT ON COLLABORATIONS AND LICENSES WITH THIRD PARTIES.
Our ability to fully commercialize our products, if developed, may depend
to some extent upon our entering into joint ventures or other arrangements with
established pharmaceutical companies with the requisite experience and
financial and other resources to obtain regulatory approvals and to manufacture
and market such products. Accordingly, our success may depend, in part, upon
the subsequent success of such third parties in performing preclinical and
clinical trials, obtaining the requisite regulatory approvals, scaling up
manufacturing, successfully commercializing the licensed product candidates and
otherwise performing their obligations to us. We cannot assure you that:
- we will be able to enter into joint ventures or other arrangements on
acceptable terms, if at all;
- our joint ventures or other arrangements will be successful;
- our joint ventures or other arrangements will lead to the successful
development and commercialization of any products;
- we will be able to obtain or maintain proprietary rights or licenses to
any technology or products developed in connection with our joint
ventures or other arrangements; or
- we will be able to preserve the confidentiality of any proprietary rights
or information developed in connection with our joint ventures or other
arrangements.
THE HAZARDOUS MATERIALS WE USE IN OUR RESEARCH AND DEVELOPMENT COULD
RESULT IN SIGNIFICANT LIABILITIES WHICH COULD EXCEED OUR INSURANCE COVERAGE AND
FINANCIAL RESOURCES.
We use some hazardous materials in our research and development
activities. While we believe we are currently in substantial compliance with
the federal, state and local laws and regulations governing the use of these
materials, we cannot assure you that accidental injury or contamination will
not occur. Any such accident or contamination could result in substantial
liabilities, which could exceed our insurance coverage and financial resources.
Additionally, we cannot assure you that the cost of compliance with
environmental and safety laws and regulations will not increase in the future.
19
<PAGE>
RESIDUAL YEAR 2000 PROBLEMS COULD CAUSE A MATERIAL DISRUPTION IN OUR
BUSINESS.
Although all of our computer hardware and software has been upgraded for
Year 2000 compliance, all of our key vendors have provided assurance that they
are Year 2000 compliant and there were no related problems at the transition
into the Year 2000, any residual effect of the Year 2000 problem could cause a
material disruption in our business.
INDUSTRY RISKS
THE PHARMACEUTICAL AND AGROCHEMICAL INDUSTRIES ARE SUBJECT TO EXTENSIVE
GOVERNMENT REGULATION AND THERE IS NO ASSURANCE OF REGULATORY APPROVAL.
The preclinical development, clinical trials, manufacturing, marketing and
labeling of pharmaceuticals are all subject to extensive regulation by numerous
governmental authorities and agencies in the United States and other countries.
There can be no assurance that we will be able to obtain the necessary
approvals required to market our products in any of these markets. The testing,
marketing and manufacturing of our products will require regulatory approval,
including approval from the FDA and, in some cases, from the U.S. Environmental
Protection Agency, or the EPA, and the U.S. Department of Agriculture, or the
USDA, or governmental authorities outside of the United States that perform
roles similar to those of the FDA and EPA. Certain of our pharmaceutical
products in development also fall under the Controlled Substances Act of 1970,
or the CSA, which requires authorization by the U.S. Drug Enforcement Agency,
or the DEA, of the U.S. Department of Justice in order to handle and distribute
these products. It is not possible to predict how long the approval processes
of the FDA, EPA, DEA or any other applicable federal, state or foreign
regulatory authority or agency for any of our products will take or whether any
such approvals ultimately will be granted. Positive results in preclinical
testing and/or early phases of clinical studies are no assurance of success in
later phases of the approval process. Risks associated with the regulatory
approval process include:
- in general, preclinical tests and clinical trials can take many years,
and require the expenditure of substantial resources, and the data
obtained from these tests and trials can be susceptible to varying
interpretation that could delay, limit or prevent regulatory approval;
- delays or rejections may be encountered during any stage of the
regulatory approval process based upon the failure of the clinical or
other data to demonstrate compliance with, or upon the failure of the
product to meet, a regulatory agency's requirements for safety, efficacy
and quality or, in the case of a product seeking an orphan drug
indication, because another designee received approval first;
- requirements for approval may become more stringent due to changes in
regulatory agency policy, or the adoption of new regulations or
legislation;
- the scope of any regulatory approval, when obtained, may significantly
limit the indicated uses for which a product may be marketed;
- approved drugs and agrochemicals, as well as their manufacturers, are
subject to continuing and on-going review, and discovery of previously
unknown problems with these products may result in restrictions on their
manufacture, sale or use or in their withdrawal from the market; and
- regulatory authorities and agencies may promulgate additional regulations
restricting the sale of our existing and proposed products.
Once approved, we cannot guarantee that the FDA will permit us to market
those products for broader or different applications, or that it will grant us
approval with respect to separate product applications which represent
extensions of our basic technology, or that existing approvals will not be
withdrawn or modified in a significant manner. In addition, it is possible that
the FDA will promulgate additional regulations restricting the sale of our
present or proposed products.
Labeling and promotional activities are subject to scrutiny by the FDA and
state regulatory agencies and, in some circumstances, by the Federal Trade
Commission. FDA enforcement policy prohibits the marketing of approved products
for unapproved, or off-label, uses. These regulations, and the FDA's
20
<PAGE>
interpretation of them, may impair our ability to effectively market THALOMID
or other products which gain approval. The FDA actively enforces regulations
prohibiting promotion of off-label uses and the promotion of products for which
approval has not been obtained. Failure to comply with these requirements can
result in regulatory enforcement action by the FDA. The FDA is aware that
physicians prescribe THALOMID for off-label uses and has not, as of this date,
initiated any regulatory actions against us. FDA approval of THALOMID requires
that we distribute it under the rigid standards of our S.T.E.P.S. program in
order to maintain approval.
Delays in obtaining, or the failure to obtain and maintain, necessary
approvals from the FDA, EPA, DEA or other applicable regulatory authorities or
agencies for our proprietary products or regulatory enforcement actions by FDA
concerning our marketing practices would have a material adverse effect on our
business, financial condition and results of operations.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY.
Our success will depend, in part, on our ability to obtain and enforce
patents, protect trade secrets, obtain licenses to technology owned by third
parties, when necessary, and conduct our business without infringing upon the
proprietary rights of others. The patent positions of pharmaceutical firms,
including ours, can be uncertain and involve complex legal and factual
questions. In addition, the coverage sought in a patent application may not be
obtained or may be significantly reduced before the patent is issued.
Consequently, we do not know whether any of our pending applications will
result in the issuance of patents or, if any patents are issued, whether they
will provide significant proprietary protection or commercial advantage. If any
of our issued or licensed patents are infringed, we cannot guarantee that we
will be successful in enforcing our intellectual property rights. Moreover, we
cannot assure you that we can successfully defend against any patent
infringement suit that may be brought against us by a third party. Patent
infringement lawsuits in the pharmaceutical and biotechnology industries can be
complex, lengthy and costly to both parties. Further, we rely upon unpatented
proprietary and trade secret technology that we try to protect, in part, by
confidentiality agreements with our collaborative partners, employees,
consultants, outside scientific collaborators, sponsored researchers and other
advisors. There can be no assurance that these agreements will not be breached
or that we would have adequate remedies for any such breach. We cannot assure
you that, despite precautions taken by us, others have not and will not obtain
access to our proprietary technology or that such technology will not be found
to be non-proprietary or not a trade secret. Our right to practice the
inventions claimed in some patents which relate to products under development
and THALOMID arises under licenses granted to us by others, including EntreMed,
Inc. and The Rockefeller University. While we believe these agreements to be
valid and enforceable, we cannot assure you that our rights under these
agreements will continue or that disputes concerning these agreement will not
arise. In addition, certain of the grants contained in the licenses granted to
us depend upon the validity and enforceability of other agreements to which we
are not a party.
THE PHARMACEUTICAL AND AGROCHEMICAL INDUSTRIES ARE HIGHLY COMPETITIVE AND
SUBJECT TO RAPID AND SIGNIFICANT TECHNOLOGICAL CHANGE.
The pharmaceutical and agrochemical industries in which we operate are
highly competitive and subject to rapid and significant technological change.
Our present and potential competitors include major chemical and pharmaceutical
companies, as well as specialized pharmaceutical firms. Most of these companies
have considerably greater financial, technical and marketing resources than us.
We also experience competition from universities and other research
institutions and, in some instances, we compete with others in acquiring
technology from these sources. The pharmaceutical and agrochemical industries
have undergone, and are expected to continue to undergo, rapid and significant
technological change, and we expect competition to intensify as technical
advances in each field are made and become more widely known. The development
of products or processes with significant advantages over those that we are
seeking to develop could have a material adverse effect on our business,
financial condition and results of operations.
21
<PAGE>
SALES OF OUR PRODUCTS ARE DEPENDENT ON THIRD-PARTY REIMBURSEMENT.
Sales of our products will depend, in part, on the extent to which the
costs of our products will be paid by health maintenance, managed care,
pharmacy benefit and similar health care management organizations, or
reimbursed by government health administration authorities, private health
coverage insurers and other third-party payors. These health care management
organizations and third-party payors are increasingly challenging the prices
charged for medical products and services. Additionally, the containment of
health care costs has become a priority of federal and state governments, and
the prices of drugs have been targeted in this effort. We cannot assure you
that our products will be considered cost effective by payors, that
reimbursement will be available or, if available, that the level of
reimbursement will be sufficient to allow us to sell our products on a
profitable basis.
ITEM 2. PROPERTIES
We lease a 44,500-square foot laboratory and office facility in Warren,
New Jersey, under a lease with an unaffiliated party, which has a term ending
in May 2002 with one five-year renewal option, and a 29,000-square foot
facility which has a term ending in July 2010 with two five-year renewal
options. We also lease an 18,000-square foot laboratory and office facility in
North Brunswick, New Jersey, under a lease with an unaffiliated party which has
a term ending in December 2009 with two five-year renewal options. We believe
that our laboratory facilities are adequate for our research and development
activities for at least the next 12 months.
ITEM 3. LEGAL PROCEEDINGS
We are not engaged in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
22
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"CELG." The following table sets forth, for the periods indicated, the
intra-day high and low sale prices per share of common stock on the Nasdaq
National Market:
<TABLE>
<CAPTION>
HIGH LOW
---------- ----------
<S> <C> <C>
1999 ...........................
Fourth Quarter ............... $72 5/8 $24 3/4
Third Quarter ................ 29 14
Second Quarter ............... 20 1/16 13 9/16
First Quarter ................ 18 5/8 11 5/16
1998....... ....................
Fourth Quarter ............... $17 1/4 $ 7 1/2
Third Quarter ................ 15 4 1/8
Second Quarter ............... 11 1/2 8 1/4
First Quarter ................ 11 5/8 6 15/16
</TABLE>
The last reported sales price per share of common stock on the Nasdaq
National Market on March 21, 2000 was $117 13/16. As of March 21, 2000, there
were approximately 450 holders of record of our common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain any future earnings for funding growth and,
therefore, do not anticipate paying any cash dividends on our common stock in
the foreseeable future.
23
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following Selected Consolidated Financial Data should be read in
conjunction with the our Consolidated Financial Statements and the related
Notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other financial information included elsewhere in
this Annual Report. The data set forth below with respect to our Consolidated
Statements of Operations for the years ended December 31, 1997, 1998 and 1999
and the balance sheet data as of December 31, 1998 and 1999 are derived from
our Consolidated Financial Statements which have been audited by KPMG LLP,
independent certified public accountants, and which are included elsewhere in
this Annual Report and are qualified by reference to such Consolidated
Financial Statements and related Notes thereto. Some information has been
derived from other audited consolidated financial statements. Our historical
results are not necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Total revenues .......................... $ 472,000 $ 881,665 $ 1,122,193 $ 3,800,490 $ 26,209,624
Loss from continuing operations ......... (8,366,380) (17,057,521) (25,019,844) (32,022,873) (21,781,200)
Discontinued operations:
Loss from operations .................... (2,150,143) (761,461) (427,183) (59,837) --
Gain on sale of chiral assets ........... -- -- -- 7,014,830 --
Net loss applicable to common
stockholders .......................... $ (10,516,523) $ (21,609,640) $ (26,921,501) $ (25,092,528) $ (21,781,200)
============= ============= ============= ============= =============
Per share of common stock-- basic
and diluted:
Loss from continuing operations ......... $ (1.04) $ (1.81) $ (2.05) $ (1.98) $ (1.20)
Discontinued operations:
Loss from operations .................... (0.27) (0.08) (0.03) -- --
Gain on sale of chiral assets ........... -- -- -- 0.43 --
Net loss applicable to common
stockholders .......................... (1.30) $ (2.29) $ (2.20) $ (1.55) $ (1.28)
============= ============= ============= ============= =============
Weighted average number of shares
outstanding ........................... 8,073,000 9,450,000 12,215,000 16,160,000 17,012,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------------- ---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents, and
marketable securities ................ $ 11,712,905 $ 17,814,984 $ 13,583,445 $ 5,123,843 $ 19,526,643
Assets held for disposal ............... -- -- 485,170 -- --
Total assets ........................... 14,211,218 20,937,862 18,217,456 11,927,997 32,333,670
Convertible debentures ................. 4,592,366 2,026,043 -- -- --
Convertible notes ...................... -- -- -- 8,348,959 38,494,795
Accumulated deficit .................... (70,989,400) (92,599,039) (119,520,540) (144,613,068) (166,394,268)
Stockholders' equity (deficit) ......... 7,142,501 16,065,009 15,425,092 (3,732,624) (15,709,386)
</TABLE>
24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We were organized in 1980 as a unit of Celanese Corporation, a chemical
company. Our initial mandate was to apply biotechnology to the production of
fine and specialty chemicals. Following the 1986 merger of Celanese Corporation
with American Hoechst Corporation, we were spun off as an independent company.
In July 1987, we completed an initial public offering of our common stock and
commenced the development of chemical and biotreatment processes for the
chemical and pharmaceutical industries. We discontinued the biotreatment
operations in 1994 to focus on our targeted small molecule cancer and
immunology compound development programs and our biocatalytic chiral chemistry
program.
Since 1990, our revenues have been generated primarily through research
and development relating to, and supply of, chirally pure intermediates to
pharmaceutical companies for use in new drug development and, to a lesser
degree, from agrochemical research and development contracts. However, as we
developed our cancer and immunology programs, sales of chirally pure
intermediates became a less integral part of our strategic focus. Accordingly,
on January 9, 1998, we completed the sale of our chiral intermediate business
to Cambrex Corporation for $15.0 million. The terms of the sale provided for a
payment of $7.5 million at closing and an additional amount of future royalties
not to exceed the net present value on the date of contract of $7.5 million,
with a guarantee of certain minimum payments beginning in the third year after
closing.
In late September 1998, we commenced sales of our first commercial
product, THALOMID.
We have sustained losses in each year since our inception in 1986. In
1999, we had a net loss of $21.8 million and at December 31, 1999, had an
accumulated deficit of $166.4 million. We expect to make substantial
expenditures to further commercialize and develop THALOMID, develop our
oncology and immunology programs and expand our chiral business. Based on these
expenditures, it is likely that losses will continue for at least the next six
months.
Subject to the risks described elsewhere in this Annual Report on Form
10-K, we believe that there are significant market opportunities for the
products and processes under development by us. To address these opportunities
in a timely and effective manner, we intend to seek out collaborations and
licensing arrangements with third parties. We have entered into agreements
covering the manufacture and distribution for us of certain compounds, such as
THALOMID, and the development by us of processes for producing chirally pure
crop protection agents for license to agrochemical manufacturers. This
development is performed through Celgro Corporation, our wholly owned
subsidiary.
We have established a commercial organization to sell THALOMID and we
currently employ 60 persons in this capacity. We intend to develop and market
our own pharmaceuticals for indications with accessible patient populations.
For drugs with indications for larger patient populations, we anticipate
partnering with other pharmaceutical companies. We also anticipate partnering
with companies for the development and commercialization of our chirally pure
pharmaceutical and agrochemical products. We expect that these arrangements
typically will include milestone payments, reimbursement of research and
development expenses and royalty arrangements.
Future operating results will depend on many factors, including demand for
our products, regulatory approvals of our products, the timing of the
introduction and market acceptance of new products by us or competing
companies, the timing of research and development milestones and our ability to
control costs.
RESULTS OF OPERATIONS
Fiscal Years Ended December 31, 1999, 1998 and 1997
Total revenues. Total revenues in 1999 increased significantly to
approximately $26.2 million from $3.8 million in 1998. The increase resulted
from our first full year of product sales of THALOMID in 1999 of approximately
$24.1 million compared with $3.3 million of THALOMID sales in 1998. The 1998
sales
25
<PAGE>
of THALOMID reflected only a partial year of sales, starting from the launch
date at the end of the third quarter. Revenue from research contracts increased
to $2.2 million in 1999 from $535,000 in 1998 and included a milestone payment
of $500,000 related to ATTENADE. The 1998 revenues increased by 238% to
approximately $3.8 million from approximately $1.1 million in 1997. This was
due to product sales of approximately $3.3 million of THALOMID which was
approved in 1998 by the FDA and a decrease in research contracts of
approximately $.6 million due to completion of a contract at the end of 1997
with a major agrochemical company.
Cost of goods sold. Cost of goods sold in 1999 was approximately $3.0
million compared with approximately $282,000 in 1998. The cost of goods sold in
both years does not reflect raw material or formulation and encapsulation costs
of Thalomid, as these costs were charged as research and development expenses
prior to receiving FDA approval. There was no cost of goods sold in 1997.
Research and development expenses. Research and development expenses for
1999 were slightly lower at approximately $19.6 million compared with
approximately $19.8 million in 1998. Increased spending for clinical trials,
primarily for ATTENADE, was offset by a decrease in regulatory consulting fees,
university research program spending, and spending for THALOMID capsules which
was charged as research and development expense prior to receiving FDA approval
in July of 1998. Research and development expenses for 1998 increased by 14% to
approximately $19.8 million from approximately $17.4 million in 1997. This
increase was primarily due to an increase of approximately $1.5 million for the
our chiral pharmaceutical program primarily for clinical trials and preclinical
toxicology studies and approximately $780,000 relating to the our
immunotherapeutic program, primarily for clinical trials for potential new NDA
filings for THALOMID.
Selling, general and administrative expenses. Selling, general and
administrative expenses for 1999 increased by 62% over 1998, from approximately
$16.2 million to approximately $26.2 million. The increase was primarily in
sales and marketing expenses, approximately $3.6 million, warehousing and
distribution expenses, approximately $3.4 million, and expenditures relating to
medical affairs and drug safety costs, approximately $730,000, all to support
the commercialization and distribution of THALOMID.
Selling, general and administrative expenses for 1998 increased by 77% to
approximately $16.2 million from approximately $9.1 million in 1997. This was
primarily due to sales and marketing expenses, $4.8 million, in anticipation of
the THALOMID product launch as well as post launch selling activities. Other
increases were primarily related to the necessary infrastructure costs required
to support the commercial operations including medical affairs and drug safety
costs of $928,000, information systems development cost and additional finance
personnel, $423,000, and other administrative expenses such as legal,
consulting and investor relations of approximately $900,000.
Interest income and interest expense. Interest income for 1999 of $694,000
was slightly down from $705,000 in 1998 as average cash balances were
approximately the same in both years. Interest income for 1998 increased by 42%
to approximately $705,000 from approximately $496,000 in 1997. The increase was
due to higher average cash balances in 1998.
Interest expense in 1999 was significantly higher than 1998, at
approximately $2.8 million compared with approximately $256,000 in 1998. The
higher interest expense resulted from the interest on the three convertible
notes which were issued in September 1998, January 1999 and July 1999. Interest
expense for 1998 increased 129% to approximately $256,000 from $112,000 due
primarily to the interest expenses associated with the 9.5% convertible notes
issued in September 1998.
Loss from continuing operations. The loss from continuing operations
decreased 32% in 1999 compared with 1998, to approximately $21.8 million from
approximately $32.0 million. The decreased loss resulted from the higher gross
profit on THALOMID sales and an income tax benefit of $3.0 million from the
sale of a portion of our New Jersey state net operating loss carryforwards,
offset by increased selling, general and administrative costs and higher
interest expense. The loss from continuing operations increased 28% to
approximately $32.0 million in 1998 from approximately $25.0 million in 1997.
The increase was due primarily to spending related to the launch of THALOMID
and ongoing research programs in chiral pharmaceuticals and immunotherapeutics
as described above.
26
<PAGE>
Loss from discontinued operations. The loss from discontinued operations
decreased to $60,000 in 1998 from $427,000 in 1997 due to the fact that the
chiral intermediate business was sold in early January 1998. The Company
recorded a gain on the sale of the chiral intermediate assets of approximately
$7.0 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception in 1986, we have financed our working capital
requirements primarily through private and public sales of our debt and equity
securities, income earned on the investment of the proceeds from the sale of
such securities, and revenues from research contracts and product sales. As of
December 31, 1999, we have raised approximately $100.0 million in net proceeds
from three public and three private offerings, including our initial public
offering in July 1987. We also issued convertible notes in September 1998,
January 1999, and July 1999 with net proceeds aggregating approximately $38.0
million.
Our net working capital at December 31, 1999 increased significantly to
approximately $18.5 million (primarily cash and cash equivalents) from
approximately $2.5 million at December 31, 1998. The increase in working
capital was primarily due to the cash received from the issuance of the
convertible notes in 1999 and 1998 as well as collection of receivables on
sales of THALOMID.
Cash and cash equivalents increased by $12.2 million in 1999 while
marketable securities increased by $2.2 million from 1998. This reflects the
receipt of funds from the issuance of the convertible notes and collection of
receivables from sales of THALOMID.
We expect that our rate of spending will increase as the result of
increased clinical trial costs, increased expenses associated with the
regulatory approval process and commercialization of products currently in
development, increased costs related to the commercialization of THALOMID and
increased working capital requirements. On February 16, 2000, we completed a
public offering of 3,450,000 shares of our common stock. Proceeds from the
transaction net of expenses, were approximately $278.0 million. These funds
plus the increasing revenues from sales of THALOMID should fund our operations
for the foreseeable future.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in
Financial Statements ("SAB 101"). SAB 101 summarizes certain of the staff's
views in applying generally accepted accounting principles to revenue
recognition in financial statements, including the recognition of
non-refundable fees received upon entering into arrangements. We are in the
process of evaluating this SAB and the effect it will have on our future
consolidated financial statements and future revenue recognition policy.
YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
All of our computer hardware and software has been upgraded for Year 2000
compliance. All of our key vendors have provided assurance that they are Year
2000 compliant. While there were no Year 2000 related problems at the
transition into the Year 2000, we are maintaining our contingency plans in the
event any problems arise in the future.
The statement contained in the foregoing Year 2000 readiness disclosures
is subject to protection under the Year 2000 Information and Readiness
Disclosure Act.
ITEM 7A. QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
We do not use derivative financial instruments. Our convertible notes have
a fixed interest rate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 14 of this Annual Report.
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------------- ----- --------------------------------------------------
<S> <C> <C>
John W. Jackson* ...................... 55 Chairman of the Board and Chief Executive
Officer
Sol J. Barer, Ph.D.* .................. 52 President, Chief Operating Officer, Director
Robert J. Hugin* ...................... 45 Chief Financial Officer and Senior Vice President
Jack L. Bowman ........................ 67 Director
Frank T. Cary ......................... 79 Director
Arthur Hull Hayes, Jr., M.D. .......... 66 Director
Gilla Kaplan, Ph.D. ................... 52 Director
Richard C. E. Morgan .................. 55 Director
Walter L. Robb, Ph.D. ................. 71 Director
Lee J. Schroeder ...................... 71 Director
</TABLE>
- ----------
* Executive Officer
JOHN W. JACKSON has been our Chairman of the Board and Chief Executive
Officer since January 1996. From February 1991 to January 1996, Mr. Jackson was
President of Gemini Medical, a consulting firm that he founded and which
specialized in services and investment advice to start-up medical device and
biotechnology companies. Previously, Mr. Jackson had been President of the
worldwide Medical Device Division of American Cyanamid, a major pharmaceutical
company, from February 1986 to January 1991 and served in various international
positions, including Vice President -- International for American Cyanamid from
1978 to 1986. Mr. Jackson served in several human health marketing positions at
Merck & Company, a major pharmaceutical company, from 1971 to 1978. Mr. Jackson
received a B.A. degree from Yale University and an M.B.A. from INSEAD, France.
SOL J. BARER, PH.D. has been our President since October 1993 and our
Chief Operating Officer and one of our directors since March 1994. Dr. Barer
was our Senior Vice President -- Science and Technology and Vice
President/General Manager -- Chiral Products from October 1990 to October 1993
and our Vice President -- Technology from September 1987 to October 1990. Dr.
Barer received a Ph.D. in organic and physical chemistry from Rutgers
University.
ROBERT J. HUGIN has been our Senior Vice President and Chief Financial
Officer since June 1999. Previously, Mr. Hugin had been a Managing Director at
J.P. Morgan & Co. Inc., which he joined in 1985. Mr. Hugin received an A.B.
degree from Princeton University and an M.B.A. from the University of Virginia.
JACK L. BOWMAN, one of our directors since April 1998, served as Company
Group Chairman of Johnson & Johnson from 1987 to 1994. From 1983 to 1987, Mr.
Bowman served as Executive Vice President of American Cyanamid. Mr. Bowman is
also a director of NeoRx Corporation, Cell Therapeutics, Inc., CytRx
Corporation, Cellegy Pharmaceuticals and Targeted Genetics.
FRANK T. CARY has been Chairman of the Executive Committee of our board of
directors since July 1990 and has been one of our directors since 1987. From
1973 to 1981, Mr. Cary was Chairman of the Board and Chief Executive Officer of
International Business Machines Corporation. Mr. Cary also is a director of
Cygnus Therapeutic Systems Inc., ICOS Corporation, Lincare Inc., Lexmark
International Inc., Vion Pharmaceuticals Inc. and Teltrend, Inc.
ARTHUR HULL HAYES, JR., M.D., one of our directors since 1995, has been
President and Chief Operating Officer of MediScience Associates, a consulting
organization that works with pharmaceutical firms, biomedical companies and
foreign governments, since July 1991. Dr. Hayes has also been a partner in
Issue Sphere, a public affairs firm that focuses on health science issues,
since November 1995, as well as a professor in medicine, pharmacology and
family and community medicine at New York Medical
29
<PAGE>
College and clinical professor of medicine and pharmacology at the Pennsylvania
State University College of Medicine. From 1986 to 1990, Dr. Hayes was
President and Chief Executive Officer of E.M. Pharmaceuticals, a unit of E.
Merck AG and from 1981 to 1983 was Commissioner of the United States Food and
Drug Administration. Dr. Hayes also is a director of Myriad Genetics, Inc.,
NaPro BioTherapeutics, Inc. and Premier Research Worldwide.
GILLA KAPLAN, PH.D., one of our directors since April 1998, is an
immunologist in the Laboratory of Cellular Physiology and Immunology at The
Rockefeller University in New York where she was appointed Assistant Professor
in 1985 and Associate Professor in 1990. Dr. Kaplan is a member of numerous
professional societies and has been the organizer of several major symposia on
tuberculosis. Dr. Kaplan has served as an advisor to the Global Program for
Vaccines and Immunization of the World Health Organization, has participated in
several NIH peer review panels, and is on the Editorial Board of Microbial Drug
Resistances, and Tubercle and Lung Disease. Dr. Kaplan is the author of more
than 100 scientific publications and has received international recognition for
her work. In 1995, she gave the Special Honorary Lecture at the American
Society for Microbiology and in 1997 was appointed a Fellow of the American
Academy of Microbiology.
RICHARD C. E. MORGAN, one of our directors since 1987, is a co-founder,
Chairman and Chief Executive Officer of incuVest LLC and a Managing Partner and
co-founder of Amphion Capital Management LLC. Prior to founding Amphion, he was
Managing General Partner of Wolfensohn Partners, L.P., the predecessor to
Amphion Ventures L.P. Mr. Morgan also serves as Chairman of AXCESS, Inc.,
Quidel Corp., ONTOS, Inc., IVEX Corporation and Quantrad, Inc. In addition, he
serves on the Board of Directors of ChromaVision Medical Systems, Inc. and
Indigo NV.
WALTER L. ROBB, PH.D., one of our directors since 1992, has been a private
consultant and President of Vantage Management Inc., a consulting and investor
services company, since January 1993. Mr. Robb was Senior Vice President for
Corporate Research and Development of General Electric Company, and a member of
its Corporate Executive Council from 1986 to December 1992. Mr. Robb also is
Chairman of the board of directors of Capital District Sports and a director of
Cree Research Inc., Mechanical Technology, Inc. and Plug Power, Inc.
LEE J. SCHROEDER, one of our directors since 1995, has been President of
Lee Schroeder & Associates, Inc., pharmaceutical business consultants, since
1985. Mr. Schroeder was President of Fox Meyer Lincoln from 1983 to 1985, and
was an Executive Vice President of Sandoz, Inc. from 1981 to 1983. Mr.
Schroeder also is a director of Bryan LGH Hospital, MGI Pharmaceutical, Inc.,
Ascent Pediatrics, Inc. and Interneuron Pharmaceuticals, Inc.
ELECTION OF DIRECTORS
Each director holds office (subject to our By-Laws) until the next annual
meeting of stockholders and until such director's successor has been elected
and qualified. There are no family relationships between any of the directors
and executive officers of the Company.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information about the compensation paid, or
payable, by the Company for services rendered in all capacities to the Chief
Executive Officer of the Company and each of the most highly paid executive
officers of the Company who earned more than $100,000, for each of the last
three fiscal years in which such officers were executive officers for all or
part of the year.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------- -------------------------------------------
OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER
NAME AND COMPENSATION STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) AWARD(S) ($) OPTIONS # ($)
- --------------------- ------ ---------------- ----------- -------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Jackson 1999 300,000 390,000 19,200(1) 0 220,000 13,390(2)
Chairman and 1998 285,000 79,800 19,200(1) 0 100,000 13,390(2)
Chief Executive 1997 270,000 97,200 9,500(1) 0 0 13,390(2)
Officer
Sol J. Barer, Ph.D. 1999 255,833 230,250 19,200(1) 0 70,000 0
President and 1998 243,333 51,100 19,200(1) 0 50,000 0
Chief Operating 1997 232,500 63,647 9,500(1) 0 0 0
Officer
Robert J. Hugin 1999 127,385(3) 168,000 7,200 0 150,000 0
Sr. V. P. & Chief
Financial Officer
</TABLE>
- ----------
(1) Reflects matching contributions under the Company's 401K plan.
(2) Reflects life insurance premiums for a life insurance policy for Mr.
Jackson.
(3) Mr. Hugin commenced his employment with the Company in June, 1999.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
John W. Jackson, Sol J. Barer and Robert J. Hugin (each an "Executive")
are employed pursuant to substantially similar employment agreements (the
"Employment Agreements") providing for their continued employment until January
1, 2003 (the period during which Executive is employed is referred to as the
"Employment Period"). The Employment Period shall be automatically renewed for
successive one-year terms unless the Company or Executive gives written notice
to the other at least six months prior to the expiration of the Employment
Period. The Employment Agreements provide Messrs. Jackson, Barer and Hugin with
a base salary (which may be increased by the Board of Directors, or a committee
thereof) of $300,000, $258,000 and $240,000, respectively, per annum. In
addition, each of the Employment Agreements provides for an annual bonus in an
amount equal to 65%, 45% and 35%, respectively, of Executive's base salary
measured against objective criteria to be determined by the Board of Directors,
or a committee thereof after good faith consultation with each Executive. The
Employment Agreements also provide that Messrs. Jackson, Barer and Hugin are
entitled to continue to participate in all group health and insurance programs
and all other fringe benefit or retirement plans which are generally available
to the Company's employees. Each of the Employment Agreements provides that if
the Executive is terminated by the Company without cause or due to Executive's
disability, he shall be entitled to receive a lump-sum payment in an amount
equal to Executive's annual base salary and a pro rata share of Executive's
annual target bonus. Upon the occurrence of a change in control (as defined in
the Employment Agreements) and thereafter, each Employment Agreement provides
that if, (a) at any time within one year of a change in control Executive's
employment is terminated by the Company without cause or for disability or by
Executive for good reason (as defined in the Employment Agreement) or (b) at
any time within 90 days prior to a change in control, Executive's employment is
terminated by the Company without cause or by Executive for good reason,
Executive shall be entitled to receive: (i) a lump sum payment in an amount
equal to three times Executive's base salary and three
31
<PAGE>
times Executive's highest annual bonus within the three years prior to the
change in control; (ii) any accrued benefits; (iii) payment of health and
welfare premiums for Executive and his dependants; and (iv) full and immediate
vesting of all stock options and equity awards; provided, however, that such
payment shall be reduced by any payments made to Executive prior to the change
in control pursuant to Sections 10(a)(iv) and (v) of the Employment Agreements.
Each Employment Agreement also provides that Executive shall be entitled to
receive a gross-up payment on any payments made to Executive that are subject
to the excise tax imposed by Section 4999 of the Internal Revenue Code, except
that a gross-up will not be made if the payments made to Executive do not
exceed 105% of the greatest amount that could be paid to Executive such that
the receipt of payments would not give rise to the excise tax. Each Executive
is subject to a non-compete which applies during the period the Executive is
employed and until the first anniversary of the date Executive's employment
terminates (the non-compete applies to the second anniversary of the date
Executive's employment terminates if the Executive receives change in control
payments and benefits).
STOCK OPTIONS
The following table sets forth information for each of the named executive
officers with respect to the value of options exercised during the year ended
December 31, 1999 and the value of outstanding and unexercised options held as
of December 31, 1999. There were no SARs exercised during 1999 and none were
outstanding as of December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED VALUE AT DECEMBER 31, 1999 AT DECEMBER 31, 1999
ON EXERCISE REALIZED ----------------------------- ----------------------------
NAME ($) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------- ------------- --------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John W. Jackson ............. -- -- 206,423 286,667 $11,850,905 $15,640,820
Sol J. Barer, Ph.D. ......... -- -- 250,746 103,334 $10,205,964 $ 5,740,441
Robert J. Hugin ............. -- -- -- 150,000 -- $ 8,156,250
</TABLE>
- ----------
(1) Represents the difference between the closing market price of the Common
Stock as reported by Nasdaq on December 31, 1999 of $70 per share and the
exercise price per share of in-the-money options multiplied by the number
of shares underlying the in-the-money options.
COMPENSATION COMMITTEE REPORT
The Compensation Committee determines our executive compensation policies.
The Compensation Committee determines the compensation of our executive
officers and approves and oversees the administration of incentive compensation
programs for all employees including executive officers. The Compensation
Committee is composed solely of outside directors.
EXECUTIVE COMPENSATION POLICIES AND PROGRAMS
Our executive compensation program is part of a company-wide program
covering all employees. The program's goals are to attract, retain, and
motivate employees, and it utilizes incentives such that employees and
stockholders share the same risks. The compensation program is designed to link
compensation to performance.
A portion of each employee's compensation relates to the grant of stock
options, and such grants are based on the successful attainment of strategic
corporate, commercial, and individual goals.
We do not have a pension plan or other capital accumulation program.
Grants of stock options are therefore of great importance to executives as well
as all employees. Any long-term value to be derived from such grants will be
consistent with stockholder gains.
32
<PAGE>
Executive and employee compensation includes salary, employment-related
benefits, and long-term incentive compensation:
Salary. Salaries are set competitively relative to the biotechnology and
pharmaceutical industries--industries with which we compete for our highly
skilled personnel. Individual experience and performance is considered when
setting salaries within the range for each position. Annual reviews are held
and adjustments are made based on attainment of individual goals.
Benefits. All employees are eligible for similar benefits, such as health,
disability, and life insurance.
Long-Term Incentive Compensation. An incentive compensation program is
established annually. The purpose of this program is to provide financial
incentives to executives and employees to achieve annual corporate, business
unit, and individual goals. The incentive program also aligns executive and
employee interests with those of stockholders by using grants of stock options.
Such grants vest over time thereby encouraging continued employment with the
Company. The size of grants is tied to comparative biotechnology industry
practices. To determine such comparative data, the Company relies on outside
compensation consultants and third party industry surveys.
Under our 1998 incentive program, it was agreed that each year, subject to
the achievement of certain goals by the Company, we would grant at certain
dates pursuant to approval of the compensation committee of the Board of
Directors, options to purchase shares of common stock. A similar incentive
program has been designed for 1999 based on attainment of corporate, business
unit, and individual goals. The program is open to all regular full-time
employees, other than the executive officers of the Company.
Chief Executive Officer Compensation. Pursuant to Mr. Jackson's contract
with the Company entered into on September 30, 1997, Mr. Jackson received base
salary of $300,000 for 1999. Mr. Jackson also received a bonus of $390,000 for
1999. Factors considered in determining Mr. Jackson's bonus included the
successful attainment of several important milestones in the development of our
products, as well as comparisons to total compensation packages of chief
executive officers at corporations within our industry that are of comparable
size.
Members of the Compensation Committee
Richard C. E. Morgan, Chairman
Frank T. Cary
Jack L. Bowman
Lee J. Schroeder
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Richard C. E.
Morgan, Chairman, Frank T. Cary, Jack L. Bowman, and Lee J. Schroeder. Each is
an outside director of the Company.
DIRECTOR COMPENSATION
Directors do not receive salaries or cash fees for serving as directors
nor do they receive any cash compensation for serving on committees; however,
all members of the Board of Directors who are not employees of the Company
("Non-Employee Directors") are reimbursed for their expenses for each meeting
attended and are eligible to receive stock options pursuant to the 1995
Non-Employee Directors' Plan (the "1995 Directors' Plan").
The 1995 Directors' Plan was adopted by the Board of Directors on April 5,
1995, and approved by the Company's stockholders at the 1995 Annual Meeting of
Stockholders. The 1995 Directors' Plan provides for the granting to
Non-Employee Directors of non-qualified options to purchase an aggregate of not
more than 250,000 shares (subject to adjustment in certain circumstances) of
Common Stock.
Under the 1995 Directors' Plan, each Non-Employee Director as of April 5,
1995 was granted a non-qualified option to purchase 20,000 shares of Common
Stock, and each new Non-Employee Director upon the date of his election or
appointment will be granted a non-qualified option to purchase 20,000 shares of
Common Stock. These initial options vest in four equal annual installments
commencing on the first anniversary of the date of grant, assuming the
Non-Employee Director remains a director.
33
<PAGE>
Upon the date of each Annual Meeting of Stockholders, each Non-Employee
Director is granted a non-qualified option to purchase 10,000 shares of Common
Stock (or a pro rata portion thereof if the director did not serve the entire
year since the date of the last annual meeting). These options vest in full on
the date of the first Annual Meeting of Stockholders held following the date of
the grant, assuming the Non-Employer Director is a director on that date.
All options granted pursuant to the 1995 Directors' Plan will expire no
later than 10 years from the date of grant and no options may be granted after
June 16, 2005. If a Non-Employee Director terminates his service on the Board
of Directors for any reason, options which were exercisable on the date of
termination and which have not expired may be exercised at any time until the
date of expiration of such options. In addition, if there is a change of
control and within two years thereafter a director is removed without cause (as
defined) or is not nominated for election by the Company's stockholders, all
unvested portions of a stock option will automatically vest.
In 1999, pursuant to the 1995 Directors' Plan, each of Messrs. Bowman,
Cary, Hayes, Morgan, Robb, Schroeder and Dr. Kaplan received an option to
purchase 10,000 shares of Common Stock at an exercise price of $15.625 per
share, the fair market value of the stock on the date of the grant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The table below sets forth the beneficial ownership of the Common Stock as
of February 29, 2000 (i) by each director, (ii) by each of the named executive
officers, (iii) by all directors and executive officers of Celgene as a group,
and (iv) by all persons known by the Board of Directors to be beneficial owners
of more than five percent of the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP CLASS
- ---------------------------------------------------------------- ---------------------- -----------
<S> <C> <C>
John W. Jackson ................................................ 388,133(1) 1.8%
Sol J. Barer, Ph.D. ............................................ 232,427(1)(2) 1.1%
Robert J. Hugin ................................................ 11,667(1) *
Frank T. Cary .................................................. 97,780 *
Arthur Hull Hayes, Jr., M.D .................................... 40,000(1) *
Richard C. E. Morgan ........................................... 79,090(1)(3) *
Walter L. Robb, Ph.D. .......................................... 100,000(1) *
Lee J. Schroeder ............................................... 56,000(1) *
Gilla Kaplan, Ph.D. ............................................ 16,700(1) *
Jack L. Bowman ................................................. 12,700(1) *
All directors and current executive officers of the Company as a
group (ten persons) ........................................... 1,034,497(4) 4.7%
Donald P. Moriarty (5)
c/o McGrath, Doyle & Phair
150 Broadway
New York, NY 10038 ............................................ 1,122,500 (5) 5.3%
Pilgrim Baxter & Associates Ltd.
825 Duportail Road
Wayne, PA 19087 ............................................... 1,084,500(6) 5.1%
</TABLE>
- ----------
* Less than one percent (1%).
(1) Includes shares of Common Stock which the directors and executive officers
have the right to acquire through the exercise of options within 60 days
of February 29, 2000, as follows: John W. Jackson -- 327,123; Sol J. Barer
-- 232,412; Robert J. Hugin -- 11,667; Frank T. Cary -- 0; Arthur Hull
Hayes, Jr. -- 40,000; Richard C. E. Morgan -- 25,000 shares; Walter L.
Robb -- 64,000; Lee J. Schroeder -- 20,000; Gilla Kaplan -- 16,700; Jack
Bowman -- 11,700. Does not include shares of Common Stock which the
directors and executive officers had the right to acquire through the
exercise of options not exercisable within 60 days
34
<PAGE>
of February 29, 2000, as follows: John W. Jackson -- 246,667; Sol J. Barer
-- 96,668; Robert J. Hugin -- 173,333; Frank T. Cary -- 10,000; Arthur Hull
Hayes, Jr. -- 10,000; Richard C. E. Morgan -- 10,000; Walter L. Robb --
10,000; Lee J. Schroeder -- 10,000; Gilla Kaplan -- 25,333; and Jack L.
Bowman -- 20,000.
(2) Includes with respect to Dr. Barer, 15 shares owned by the daughter of Dr.
Barer, as to which shares Dr. Barer disclaims beneficial ownership.
(3) Includes with respect to Mr. Morgan, 90 shares owned by the son of Mr.
Morgan, as to which shares Mr. Morgan disclaims beneficial ownership.
(4) Includes or excludes, as the case may be, shares of Common Stock as
indicated in the preceding footnotes.
(5) Information regarding Donald P. Moriarty was obtained from a Schedule 13D,
as amended, filed with the Securities and Exchange Commission. Such
Schedule 13D states that Mr. Moriarty is deemed to be the beneficial owner
of and to have sole dispositive power over all such shares of Common
Stock, and that such shares are held by Mr. Moriarty, his family members,
and Twin Oaks Partners, a partnership in which Mr. Moriarty is a general
partner.
(6) Information regarding Pilgrim Baxter & Associates Ltd. was obtained from a
Schedule 13G, filed by it with the Securities and Exchange Commission.
Such Schedule 13G states that Pilgrim Baxter & Associates Ltd. is the
beneficial owner of and has the sole dispositive power over all such
shares of Common Stock and has sole voting power over 852,500 of those
shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a)(1), (a)(2) See Index to Consolidated Financial Statements and
Consolidated Financial Statement Schedule immediately following Exhibit Index.
(b) None
(c) Exhibits
The following exhibits are filed with this report:
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT DESCRIPTION
- -------- ---------------------------------------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1, dated July 24, 1987).
3.2 Bylaws of the Company (incorporated by reference to the Company's Current Report
on Form 8K, dated September 16, 1996).
10.1 Lease Agreement, dated January 16, 1987, between the Company and Powder Horn
Associates (incorporated by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1, dated July 24, 1987).
10.2 1992 Long-Term Incentive Plan (incorporated by reference to Exhibit A to the
Company's Proxy Statement, dated May 30, 1997).
10.3 1995 Non-Employee Directors' Incentive Plan (incorporated by reference to Exhibit A
to the Company's Proxy Statement, dated May 24, 1999).
10.4 Agent's Warrant issued in connection with the placement of 8% Convertible Debentures
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10Q for the quarter ended June 30, 1995).
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Agent's Warrant issued in connection with the placement of Series A Convertible
Preferred Stock (incorporated by reference to the Company's Annual Report on Form
10.5 10K for the year ended December 31, 1995).
10.6 Form of Lock-Up Warrant issued to certain holders of Series A Convertible Preferred
Stock (incorporated by reference to the Company's Registration Statement on Form S-3
dated November 25, 1997 (No. 333-38891)).
10.7 Form of Warrant to be issued in connection with the issuance of Series B Convertible
Preferred Stock (incorporated by reference to Exhibit 10.2 to the Company's Current
Report on Form 8K dated June 10, 1997).
10.8 Rights Agreement, dated as of September 16, 1996, between Celgene Corporation and
American Stock Transfer & Trust Company (incorporated by reference to the
Company's Registration Statement on Form 8A, filed on September 16, 1996).
10.9 Form of indemnification agreement between the Company and each officer and director
of the Company (incorporated by reference to Exhibit 10.12 to the Company's Annual
Report on Form 10K for the year ended December 31, 1996).
10.10 Employment Agreement dated as of January 1, 2000 between the Company and John W.
Jackson.
10.11 Employment Agreement dated as of January 1, 2000 between the Company and Sol J.
Barer.
10.12 Manufacturing Agreement between Penn Pharmaceuticals Limited and the Company
(incorporated by reference to the Company's Registration Statement on Form S-3 dated
November 25, 1997 (No. 333-38891)).
10.13 Celgene Corporation Replacement Stock Option Plan (incorporated by reference to
Exhibit 99.1 of the Company's Registration Statement on Form S-3 dated May 18, 1998
(No. 333-52963)).
10.14 Form of Stock Option Agreement to be issued in connection with the Celgene
Corporation Replacement Stock Option Plan (incorporated by reference to Exhibit 99.2
of the Company's Registration Statement on Form S-3 dated May 18, 1998 (No.
333-52963)).
10.15 1998 Long Term-Incentive Plan (incorporated by reference to Exhibit A to the
Company's Proxy Statement, dated May 18, 1998).
10.16 Stock Purchase Agreement dated June 23, 1998 between the Company and Biovail
Laboratories Incorporated (incorporated by reference to the Company's Current Report
on Form 8K filed on July 17, 1998 (No. 000-16132)).
10.17 Agreement dated December 9, 1998 between the Company and EntreMed, Inc. (certain
portions of the agreement have been omitted and filed separately with the United States
Securities and Exchange Commission pursuant to a request for confidential treatment.
10.18 Employment Agreement dated as of January 1, 2000 between the Company and Robert
J. Hugin.
10.19 Convertible Note Purchase Agreement, dated September 16, 1998 between the
Company and Warburg Dillon Read LLC.
10.20 9.25% Convertible Note Due September 16, 2003.
10.21 Registration Rights Agreement dated as of September 16, 1998 between the Company
and Warburg Dillon Read LLC.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.22 Note Purchase Agreement dated January 20, 1999 between the Company and the
Purchasers named on Schedule I to the agreement in connection with the purchase of
$15,000,000 principal amount of the Company's 9.00% Senior Convertible Note Due
January 20, 2004.
10.23 Form of 9.00% Senior Convertible Note Due January 20, 2004.
10.24 Registration Rights Agreement dated as of January 20, 1999 between the Company and
the Purchasers in connection with the issuance of the Company's 9.00% Senior
Convertible Note Due January 20, 2004.
10.25 Note Purchase Agreement dated July 6, 1999 between the Company and the Purchasers
named in Schedule I to the agreement in connection with the purchase of $15,000,000
principal amount of the Company's 9.00% Senior Convertible Note Due June 30, 2004.
10.26 Form of 9.00% Senior Convertible Note Due June 30, 2004.
10.27 Registration Rights Agreement dated as of July 6, 1999 between the Company and the
Purchasers in connection with the issuance of the Company's 9.00% Senior Convertible
Note Due June 30, 2004.
23.1 Consent of KPMG LLP
24.1 Power of Attorney (included in Signature Page).
* 27. Financial Data Schedule
</TABLE>
- ------------------
* Previously Filed
37
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person or entity whose signature
appears below constitutes and appoints John W. Jackson, Sol J. Barer and Robert
J. Hugin, and each of them, its true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for it and in its name,
place and stead, in any and all capacities, to sign any and all amendments to
this Form 10-K and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all contents and purposes as it might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of Section 13 or 15 (d) 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.
CELGENE CORPORATION
By /s/ John W. Jackson
-----------------------------
John W. Jackson
Chairman of the Board and
Chief Executive Officer
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------- --------------------------------------- ---------------
<S> <C> <C>
/s/ John W. Jackson Chairman of the Board and March 30, 2000
--------------------------- Chief Executive Officer
John W. Jackson
/s/ Sol J. Barer President and Chief Operating Officer March 30, 2000
---------------------------
Sol J. Barer
/s/ Jack L. Bowman Director March 30, 2000
---------------------------
Jack L. Bowman
/s/ Frank T. Cary Director March 30, 2000
---------------------------
Frank T. Cary
Director March 30 2000
---------------------------
Arthur Hull Hayes, Jr.
/s/ Gilla Kaplan Director March 30, 2000
---------------------------
Gilla Kaplan
/s/ Richard C.E. Morgan Director March 30, 2000
---------------------------
Richard C. E. Morgan
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Walter L. Robb
- ---------------------------
Walter L. Robb Director March 30, 2000
Director March 30, 2000
---------------------------
Lee J. Schroeder
/s/ Robert J. Hugin Senior Vice President & Chief March 30, 2000
--------------------------- Financial Officer
Robert J. Hugin
/s/ James R. Swenson Controller (Chief Accounting Officer) March 30, 2000
---------------------------
James R. Swenson
</TABLE>
The foregoing constitutes a majority of the directors.
<PAGE>
CELGENE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Financial Statements
Independent Auditors' Report ............................................................ F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999 ............................ F-3
Consolidated Statements of Operations - Years Ended December 31, 1997, 1998, and 1999 ... F-4
Consolidated Statements of Stockholders' Equity (Deficit) - Years Ended December 31,
1997,98 and 1999 ......................................................................... F-5
Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1998 and 1999 .... F-6
Notes to Consolidated Financial Statements .............................................. F-8
Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts ......................................... F-20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CELGENE CORPORATION:
We have audited the consolidated financial statements of Celgene
Corporation and subsidiary as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the consolidated financial statement schedule as listed in the accompanying
index. These consolidated financial statements and consolidated financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and consolidated financial statement schedule based on our audits.
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Celgene
Corporation and subsidiary as of December 31, 1998 and 1999, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted
accounting principles. Also in our opinion, the related consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
Short Hills, New Jersey
January 27, 2000, except
as to note 14, which is as
of February 16, 2000
F-2
<PAGE>
CELGENE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 3,066,953 $ 15,255,422
Marketable securities available for sale ........................... 2,056,890 4,271,221
Accounts receivable, net of allowance of $43,386 and $121,437 at
December 31, 1998 and 1999, respectively .......................... 2,662,389 4,928,472
Inventory .......................................................... 1,571,408 2,456,059
Other current assets ............................................... 229,060 895,602
-------------- --------------
Total current assets ............................................ 9,586,700 27,806,776
Plant and equipment, net ........................................... 2,262,130 2,336,242
Other assets ....................................................... 79,167 2,190,652
-------------- --------------
Total assets .................................................... $ 11,927,997 $ 32,333,670
============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable ................................................... $ 3,848,853 $ 2,358,563
Accrued expenses ................................................... 3,041,859 6,761,889
Capitalized lease obligation ....................................... 225,372 179,885
-------------- --------------
Total current liabilities ....................................... 7,116,084 9,300,337
Capitalized lease obligation-net of current portion ................ 195,578 22,924
Other non-current liabilities ...................................... -- 225,000
Long term convertible notes ........................................ 8,348,959 38,494,795
-------------- --------------
Total liabilities ............................................... 15,660,621 48,043,056
-------------- --------------
Stockholders' deficit:
Preferred stock,$.01 par value per share 5,000,000 authorized; none
outstanding at December 31,1998 and 1999 ..........................
Common stock, $.01 par value per share 30,000,000 authorized; issued
and outstanding 16,612,973 and 17,703,646 shares at December 31,
1998 and December 31,1999, respectively ........................... 166,130 177,036
Additional paid-in capital ......................................... 140,714,314 150,599,750
Accumulated deficit ................................................ (144,613,068) (166,394,268)
Accumulated other comprehensive loss ............................... -- (91,904)
-------------- --------------
Total stockholders' deficit ..................................... (3,732,624) (15,709,386)
-------------- --------------
Total liabilities and stockholders' deficit ..................... $ 11,927,997 $ 32,333,670
============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1998 1999
---------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues:
Product sales ............................... $ -- $ 3,265,490 $ 24,052,124
Research contracts .......................... 1,122,193 535,000 2,157,500
------------- ------------- -------------
Total revenues ............................ 1,122,193 3,800,490 26,209,624
------------- ------------- -------------
Expenses: ....................................
Cost of goods sold .......................... -- 282,307 2,982,713
Research and development .................... 17,380,390 19,771,953 19,646,129
Selling, general and administrative ......... 9,145,456 16,218,486 26,235,802
------------- ------------- -------------
Total expenses ........................... 26,525,846 36,272,746 48,864,644
------------- ------------- -------------
Operating loss ............................... (25,403,653) (32,472,256) (22,655,020)
Other income and expense:
Interest income ............................. 495,580 705,215 694,390
Interest expense ............................ 111,771 255,832 2,838,480
------------- ------------- -------------
Loss before tax benefit ...................... (25,019,844) (32,022,873) (24,799,110)
Tax benefit (note 9) ......................... -- -- 3,017,910
------------- ------------- -------------
Loss from continuing operations .............. (25,019,844) (32,022,873) (21,781,200)
Discontinued operations: (note 10)
Loss from operations ........................ (427,183) (59,837) --
Gain on sale of chiral assets ............... -- 7,014,830 --
------------- ------------- -------------
Net loss ..................................... (25,447,027) (25,067,880) (21,781,200)
Accretion of premium payable on
preferred stock and warrants ................ 521,397 24,648 --
Deemed dividend for preferred stock
conversion discount ......................... 953,077 -- --
------------- ------------- -------------
Net loss applicable to common
stockholders ................................ $ (26,921,501) $ (25,092,528) $ (21,781,200)
============= ============= =============
Per share basic and diluted: (note 2)
Loss from continuing operations ............. $ (2.05) $ (1.98) $ (1.28)
Discontinued operations:
Loss from operations ...................... ( 0.03) ( 0.00) --
Gain on sale of chiral assets ............. -- 0.43 --
Net loss applicable to common
stockholders .............................. $ (2.20) $ (1.55) $ (1.28)
============= ============= =============
Weighted average number of shares of
common stock outstanding .................... 12,215,000 16,160,000 17,012,000
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK TREASURY STOCK
------------------------ ---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------ ----------- ----------- ---------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997 ................. 10,611,422 $106,114 267 $ 13,883,416 (29,985) $ (100,239)
Exercised stock options ..................... 2,986 30
Shares issued in lieu of cash bonus ......... 5,000 50
Amortization of deferred compensation .
Conversion of convertible debenture ........ 441,248 4,412
Issuance of Series B Preferred Stock - net 5,000 4,046,923
Conversion of preferred stock ............... 2,166,193 21,662 (5,180) (14,654,071)
Accretion of premium on preferred stock 521,397
Redemption of preferred stock ............... (13) (721,287)
Deemed dividend on Series B Preferred
Stock and fair value of warrants ........... 953,077
Comprehensive loss:
Net loss ...................................
Net change in unrealized gain (loss) on
investment securities ......................
Total comprehensive loss ....................
Treasury shares issued ...................... 7,097 23,704
Issuance of common stock, net ............... 2,201,100 22,011
---------- --------
Balances at December 31, 1997 ............... 15,427,949 $154,279 74 $ 4,029,455 (22,888) $ (76,535)
Exercised stock options ..................... 283,120 2,831
Exercise of warrants ........................ 118,230 1,183
Costs related to secondary offering .........
Conversion of preferred stock ............... 575,669 5,757 (74) (4,054,103)
Accretion of premium on preferred stock 24,648
Shares issued for employee benefit plans 8,317 83 22,888 76,535
Sale of common stock ........................ 199,688 1,997
Net loss and comprehensive loss .............
Balances at December 31, 1998 ............... 16,612,973 $166,130 -- $ -- -- $ --
Exercised stock options ..................... 949,323 9,493
Exercise of warrants ........................ 59,434 594
Shares issued for employee benefit plans 81,916 819
Issuance of options related to license
agreement ..................................
Comprehensive loss:
Net loss ...................................
Net change in unrealized gain (loss) on
investment securities ......................
Total comprehensive loss ...................
Balances at December 31, 1999 .............. 17,703,646 $177,036 -- $ -- -- $ --
========== ======== ====== ============== ======= ==========
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL UNAMORTIZED COMPREHENSIVE
PAID-IN DEFERRED ACCUMULATED INCOME
CAPITAL COMPENSATION DEFICIT (LOSS) TOTAL
--------------- -------------- ------------------ -------------- -----------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 ................. $ 94,770,176 $ (1,133) $ (92,599,039) $ 5,714 $ 16,065,009
Exercised stock options ..................... 20,187 20,217
Shares issued in lieu of cash bonus ......... 55,575 55,625
Amortization of deferred compensation . 1,133 1,133
Conversion of connvertible debenture ........ 2,326,892 2,331,304
Issuance of Series B Preferred Stock - net 793,825 4,840,748
Conversion of preferred stock ............... 14,632,409 --
Accretion of premium on preferred stock (521,397) --
Redemption of preferred stock ............... (721,287)
Deemed dividend on Series B Preferred
Stock and fair value of warrants ........... (953,077) --
Comprehensive loss:
Net loss ................................... (25,447,027) (25,447,027)
Net change in unrealized gain (loss) on
investment securities ...................... (5,714) (5,714)
-------------
Total comprehensive loss .................... (25,452,741)
-------------
Treasury shares issued ...................... 55,250 78,954
Issuance of common stock, net ............... 18,184,119 18,206,130
------------ -------------
Balances at December 31, 1997 ............... $130,838,433 $ -- $ (119,520,540) $ -- $ 15,425,092
Exercised stock options ..................... 2,028,715 2,031,546
Exercise of warrants ........................ 986,883 988,066
Costs related to secondary offering ......... (73,136) (73,136)
Conversion of preferred stock ............... 4,048,346 --
Accretion of premium on preferred stock (24,648) --
Shares issued for employee benefit plans 387,070 463,688
Sale of common stock ........................ 2,498,003 2,500,000
Net loss and comprehensive loss ............. (25,067,880) (25,067,880)
-------------- -------------
Balances at December 31, 1998 ............... $140,714,314 $ -- $ (144,613,068) $ -- $ (3,732,624)
Exercised stock options ..................... 8,028,139 8,037,632
Exercise of warrants ........................ 361,398 361,992
Shares issued for employee benefit plans 799,004 799,823
Issuance of options related to license
agreement .................................. 696,895 696,895
Comprehensive loss:
Net loss ................................... (21,781,201) (21,781,201)
Net change in unrealized gain (loss) on
investment securities ...................... (91,904) (91,904)
Total comprehensive loss ................... (21,873,105)
-------------
Balances at December 31, 1999 .............. $150,599,750 $ -- $ (166,394,269) $ (91,904) $ (15,709,387)
============ ========= ============== ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CELGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1997 1998 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations ............................... $ (25,019,844) $ (32,022,873) $ (21,781,200)
Adjustments to reconcile loss from continuing operations
to net cash used in operating activities:
Depreciation ............................................... 380,364 812,555 993,389
Provision for losses on accounts receivable ................ -- 43,386 78,051
Amortization of convertible debt costs ..................... 126,577 -- --
Amortization of deferred compensation ...................... 1,133 -- --
Interest on convertible debentures ......................... 68,736 -- --
Issuance of stock award .................................... 55,625 -- --
Amortization of debt issuance costs ........................ -- -- 250,000
Amortization of discount on convertible note ............... -- -- 145,836
Shares issued for employee benefit plans ................... 78,954 463,688 799,823
Change in current assets & liabilities:
Increase in inventory ........................................ -- (1,571,408) (884,651)
Increase(decrease) in accounts payable and accrued
expenses ................................................... (379,091) 4,659,517 2,454,740
Increase in accounts receivable .............................. (1,051,789) (1,275,391) (2,344,133)
(Increase)decrease in other assets ........................... 150,304 124,206 (416,544)
------------- ------------- -------------
Net cash used in continuing operations ........................ (25,589,031) (28,766,320) (20,704,689)
Net cash used in discontinued operations ...................... (302,996) (59,837) --
------------- ------------- -------------
Net cash used in operating activities ......................... (25,892,027) (28,826,157) (20,704,689)
------------- ------------- -------------
Cash flows from investing activities:
Capital expenditures .......................................... (1,240,775) (788,661) (1,782,090)
Proceeds from sales and maturities of marketable
securities available for sale ................................ 47,470,593 8,559,604 2,495,992
Purchases of marketable securities available for sale ......... (30,584,284) (10,616,494) (4,802,227)
Proceeds from sale of chiral assets ........................... -- 7,500,000 --
Purchase of license rights .................................... -- -- (450,000)
------------- ------------- -------------
Net cash provided by (used in) investing activities ........... 15,645,534 4,654,449 (4,538,325)
------------- ------------- -------------
Cash flows from financing activities:
Net proceeds from secondary offering .......................... 18,206,130 -- --
Costs related to secondary offering ........................... -- (73,136) --
Proceeds from sale of stock ................................... -- 2,500,000 --
Proceeds from exercise of common stock options and
warrants ..................................................... 20,217 3,019,612 8,399,624
Redemption of Series A preferred stock ........................ (721,287) -- --
Net proceeds from issuance of preferred stock ................. 4,840,748 -- --
Capital lease buyout .......................................... -- (400,414) (218,141)
Capital lease funding ......................................... 561,169 260,195 --
Debt issuance costs ........................................... -- -- (750,000)
Net proceeds from issuance of convertible notes ............... -- 8,348,959 30,000,000
------------- ------------- -------------
Net cash provided by financing activities ..................... 22,906,977 13,655,216 37,431,483
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents .......... 12,660,484 (10,516,492) 12,188,469
Cash and cash equivalents at beginning of year ................ 922,961 13,583,445 3,066,953
------------- ------------- -------------
Cash and cash equivalents at end of year ...................... $ 13,583,445 $ 3,066,953 $ 15,255,422
============= ============= =============
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1997 1998 1999
--------------- -------------- --------------
<S> <C> <C> <C>
Non-cash investing activity:
Change in net unrealized gain(loss) on marketable
securities available for sale ........................... $ (5,714) $ -- $ (91,904)
=========== =========== ==========
Issuance of options related to license agreement ......... $ -- $ -- $ 696,895
=========== =========== ==========
Non-cash financing activities:
Issuance of common stock upon the conversion of
convertible debentures and accrued interest thereon,
net ..................................................... $ 2,331,304 $ -- $ --
=========== =========== ==========
Accretion of premium payable on preferred stock and
warrants ................................................ $ 521,397 $ 24,648 $ --
=========== =========== ==========
Deemed dividend for preferred stock conversion discount $ 953,077 $ -- $ --
=========== =========== ==========
Issuance of common stock upon the conversion of
convertible preferred stock and accrued accretion
thereon, net ............................................ $14,654,071 $ 4,054,103 $ --
=========== =========== ==========
Supplemental disclosure of cash flow information:
Interest paid ............................................ $ 20,599 $ 19,766 $1,504,441
=========== =========== ==========
Cash received related to tax benefit ..................... $ -- $ -- $3,017,910
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999
(1) NATURE OF BUSINESS AND LIQUIDITY
Celgene Corporation and its subsidiary (collectively "Celgene" or the
"Company") is an independent biopharmaceutical company engaged in the
discovery, development and commercialization of novel human pharmaceuticals for
the treatment of cancer and immunological diseases. The Company's primary
therapeutic focus is on the development of orally administered, small molecule
pharmaceuticals that regulate tumor necrosis factor alpha, or TNF--, and are
anti-angiogenic. TNF-- has been linked to the cause and symptoms of many
chronic inflammatory and immunological diseases. Anti-angiogenic drugs inhibit
the growth of undesirable blood vessels, including those that promote tumor
growth. Our lead product, THALOMID(TM) (thalidomide), was approved for sale in
the United States by the U.S. Food and Drug Administration, ("FDA"), on July
16, 1998. THALOMID is approved for the treatment of erythema nodosum leprosum,
("ENL"), an inflammatory complication of leprosy. Our cancer and immunology
pharmaceutical pipeline is highlighted by two classes of novel and proprietary
oral therapeutic agents, IMiDs, or ImmunoModulatory Drugs, and SelCIDs, or
Selective Cytokine Inhibitory Drugs. Both classes are being developed for the
treatment of cancer, chronic inflammatory diseases, such as inflammatory bowel
disease and rheumatoid arthritis, and other diseases of the immune system.
The Company expects that its rate of spending will increase as the result
of increased clinical trial costs, increased expenses associated with the
regulatory approval process and commercialization of products now in
development, increased costs related to the commercialization of THALOMID, and
increased working capital requirements. This increased spending will be
mitigated by the collection of receivables resulting from sales of THALOMID. It
is anticipated that the increasing sales of THALOMID, as well as existing cash
resources, will be sufficient to fund operations through 2000.
The consolidated financial statements include the parent Company and its
subsidiary Celgro. All inter-company transactions have been eliminated. The
preparation of the consolidated financial statements requires management to
make estimates and assumptions that affect reported amounts and disclosures.
Actual results could differ from those estimates. The Company is subject to
certain risks and uncertainties such as uncertainty of product development,
uncertainties regarding regulatory approval, no assurance of market acceptance
of products, risk of product liability, uncertain scope of patent and
proprietary rights, intense competition, and rapid technological change.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CASH EQUIVALENTS
At December 31, 1998 and 1999, cash equivalents consisted principally of
funds invested in money market funds, and United States government securities
such as treasury bills and notes.
(B) MARKETABLE SECURITIES
The Company classifies all of its marketable securities as securities
available for sale. Such securities are held for an indefinite period of time
and were intended to be used to meet the ongoing liquidity needs of the
Company. Realized gains and losses are included in operations and are measured
using the specific cost identification method.
(C) INVENTORY
Inventories are priced at lower of cost or market using the first-in,
first-out (FIFO) method. Prior to FDA approval, the raw material, formulation
and encapsulation costs related to THALOMID production were recorded as
research and development expense.
F-8
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
(D) LONG-LIVED ASSETS
Plant and equipment are stated at cost. Depreciation of plant and
equipment is provided using the straight-line method. The estimated useful
lives of fixed assets are as follows:
<TABLE>
<S> <C>
Laboratory equipment and machinery ......... 5-10 years
Furniture and fixtures ..................... 5-10 years
</TABLE>
Amortization of leasehold improvements is calculated using the
straight-line method over the term of the lease or the life of the asset,
whichever is shorter. Maintenance and repairs are charged to operations as
incurred, while renewals and improvements are capitalized.
The Company reviews long-lived assets for impairment whenever events or
changes in business circumstances occur that indicate that the carrying amount
of the assets may not be recoverable. The Company assesses the recoverability
of long-lived assets held and to be used based on undiscounted cash flows and
measures the impairment, if any, using discounted cash flows.
(E) RESEARCH AND DEVELOPMENT COSTS
All research and development costs are expensed as incurred.
(F) INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect for years in which the temporary differences are expected to reverse.
Research and development tax credits will be recognized as a reduction of
the provision for income taxes when realized.
(G) REVENUE RECOGNITION
Revenue from the sale of products is recognized upon product shipment.
Revenue under research contracts is recorded as earned under the contracts,
generally as services are provided. Revenue is recognized immediately for
nonrefundable license fees when agreement terms require no additional
performance on the part of the Company.
(H) STOCK OPTION PLAN
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations, in accounting for
its fixed plan stock options. As such, compensation expense would be recorded
on the date of grant only if the current market price of the underlying stock
exceeded the exercise price. Statement of Financial Accounting Standard
("SFAS") No. 123, Accounting for Stock-Based Compensation, established
accounting and disclosure requirements using a fair value-based method of
accounting for stock-based employee compensation plans. As allowed by SFAS No.
123, the Company has elected to continue to apply the intrinsic value-based
method of accounting described above, and has adopted the disclosure
requirements of SFAS No. 123.
(I) EARNINGS PER SHARE
"Basic" earnings per common share equals net income divided by weighted
average common shares outstanding during the period. "Diluted" earnings per
common share equals net income divided by the sum of weighted average common
shares outstanding during the period plus common stock equivalents if dilutive.
The Company's basic and diluted per share amounts are the same since the
assumed exercise
F-9
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
of stock options, and warrants, and the conversion of convertible debentures
and preferred stock are all anti-dilutive. The amount of common stock
equivalents excluded from the calculation were 3,770,954 in 1997, 3,863,535 in
1998 and 5,296,624 in 1999.
(J) COMPREHENSIVE INCOME
Comprehensive income (loss) consists of net losses and the change in net
unrealized gains (losses) on securities and is presented in the consolidated
statements of stockholders' equity (deficit).
(K) PRESENTATION
In connection with the disposition of the Company's chiral intermediate
operation in January 1998 (see note 10), the 1997 and 1998 financial results
applicable to continuing operations exclude amounts from this discontinued
operation.
(L) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value, which equals carrying value, of marketable securities
available for sale is based on quoted market prices. For all other financial
instruments, excluding convertible notes (see note 6), their carrying value
approximates fair value due to the short maturity of these instruments.
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities was issued and, as amended, is effective for all fiscal
years beginning after June 15, 2000. SFAS No. 133 standardizes the accounting
for derivative instruments including certain derivative instruments embedded in
other contracts and requires derivative instruments to be recognized as assets
and liabilities and be recorded at fair value. The Company is currently not
party to any derivative instruments. Any future transactions involving
derivative instruments will be evaluated based on SFAS No. 133.
(M) OTHER ASSETS
Other assets include certain patent rights, the cost of which is amortized
using the straight line method over the life of the patents. The weighted
average remaining patent life at December 31, 1999 is 12 years.
(3) INVENTORY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Raw materials ........... $ 440,400 $ 1,411,663
Work in process ......... 535,494 647,841
Finished goods .......... 595,514 396,555
----------- -----------
$ 1,571,408 $ 2,456,059
=========== ===========
</TABLE>
Inventory costs prior to FDA approval of THALOMID on July 16, 1998 were
expensed as research and development costs.
F-10
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
(4) PLANT AND EQUIPMENT
Plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Leasehold improvements ..................... $ 4,008,246 $ 4,375,013
Laboratory equipment and machinery ......... 4,874,733 5,323,897
Furniture and fixtures ..................... 470,667 605,623
Leased equipment ........................... 675,304 675,304
----------- -----------
10,028,950 10,979,837
Less: accumulated depreciation ............. 7,766,820 8,643,595
----------- -----------
$ 2,262,130 $ 2,336,242
=========== ===========
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1999
-------------- --------------
<S> <C> <C>
Professional and consulting fees ......... $ 787,381 $ 905,072
Accrued compensation ..................... 1,650,048 3,098,540
Accrued interest and royalties ........... 361,809 1,989,394
Other .................................... 242,621 768,883
----------- -----------
$ 3,041,859 $ 6,761,889
=========== ===========
</TABLE>
(6) CONVERTIBLE DEBT
On September 16, 1998, the Company issued a convertible note to an
institutional investor in the amount of $8,750,000. The note has a five year
term and a coupon rate of 9.25% with interest payable on a semi-annual basis.
The note contains a conversion feature that allows the note holder to convert
the note into common shares at $11 per share. The Company can redeem the note
after three years at 103% of the principal amount (two years if the Company's
stock trades at $24.75 or higher for a period of 20 consecutive trading days).
This note was issued at a discount of $437,500 which is being amortized over
three years.
On January 20, 1999, the Company issued to an institutional investor a
convertible note in the amount of $15,000,000. The note has a five year term
and a coupon rate of 9% with interest payable on a semi-annual basis. The note
contains a conversion feature that allows the note holder to convert the note
into common shares after one year at $18 per share. The Company can redeem the
note after three years at 103% of the principal amount (two years under certain
conditions). Issuance costs of $750,000 incurred in connection with this note
are being amortized over three years.
On July 6, 1999, the Company issued to a third institutional investor a
convertible note in the amount of $15,000,000. The note has a five year term
and a coupon rate of 9% with interest payable on a semi-annual basis. The note
contains a conversion feature that allows the note holder to convert the note
into common shares after one year at $19 per share. The Company can redeem the
note after three years at 103% of the principal amount (two years under certain
conditions). There was no fee or discount associated with this note.
F-11
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
At December 31, 1999, the fair value of the Company's convertible notes
exceeded their carrying value, reflecting the increase to $70 per share in the
market value of the Company's common stock at that date.
(7) STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Board of Directors has the authority to issue, at any time, without
further stockholder approval, up to 5,000,000 shares of preferred stock, and to
determine the price, rights, privileges, and preferences of those shares.
SERIES A CONVERTIBLE PREFERRED STOCK
During 1996, in a private placement, the Company completed the sale of 503
shares of Series A Convertible Preferred Stock, par value $.01 per share, at an
issue price of $50,000 per share. All of the shares of the Series A Convertible
Preferred Stock with their respective accrued accretion, had been converted or
redeemed into 3,342,202 shares of common stock at December 31, 1998.
During 1996, the Company had issued warrants valued at $138,156, that
entitle certain stockholders of the Series A Convertible Preferred Stock to
purchase 153,507 shares of common stock at an exercise price of $11.50. The
warrants were issued in exchange for the deferral of conversion for 90 days.
All these warrants either expired or were exercised for 3,418 shares of common
stock at December 31, 1998. In connection with the private placement, the
Company also granted to certain executives and affiliates of the placement
agent warrants, valued at $60,168, to purchase an aggregate of 66,853 shares of
common stock at an exercise price of $20.52, subject to proportional adjustment
in the event that the Company undertakes a stock split, stock dividend,
recapitalization or similar event. These warrants are exercisable for a period
of five years from the date of issuance. As of December 31, 1999, 35,039
warrants were exercised to purchase 23,322 shares of common stock.
SERIES B CONVERTIBLE PREFERRED STOCK
During 1997, in a private placement, the Company completed the sale of
5,000 shares of Series B Convertible Preferred Stock (the "Series B
Preferred"), par value $.01 per share, at an issue price of $1,000 per share.
The Company received net proceeds, after offering costs of $4,840,748. Shares
could be converted at an initial conversion price of $6.50 per share. All
shares of the Series B Preferred had been converted into 788,469 shares of
common stock at December 31, 1998.
Upon request of the purchasers of the Series B Preferred, the Company is
required to issue warrants to acquire a number of shares of common stock equal
to (i) 1,500,000 divided by the Conversion Price in effect on the Issuance Date
(230,769 warrants as of December 31, 1999) plus (ii) 37.5% of the conversion
shares issuable on such issuance date upon conversion of all shares of Series B
Preferred issued through the issuance date (288,461 warrants as of December 31,
1999). All such warrants will have a term of four years from the issuance date
and an exercise price equal to 115% of the conversion price in effect on the
issuance date ($6.50 at December 31, 1999). The fair value of warrants at the
issuance date was $1.28 per warrant. As of December 31, 1999 no warrants have
been exercised.
RIGHTS PLAN
During 1996, the Company adopted a shareholder rights plan ("Rights
Plan"). The Rights Plan involves the distribution of one "Right" as a dividend
on each outstanding share of the Company's common stock to each holder of
record on September 26, 1996. Each Right shall entitle the holder to purchase
one-tenth of a share of common stock. The Rights trade in tandem with the
common stock until, and are exercisable upon, certain triggering events, and
the exercise price is based on the estimated long term value of the Company's
common stock. In certain circumstances, the Rights Plan permits the
F-12
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
holders to purchase shares of the Company's common stock at a discounted rate.
The Company's Board of Directors retains the right at all times prior to
acquisition of 15% of our voting common stock by an acquiror, to discontinue
the Rights Plan through the redemption of all rights or to amend the Rights
Plan in any respect.
(8) STOCK BASED COMPENSATION
(A) STOCK OPTIONS
The Company has two Incentive Plans that provide for the granting of
options, restricted stock awards, stock appreciation rights, performance awards
and other stock-based awards to employees and officers of the Company to
purchase not more than an aggregate of 1,400,000 shares of common stock under
the 1992 plan and 1,500,000 shares of common stock under the 1998 plan, subject
to adjustment under certain circumstances. The Management Compensation and
Development Committee of the Board of Directors (the "Committee") determines
the type, amount and terms, including vesting, of any awards made under the
Incentive Plans. The Plans terminate in 2002 and 2008, respectively.
With respect to options granted under the Incentive Plans, the exercise
price may not be less than the fair market value of the common stock on the
date of grant. In general, each option granted under the Plans vests evenly
over a three or four year period and expires 10 years from the date of grant,
subject to earlier expiration in case of termination of employment. The vesting
period for options and restricted stock awards granted under the Plans is
subject to certain acceleration provisions if a change in control, as defined
in the Plans, occurs.
On June 16, 1995, the stockholders of the Company approved the 1995
Non-Employee Directors' Incentive Plan, which provides for the granting of
non-qualified stock options to purchase an aggregate of not more than 350,000
shares of common stock (subject to adjustment under certain circumstances) to
directors of the Company who are not officers or employees of the Company
("Non-Employee Directors"). Each new Non-Employee Director, upon the date of
election or appointment, receives an option to purchase 20,000 shares of common
stock. Additionally, upon the date of each annual meeting of stockholders, each
continuing Non-Employee Director receives an option to purchase 10,000 shares
of common stock (or a pro rata portion thereof for service less than one year).
The shares subject to each non-employee director's option grant of 20,000
shares vest in four equal annual installments commencing on the first
anniversary of the date of grant. The shares subject to an annual meeting
option grant vest in full on the date of the first annual meeting of
stockholders held following the date of grant. On June 22, 1999, the
stockholders of the Company approved an amendment to the 1995 Non-Employee
Directors' Incentive Plan that a.) increased the number of shares to 600,000
and b.) provided for a discretionary grant upon the date of each annual meeting
of an additional option to purchase up to 5,000 shares to a non-employee
director who serves as a member (but not a chairman) of a committee of the
Board of Directors and up to 10,000 shares to a non-employee director who
serves as the chairman of a committee of the Board of Directors. All options
are granted at an exercise price that equals the fair market value of the
Company's common stock at the grant date and expire 10 years after the date of
grant. This plan terminates in 2005.
F-13
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
The weighted-average fair value per share for stock options granted was
$9.26 for the 1999 options, $3.97 for the 1998 options and $3.93 for those
granted in 1997. The Company estimated the fair values using the Black-Scholes
option pricing model and used the following assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Risk-free interest rate ....................... 6.37% 5.68% 6.38%
Expected stock price volatility ............... 55% 66% 46%
Expected term until exercise (years) .......... 3.09 2.86 4.98
Expected dividend yield ....................... 0% 0% 0%
</TABLE>
The Company does not record compensation expense for stock option grants.
The following table summarizes results as if compensation expense was recorded
for the annual option grants under the fair value method:
<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA) 1997 1998 1999
- --------------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Net loss applicable to common stockholders:
As reported ............................................. $ (26,922) $ (25,093) $ (21,781)
Pro forma ............................................... (28,652) (26,745) (25,491)
Net loss per share applicable to common stockholders basic
and diluted:
As reported ............................................. (2.20) (1.55) (1.28)
Pro forma ............................................... (2.35) (1.66) (1.50)
</TABLE>
The pro forma effects on net loss applicable to common stockholders and
net loss per share applicable to common stockholders (basic and diluted) for
1997, 1998 and 1999 may not be representative of the pro forma effects in
future years since compensation cost is allocated on a straight-line basis over
the vesting periods of the grants, which extends beyond the reported years.
F-14
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
The following table summarizes the stock option activity for the
aforementioned Plans:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -------------------------------
AVAILABLE WEIGHTED AVERAGE
FOR GRANT SHARES PRICE PER SHARE
------------- ------------- -----------------
<S> <C> <C> <C>
Balance January 1, 1997 ........... 442,845 2,006,214 $ 9.60
Authorized ....................... 500,000 -- --
Expired .......................... (74,797) -- --
Granted .......................... (492,775) 492,775 9.39
Exercised ........................ -- (6,986) 7.83
Cancelled ........................ 142,027 (142,027) 9.36
-------- --------- --------
Balance December 31, 1997 ......... 517,300 2,349,976 9.59
Authorized ....................... 1,620,000 -- --
Expired .......................... (85,095) -- --
Granted .......................... (559,983) 559,983 8.87
Exercised ........................ -- (283,120) 7.18
Cancelled ........................ 198,726 (198,726) 10.74
--------- --------- --------
Balance December 31, 1998 ......... 1,690,948 2,428,113 9.62
Authorized ....................... 250,000 -- --
Expired .......................... (70,047) -- --
Granted .......................... (890,530) 890,530 19.26
Exercised ........................ -- (949,323) 8.46
Cancelled ........................ 42,053 (42,053) 10.66
--------- --------- --------
Balance December 31, 1999 ......... 1,022,424 2,327,267 $ 13.76
========= ========= ========
</TABLE>
The following table summarizes information concerning options outstanding
under the Plans at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING EXERCISE REMAINING EXERCISABLE EXERCISE
EXERCISE PRICE AT 12/31/99 PRICE TERM (YRS.) AT 12/31/99 PRICE
- ---------------- ------------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
5.00 -- 9.00 627,518 $ 7.78 6.8 322,966 $ 7.25
9.01 --13.00 450,920 10.69 6.9 294,861 10.69
13.01--18.00 1,137,329 15.93 8.2 349,407 14.43
18.01 + 111,500 37.74 9.8 -- --
--------- -------- --- ------- --------
2,327,267 $ 13.76 7.6 967,234 $ 10.89
========= ======== === ======= ========
</TABLE>
(B) STOCK AWARDS
On January 1, 1997, the Company awarded 5,000 shares to the Company's
Chairman and Chief Executive Officer, which were immediately vested. The fair
value of $55,625 for this award was expensed.
(C) WARRANTS
In connection with the retention of an investment firm to assist in the
sale and issuance of the Series A Convertible Preferred Stock, the Company, in
1996 granted to such firm, warrants to purchase until March 10, 2001, 66,853
shares of common stock at a price of $20.52. There were 31,814 warrants
outstanding as of December 31, 1999.
F-15
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
In connection with the placement of the Series B Convertible Preferred
Stock in June, 1997, the Company has an obligation to issue warrants to
purchase 519,230 shares of common stock until June 1, 2002, at a price of $7.48
per share. As of December 31, 1999 these warrants were outstanding.
(9) INCOME TAXES
At December 31, 1998 and 1999, the tax effects of temporary differences
that give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
Deferred assets:
Federal and state net operating loss carryforwards ...................... $ 54,779,000 $ 73,147,000
Research and experimentation tax credit carryforwards ................... 3,235,000 3,984,000
Plant and equipment, principally due to differences in depreciation ..... 772,000 1,075,000
Patents, principally due to differences in amortization ................. 62,000 58,000
Accrued expenses ........................................................ 665,000 560,000
------------- -------------
Total deferred tax assets ............................................ 59,513,000 78,824,000
Valuation allowance ..................................................... (59,513,000) (78,824,000)
------------- -------------
Net deferred tax assets .............................................. $ -- $ --
============= =============
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion or all of the deferred tax assets will not be realized. At
December 31, 1999, the Company had Federal net operating loss carryforwards of
approximately $184,000,000 and state net operating loss carryforwards of
approximately $121,000,000 that will expire in the years 2001 through 2019.
State net operating loss carryforwards differ from Federal net operating loss
carryforwards primarily due to the fact that the Company sold approximately
$39,000,000 of its state net operating loss carryforwards during 1999 and
approximately $24,000,000 has expired. The Company also has research and
experimentation credit carryforwards of approximately $3,984,000 that expire in
the years 2001 through 2019. Ultimate utilization/availability of such net
operating losses and credits may be curtailed if a significant change in
ownership occurs. Of the deferred tax asset related to the Federal and state
net operating loss carryforwards, approximately $12,500,000 relates to a tax
deduction for non qualified stock options. The Company will increase paid in
capital when these benefits are realized for tax purposes.
(10) DISCONTINUED OPERATION
On January 9, 1998, the Company concluded an agreement with Cambrex
Corporation ("Cambrex") for Cambrex to acquire Celgene's chiral intermediate
business for approximately $15 million. The Company received $7.5 million upon
the closing of the transaction, and will receive future royalties with a
present value not exceeding $7.5 million, with certain minimum royalty payments
in the third through sixth year following the closing of the transaction.
Included in the transaction are the rights to Celgene's enzymatic technology
for the production of chirally pure intermediates for the pharmaceutical
industry, including the current pipeline of third party products and the
equipment and personnel associated with the business.
(11) MARKETABLE SECURITIES AVAILABLE FOR SALE
Marketable securities available for sale at December 31, 1999 include debt
securities with maturities ranging from January 2000 to August 2004. A summary
of marketable securities at December 31, 1999 is as follows:
F-16
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Government Bonds & Notes ......... $2,313,125 -- $ (25,579) $2,287,546
Government Agencies .............. 2,050,000 -- (66,325) 1,983,675
---------- -- --------- ----------
Total ........................... $4,363,125 -- $ (91,904) $4,271,221
========== == ========= ==========
</TABLE>
Marketable securities available for sale at December 31, 1998 include debt
securities with maturities ranging from March, 1999 to October, 2002.
Marketable securities at December 31, 1998 include Corporate Bonds ($1,006,890)
and U.S. Government and agency obligations ($1,050,000). The cost equaled fair
market value.
(12) COMMITMENTS AND CONTINGENCIES
(A) LEASES
Celgene leases its main laboratory and office facilities in Warren
Township, New Jersey. The current lease term for the main laboratory and office
space expires in 2002 and has one five-year renewal option. Annual payments are
$330,000. The lease provides that at the end of each five-year term, the rent
will be increased based upon the change in the consumer price index, but in no
case shall the increase be greater than 20%. Celgene is also required to pay
additional amounts for real estate taxes, utilities, and maintenance. Total
rental expense amounted to $477,000, $486,000 and $479,000 in 1997, 1998 and
1999, respectively. Celgene has subleased 12,500 square feet of this facility
to Cambrex Corporation for up to three years for the Chiral Intermediate
business which Cambrex purchased on January 9, 1998.
In November, 1999, the Company leased an additional 29,000 square feet of
office and laboratory space in the same building facility in Warren, New Jersey
adjacent to our existing leased space. The initial term of the lease extends to
July 2010 with two five year renewal options.
In March 1999, the Company entered into a lease agreement with The New
Jersey Economic Development Authority (NJEDA) to lease approximately 18,000
square feet of office and laboratory space in North Brunswick, New Jersey for
Celgro, our agrochemical subsidiary. The lease agreement is for ten years
commencing January 1, 2000 and provides for two five year renewal terms.
In July, 1997, the Company entered into an equipment leasing agreement;
under the agreement, the Company can lease up to $1,000,000 of equipment for a
three year term after which the Company can purchase the equipment for a
nominal value. Through December 31, 1999, the Company has leased $675,000 of
laboratory equipment under this agreement.
The following table shows the approximate minimum lease commitments for
the next five years:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 AFTER 2004
- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
$1,257,000 $1,106,000 $1,086,000 $1,122,000 $1,131,000 $4,903,000
</TABLE>
(B) EMPLOYMENT AGREEMENTS
Celgene has employment agreements with certain officers and employees. The
related outstanding commitment for 2000 is approximately $1.3 million.
Employment contracts provide for an increase in compensation reflecting annual
reviews and related salary adjustments.
F-17
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
(C) CONTRACTS
Pursuant to the terms of a research and development agreement with The
Rockefeller University ("Rockefeller"), the Company has purchased for cash and
stock options the world-wide exclusive license to manufacture and market any
drugs, including THALOMID, which may result from the research performed at
Rockefeller and funded by the Company. The portion of the agreement that
provides for research services to be performed by Rockefeller is renewable for
one year terms upon agreement of both parties. Under terms of the current
research agreement extension, the Company is committed to pay Rockefeller
$504,000 annually for research.
The Company has an agreement with Penn Pharmaceutical, Ltd. of Great
Britain ("Penn") for the production of THALOMID. Penn manufactures THALOMID and
sells it exclusively to the Company. The agreement is renewable for one year
terms and has been renewed for 2000, for facility payments totaling
approximately $480,000.
In October 1997, the Company entered into a contract with Boston
University to manage the surveillance registry which is intended to monitor
compliance to the requirements of the Company's S.T.E.P.S. (System for THALOMID
Education and Prescribing Safety) program for all THALOMID patients. The
contract has been renewed for 2000. Under the terms of the agreement, quarterly
payments of approximately $395,000 are required. The contract is renewable for
one year terms upon agreement of both parties.
In December 1997, the Company entered into a research agreement with the
University of Glasgow for clinical testing and evaluation of certain of
Celgene's patented compounds. Under terms of the agreement, the Company agreed
to pay the University approximately $200,000 in two annual installments. The
term of the original agreement was for two years and has been extended through
2000.
In June 1998, the Company entered into a research agreement with a
contract research organization to manage the pivotal clinical trial for
d-methylphenidate encompassing four separate protocols. The agreement is for
approximately two years and is estimated at approximately $5.0 million over the
life of the agreement.
In December 1998, the Company entered into an exclusive license agreement
with EntreMed, Inc. ("EntreMed") whereby EntreMed granted to us an exclusive
license to its patent and technology rights for thalidomide. In return,
EntreMed will receive royalties on all sales of THALOMID.
(D) CONTINGENCIES
The Company believes it maintains insurance coverage adequate for its
current needs.
The Company's operations are subject to environmental laws and regulations
which impose limitations on the discharge of pollutants into the air and water
and establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company reviews the effects of such laws and regulations
on its operation and modifies its operations as appropriate. The Company
believes that it is in substantial compliance with all applicable environmental
laws and regulations.
(13) SEGMENTS
Effective January 1, 1998, the Company adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. As discussed in Note
1, the Company manages its operations as one line of business of discovery,
development and commercialization of orally administered, small molecule drugs
for the treatment of cancer and immunological diseases. Additionally, our
chiral chemistry program develops chirally pure versions of existing compounds
for both pharmaceutical and agrochemical markets. The Company markets and sells
its products in the United States. During 1999, no single customer accounted
for more than 3% of the Company's product sales.
F-18
<PAGE>
CELGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1998, AND 1999 - (CONTINUED )
(14) SUBSEQUENT EVENT
On February 16, 2000, the Company completed an offering to sell 3,450,000
shares of its common stock at a price of $101 per share. 2,934,000 shares were
for the account of the Company and 516,000 shares were for the account of a
selling shareholder pursuant to the conversion of $9,288,000 of the 9%, January
1999 convertible notes held by that shareholder. Proceeds to the Company, net
of expenses, were approximately $278 million.
F-19
<PAGE>
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
CELGENE CORPORATION
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING OF CHARGED TO END OF
YEAR EXPENSE DEDUCTIONS YEAR
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1998
Allowance for doubtful accounts .......... -- 43,386 -- 43,386
-- ------ -- ------
-- 43,386 -- 43,386
Year ended December 31, 1999
Allowance for doubtful accounts .......... 43,386 58,051 -- 101,437
Allowance for customer discounts ......... -- 453,208 433,208 20,000
------ ------- ------- -------
43,386 511,259 433,208 121,437
====== ======= ======= =======
</TABLE>
EXHIBIT 10.10
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"), dated as
of January 1, 2000, between Celgene Corporation, a Delaware corporation with
offices at 7 Powder Horn Drive, Warren, New Jersey 07059 (the "Company"), and
John W. Jackson, residing at 32 Gregory Lane, Warren, New Jersey 07059
("Employee").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company and Employee have previously entered into an
employment agreement, originally effective September 30, 1997 (the "Employment
Agreement");
WHEREAS, Employee is currently employed as the Chief Executive Officer of
the Company, and serves as Chairman of the Board of Directors of the Company
(the "Board");
WHEREAS, the Company and Employee desire to amend and restate the
Employment Agreement to modify certain terms of the Employment Agreement,
effective as of the date set forth above or such other date as specified herein.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term. The Company agrees to continue to employ Employee, and Employee
agrees to continue to serve, on the terms and conditions of this Agreement for a
period commencing on the date hereof and ending three years from the date
hereof, or such other period as may be provided for in Section 10 or 11. The
period during which Employee is employed hereunder is hereinafter referred to as
the "Employment Period." The Employment Period shall be automatically renewed
for successive one-year terms unless either party gives written notice to the
other at least six (6) months prior to the expiration of the then Employment
Period, of such party's intention to terminate Employee's employment hereunder
at the end of the then current Employment Period.
2. Duties and Services. During the Employment Period, Employee shall
continue to be employed in the business of the Company as Chief Executive
Officer of the Company. In addition, Employee shall continue to serve as
Chairman of the Board. Employee shall perform such duties and services, within
his expertise and experience, as may be assigned to him by, and subject to the
direction of, the Board. Employee agrees to continue his employment as described
in this Section 2 and agrees to devote all of his working time and efforts to
the performance of his duties under this Agreement, excepting disabilities,
illness and vacation time as provided by Section 3(e). In performing his duties
hereunder, Employee shall be available for reasonable travel as the needs of the
business require. Except as provided in Section 6 hereof, the foregoing shall
not be construed as preventing Employee from: (i) making
<PAGE>
investments in other businesses and managing his and his family's personal
investments; and (ii) participating in charitable, civic, educational,
professional, community or industry affairs or serving on the board of directors
of other companies ("Professional Activities"), provided that these Professional
Activities are approved by the Company's Board.
3. Compensation and Other Benefits.
(a) As compensation for his services hereunder, the Company shall pay
Employee, during the Employment Period, a base salary payable in equal
semi-monthly installments at an annual rate of $300,000, provided that such
salary shall be reviewed annually by the Company's Board, or a committee
thereof, which may, in its sole discretion, increase (but not decrease) such
salary.
(b) The Company shall also pay Employee, during the Employment Period, an
annual target bonus, payable in January of each year for the preceding year, in
an amount equal to sixty-five percent (65%) of Employee's base salary (payable
under Section 3(a) of this Agreement) measured against objective criteria to be
determined by the Company's Board, or a committee thereof, after good faith
consultation with Employee.
(c) Employee shall be entitled to continue to participate in all group
health and insurance programs and all other fringe benefit or retirement plans
which the Company may, in its sole and absolute discretion, elect to make
available to its employees generally, provided Employee meets the qualifications
therefor.
(d) Employee shall be eligible to participate in the Company's 1998 Long-
Term Incentive Plan (the "Plan") and any other incentive plans of the Company.
Upon the Employee's Disability (as defined in the Plan), termination of
employment with the Company due to Retirement (as defined in the Plan) or death,
Employee (or the legal representative of his estate, in the case of Employee's
death) shall be entitled to: (i) full vesting and immediate exercisability of
any outstanding stock options and other equity awards (and lapse of any
forfeiture provisions) granted to Employee at any time; and (ii) with respect to
stock options granted to Employee on or after January 1, 2000, Employee (or the
legal representative of his estate, in the case of Employee's death) shall be
entitled to exercise such stock options at any time during the three (3) year
period from the date of Employee's Disability, Retirement or death.
(e) Employee shall be entitled to four weeks of paid vacation per year
during the Employment Period.
4. Expenses. Employee shall be entitled to reimbursement for all reasonable
travel and other out-of-pocket expenses necessarily incurred in the performance
of his duties hereunder, upon submission and approval of written statements and
bills in accordance with the then regular procedures of the Company.
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5. Representations and Warranties of Employee. Employee represents and
warrants to the Company that Employee is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder or the other rights of the
Company hereunder.
6. Non-Competition.
(a) In view of the unique and valuable services that Employee has rendered
or is expected to render to the Company, Employee's knowledge of the customers,
trade secrets and other proprietary information relating to the business of the
Company and its customers and suppliers and similar knowledge regarding the
Company which Employee has obtained or is expected to obtain, and in
consideration of the compensation to be received hereunder, Employee agrees
that:
(i) during the period he is employed by the Company under this
Agreement or otherwise, he will not Participate In (as hereinafter defined
in this Section 6) any other business or organization, whether or not such
business or organization now is or shall then be competing with or of a
nature similar to the business of the Company, without obtaining the prior
written consent of the Executive Committee of the Board;
(ii) until the first anniversary of the date of the termination of
Employee's employment under this Agreement or otherwise, he will not
Participate In any business which is engaged, directly or indirectly, in
the same business as the Company with respect to any specific product or
specific service sold or activity in which the Company engages up to the
time of termination of employment in any geographical area in which at the
time of termination such product or service is sold or activity is engaged
in by the Company;
(iii) if a Change in Control occurs and Employee's employment with the
Company is terminated under this Agreement without Cause (as hereinafter
defined) or by Employee for Good Reason (as hereinafter defined) at any
time during the period beginning on the date of a Change in Control and
ending one (1) year after the date of such Change in Control or within
ninety (90) days prior to a Change in Control, then beginning on the later
of the date Employee's employment terminates (as described under this
Section 6(a)(iii)) and the date of a Change in Control and ending on the
second anniversary of such date, he will not Participate In any activity or
business in the United States involved in the research, development,
commercialization of a small molecule which is: (A) the generic equivalent
of THALOMID (i.e., the same chemical structure); (B) an anti-angiogenic
agent for oncology use; (C) a substantially specific TNFalpha inhibitor
(via inhibition of synthesis of TNFalpha, including via inhibition of PDE4)
for the treatment of Crohn's disease, rheumatoid arthritis, dermatological
and auto-immune conditions having excess levels of TNFalpha as the prime
causative factor, cachexia (AIDS or cancer), or any other indication for
which the Company has been granted orphan drug status; or (D) a formulation
of d- or dl-methylphenidate for the treatment of ADD/ADHD.
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(b) For purposes of this Section 6 the term "Participate In" shall mean:
"directly or indirectly, for his own benefit or for, with or through any other
person, firm or corporation, own, manage, operate, control, loan money to or
participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, consultant, agent,
independent contractor or otherwise with, or acquiesce in the use of his name
in."
(c) Employee further agrees that, during the period he is employed by the
Company under this Agreement or otherwise and until the first anniversary of the
date of the termination of Employee's employment under this Agreement or
otherwise, he will not directly or indirectly reveal the name of, solicit or
interfere with, or endeavor to entice away from the Company, any of its
suppliers, customers or employees.
7. Patents, etc. Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works, developments,
discoveries, designs and processes ("Inventions") which Employee during the
period he is employed by the Company under this Agreement or otherwise, and for
six months thereafter, may conceive of or develop and either relating to the
specific fields in which the Company may then be engaged or conceived of or
developed utilizing the time, material, facilities or information of the Company
shall belong to the Company; as soon as Employee conceives of or develops any
Invention, he agrees immediately to communicate such fact in writing to the
Secretary of the Company, and without further compensation, but at the Company's
expense (except as noted in clause (a) of this Section 7), forthwith upon
request of the Company, Employee shall execute all such assignments and other
documents (including applications for patents, copyrights, trademarks and
assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all Employee's right,
title and interest in and to the Inventions, free and clear of liens, mortgages,
security interests, pledges, charges and encumbrances arising from the acts of
Employee ("Liens") (Employee to take such action, at his expense, as is
necessary to remove all such Liens) and (b) if patentable or copyrightable, to
obtain patents or copyrights (including extensions and renewals) therefor in any
and all countries in such name as the Company shall determine.
8. Confidential Information. All confidential information which Employee
may now possess, may obtain during or after the Employment Period, or may create
prior to the end of the period he is employed by the Company under this
Agreement or otherwise relating to the business of the Company or of any
customer or supplier of the Company shall not be published, disclosed or made
accessible by him to any other person, firm or corporation either during or
after the termination of his employment or used by him except during the
Employment Period in the business and for the benefit of the Company, in each
case without the prior written permission of the Company. Employee shall return
all tangible evidence of such confidential information to the Company prior to
or at the termination of his employment. As used in this Section 8,
"confidential information" shall mean any information except that information
which is or comes into the public domain through no fault of Employee or which
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Employee obtains after the termination of his employment by the Company under
this Agreement or otherwise from a third party who has the right to disclose
such information.
9. Life Insurance. If requested by the Company, Employee shall submit to
such physical examinations and otherwise take such actions and execute and
deliver such documents as may be reasonably necessary to enable the Company, at
its expense and for its own benefit, to obtain life insurance on the life of
Employee. Subject to its ability to do so under the terms of such policy, if
any, insuring the life of Employee, upon the termination of Employee's
employment hereunder, the Company will assign to Employee its rights under such
insurance policy, provided that, concurrently with such assignment, Employee
shall reimburse the Company for any premium payments made by the Company in
respect of time periods subsequent to such date of termination. Nothing herein
contained shall obligate the Company to obtain such insurance.
10. Termination.
(a) Employee's employment and the Employment Period shall terminate on the
first of the following to occur:
(i) the Company provides written notice to Employee of a termination
for Cause; such written notice shall be provided to Employee not less than
ten (10) days prior to the date of termination. "Cause" shall mean: (A)
Employee's conviction of a crime involving moral turpitude or a felony, (B)
Employee's acts or omissions taken in bad faith and to the detriment of the
Company after a written demand for cessation of such conduct is delivered
to Employee by the Company, which demand specifically identifies the manner
in which the Company believes that Employee has engaged in such conduct and
the injury to the Company, and after Employee's failure to correct such act
or omission within ten (10) days following such written demand, or (C)
Employee's breach of any material term of this Agreement after written
demand for substantial performance is delivered to Employee by the Company,
which demand specifically identifies the manner in which the Company
believes Employee has breached this Agreement, and after Employee's failure
to correct such breach within ten (10) days following such written demand.
(ii) Employee's death, in which case, this Agreement shall terminate
on the date of Employee's death, whereupon Employee or his estate, as the
case may be, shall be entitled to receive a lump sum payment in an amount
equal to Employee's annual base salary (at the rate in effect, or required
to be in effect, immediately prior to the date of Employee's death) and the
portion of Employee's annual target bonus (as provided in Section 3(b))
pro-rated up to Employee's date of death (assuming the target has been
met).
(iii) Nothing contained in this Section 10(a) shall be deemed to limit
any other right the Company may have to terminate Employee's employment
hereunder upon any ground permitted by law.
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<PAGE>
(iv) If Employee's employment is terminated by the Company as a result
of the disability or incapacitation of Employee or for any reason other
than pursuant to the provisions of paragraphs (i) or (ii) of this Section
10(a) or the provisions of Section 10(b), upon termination by the Company
of Employee's employment, whether during the Employment Period or
thereafter, Employee shall be entitled to receive a lump sum payment in an
amount equal to Employee's annual base salary (at the rate in effect, or
required to be in effect, immediately prior to the date of Employee's
termination) and the portion of Employee's annual target bonus (as provided
in Section 3(b)) pro-rated up to Employee's date of disability,
incapacitation or termination (assuming the target has been met).
(v) In the event of the Employee's termination for any reason under
this Agreement or otherwise, the Company shall pay and provide to Employee
(in addition to any other payments or benefits payable under this
Agreement): (A) any incurred but reimbursed business expenses for the
period prior to the termination payable in accordance with the Company's
policies; (B) any base salary, bonus, vacation pay or other deferred
compensation accrued or earned under law or in accordance with the
Company's policies applicable to Employee but not yet paid; and (C) any
other amounts or benefits due under the terms of the then applicable
employee benefit, equity or incentive plans of the Company applicable to
Employee (the "Accrued Benefits").
(vi) Payments of any amounts or benefits hereunder shall be made no
later than ten (10) days after Employee's termination date, other than
benefits under a plan with the terms which do not require or permit payment
within such ten (10) day period.
(b) During the ninety (90) day period prior to Change in Control or during
the one (1) year period following a Change in Control, Employee may terminate
his employment by written notice to the Company within thirty (30) calendar days
after he has obtained actual knowledge of the occurrence of a Good Reason event.
For purposes of this Agreement, Good Reason shall mean the occurrence of any of
the following events without Employee's express written consent:
(i) failure to elect or appoint, or reelect or reappoint, Employee to,
or removal of Employee from, his position with the Company as Chief
Executive Officer or Chairman of the Board, except in connection with the
termination of Employee's employment pursuant to Section 10(a);
(ii) a significant change in the nature or scope of the authorities,
powers, functions, duties or responsibilities normally attached to
Employee's position as Chief Executive Officer or Chairman of the Board,
except in each case in connection with the termination of Employee's
employment for Cause or as a result of Employee's death, or temporarily as
a result of Employee's illness or other absence;
(iii) a determination by Employee made in good faith that, as a result
of a Change in Control, he is unable effectively to carry out the
authorities, powers,
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<PAGE>
functions, duties or responsibilities attached to his position as Chief
Executive Officer or Chairman of the Board and the situation is not
remedied within 30 calendar days after receipt by the Company of written
notice from Employee of such determination;
(iv) a breach by the Company of any material provision of this
Agreement (not covered by clause (i), (ii) or (iii) of this Section 10(b))
or of any other agreement, which is not remedied within 30 calendar days
after receipt by the Company of written notice from Employee of such
breach;
(v) a reduction in Employee's annual base salary;
(vi) a fifty (50) mile or greater relocation of the Company's
principal office;
(vii) failure of the Company to continue in effect any health or
welfare plan, employee benefit plan, pension plan, fringe benefit plan or
compensation plan in which Employee (and eligible dependents) are
participating immediately prior to a Change in Control, unless Employee
(and eligible dependents) are permitted to participate in other plans
providing Employee (and eligible dependents) with substantially comparable
benefits at no greater after-tax cost to Employee (and eligible
dependents), or the taking of any action by the Company which would
adversely affect the Employee's (and eligible dependents) participation in
or reduce Employee's (and eligible dependents) benefits under any such
plan; or
(viii) failure of a successor to assume this Agreement.
An election by Employee to terminate his employment under the provisions of
this Section 10(b) shall not constitute a breach by Employee of this Agreement
and shall not be deemed a voluntary termination of employment by Employee for
the purpose of interpreting the provisions of any of the Company's employee
benefit plans, programs or policies.
(c) Upon the occurrence of a Change in Control and thereafter: (A) if
Employee's employment with the Company is terminated by the Company without
Cause or as a result of the disability or incapacitation of Employee, or by
Employee with Good Reason at any time during the period beginning on the date of
the Change in Control and ending one (1) year after the date of such Change in
Control, or (B) if Employee's employment with the Company is terminated by the
Company without Cause or by Employee for Good Reason within ninety (90) days
prior to the occurrence of a Change in Control, then Employee shall be entitled
to receive from the Company:
(i) a lump sum amount, payable within ten (10) days after such
termination (or, if such termination occurred prior to a Change in Control,
within ten (10) days after the Change in Control) equal to (A) three (3)
times Employee's base salary in effect, or required to be in effect,
immediately prior to the Change in Control,
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<PAGE>
and (B) three (3) times the highest annual bonus paid or payable to
Employee within three (3) years prior to the Change in Control;
(ii) within ten (10) days after such termination (or, if such
termination occurred prior to a Change in Control, within ten (10) days
after the Change in Control) equal to the Accrued Benefits;
(iii) payment by the Company of the premiums for Employee (except in
the case of Employee's death) and Employee's and dependents' health and
welfare coverage (including, without limitation, medical, dental, life
insurance and disability coverage) for three (3) years from the later of
the occurrence of a Change in Control or the date of termination of
Employee's employment, under the Company's health and welfare plans which
cover the senior executives of the Company or materially similar benefits
("Continuation Coverage"), subject to Employee's payment of customary
premiums (if any) in effect prior to the Change in Control;
(iv) upon the occurrence of a Change in Control, full and immediate
vesting of all stock options and equity awards held by Employee.
Payments under (iii) above may, at the discretion of the Company, be made
by continuing Employee's participation in the plan as a terminee or by covering
Employee and Employee's dependents under substitute arrangements, provided that,
notwithstanding anything herein to the contrary, to the extent Employee incurs
tax that Employee would not have incurred as an active employee as a result of
the aforementioned coverage or the benefits provided thereunder, Employee shall
receive from the Company an additional grossed up payment in the amount
necessary so that Employee will have no additional cost for receiving such items
or any additional payment. Notwithstanding anything herein to the contrary,
Employee (and his eligible dependents) shall retain all rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and
such COBRA continuation coverage shall be available to Employee (and his
eligible dependents) at the expiration of the Continuation Coverage described
herein.
(d) For purposes of this Agreement, a Change in Control shall mean the
occurrence of the following:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Sections 13(d) and 14(d) thereof), excluding the Company, any subsidiary of
the Company and any employee benefit plan sponsored or maintained by the
Company or any subsidiary of the Company (including any trustee of any such
plan acting in his capacity as trustee), becoming the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of securities of the
Company representing thirty percent (30%) of the total combined voting
power of the Company's then outstanding securities;
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(ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than (A) a Transaction involving only the
Company and one or more of its subsidiaries, or (B) a Transaction
immediately following which the stockholders of the Company immediately
prior to the Transaction continue to have a majority of the voting power in
the resulting entity and no person (other than those covered by the
exceptions in (a) above) becomes the beneficial owner of securities of the
resulting entity representing more than twenty-five percent (25%) of the
voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning on or
after the date hereof, the persons who were members of the Board
immediately before the beginning of such period (the "Incumbent Directors")
ceasing (for any reason other than death) to constitute at least a majority
of the Board or the board of directors of any successor to the Company,
provided that, any director who was not a director as of the date hereof
shall be deemed to be an Incumbent Director if such director was elected to
the board of directors by, or on the recommendation of or with the approval
of, at least two-thirds of the directors who then qualified as Incumbent
Directors either actually or by prior operation of the foregoing unless
such election, recommendation or approval occurs as a result of an actual
or threatened election contest (as such terms are used in Rule 14a- 11 of
Regulation 14A promulgated under the Exchange Act or any successor
provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board; or
(iv) the approval by the stockholders of the Company of any plan of
complete liquidation of the Company or an agreement for the sale of all or
substantially all of the Company's assets other than the sale of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or
more of the combined voting power of the outstanding voting securities of
the Company at the time of such sale.
(v) To the extent that Employee is entitled to payment under Section 10(c)
upon a Change in Control due to Employee's termination without Cause or for Good
Reason within ninety (90) days prior to a Change in Control, any such payments
under Section 10(c) shall be reduced by any payments made to Employee prior to a
Change in Control under Sections 10(a)(iv) and 10(a)(v).
11. Limitation on Payments.
(a) In the event that Employee shall become entitled to the payments and/or
benefits provided by Section 10(c) or any other amounts (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change of ownership covered by
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")
or any person affiliated with the Company or such person) as a result of a
Change of Control (collectively the "Company Payments"), and such Company
Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999
of
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the Code (and any similar tax that may hereafter be imposed) the Company shall
pay to Employee at the time specified in subsection (d) below an additional
amount (the "Gross-up Payment") such that the net amount retained by Employee,
after deduction of any Excise Tax on the Company Payments and any federal,
state, and local income or payroll tax upon the Gross-up Payment provided for by
this paragraph (a), but before deduction for any federal, state, and local
income or payroll tax on the Company Payments, shall be equal to the Company
Payments. Notwithstanding the foregoing provisions of this Section 11 to the
contrary, if it shall be determined that Employee is entitled to a Gross-up
Payment, but the Company Payments do not exceed one hundred five percent (105%)
of the greatest amount that could be paid to Employee such that the receipt of
Company Payments would not give rise to any Excise Tax (the "Reduced Amount"),
then no Gross-up Payment shall be made to Employee and the Company Payments, in
the aggregate, shall be reduced to the Reduced Amount.
(b) For purposes of determining whether any of the Company Payments and
Gross-up Payments (collectively the "Total Payments") will be subject to the
Excise Tax and determining the amount of such Excise Tax: (i) the Total Payments
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless and except to the extent that, in the
opinion of the Company's independent certified public accountants appointed
prior to any change in ownership (as defined under Code Section 280G(b)(2)) or
tax counsel selected by such accountants (the "Accountants") such Total Payments
(in whole or in part), (A) do not constitute "parachute payments," (B) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code" or (C) are otherwise not subject to the Excise
Tax; and (ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code.
(c) For purposes of determining the amount of the Gross-up Payment,
Employee shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Employee's residence for the
calendar year in which the Company Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes if paid in such year. In the event that the Excise Tax is
subsequently determined by the Accountants to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Employee shall repay
to the Company, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the prior Gross-up Payment attributable to
such reduction (plus the portion of the Gross-up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the portion of the
Gross-up Payment being repaid by Employee if such repayment results in a
reduction in Excise Tax or a federal, state and local income tax deduction),
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Gross-up Payment to be refunded to the Company has been paid to
any federal, state and local tax authority, repayment thereof (and related
amounts) shall not be
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required until actual refund or credit of such portion has been made to
Employee, and interest payable to the Company shall not exceed the interest
received or credited to Employee by such tax authority for the period it held
such portion. Employee and the Company shall mutually agree upon the course of
action to be pursued (and the method of allocating the expense thereof) if
Employee's claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the Accountants or
the Internal Revenue Service to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-up
Payment), the Company shall make an additional Gross-up Payment in respect of
such excess (plus any interest or penalties payable with respect to such excess)
at the time that the amount of such excess is finally determined.
(d) The Gross-up Payment or portion thereof provided for in subsection (c)
above shall be paid not later than the thirtieth (30th) day following an event
occurring which sub jects Employee to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to Employee on such day
an estimate, as determined in good faith by the Accountants, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Code Section 1274(b)(2)(B) of the Code),
subject to further payments pursuant to subsection (c) hereof, as soon as the
amount thereof can reasonably be determined, but in no event later than the
ninetieth (90th) day after the occurrence of the event subjecting Employee to
the Excise Tax. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to Employee, payable on the fifth (5th) day
after demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
(e) In the event of any controversy with the Internal Revenue Service (or
other taxing authority) under this Section 11, Employee shall permit the Company
to control issues related to this Section 11 (at its expense), provided that
such issues do not potentially materially adversely affect Employee, but
Employee shall control any other issues. In the event the issues are
interrelated, Employee and the Company shall in good faith cooperate so as not
to jeopardize resolution of either issue, but if the parties cannot agree,
Employee shall make the final determination with regard to the issues. In the
event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, Employee shall permit the representative of the Company
to accompany him, and Employee and his representative shall cooperate with the
Company and its representative.
(f) The Company shall be responsible for all charges of the Accountants.
12. Successors. In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree in writing to perform this
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Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
13. Survival. The covenants, agreements, representations and warranties
contained in or made pursuant to this Agreement shall survive Employee's
termination of employment.
14. Entire Agreement; Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter
(including, without limitation, the employment agreement in effect prior to the
date hereof) and may be modified only by a written instrument duly executed by
each party.
15. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 15). Notice to the estate of
Employee shall be sufficient if addressed to Employee as provided in this
Section 15. Any notice or other communication given by certified mail shall be
deemed given three days after the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof.
16. Waiver. Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing,
signed by the party giving such waiver.
17. Binding Effect. Employee's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, such rights shall not be
subject to commutation, encumbrance or the claims of Employee's creditors, and
any attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and its assigns under Section 12.
18. No Third Party Beneficiaries. This Agreement does not create, and shall
not be construed as creating, any rights enforceable by any person not a party
to this Agreement (except as provided in Sections 12 and 17).
19. Legal Fees. To the fullest extent permitted by law, the Company shall
promptly pay upon submission of statements all legal and other professional
fees, costs of litigation, prejudgment interest, and other expenses incurred in
connection with any dispute
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concerning payments, benefits and other entitlements to which Employee may have
under this Agreement; provided, however, the Company shall be reimbursed by
Employee for the fees and expenses advanced in the event Employee's claim is, in
a material manner, in bad faith or frivolous and the arbitrator or court, as
applicable, determines that the reimbursement of such fees and expenses is
appropriate.
20. Pooling of Interests; Severability. In the event that the Company's
independent public accountants determine in good faith that any provision of
this Agreement would preclude "pooling of interests" accounting and provided
that the Company engages in a transaction which utilizes "pooling of interests"
accounting, such provision shall be deemed invalid and inoperative solely to the
extent necessary to permit "pooling of interests" transactions. If any portion
of this Agreement is held invalid or inoperative (including a determination by
the Company's independent public accountants in good faith that any provision of
this Agreement would preclude "pooling of interests" accounting), the other
provisions of this Agreement shall be deemed to be valid and operative and, so
far as is reasonable and possible, effect shall be given to the intent
manifested by the portion held valid or inoperative.
21. No Duty to Mitigate/No Offset. The Company agrees that if Employee's
employment with the Company is terminated pursuant to this Agreement during the
term of this Agreement, Employee shall not be required to seek other employment
or to attempt in any way to reduce any amounts payable to Employee by the
Company pursuant to this Agreement. Further, the amount of any payment or
benefit provided for in this Agreement shall not be reduced by any compensation
earned by Employee or benefit provided to Employee as the result of employment
by another employer or otherwise. The Company's obligations to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including without
limitation, any set-off, counter claim, recoupment, defense or other right which
the Company may have against Employee. Notwithstanding the foregoing, payments
and benefits under the Agreement will cease to be paid and may be recouped by
the Company in the event Employee breaches any of the terms of Section 6, 7 or 8
hereunder.
22. Counterparts; Governing Law. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of New
Jersey, without giving effect to the conflict of laws.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
CELGENE CORPORATION
By:
-----------------------------
Richard C. E. Morgan
Chairman of the
Compensation Committee
By:
-----------------------------
Sol J. Barer
President
--------------------------------
John W. Jackson
14
EXHIBIT 10.11
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"), dated as
of January 1, 2000, between Celgene Corporation, a Delaware corporation with
offices at 7 Powder Horn Drive, Warren, New Jersey 07059 (the "Company"), and
Sol J. Barer, residing at 625 Westfield Avenue, Westfield, New Jersey 07090
("Employee").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company and Employee have previously entered into an
employment agreement, originally effective September 30, 1997 (the "Employment
Agreement");
WHEREAS, Employee is currently employed as the President of the Company,
and serves as a member of the Board of Directors of the Company (the "Board");
WHEREAS, the Company and Employee desire to amend and restate the
Employment Agreement to modify certain terms of the Employment Agreement,
effective as of the date set forth above or such other date as specified herein.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term. The Company agrees to continue to employ Employee, and Employee
agrees to continue to serve, on the terms and conditions of this Agreement for a
period commencing on the date hereof and ending three years from the date
hereof, or such other period as may be provided for in Section 10 or 11. The
period during which Employee is employed hereunder is hereinafter referred to as
the "Employment Period." The Employment Period shall be automatically renewed
for successive one-year terms unless either party gives written notice to the
other at least six (6) months prior to the expiration of the then Employment
Period, of such party's intention to terminate Employee's employment hereunder
at the end of the then current Employment Period.
2. Duties and Services. During the Employment Period, Employee shall be
employed in the business of the Company as President and Chief Operating Officer
of the Company. In addition, Employee shall continue to serve as a member of the
Board. Employee shall perform such duties and services, within his expertise and
experience, as may be assigned to him by, and subject to the direction of, the
Chief Executive Officer and the Board. Employee agrees to continue his
employment as described in this Section 2 and agrees to devote all of his
working time and efforts to the performance of his duties under this Agreement,
excepting disabilities, illness and vacation time as provided by Section 3(e).
In performing his duties hereunder, Employee shall be available for reasonable
travel as the needs
<PAGE>
of the business require. Except as provided in Section 6 hereof, the foregoing
shall not be construed as preventing Employee from: (i) making investments in
other businesses and managing his and his family's personal investments; and
(ii) participating in charitable, civic, educational, professional, community or
industry affairs or serving on the board of directors of other companies
("Professional Activities"), provided that these Professional Activities are
approved by the Company's Board.
3. Compensation and Other Benefits.
(a) As compensation for his services hereunder, the Company shall pay
Employee, during the Employment Period, a base salary payable in equal
semi-monthly installments at an annual rate of $258,000, provided that such
salary shall be reviewed annually by the Company's Board, or a committee
thereof, which may, in its sole discretion, increase (but not decrease) such
salary.
(b) The Company shall also pay Employee, during the Employment Period, an
annual target bonus, payable in January of each year for the preceding year, in
an amount equal to forty-five percent (45%) of Employee's base salary (payable
under Section 3(a) of this Agreement) measured against objective criteria to be
determined by the Company's Board, or a committee thereof, after good faith
consultation with Employee.
(c) Employee shall be entitled to continue to participate in all group
health and insurance programs and all other fringe benefit or retirement plans
which the Company may, in its sole and absolute discretion, elect to make
available to its employees generally, provided Employee meets the qualifications
therefor.
(d) Employee shall be eligible to participate in the Company's 1998 Long-
Term Incentive Plan (the "Plan") and any other incentive plans of the Company.
Upon the Employee's Disability (as defined in the Plan), termination of
employment with the Company due to Retirement (as defined in the Plan) or death,
Employee (or the legal representative of his estate, in the case of Employee's
death) shall be entitled to: (i) full vesting and immediate exercisability of
any outstanding stock options and other equity awards (and lapse of any
forfeiture provisions) granted to Employee at any time; and (ii) with respect to
stock options granted to Employee on or after January 1, 2000, Employee (or the
legal representative of his estate, in the case of Employee's death) shall be
entitled to exercise such stock options at any time during the three (3) year
period from the date of Employee's Disability, Retirement or death.
(e) Employee shall be entitled to four weeks of paid vacation per year
during the Employment Period.
4. Expenses. Employee shall be entitled to reimbursement for all reasonable
travel and other out-of-pocket expenses necessarily incurred in the performance
of his duties hereunder, upon submission and approval of written statements and
bills in accordance with the then regular procedures of the Company.
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5. Representations and Warranties of Employee. Employee represents and
warrants to the Company that Employee is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder or the other rights of the
Company hereunder.
6. Non-Competition.
(a) In view of the unique and valuable services that Employee has rendered
or is expected to render to the Company, Employee's knowledge of the customers,
trade secrets and other proprietary information relating to the business of the
Company and its customers and suppliers and similar knowledge regarding the
Company which Employee has obtained or is expected to obtain, and in
consideration of the compensation to be received hereunder, Employee agrees
that:
(i) during the period he is employed by the Company under this
Agreement or otherwise, he will not Participate In (as hereinafter defined
in this Section 6) any other business or organization, whether or not such
business or organization now is or shall then be competing with or of a
nature similar to the business of the Company, without obtaining the prior
written consent of the Chief Executive Officer of the Company;
(ii) until the first anniversary of the date of the termination of
Employee's employment under this Agreement or otherwise, he will not
Participate In any business which is engaged, directly or indirectly, in
the same business as the Company with respect to any specific product or
specific service sold or activity in which the Company engages up to the
time of termination of employment in any geographical area in which at the
time of termination such product or service is sold or activity is engaged
in by the Company;
(iii) if a Change in Control occurs and Employee's employment with the
Company is terminated under this Agreement without Cause (as hereinafter
defined) or by Employee for Good Reason (as hereinafter defined) at any
time during the period beginning on the date of a Change in Control and
ending one (1) year after the date of such Change in Control or within
ninety (90) days prior to a Change in Control, then beginning on the later
of the date Employee's employment terminates (as described under this
Section 6(a)(iii)) and the date of a Change in Control and ending on the
second anniversary of such date, he will not Participate In any activity or
business in the United States involved in the research, development,
commercialization of a small molecule which is: (A) the generic equivalent
of THALOMID (i.e., the same chemical structure); (B) an anti-angiogenic
agent for oncology use; (C) a substantially specific TNFalpha inhibitor
(via inhibition of synthesis of TNFalpha, including via inhibition of PDE4)
for the treatment of Crohn's disease, rheumatoid arthritis, dermatological
and auto-immune conditions having excess levels of TNFalpha as the prime
causative factor, cachexia (AIDS or cancer), or any other indication for
which the Company has been
3
<PAGE>
granted orphan drug status; or (D) a formulation of d- or dl-methylphenidate for
the treatment of ADD/ADHD.
(b) For purposes of this Section 6 the term "Participate In" shall mean:
"directly or indirectly, for his own benefit or for, with or through any other
person, firm or corporation, own, manage, operate, control, loan money to or
participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, consultant, agent,
independent contractor or otherwise with, or acquiesce in the use of his name
in."
(c) Employee further agrees that, during the period he is employed by the
Company under this Agreement or otherwise and until the first anniversary of the
date of the termination of Employee's employment under this Agreement or
otherwise, he will not directly or indirectly reveal the name of, solicit or
interfere with, or endeavor to entice away from the Company, any of its
suppliers, customers or employees.
7. Patents, etc. Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works, developments,
discoveries, designs and processes ("Inventions") which Employee during the
period he is employed by the Company under this Agreement or otherwise, and for
six months thereafter, may conceive of or develop and either relating to the
specific fields in which the Company may then be engaged or conceived of or
developed utilizing the time, material, facilities or information of the Company
shall belong to the Company; as soon as Employee conceives of or develops any
Invention, he agrees immediately to communicate such fact in writing to the
Secretary of the Company, and without further compensation, but at the Company's
expense (except as noted in clause (a) of this Section 7), forthwith upon
request of the Company, Employee shall execute all such assignments and other
documents (including applications for patents, copyrights, trademarks and
assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all Employee's right,
title and interest in and to the Inventions, free and clear of liens, mortgages,
security interests, pledges, charges and encumbrances arising from the acts of
Employee ("Liens") (Employee to take such action, at his expense, as is
necessary to remove all such Liens) and (b) if patentable or copyrightable, to
obtain patents or copyrights (including extensions and renewals) therefor in any
and all countries in such name as the Company shall determine.
8. Confidential Information. All confidential information which Employee
may now possess, may obtain during or after the Employment Period, or may create
prior to the end of the period he is employed by the Company under this
Agreement or otherwise relating to the business of the Company or of any
customer or supplier of the Company shall not be published, disclosed or made
accessible by him to any other person, firm or corporation either during or
after the termination of his employment or used by him except during the
Employment Period in the business and for the benefit of the Company, in each
case without the prior written permission of the Company. Employee shall return
all tangible evidence of such confidential information to the Company prior to
or at the termination of his employment. As used in this Section 8,
"confidential information" shall mean any information except that
4
<PAGE>
information which is or comes into the public domain through no fault of
Employee or which Employee obtains after the termination of his employment by
the Company under this Agreement or otherwise from a third party who has the
right to disclose such information.
9. Life Insurance. If requested by the Company, Employee shall submit to
such physical examinations and otherwise take such actions and execute and
deliver such documents as may be reasonably necessary to enable the Company, at
its expense and for its own benefit, to obtain life insurance on the life of
Employee. Subject to its ability to do so under the terms of such policy, if
any, insuring the life of Employee, upon the termination of Employee's
employment hereunder, the Company will assign to Employee its rights under such
insurance policy, provided that, concurrently with such assignment, Employee
shall reimburse the Company for any premium payments made by the Company in
respect of time periods subsequent to such date of termination. Nothing herein
contained shall obligate the Company to obtain such insurance.
10. Termination.
(a) Employee's employment and the Employment Period shall terminate on the
first of the following to occur:
(i) the Company provides written notice to Employee of a termination
for Cause; such written notice shall be provided to Employee not less than
ten (10) days prior to the date of termination. "Cause" shall mean: (A)
Employee's conviction of a crime involving moral turpitude or a felony, (B)
Employee's acts or omissions taken in bad faith and to the detriment of the
Company after a written demand for cessation of such conduct is delivered
to Employee by the Company, which demand specifically identifies the manner
in which the Company believes that Employee has engaged in such conduct and
the injury to the Company, and after Employee's failure to correct such act
or omission within ten (10) days following such written demand, or (C)
Employee's breach of any material term of this Agreement after written
demand for substantial performance is delivered to Employee by the Company,
which demand specifically identifies the manner in which the Company
believes Employee has breached this Agreement, and after Employee's failure
to correct such breach within ten (10) days following such written demand.
(ii) Employee's death, in which case, this Agreement shall terminate
on the date of Employee's death, whereupon Employee or his estate, as the
case may be, shall be entitled to receive a lump sum payment in an amount
equal to Employee's annual base salary (at the rate in effect, or required
to be in effect, immediately prior to the date of Employee's death) and the
portion of Employee's annual target bonus (as provided in Section 3(b))
pro-rated up to Employee's date of death (assuming the target has been
met).
(iii) Nothing contained in this Section 10(a) shall be deemed to limit
any other right the Company may have to terminate Employee's employment
hereunder upon any ground permitted by law.
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<PAGE>
(iv) If Employee's employment is terminated by the Company as a result
of the disability or incapacitation of Employee or for any reason other
than pursuant to the provisions of paragraphs (i) or (ii) of this Section
10(a) or the provisions of Section 10(b), upon termination by the Company
of Employee's employment, whether during the Employment Period or
thereafter, Employee shall be entitled to receive a lump sum payment in an
amount equal to Employee's annual base salary (at the rate in effect, or
required to be in effect, immediately prior to the date of Employee's
termination) and the portion of Employee's annual target bonus (as provided
in Section 3(b)) pro-rated up to Employee's date of disability,
incapacitation or termination (assuming the target has been met).
(v) In the event of the Employee's termination for any reason under
this Agreement or otherwise, the Company shall pay and provide to Employee
(in addition to any other payments or benefits payable under this
Agreement): (A) any incurred but reimbursed business expenses for the
period prior to the termination payable in accordance with the Company's
policies; (B) any base salary, bonus, vacation pay or other deferred
compensation accrued or earned under law or in accordance with the
Company's policies applicable to Employee but not yet paid; and (C) any
other amounts or benefits due under the terms of the then applicable
employee benefit, equity or incentive plans of the Company applicable to
Employee (the "Accrued Benefits").
(vi) Payments of any amounts or benefits hereunder shall be made no
later than ten (10) days after Employee's termination date, other than
benefits under a plan with the terms which do not require or permit payment
within such ten (10) day period.
(b) During the ninety (90) day period prior to Change in Control or during
the one (1) year period following a Change in Control, Employee may terminate
his employment by written notice to the Company within thirty (30) calendar days
after he has obtained actual knowledge of the occurrence of a Good Reason event.
For purposes of this Agreement, Good Reason shall mean the occurrence of any of
the following events without Employee's express written consent:
(i) failure to elect or appoint, or reelect or reappoint, Employee to,
or removal of Employee from, his position with the Company as President and
Chief Operating Officer or as a member of the Board, except in connection
with the termination of Employee's employment pursuant to Section 10(a);
(ii) a significant change in the nature or scope of the authorities,
powers, functions, duties or responsibilities normally attached to
Employee's position as President and Chief Operating Officer or as a member
of the Board, except in each case in connection with the termination of
Employee's employment for Cause or as a result of Employee's death, or
temporarily as a result of Employee's illness or other absence;
(iii) a determination by Employee made in good faith that, as a result
of a Change in Control, he is unable effectively to carry out the
authorities, powers,
6
<PAGE>
functions, duties or responsibilities attached to his position as President
and Chief Operating Officer or as a member of the Board and the situation
is not remedied within 30 calendar days after receipt by the Company of
written notice from Employee of such determination;
(iv) a breach by the Company of any material provision of this
Agreement (not covered by clause (i), (ii) or (iii) of this Section 10(b))
or of any other agreement, which is not remedied within 30 calendar days
after receipt by the Company of written notice from Employee of such
breach;
(v) a reduction in Employee's annual base salary;
(vi) a fifty (50) mile or greater relocation of the Company's
principal office;
(vii) failure of the Company to continue in effect any health or
welfare plan, employee benefit plan, pension plan, fringe benefit plan or
compensation plan in which Employee (and eligible dependents) are
participating immediately prior to a Change in Control, unless Employee
(and eligible dependents) are permitted to participate in other plans
providing Employee (and eligible dependents) with substantially comparable
benefits at no greater after-tax cost to Employee (and eligible
dependents), or the taking of any action by the Company which would
adversely affect the Employee's (and eligible dependents) participation in
or reduce Employee's (and eligible dependents) benefits under any such
plan; or
(viii) failure of a successor to assume this Agreement.
An election by Employee to terminate his employment under the provisions of
this Section 10(b) shall not constitute a breach by Employee of this Agreement
and shall not be deemed a voluntary termination of employment by Employee for
the purpose of interpreting the provisions of any of the Company's employee
benefit plans, programs or policies.
(c) Upon the occurrence of a Change in Control and thereafter: (A) if
Employee's employment with the Company is terminated by the Company without
Cause or as a result of the disability or incapacitation of Employee, or by
Employee with Good Reason at any time during the period beginning on the date of
the Change in Control and ending one (1) year after the date of such Change in
Control, or (B) if Employee's employment with the Company is terminated by the
Company without Cause or by Employee for Good Reason within ninety (90) days
prior to the occurrence of a Change in Control, then Employee shall be entitled
to receive from the Company:
(i) a lump sum amount, payable within ten (10) days after such
termination (or, if such termination occurred prior to a Change in Control,
within ten (10) days after the Change in Control) equal to (A) three (3)
times Employee's base salary in effect, or required to be in effect,
immediately prior to the Change in Control,
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<PAGE>
and (B) three (3) times the highest annual bonus paid or payable to
Employee within three (3) years prior to the Change in Control;
(ii) within ten (10) days after such termination (or, if such
termination occurred prior to a Change in Control, within ten (10) days
after the Change in Control) equal to the Accrued Benefits;
(iii) payment by the Company of the premiums for Employee (except in
the case of Employee's death) and Employee's and dependents' health and
welfare coverage (including, without limitation, medical, dental, life
insurance and disability coverage) for three (3) years from the later of
the occurrence of a Change in Control or the date of termination of
Employee's employment, under the Company's health and welfare plans which
cover the senior executives of the Company or materially similar benefits
("Continuation Coverage"), subject to Employee's payment of customary
premiums (if any) in effect prior to the Change in Control;
(iv) upon the occurrence of a Change in Control, full and immediate
vesting of all stock options and equity awards held by Employee.
Payments under (iii) above may, at the discretion of the Company, be made
by continuing Employee's participation in the plan as a terminee or by covering
Employee and Employee's dependents under substitute arrangements, provided that,
notwithstanding anything herein to the contrary, to the extent Employee incurs
tax that Employee would not have incurred as an active employee as a result of
the aforementioned coverage or the benefits provided thereunder, Employee shall
receive from the Company an additional grossed up payment in the amount
necessary so that Employee will have no additional cost for receiving such items
or any additional payment. Notwithstanding anything herein to the contrary,
Employee (and his eligible dependents) shall retain all rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and
such COBRA continuation coverage shall be available to Employee (and his
eligible dependents) at the expiration of the Continuation Coverage described
herein.
(d) For purposes of this Agreement, a Change in Control shall mean the
occurrence of the following:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Sections 13(d) and 14(d) thereof), excluding the Company, any subsidiary of
the Company and any employee benefit plan sponsored or maintained by the
Company or any subsidiary of the Company (including any trustee of any such
plan acting in his capacity as trustee), becoming the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of securities of the
Company representing thirty percent (30%) of the total combined voting
power of the Company's then outstanding securities;
8
<PAGE>
(ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than (A) a Transaction involving only the
Company and one or more of its subsidiaries, or (B) a Transaction
immediately following which the stockholders of the Company immediately
prior to the Transaction continue to have a majority of the voting power in
the resulting entity and no person (other than those covered by the
exceptions in (a) above) becomes the beneficial owner of securities of the
resulting entity representing more than twenty-five percent (25%) of the
voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning on or
after the date hereof, the persons who were members of the Board
immediately before the beginning of such period (the "Incumbent Directors")
ceasing (for any reason other than death) to constitute at least a majority
of the Board or the board of directors of any successor to the Company,
provided that, any director who was not a director as of the date hereof
shall be deemed to be an Incumbent Director if such director was elected to
the board of directors by, or on the recommendation of or with the approval
of, at least two-thirds of the directors who then qualified as Incumbent
Directors either actually or by prior operation of the foregoing unless
such election, recommendation or approval occurs as a result of an actual
or threatened election contest (as such terms are used in Rule 14a- 11 of
Regulation 14A promulgated under the Exchange Act or any successor
provision) or other actual or threatened solicitation of proxies or
contests by or on behalf of a person other than a member of the Board; or
(iv) the approval by the stockholders of the Company of any plan of
complete liquidation of the Company or an agreement for the sale of all or
substantially all of the Company's assets other than the sale of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or
more of the combined voting power of the outstanding voting securities of
the Company at the time of such sale.
(v) To the extent that Employee is entitled to payment under Section
10(c) upon a Change in Control due to Employee's termination without Cause
or for Good Reason within ninety (90) days prior to a Change in Control,
any such payments under Section 10(c) shall be reduced by any payments made
to Employee prior to a Change in Control under Sections 10(a)(iv) and
10(a)(v).
11. Limitation on Payments.
(a) In the event that Employee shall become entitled to the payments and/or
benefits provided by Section 10(c) or any other amounts (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change of ownership covered by
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")
or any person affiliated with the Company or such person) as a result of a
Change of Control (collectively the "Company Payments"), and such Company
Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999
of
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the Code (and any similar tax that may hereafter be imposed) the Company shall
pay to Employee at the time specified in subsection (d) below an additional
amount (the "Gross-up Payment") such that the net amount retained by Employee,
after deduction of any Excise Tax on the Company Payments and any federal,
state, and local income or payroll tax upon the Gross-up Payment pro vided for
by this paragraph (a), but before deduction for any federal, state, and local
income or payroll tax on the Company Payments, shall be equal to the Company
Payments. Notwithstanding the foregoing provisions of this Section 11 to the
contrary, if it shall be determined that Employee is entitled to a Gross-up
Payment, but the Company Payments do not exceed one hundred five percent (105%)
of the greatest amount that could be paid to Employee such that the receipt of
Company Payments would not give rise to any Excise Tax (the "Reduced Amount"),
then no Gross-up Payment shall be made to Employee and the Company Payments, in
the aggregate, shall be reduced to the Reduced Amount.
(b) For purposes of determining whether any of the Company Payments and
Gross-up Payments (collectively the "Total Payments") will be subject to the
Excise Tax and determining the amount of such Excise Tax: (i) the Total Payments
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless and except to the extent that, in the
opinion of the Company's independent certified public accountants appointed
prior to any change in ownership (as defined under Code Section 280G(b)(2)) or
tax counsel selected by such accountants (the "Accountants") such Total Payments
(in whole or in part), (A) do not constitute "parachute payments," (B) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code" or (C) are otherwise not subject to the Excise
Tax; and (ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code.
(c) For purposes of determining the amount of the Gross-up Payment,
Employee shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Employee's residence for the
calendar year in which the Company Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes if paid in such year. In the event that the Excise Tax is
subsequently determined by the Accountants to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Employee shall repay
to the Company, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the prior Gross-up Payment attributable to
such reduction (plus the portion of the Gross-up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the portion of the
Gross-up Payment being repaid by Employee if such repayment results in a
reduction in Excise Tax or a federal, state and local income tax deduction),
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Gross-up Payment to be refunded to the Company has been paid to
any federal, state and local tax authority, repayment thereof (and related
amounts) shall not be
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required until actual refund or credit of such portion has been made to
Employee, and interest payable to the Company shall not exceed the interest
received or credited to Employee by such tax authority for the period it held
such portion. Employee and the Company shall mutually agree upon the course of
action to be pursued (and the method of allocating the expense thereof) if
Employee's claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the Accountants or
the Internal Revenue Service to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-up
Payment), the Company shall make an additional Gross-up Payment in respect of
such excess (plus any interest or penalties payable with respect to such excess)
at the time that the amount of such excess is finally determined.
(d) The Gross-up Payment or portion thereof provided for in subsection (c)
above shall be paid not later than the thirtieth (30th) day following an event
occurring which sub jects Employee to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to Employee on such day
an estimate, as determined in good faith by the Accountants, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Code Section 1274(b)(2)(B) of the Code),
subject to further payments pursuant to subsection (c) hereof, as soon as the
amount thereof can reasonably be determined, but in no event later than the
ninetieth (90th) day after the occurrence of the event subjecting Employee to
the Excise Tax. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to Employee, payable on the fifth (5th) day
after demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
(e) In the event of any controversy with the Internal Revenue Service (or
other taxing authority) under this Section 11, Employee shall permit the Company
to control issues related to this Section 11 (at its expense), provided that
such issues do not potentially materially adversely affect Employee, but
Employee shall control any other issues. In the event the issues are
interrelated, Employee and the Company shall in good faith cooperate so as not
to jeopardize resolution of either issue, but if the parties cannot agree,
Employee shall make the final determination with regard to the issues. In the
event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, Employee shall permit the representative of the Company
to accompany him, and Employee and his representative shall cooperate with the
Company and its representative.
(f) The Company shall be responsible for all charges of the Accountants.
12. Successors. In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree in writing to perform this
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Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place.
13. Survival. The covenants, agreements, representations and warranties
contained in or made pursuant to this Agreement shall survive Employee's
termination of employment.
14. Entire Agreement; Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter
(including, without limitation, the employment agreement in effect prior to the
date hereof) and may be modified only by a written instrument duly executed by
each party.
15. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 15). Notice to the estate of
Employee shall be sufficient if addressed to Employee as provided in this
Section 15. Any notice or other communication given by certified mail shall be
deemed given three days after the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof.
16. Waiver. Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing,
signed by the party giving such waiver.
17. Binding Effect. Employee's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, such rights shall not be
subject to commutation, encumbrance or the claims of Employee's creditors, and
any attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and its assigns under Section 12.
18. No Third Party Beneficiaries. This Agreement does not create, and shall
not be construed as creating, any rights enforceable by any person not a party
to this Agreement (except as provided in Sections 12 and 17).
19. Legal Fees. To the fullest extent permitted by law, the Company shall
promptly pay upon submission of statements all legal and other professional
fees, costs of litigation, prejudgment interest, and other expenses incurred in
connection with any dispute
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concerning payments, benefits and other entitlements to which Employee may have
under this Agreement; provided, however, the Company shall be reimbursed by
Employee for the fees and expenses advanced in the event Employee's claim is, in
a material manner, in bad faith or frivolous and the arbitrator or court, as
applicable, determines that the reimbursement of such fees and expenses is
appropriate.
20. Pooling of Interests; Severability. In the event that the Company's
independent public accountants determine in good faith that any provision of
this Agreement would preclude "pooling of interests" accounting and provided
that the Company engages in a transaction which utilizes "pooling of interests"
accounting, such provision shall be deemed invalid and inoperative solely to the
extent necessary to permit "pooling of interests" transactions. If any portion
of this Agreement is held invalid or inoperative (including a determination by
the Company's independent public accountants in good faith that any provision of
this Agreement would preclude "pooling of interests" accounting), the other
provisions of this Agreement shall be deemed to be valid and operative and, so
far as is reasonable and possible, effect shall be given to the intent
manifested by the portion held valid or inoperative.
21. No Duty to Mitigate/No Offset. The Company agrees that if Employee's
employment with the Company is terminated pursuant to this Agreement during the
term of this Agreement, Employee shall not be required to seek other employment
or to attempt in any way to reduce any amounts payable to Employee by the
Company pursuant to this Agreement. Further, the amount of any payment or
benefit provided for in this Agreement shall not be reduced by any compensation
earned by Employee or benefit provided to Employee as the result of employment
by another employer or otherwise. The Company's obligations to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against Employee. Notwithstanding the foregoing, payments
and benefits under the Agreement will cease to be paid and may be recouped by
the Company in the event Employee breaches any of the terms of Section 6, 7 or 8
hereunder.
22. Counterparts; Governing Law. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of New
Jersey, without giving effect to the conflict of laws.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
CELGENE CORPORATION
By:
-----------------------------
Richard C. E. Morgan
Chairman of the
Compensation Committee
By:
-----------------------------
John W. Jackson
Chief Executive Officer
--------------------------------
Sol J. Barer
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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 2000,
between Celgene Corporation, a Delaware corporation with offices at 7 Powder
Horn Drive, Warren, New Jersey 07059 (the "Company"), and Robert J. Hugin,
residing at 58 Ox Bow Lane, Summit, New Jersey 07901 ("Employee").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Employee is currently employed by the Company;
WHEREAS, the Company desires that Employee be employed in a senior
executive capacity with the Company subject to the terms and conditions hereof,
and Employee desires to be employed by the Company in such capacity; and
WHEREAS, the parties hereto desire to set forth in writing the terms and
conditions of their understandings and agreements and to supersede any existing
agreement between the parties.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. Term. The Company agrees to employ Employee, and Employee agrees to
serve, on the terms and conditions of this Agreement for a period commencing on
the date hereof and ending three years from the date hereof, or such other
period as may be provided for in Section 10 or 11. The period during which
Employee is employed hereunder is hereinafter referred to as the "Employment
Period." The Employment Period shall be automatically renewed for successive
one- year terms unless either party gives written notice to the other at least
six (6) months prior to the expiration of the then Employment Period, of such
party's intention to terminate Employee's employment hereunder at the end of the
then current Employment Period.
2. Duties and Services. During the Employment Period, Employee shall be
employed in the business of the Company as Senior Vice President and Chief
Financial Officer of the Company. In addition, Employee shall serve as Secretary
to the Board. Employee shall perform such duties and services, within his
expertise and experience, as may be assigned to him by, and subject to the
direction of, the Chief Executive Officer and the Board. Employee agrees to his
employment as described in this Section 2 and agrees to devote all of his
working time and efforts to the performance of his duties under this Agreement,
excepting disabilities, illness and vacation time as provided by Section 3(e).
In performing his duties hereunder, Employee shall be available for reasonable
travel as the needs of the business require. Except as provided in Section 6
hereof, the foregoing shall not be construed as preventing Employee from: (i)
making investments in other businesses and managing his and his family's
personal investments; and (ii) participating in charitable, civic, educational,
professional, community or industry affairs or
<PAGE>
serving on the board of directors of other companies ("Professional
Activities"), provided that these Professional Activities are approved by the
Company's Board.
3. Compensation and Other Benefits.
(a) As compensation for his services hereunder, the Company shall pay
Employee, during the Employment Period, a base salary payable in equal
semi-monthly installments at an annual rate of $240,000, provided that such
salary shall be reviewed annually by the Company's Board, or a committee
thereof, which may, in its sole discretion, increase (but not decrease) such
salary.
(b) The Company shall also pay Employee, during the Employment Period, an
annual target bonus, payable in January of each year for the preceding year, in
an amount equal to thirty-five percent (35%) of Employee's base salary (payable
under Section 3(a) of this Agreement) measured against objective criteria to be
determined by the Company's Board, or a committee thereof, after good faith
consultation with Employee.
(c) Employee shall be entitled to participate in all group health and
insurance programs and all other fringe benefit or retirement plans which the
Company may, in its sole and absolute discretion, elect to make available to its
employees generally, provided Employee meets the qualifications therefor.
(d) Employee shall be eligible to participate in the Company's 1998
Long-Term Incentive Plan (the "Plan") and any other incentive plans of the
Company. Upon the Employee's Disability (as defined in the Plan), termination of
employment with the Company due to Retirement (as defined in the Plan) or death,
Employee (or the legal representative of his estate, in the case of Employee's
death) shall be entitled to: (i) full vesting and immediate exercisability of
any outstanding stock options and other equity awards (and lapse of any
forfeiture provisions) granted to Employee at any time; and (ii) with respect to
stock options granted to Employee on or after January 1, 2000, Employee (or the
legal representative of his estate, in the case of Employee's death) shall be
entitled to exercise such stock options at any time during the three (3) year
period from the date of Employee's Disability, Retirement or death.
(e) Employee shall be entitled to four weeks of paid vacation per year
during the Employment Period.
4. Expenses. Employee shall be entitled to reimbursement for all reasonable
travel and other out-of-pocket expenses necessarily incurred in the performance
of his duties hereunder, upon submission and approval of written statements and
bills in accordance with the then regular procedures of the Company.
5. Representations and Warranties of Employee. Employee represents and
warrants to the Company that Employee is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder or the other rights of the
Company hereunder.
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6. Non-Competition.
(a) In view of the unique and valuable services that Employee has rendered
or is expected to render to the Company, Employee's knowledge of the customers,
trade secrets and other proprietary information relating to the business of the
Company and its customers and suppliers and similar knowledge regarding the
Company which Employee has obtained or is expected to obtain, and in
consideration of the compensation to be received hereunder, Employee agrees
that:
(i) during the period he is employed by the Company under this
Agreement or otherwise, he will not Participate In (as hereinafter defined
in this Section 6) any other business or organization, whether or not such
business or organization now is or shall then be competing with or of a
nature similar to the business of the Company, without obtaining the prior
written consent of the Chief Executive Officer of the Company;
(ii) until the first anniversary of the date of the termination of
Employee's employment under this Agreement or otherwise, he will not
Participate In any business which is engaged, directly or indirectly, in
the same business as the Company with respect to any specific product or
specific service sold or activity in which the Company engages up to the
time of termination of employment in any geographical area in which at the
time of termination such product or service is sold or activity is engaged
in by the Company;
(iii) if a Change in Control occurs and Employee's employment with the
Company is terminated under this Agreement without Cause (as hereinafter
defined) or by Employee for Good Reason (as hereinafter defined) at any
time during the period beginning on the date of a Change in Control and
ending one (1) year after the date of such Change in Control or within
ninety (90) days prior to a Change in Control, then beginning on the later
of the date Employee's employment terminates (as described under this
Section 6(a)(iii)) and the date of a Change in Control and ending on the
second anniversary of such date, he will not Participate In any activity or
business in the United States involved in the research, development,
commercialization of a small molecule which is: (A) the generic equivalent
of THALOMID (i.e., the same chemical structure); (B) an anti-angiogenic
agent for oncology use; (C) a substantially specific TNFalpha inhibitor
(via inhibition of synthesis of TNFalpha, including via inhibition of PDE4)
for the treatment of Crohn's disease, rheumatoid arthritis, dermatological
and auto-immune conditions having excess levels of TNFalpha as the prime
causative factor, cachexia (AIDS or cancer), or any other indication for
which the Company has been granted orphan drug status; or (D) a formulation
of d- or dl-methylphenidate for the treatment of ADD/ADHD.
(b) For purposes of this Section 6 the term "Participate In" shall mean:
"directly or indirectly, for his own benefit or for, with or through any other
person, firm or corporation, own, manage, operate, control, loan money to or
participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, consultant, agent,
independent contractor or otherwise with, or acquiesce in the use of his name
in."
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(c) Employee further agrees that, during the period he is employed by the
Company under this Agreement or otherwise and until the first anniversary of the
date of the termination of Employee's employment under this Agreement or
otherwise, he will not directly or indirectly reveal the name of, solicit or
interfere with, or endeavor to entice away from the Company, any of its
suppliers, customers or employees.
7. Patents, etc. Any interest in patents, patent applications, inventions,
technological innovations, copyrights, copyrightable works, developments,
discoveries, designs and processes ("Inventions") which Employee during the
period he is employed by the Company under this Agreement or otherwise, and for
six months thereafter, may conceive of or develop and either relating to the
specific fields in which the Company may then be engaged or conceived of or
developed utilizing the time, material, facilities or information of the Company
shall belong to the Company; as soon as Employee conceives of or develops any
Invention, he agrees immediately to communicate such fact in writing to the
Secretary of the Company, and without further compensation, but at the Company's
expense (except as noted in clause (a) of this Section 7), forthwith upon
request of the Company, Employee shall execute all such assignments and other
documents (including applications for patents, copyrights, trademarks and
assignments thereof) and take all such other action as the Company may
reasonably request in order (a) to vest in the Company all Employee's right,
title and interest in and to the Inventions, free and clear of liens, mortgages,
security interests, pledges, charges and encumbrances arising from the acts of
Employee ("Liens") (Employee to take such action, at his expense, as is
necessary to remove all such Liens) and (b) if patentable or copyrightable, to
obtain patents or copyrights (including extensions and renewals) therefor in any
and all countries in such name as the Company shall determine.
8. Confidential Information. All confidential information which Employee
may now possess, may obtain during or after the Employment Period, or may create
prior to the end of the period he is employed by the Company under this
Agreement or otherwise relating to the business of the Company or of any
customer or supplier of the Company shall not be published, disclosed or made
accessible by him to any other person, firm or corporation either during or
after the termination of his employment or used by him except during the
Employment Period in the business and for the benefit of the Company, in each
case without the prior written permission of the Company. Employee shall return
all tangible evidence of such confidential information to the Company prior to
or at the termination of his employment. As used in this Section 8,
"confidential information" shall mean any information except that information
which is or comes into the public domain through no fault of Employee or which
Employee obtains after the termination of his employment by the Company under
this Agreement or otherwise from a third party who has the right to disclose
such information.
9. Life Insurance. If requested by the Company, Employee shall submit to
such physical examinations and otherwise take such actions and execute and
deliver such documents as may be reasonably necessary to enable the Company, at
its expense and for its own benefit, to obtain life insurance on the life of
Employee. Subject to its ability to do so under the terms of such policy, if
any, insuring the life of Employee, upon the termination of Employee's
employment hereunder, the Company will assign to Employee its rights under such
insurance policy, provided
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that, concurrently with such assignment, Employee shall reimburse the Company
for any premium payments made by the Company in respect of time periods
subsequent to such date of termination. Nothing herein contained shall obligate
the Company to obtain such insurance.
10. Termination.
(a) Employee's employment and the Employment Period shall terminate on the
first of the following to occur:
(i) the Company provides written notice to Employee of a termination
for Cause; such written notice shall be provided to Employee not less than
ten (10) days prior to the date of termination. "Cause" shall mean: (A)
Employee's conviction of a crime involving moral turpitude or a felony, (B)
Employee's acts or omissions taken in bad faith and to the detriment of the
Company after a written demand for cessation of such conduct is delivered
to Employee by the Company, which demand specifically identifies the manner
in which the Company believes that Employee has engaged in such conduct and
the injury to the Company, and after Employee's failure to correct such act
or omission within ten (10) days following such written demand, or (C)
Employee's breach of any material term of this Agreement after written
demand for substantial performance is delivered to Employee by the Company,
which demand specifically identifies the manner in which the Company
believes Employee has breached this Agreement, and after Employee's failure
to correct such breach within ten (10) days following such written demand.
(ii) Employee's death, in which case, this Agreement shall terminate
on the date of Employee's death, whereupon Employee or his estate, as the
case may be, shall be entitled to receive a lump sum payment in an amount
equal to Employee's annual base salary (at the rate in effect, or required
to be in effect, immediately prior to the date of Employee's death) and the
portion of Employee's annual target bonus (as provided in Section 3(b))
pro-rated up to Employee's date of death (assuming the target has been
met).
(iii) Nothing contained in this Section 10(a) shall be deemed to limit
any other right the Company may have to terminate Employee's employment
hereunder upon any ground permitted by law.
(iv) If Employee's employment is terminated by the Company as a result
of the disability or incapacitation of Employee or for any reason other
than pursuant to the provisions of paragraphs (i) or (ii) of this Section
10(a) or the provisions of Section 10(b), upon termination by the Company
of Employee's employment, whether during the Employment Period or
thereafter, Employee shall be entitled to receive a lump sum payment in an
amount equal to Employee's annual base salary (at the rate in effect, or
required to be in effect, immediately prior to the date of Employee's
termination) and the portion of Employee's annual target bonus (as provided
in Section 3(b)) pro-rated up to Employee's date of disability,
incapacitation or termination (assuming the target has been met).
(v) In the event of the Employee's termination for any reason under
this Agreement or otherwise, the Company shall pay and provide to Employee
(in addition to
5
<PAGE>
any other payments or benefits payable under this Agreement): (A) any
incurred but reimbursed business expenses for the period prior to the
termination payable in accordance with the Company's policies; (B) any base
salary, bonus, vacation pay or other deferred compensation accrued or
earned under law or in accordance with the Company's policies applicable to
Employee but not yet paid; and (C) any other amounts or benefits due under
the terms of the then applicable employee benefit, equity or incentive
plans of the Company applicable to Employee (the "Accrued Benefits").
(vi) Payments of any amounts or benefits hereunder shall be made no
later than ten (10) days after Employee's termination date, other than
benefits under a plan with the terms which do not require or permit payment
within such ten (10) day period.
(b) During the ninety (90) day period prior to Change in Control or during
the one (1) year period following a Change in Control, Employee may terminate
his employment by written notice to the Company within thirty (30) calendar days
after he has obtained actual knowledge of the occurrence of a Good Reason event.
For purposes of this Agreement, Good Reason shall mean the occurrence of any of
the following events without Employee's express written consent:
(i) failure to elect or appoint, or reelect or reappoint, Employee to,
or removal of Employee from, his position with the Company as Senior Vice
President and Chief Financial Officer or as Secretary to the Board, except
in connection with the termination of Employee's employment pursuant to
Section 10(a);
(ii) a significant change in the nature or scope of the authorities,
powers, functions, duties or responsibilities normally attached to
Employee's position as Senior Vice President and Chief Financial Officer or
as Secretary to the Board, except in each case in connection with the
termination of Employee's employment for Cause or as a result of Employee's
death, or temporarily as a result of Employee's illness or other absence;
(iii) a determination by Employee made in good faith that, as a result
of a Change in Control, he is unable effectively to carry out the
authorities, powers, functions, duties or responsibilities attached to his
position as Senior Vice President and Chief Financial Officer or as
Secretary to the Board and the situation is not remedied within 30 calendar
days after receipt by the Company of written notice from Employee of such
determination;
(iv) a breach by the Company of any material provision of this
Agreement (not covered by clause (i), (ii) or (iii) of this Section 10(b))
or of any other agreement, which is not remedied within 30 calendar days
after receipt by the Company of written notice from Employee of such
breach;
(v) a reduction in Employee's annual base salary;
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(vi) a fifty (50) mile or greater relocation of the Company's
principal office;
(vii) failure of the Company to continue in effect any health or
welfare plan, employee benefit plan, pension plan, fringe benefit plan or
compensation plan in which Employee (and eligible dependents) are
participating immediately prior to a Change in Control, unless Employee
(and eligible dependents) are permitted to participate in other plans
providing Employee (and eligible dependents) with substantially comparable
benefits at no greater after-tax cost to Employee (and eligible
dependents), or the taking of any action by the Company which would
adversely affect the Employee's (and eligible dependents) participation in
or reduce Employee's (and eligible dependents) benefits under any such
plan; or
(viii) failure of a successor to assume this Agreement.
An election by Employee to terminate his employment under the provisions of
this Section 10(b) shall not constitute a breach by Employee of this Agreement
and shall not be deemed a voluntary termination of employment by Employee for
the purpose of interpreting the provisions of any of the Company's employee
benefit plans, programs or policies.
(c) Upon the occurrence of a Change in Control and thereafter: (A) if
Employee's employment with the Company is terminated by the Company without
Cause or as a result of the disability or incapacitation of Employee, or by
Employee with Good Reason at any time during the period beginning on the date of
the Change in Control and ending one (1) year after the date of such Change in
Control, or (B) if Employee's employment with the Company is terminated by the
Company without Cause or by Employee for Good Reason within ninety (90) days
prior to the occurrence of a Change in Control, then Employee shall be entitled
to receive from the Company:
(i) a lump sum amount, payable within ten (10) days after such
termination (or, if such termination occurred prior to a Change in Control,
within ten (10) days after the Change in Control) equal to (A) three (3)
times Employee's base salary in effect, or required to be in effect,
immediately prior to the Change in Control, and (B) three (3) times the
highest annual bonus paid or payable to Employee within three (3) years
prior to the Change in Control;
(ii) within ten (10) days after such termination (or, if such
termination occurred prior to a Change in Control, within ten (10) days
after the Change in Control) equal to the Accrued Benefits;
(iii) payment by the Company of the premiums for Employee (except in
the case of Employee's death) and Employee's and dependents' health and
welfare coverage (including, without limitation, medical, dental, life
insurance and disability coverage) for three (3) years from the later of
the occurrence of a Change in Control or the date of termination of
Employee's employment, under the Company's health and welfare plans
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which cover the senior executives of the Company or materially similar
benefits ("Continuation Coverage"), subject to Employee's payment of
customary premiums (if any) in effect prior to the Change in Control;
(iv) upon the occurrence of a Change in Control, full and immediate
vesting of all stock options and equity awards held by Employee.
Payments under (iii) above may, at the discretion of the Company, be made
by continuing Employee's participation in the plan as a terminee or by covering
Employee and Employee's dependents under substitute arrangements, provided that,
notwithstanding anything herein to the contrary, to the extent Employee incurs
tax that Employee would not have incurred as an active employee as a result of
the aforementioned coverage or the benefits provided thereunder, Employee shall
receive from the Company an additional grossed up payment in the amount
necessary so that Employee will have no additional cost for receiving such items
or any additional payment. Notwithstanding anything herein to the contrary,
Employee (and his eligible dependents) shall retain all rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") and
such COBRA continuation coverage shall be available to Employee (and his
eligible dependents) at the expiration of the Continuation Coverage described
herein.
(d) For purposes of this Agreement, a Change in Control shall mean the
occurrence of the following:
(i) any person (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Sections 13(d) and 14(d) thereof), excluding the Company, any subsidiary of
the Company and any employee benefit plan sponsored or maintained by the
Company or any subsidiary of the Company (including any trustee of any such
plan acting in his capacity as trustee), becoming the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of securities of the
Company representing thirty percent (30%) of the total combined voting
power of the Company's then outstanding securities;
(ii) the merger, consolidation or other business combination of the
Company (a "Transaction"), other than (A) a Transaction involving only the
Company and one or more of its subsidiaries, or (B) a Transaction
immediately following which the stockholders of the Company immediately
prior to the Transaction continue to have a majority of the voting power in
the resulting entity and no person (other than those covered by the
exceptions in (a) above) becomes the beneficial owner of securities of the
resulting entity representing more than twenty-five percent (25%) of the
voting power in the resulting entity;
(iii) during any period of two (2) consecutive years beginning on or
after the date hereof, the persons who were members of the Board
immediately before the beginning of such period (the "Incumbent Directors")
ceasing (for any reason other than death) to constitute at least a majority
of the Board or the board of directors of any
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successor to the Company, provided that, any director who was not a
director as of the date hereof shall be deemed to be an Incumbent Director
if such director was elected to the board of directors by, or on the
recommendation of or with the approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors either actually or by
prior operation of the foregoing unless such election, recommendation or
approval occurs as a result of an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act or any successor provision) or other actual or threatened
solicitation of proxies or contests by or on behalf of a person other than
a member of the Board; or
(iv) the approval by the stockholders of the Company of any plan of
complete liquidation of the Company or an agreement for the sale of all or
substantially all of the Company's assets other than the sale of all or
substantially all of the assets of the Company to a person or persons who
beneficially own, directly or indirectly, at least fifty percent (50%) or
more of the combined voting power of the outstanding voting securities of
the Company at the time of such sale.
(v) To the extent that Employee is entitled to payment under Section
10(c) upon a Change in Control due to Employee's termination without Cause
or for Good Reason within ninety (90) days prior to a Change in Control,
any such payments under Section 10(c) shall be reduced by any payments made
to Employee prior to a Change in Control under Sections 10(a)(iv) and
10(a)(v).
11. Limitation on Payments.
(a) In the event that Employee shall become entitled to the payments and/or
benefits provided by Section 10(c) or any other amounts (whether pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change of ownership covered by
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code")
or any person affiliated with the Company or such person) as a result of a
Change of Control (collectively the "Company Payments"), and such Company
Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999
of the Code (and any similar tax that may hereafter be imposed) the Company
shall pay to Employee at the time specified in subsection (d) below an
additional amount (the "Gross-up Payment") such that the net amount retained by
Employee, after deduction of any Excise Tax on the Company Payments and any
federal, state, and local income or payroll tax upon the Gross-up Payment
provided for by this paragraph (a), but before deduction for any federal, state,
and local income or payroll tax on the Company Payments, shall be equal to the
Company Payments. Notwithstanding the foregoing provisions of this Section 11 to
the contrary, if it shall be determined that Employee is entitled to a Gross-up
Payment, but the Company Payments do not exceed one hundred five percent (105%)
of the greatest amount that could be paid to Employee such that the receipt of
Company Payments would not give rise to any Excise Tax (the "Reduced Amount"),
then no Gross-up Payment shall be made to Employee and the Company Payments, in
the aggregate, shall be reduced to the Reduced Amount.
9
<PAGE>
(b) For purposes of determining whether any of the Company Payments and
Gross-up Payments (collectively the "Total Payments") will be subject to the
Excise Tax and determining the amount of such Excise Tax: (i) the Total Payments
shall be treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "parachute payments" in excess of the "base
amount" (as defined under Code Section 280G(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless and except to the extent that, in the
opinion of the Company's independent certified public accountants appointed
prior to any change in ownership (as defined under Code Section 280G(b)(2)) or
tax counsel selected by such accountants (the "Accountants") such Total Payments
(in whole or in part), (A) do not constitute "parachute payments," (B) represent
reasonable compensation for services actually rendered within the meaning of
Section 280G(b)(4) of the Code" or (C) are otherwise not subject to the Excise
Tax; and (ii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Accountants in accordance with the principles
of Section 280G of the Code.
(c) For purposes of determining the amount of the Gross-up Payment,
Employee shall be deemed to pay federal income taxes at the highest marginal
rate of federal income taxation in the calendar year in which the Gross-up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Employee's residence for the
calendar year in which the Company Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes if paid in such year. In the event that the Excise Tax is
subsequently determined by the Accountants to be less than the amount taken into
account hereunder at the time the Gross-up Payment is made, Employee shall repay
to the Company, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the prior Gross-up Payment attributable to
such reduction (plus the portion of the Gross-up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on the portion of the
Gross-up Payment being repaid by Employee if such repayment results in a
reduction in Excise Tax or a federal, state and local income tax deduction),
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any
portion of the Gross-up Payment to be refunded to the Company has been paid to
any federal, state and local tax authority, repayment thereof (and related
amounts) shall not be required until actual refund or credit of such portion has
been made to Employee, and interest payable to the Company shall not exceed the
interest received or credited to Employee by such tax authority for the period
it held such portion. Employee and the Company shall mutually agree upon the
course of action to be pursued (and the method of allocating the expense
thereof) if Employee's claim for refund or credit is denied.
In the event that the Excise Tax is later determined by the Accountants or
the Internal Revenue Service to exceed the amount taken into account hereunder
at the time the Gross-up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of the Gross-up
Payment), the Company shall make an additional Gross-up Payment in respect of
such excess (plus any interest or penalties payable with respect to such excess)
at the time that the amount of such excess is finally determined.
10
<PAGE>
(d) The Gross-up Payment or portion thereof provided for in subsection (c)
above shall be paid not later than the thirtieth (30th) day following an event
occurring which subjects Employee to the Excise Tax; provided, however, that if
the amount of such Gross-up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to Employee on such day
an estimate, as determined in good faith by the Accountants, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Code Section 1274(b)(2)(B) of the Code),
subject to further payments pursuant to subsection (c) hereof, as soon as the
amount thereof can reasonably be determined, but in no event later than the
ninetieth (90th) day after the occurrence of the event subjecting Employee to
the Excise Tax. In the event that the amount of the estimated payments exceeds
the amount subsequently determined to have been due, such excess shall
constitute a loan by the Company to Employee, payable on the fifth (5th) day
after demand by the Company (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
(e) In the event of any controversy with the Internal Revenue Service (or
other taxing authority) under this Section 11, Employee shall permit the Company
to control issues related to this Section 11 (at its expense), provided that
such issues do not potentially materially adversely affect Employee, but
Employee shall control any other issues. In the event the issues are
interrelated, Employee and the Company shall in good faith cooperate so as not
to jeopardize resolution of either issue, but if the parties cannot agree,
Employee shall make the final determination with regard to the issues. In the
event of any conference with any taxing authority as to the Excise Tax or
associated income taxes, Employee shall permit the representative of the Company
to accompany him, and Employee and his representative shall cooperate with the
Company and its representative.
(f) The Company shall be responsible for all charges of the Accountants.
12. Successors. In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree in writing to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.
13. Survival. The covenants, agreements, representations and warranties
contained in or made pursuant to this Agreement shall survive Employee's
termination of employment.
14. Entire Agreement; Modification. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter
(including, without limitation, the employment agreement in effect prior to the
date hereof) and may be modified only by a written instrument duly executed by
each party.
11
<PAGE>
15. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 15). Notice to the estate of
Employee shall be sufficient if addressed to Employee as provided in this
Section 15. Any notice or other communication given by certified mail shall be
deemed given three days after the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof.
16. Waiver. Any waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing,
signed by the party giving such waiver.
17. Binding Effect. Employee's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, such rights shall not be
subject to commutation, encumbrance or the claims of Employee's creditors, and
any attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Employee and his
heirs and personal representatives, and shall be binding upon and inure to the
benefit of the Company and its successors and its assigns under Section 12.
18. No Third Party Beneficiaries. This Agreement does not create, and shall
not be construed as creating, any rights enforceable by any person not a party
to this Agreement (except as provided in Sections 12 and 17).
19. Legal Fees. To the fullest extent permitted by law, the Company shall
promptly pay upon submission of statements all legal and other professional
fees, costs of litigation, prejudgment interest, and other expenses incurred in
connection with any dispute concerning payments, benefits and other entitlements
to which Employee may have under this Agreement; provided, however, the Company
shall be reimbursed by Employee for the fees and expenses advanced in the event
Employee's claim is, in a material manner, in bad faith or frivolous and the
arbitrator or court, as applicable, determines that the reimbursement of such
fees and expenses is appropriate.
20. Pooling of Interests; Severability. In the event that the Company's
independent public accountants determine in good faith that any provision of
this Agreement would preclude "pooling of interests" accounting and provided
that the Company engages in a transaction which utilizes "pooling of interests"
accounting, such provision shall be deemed invalid and inoperative solely to the
extent necessary to permit "pooling of interests" transactions. If any portion
of this Agreement is held invalid or inoperative (including a determination by
the Company's independent public accountants in good faith that any provision of
this Agreement
12
<PAGE>
would preclude "pooling of interests" accounting), the other provisions of this
Agreement shall be deemed to be valid and operative and, so far as is reasonable
and possible, effect shall be given to the intent manifested by the portion held
valid or inoperative.
21. No Duty to Mitigate/No Offset. The Company agrees that if Employee's
employment with the Company is terminated pursuant to this Agreement during the
term of this Agreement, Employee shall not be required to seek other employment
or to attempt in any way to reduce any amounts payable to Employee by the
Company pursuant to this Agreement. Further, the amount of any payment or
benefit provided for in this Agreement shall not be reduced by any compensation
earned by Employee or benefit provided to Employee as the result of employment
by another employer or otherwise. The Company's obligations to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against Employee. Notwithstanding the foregoing, payments
and benefits under the Agreement will cease to be paid and may be recouped by
the Company in the event Employee breaches any of the terms of Section 6, 7 or 8
hereunder.
22. Counterparts; Governing Law. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of New
Jersey, without giving effect to the conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
CELGENE CORPORATION
By:
----------------------------
Richard C. E. Morgan
Chairman of the
Compensation Committee
By:
----------------------------
John W. Jackson
Chief Executive Officer
----------------------------
Robert J. Hugin
13
EXHIBIT 10.19
CONVERTIBLE NOTE PURCHASE AGREEMENT
September 16, 1998
Warburg Dillon Read LLC
677 Washington Blvd.
Stamford, CT 06901
Dear Sirs:
CELGENE CORPORATION (the "Company") wishes to confirm its arrangement with
you in connection with the issuance to you today, against payment in immediately
available funds of the purchase price of 100% of the principal amount thereof,
of a convertible note in the form attached hereto as Annex I (the "Convertible
Note") in an aggregate principal amount of $8,750,000 and convertible initially
into 795,463 fully paid and non-assessable shares (each a "Share") of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), subject
to adjustment as set forth in the Convertible Note. In consideration of your
purchase of the Convertible Note, the Company will pay to you, in immediately
available funds, a fee of 5% of the principal amount thereof, which shall be
netted against the purchase price of the Convertible Note.
Simultaneously with the issuance of the Convertible Note pursuant to this
Agreement, you and the Company have entered into a Registration Rights
Agreement, dated as of the date hereof (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to register the Shares under certain
circumstances. All capitalized terms not defined herein shall have the meaning
ascribed in the Convertible Note.
1. AGREEMENT TO ISSUE AND ACCEPT. On the basis of the representations and
warranties and subject to the terms and conditions set forth herein, the Company
agrees to issue to you, and you agree to accept from the Company, the
Convertible Note against payment of the above-specified purchase price therefor,
The closing of the issuance and acceptance of the Convertible Note against such
payment shall take place on the date hereof, at which time the Company shall
deliver to you the
1
<PAGE>
Convertible Note, against delivery by you of a wire transfer of the purchase
price to the Company's account at PNC Bank New Jersey Trust, ABA No. 031000053,
benefit Account No. 8511074024, for further credit to Account No.
42432012020943, Celgene Corporation, Attn: Lisa Goldhammer, Telephone No. (732)
220-3112.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes
the representations and warranties to you set forth on Annex II hereto.
3. AGREEMENTS OF PURCHASER. You covenant and agree with the Company that:
(a) You will not offer, sell, assign, hypothecate or otherwise
transfer the Convertible Note except (i) pursuant to an effective
registration statement under the Securities Act of 1933 (the "Act"), (ii)
to a person you reasonably believe to be an "accredited investor" within
the meaning of Rule 501 under the Act, pursuant to an available exemption
under the Act or (iii) in offshore transactions within the meaning and
meeting the requirements of Rule 903 under the Act.
(b) You will not offer, sell, assign, hypothecate or otherwise
transfer any Shares issued upon conversion of the Convertible Note except
(i) pursuant to an effective registration statement under the Act; (ii) to
a person you reasonably believe to be an "accredited investor" within the
meaning of Rule 501 under the Act, pursuant to an available exemption under
the Act or (iii) in an offshore transaction within the meaning and meeting
the requirements of Rule 903 under the Act.
(c) You are an "accredited investor" within the meaning of Rule 501
under the Act.
(d) You will not, in hedging transactions effected in connection with
your purchase and holding of the Convertible Note, effect sales of Common
Stock (other than "blocks" of Common Stock, as defined in Rule 10b-18 under
the Securities Exchange Act of 1934) in an amount that exceeds, for any
trading day, 25% of the "trading volume" of the Common Stock (as defined in
Rule 10b-18).
4. CONDITIONS. Your obligations under this Agreement shall be subject to
the condition that all representations and warranties and other statements of
the Company herein are true and correct at and as of the closing of the purchase
and sale of the Convertible Note, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and the
following additional conditions:
2
<PAGE>
(a) Counsel for the Company specified in Annex III hereto shall have
furnished to you their respective written opinions, dated the date of such
closing, in form and substance satisfactory to you, to the effect set forth
in Annex III hereto.
(b) On the date of such closing, the Company shall have furnished to
you such appropriate further information, certificates and documents as you
may reasonably request.
5. MISCELLANEOUS.
(a) This Agreement shall be binding upon, and inure solely to the benefit
of, you and the Company and the respective successors and assigns thereof, and
no other person shall acquire or have any right under or by virtue of this
Agreement. No purchaser of the Convertible Note from you shall be deemed a
successor or assign by reason merely of such purchase.
(b) Any notice or other communication required or permitted to be given
hereunder shall be deemed effectively given when personally delivered, telexed,
transmitted by facsimile or mailed by pre-paid certified mail, return receipt
requested, or by telephone when confirmed in writing by one of the preceding
methods addressed as follows (as applicable):
3
<PAGE>
If to the Company, to:
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
Attention: John W. Jackson
Telephone Number: (732) 271-1001
Facsimile Transmission Number: (732) 805-3931
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Robert A. Cantone, Esq.
Telephone Number: (212) 969-3000
Facsimile Transmission Number: (212) 969-2900
If to Warburg Dillon Read LLC, to:
Warburg Dillon Read LLC
677 Washington Blvd.
Stamford, CT 06901
Attention: General Counsel
Capital Markets '
Telephone Number: (203) 719-3000
Facsimile Transmission Number: (201) 719-6097
or to such other address or number and to the attention of such other person as
either party may designate by written notice to the other party. Notice shall be
effective upon actual receipt.
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
(d) Time shall be of the essence in the performance of this Agreement.
4
<PAGE>
(e) This Agreement may be executed by the parties hereto in any number of
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
Very truly yours,
CELGENE CORPORATION
By:
-------------------------------
Name:
Title:
Accepted as of the date hereof:
WARBURG DILLON READ LLC
By:
-------------------------------
Name:
Title:
<PAGE>
ANNEX II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
(a) Each of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, and each report filed by the Company pursuant to the Exchange
Act after the filing of such Annual Report on Form 10-K (collectively, the
"Exchange Act Reports") conforms in all material respects with the requirements
of the Exchange Act and the rules and regulations of the Securities and Exchange
Commission thereunder; and no such document, when it was filed (or, if an
amendment with respect to any such document was filed, when such amendment was
filed), contained any untrue statement of a material fact or omitted 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,
(b) All the outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; the Shares initially issuable upon
conversion of the Convertible Note have been duly and validly authorized and
reserved for issuance out of the Company's authorized and unissued shares of
Common Stock and, when issued and delivered in accordance with the provisions of
the Convertible Note will be duly and validly issued, fully paid and
non-assessable and will conform to the description of the Common Stock contained
in the Company's Registration Statement on Form 8-A, File No. 0-16132.
(c) The Convertible Note has been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed, issued and
delivered and will constitute a valid and legally binding obligation of the
Company; and the Registration Rights Agreement has been duly authorized and,
when executed and delivered by the parties thereto, will constitute a valid and
legally binding obligation of the Company, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(d) The execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Convertible Note, compliance by the
Company with all provisions hereof and thereof and the consummation of the
transactions contemplated hereby and the issuance and delivery of the
Convertible Note will not conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the charter or by-laws of the
Company or any of its subsidiaries, or any agreement, indenture or other
instrument to which it or any of its subsidiaries is a party or by which it or
any of its subsidiaries or their respective properties are bound, or violate or
conflict with any laws, administrative regulations or rulings or court decrees
applicable to the Company, any of its subsidiaries or their respective property;
<PAGE>
and, except (i) as required pursuant to the Registration Rights Agreement, or
(ii) for the disclosure required to be included in the Company's next Quarterly
Report on Form 10-Q, when filed, pursuant to Item 2(c) of Form 10-Q, no consent,
approval, authorization or order of or filing or registration with, any such
court or governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Convertible Note by the Company and the consummation of the transactions
contemplated hereby and thereby.
(e) Except as otherwise set forth in the Exchange Act Reports, there are no
material legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any of their respective property is
the subject which, if determined adversely to the Company or its subsidiaries,
might have a material adverse effect on the business, condition (financial or
otherwise), stockholders' equity, properties, business prospects or results of
operations of the Company and its subsidiaries, taken as a whole (a "Material
Adverse Effect"), and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated.
(f) The Company is not, and the Company covenants that at any time when the
Convertible Note is outstanding it will not be, an open-end investment company,
unit investment trust or face-amount certificate company that is or is required
to be registered under Section 8 of the United States Investment Company Act of
1940, as amended.
(g) When the Convertible Note is issued and delivered pursuant to this
Agreement, the Convertible Note will not be of the same class (within the
meaning of Rule 144A under the Securities Act of 1933) as securities which are
listed on a national securities exchange registered under Section 6 of the
Exchange Act or quoted in a U.S. automated inter-dealer quotation system.
(h) The Company is, and the Company covenants that while the Convertible
Note is outstanding it will remain, subject to Section 13 or 15(d) of the
Exchange Act.
(i) Neither the Company nor any person acting on its behalf has offered or
sold the Convertible Note by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the Act.
2
<PAGE>
ANNEX III
OPINION OF COMPANY COUNSEL
(a) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
and has the corporate power and authority required to carry on its business as
described in the Exchange Act Reports and to own, lease and operate its
properties.
(b) All the outstanding shares of Common Stock have been duly authorized
and validly issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights.
(c) The Shares initially issuable upon conversion of the Convertible Note
have been duly authorized and reserved for issuance and when issued and
delivered upon conversion in accordance with the provisions of the Convertible
Note, will have been validly issued and will be fully paid and non-assessable,
and the issuance of such Shares is not subject to any preemptive or similar
rights.
(d) This Agreement has been duly authorized, executed and delivered by the
Company.
(e) The Convertible Note has been duly authorized, executed, issued and
delivered, and constitutes the valid and legally binding obligation of the
Company enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(f) The Registration Rights Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and legally binding
agreement of the Company, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles; provided that such counsel need express no
opinion with respect to Section 6 of such Agreement.
(g) The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained in the
Company's Registration Statement on Form 8-A, File No. 0-16132.
(h) Except (i) as required pursuant to the Registration Rights Agreement,
or (ii) for the disclosure required to be included in the Company's next
Quarterly Report on Form 10-Q, when filed, pursuant to Item 2(c) of Form 10-Q,
no consent, approval, authorization or order of or filing or registration with,
any court or governmental
<PAGE>
agency or body is required for the execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Convertible Note by the
Company and the consummation of the transactions contemplated by this Agreement
and thereby,
(i) The execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Convertible Note by the Company,
compliance by the Company with all the provisions hereof and thereof and the
consummation of the transactions contemplated hereby and thereby will not
conflict with or constitute a breach of any of the terms or provisions of, or a
default under, the charter or by-laws of the Company or any agreement, indenture
or other instrument to which the Company is a party or by which the Company or
its properties are bound, or violate or conflict with any laws, administrative
regulations or rulings or court decrees applicable to the Company or its
properties in any case which is reasonably likely to have a Material Adverse
Effect.
(j) The Company is not an open-end investment company, unit investment
trust or face-amount certificate company that is or is required to be registered
under Section 8 of the United States Investment Company Act of 1940, as amended.
2
EXHIBIT 10.20
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
CELGENE CORPORATION
9.25 % CONVERTIBLE NOTE DUE SEPTEMBER 16, 2003
No. R-1 $8,750,000
CELGENE CORPORATION, a corporation duly organized and existing under the
laws of Delaware (the "Company") for value received, hereby promises to pay to
Warburg Dillon Read LLC, or registered assigns, the principal sum of eight
million, seven hundred and fifty thousand Dollars ($8,750,000) on September 16,
2003 and to pay interest thereon, from September 16, 1998, or from the most
recent interest payment date to which interest has been paid or duly provided
for, semiannually on March 16 and September 16 in each year, commencing March
16, 1999, at the rate of 9.25% per annum, until the principal hereof is due, and
at the rate of 9.25% per annum on any overdue principal and premium, if any,
and, to the extent permitted by law, on any overdue interest. The interest so
payable, and punctually paid or duly provided for, on any interest payment date
will 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 the March 1 or September 1
(whether or not a business day), as the case may be, next preceding such
interest payment date. Payment of the principal of (and premium, if any, on)
this Security shall be made upon the surrender of this Security to the Company,
at its office at 7 Powder Horn Drive, Warren, NJ 07059 (or such other office
within the United States as shall be notified by the Company to the holder
hereof) (the "Designated Office"), 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, by transfer to a U.S. dollar account maintained by the
payee with a bank in the United States of America. Payment of interest on this
Security shall be made by wire transfer to a U.S. dollar account maintained by
the payee with a bank in the United States of America, provided that if the
holder shall not have furnished wire instructions in writing to the Company no
later than the record date relating to an interest payment date, such payment
may be made by U.S. dollar check mailed to the address of the person entitled
thereto as such address shall appear in the Company security register. In
respect of any interest payment date, the Company may, at its election but
subject to fulfillment of the conditions set forth in Section 6 and subject to
the limitations set forth therein, pay all or a portion of the interest on this
<PAGE>
Security in shares of Common Stock having a fair market value equal to the
amount then payable hereunder, as described in Section 6.
1. Redemption. This Security is subject to redemption upon not less than 30
nor more than 60 days' notice by mail, at any time on or after September 16,
2000, as a whole or in part, (in any amount that is an integral multiple of
$1000) at the election of the Company, at a redemption price of 103% the
principal amount thereof, together with accrued interest to the redemption date,
but interest installments whose stated maturity is on or prior to such
redemption date will be payable to the holder of this Security, or one or more
predecessor Securities, of record at the close of business on the relevant
record dates referred to on the face hereof; provided, however, that the Company
may not redeem this Security on or prior to September 16, 2001 unless the
Closing Price of the Common Stock exceeds 225% of the Conversion Price for each
Trading Day in a period of 20 Consecutive Trading Days commencing not earlier
than September 16, 2000. The term "Conversion Price" on any day shall equal
$1,000 divided by the Conversion Rate in effect on each such day.
2. Conversion. (a) The holder of this Security is entitled at any time on
or after September 16, 1999 and before the close of business on September 16,
2003 (or, in case this Security or a portion hereof is called for redemption or
the holder hereof has exercised his right to require the Company to repurchase
this Security or a portion hereof, then in respect of this Security or such
portion hereof, as the case may be, until and including, but (unless the Company
defaults in making the payment due upon redemption or repurchase, as the case
may be) not after, the close of business on the redemption date or the
Repurchase Date, as the case may be) to convert this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000), into fully
paid and nonassessable 1,000 shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock of the Company at the rate of 90.91
shares of Common Stock for each $1,000 principal amount of Security (or at the
current adjusted rate if an adjustment has been made as provided below) (the
"Conversion Rate") by surrender of this Security, duly endorsed or assigned to
the Company or in blank to the Company at the Designated Office, accompanied by
written notice to the Company that the holder hereof elects to convert this
Security (or if less than the entire principal amount hereof is to be converted,
specifying the portion hereof to be converted). Upon surrender of this Security
for conversion, the holder will be entitled to receive the interest accruing on
the principal amount of this Security then being converted from the interest
payment date next preceding the date of such conversion to such date of
conversion. No payment or adjustment is to be made on conversion for dividends
on the Common Stock issued on conversion hereof. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but instead of
any fractional interest, the Company shall pay a cash adjustment, computed on
the basis of the Closing Price of the Common Stock on the date of conversion,
or, at its option, the Company shall round up to the next higher whole share.
Notwithstanding the foregoing, at no time will the holder be entitled to
convert this Security into shares of Common Stock that, together with the number
of shares of Common Stock owned (or deemed for bank regulatory purposes to be
owned) by such holder and its affiliates as set forth in the notice of
conversion, represent more than 4.9% of the Common Stock then outstanding. If at
any time the Conversion Rate and the principal amount of this Security would
result in a greater number of shares being issuable upon conversion, then for so
long as such condition shall exist, upon exercise of the conversion right the
holder shall receive (i) up to that number of shares of Common
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Stock that, together with the number of shares of Common Stock owned (or deemed
for bank regulatory purposes to be owned) by such holder and its affiliates as
set forth in the notice of conversion, represent 4.9% of the Common Stock then
outstanding, and (ii) an amount (in cash but not less than zero), payable in
immediately available funds, determined pursuant to the formula:
C = (P/CR - I) x CP
where C = the cash amount receivable by the holder;
P = the principal amount of this Security being converted;
CR = the Conversion Rate;
I = the number of shares issuable pursuant to clause (i) above;
and
CP = the Closing Price of the Common Stock on the date of
conversion.
(b) The Conversion Rate shall be subject to adjustments from time to time
as follows:
(1) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company payable in shares
of Common Stock, the Conversion Rate in effect at the opening of business
on the day following the Determination Date for such dividend or other
distribution shall be increased by dividing such Conversion Rate by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on such Determination Date 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
increase to become effective immediately after the opening of business on
the day following such Determination Date. For the purposes of this
paragraph (1), 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.
(2) Subject to the last sentence of paragraph (7) of this Section
2(b), in case the Company shall issue rights, options or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the current market
price per share (determined as provided in paragraph (8) of this Section
2(b)) of the Common Stock on the Determination Date for such distribution,
the Conversion Rate in effect at the opening of business on the day
following such Determination Date shall be increased by dividing such
Conversion Rate by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on such
Determination Date plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common
Stock so offered for subscription or purchase would purchase at such
current market price and the denominator shall be the number of shares of
Common Stock outstanding at the close of business on such Determination
Date plus the
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number of shares of Common Stock so offered for subscription or purchase,
such increase to become effective immediately after the opening of business
on the day following such Determination Date. For the purposes of this
paragraph (2), 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 issue any rights,
options or warrants in respect of shares of Common Stock held in the
treasury of the Company.
(3) In case outstanding shares of Common Stock shall be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in
effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall each be
combined into a smaller number of shares of Common Stock, the Conversion
Rate in effect at the opening of business on the day following the day upon
which such combination becomes effective shall be proportionately reduced,
such increase or reduction, 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.
(4) Subject to the last sentence of paragraph (7) of this Section
2(b), in case the Company shall, by dividend or otherwise, distribute to
all holders of its Common Stock evidences of its indebtedness, shares of
any class of capital stock, or other property (including securities, but
excluding (i) any rights, options or warrants referred to in paragraph (2)
of this Section 2(b) (ii) any dividend or distribution paid exclusively in
cash, (iii) any dividend or distribution referred to in paragraph (1) of
this Section 2(b) and (iv) any merger or consolidation to which Section
2(h) applies), the Conversion Rate shall be adjusted so that the same shall
equal the rate determined by dividing the Conversion Rate in effect
immediately prior to the close of business on the Determination Date for
such distribution by a fraction of which the numerator shall be the current
market price per share (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date less the then
fair market value (as determined in good faith by the Board of Directors of
the Company) of the portion of the assets, shares or evidences of
indebtedness so distributed applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common
Stock, such adjustment to become effective immediately prior to the opening
of business on the day following such Determination Date. If the Board of
Directors determines the fair market value of any distribution for purposes
of this paragraph (4) by reference to the actual or when issued trading
market for any securities comprising such distribution, it must in doing so
consider the prices in such market over the same period used in computing
the current market price per share pursuant to paragraph (8) of this
Section 2(b).
(5) In case the Company shall, by dividend or otherwise, make a Cash
Distribution, then, and in each such case, immediately after the close of
business on the Determination Date for such Cash Distribution, the
Conversion Rate shall be adjusted so that the same shall equal the rate
determined by dividing the Conversion Rate in effect immediately prior to
the close of business on such Determination Date by a fraction (a) the
numerator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 2(b)) of the
Common Stock on such Determination Date less an amount equal to the
quotient of
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<PAGE>
(1) the amount of such Cash Distribution divided by (2) the number of
shares of Common Stock outstanding on such Determination Date and (b) the
denominator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 2(b)) of the
Common Stock on such Determination Date.
(6) In case the Company or any Subsidiary shall make an Excess
Purchase Payment, then, and in each such case, immediately prior to the
opening of business on the day after the tender offer in respect of which
such Excess Purchase Payment is to be made expires, the Conversion Rate
shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close of
business on the Determination Date for such tender offer by a fraction (a)
the numerator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 2(b)) of the
Common Stock on such Determination Date less an amount equal to the
quotient of (A) the Excess Purchase Payment divided by (B) the number of
shares of Common Stock outstanding (including any tendered shares) as of
the Determination Date less the number of all shares validly tendered and
not withdrawn as of the Determination Date and (b) the denominator of which
shall be equal to the current market price per share (determined as
provided in paragraph (8) of this Section 2(b)) of the Common Stock as of
such Determination Date.
(7) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or
merger to which Section 2(h) applies) shall be deemed to involve (a) a
distribution of such securities other than Common Stock to all holders of
Common Stock (and the effective date of such reclassification shall be
deemed to be the Determination Date), and (b) a subdivision or combination,
as the case may be, of the number of shares of Common Stock outstanding
immediately prior to such reclassification into the number of shares of
Common Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such combination
becomes effective", as the case may be, and "the day upon which such
subdivision or combination becomes effective"' within the meaning of
paragraph (3) of this Section 2(b)). Rights or warrants issued by the
Company to all holders of its Common Stock entitling the holders thereof to
subscribe for or purchase shares of Common Stock, which rights or warrants
(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, in each case in clauses (i) through (iii) until the
occurrence of a specified event or events ("Trigger Event"), shall for
purposes of this Section 2(b) not be deemed issued until the occurrence of
the earliest Trigger Event.
(8) For the purpose of any computation under paragraphs (2), (4), (5)
or (6) of this Section 2(b) the current market price per share of Common
Stock on any date shall be calculated by the Company and be deemed to be
the average of the daily Closing Prices for the five consecutive Trading
Days selected by the Company commencing not more than 10 Trading Days
before, and ending not later than, the earlier of the day in question and
the day before the "ex" date with respect to the issuance or distribution
requiring such computation. For purposes of this paragraph, the term "ex
date", when used with respect to any issuance or distribution, means the
first date on which the Common Stock trades regular way in the applicable
securities
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<PAGE>
market or on the applicable securities exchange without the right to
receive such issuance or distribution.
(9) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this
paragraph (9)) would require an increase or decrease of at least one
percent in such rate; provided, however, that any adjustments which by
reason of this paragraph (9) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 2 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
(10) The Company may make such increases in the Conversion Rate, for
the remaining term of the Securities or any shorter term, in addition to
those required by paragraphs (1), (2), (3), (4), (5) and (6) of this
Section 2(b) as it considers to be advisable in order to avoid or diminish
any income tax to any holders of shares of Common Stock resulting from any
dividend or distribution of stock or issuance of rights or warrants to
purchase or subscribe for stock or from any event treated as such for
income tax purposes.
(c) Whenever the Conversion Rate is adjusted as provided in Section 2(b),
the Company shall compute the adjusted Conversion Rate in accordance with
Section 2(b) and shall prepare a certificate signed by the chief financial
officer of the Company setting forth the adjusted Conversion Rate and showing in
reasonable detail the facts upon which such adjustment is based, and shall
promptly deliver such certificate to the holder of this Security.
(d) In case:
(1) the Company shall declare a dividend or other distribution on its
Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require any adjustment pursuant
to Section 2(b); or
(2) the Company shall authorize the granting to the holders of its
Common Stock of rights, options or warrants to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or
(3) of any reclassification of the Common Stock of the Company, or of
any consolidation, merger or share exchange to which the Company is a party
and for which approval of any shareholders of the Company is required, or
of the conveyance, sale, transfer or lease of all or substantially all of
the assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(5) the Company or any Subsidiary shall commence a tender offer for
all or a portion of the Company's outstanding shares of Common Stock (or
shall amend any such tender offer);
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<PAGE>
then the Company shall cause to be delivered to the holder of this Security, at
least 20 days (or 10 days in any case specified in clause (1) or (2) above)
prior to the applicable record, expiration or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights, options or warrants, or, if
a record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights, options or
warrants are to be determined, (y) the date on which the right to make tenders
under such tender offer expires or (z) the date on which such reclassification,
consolidation, merger, conveyance, transfer, sale, 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, sale, lease, dissolution, liquidation or winding up. Neither the
failure to give such notice nor any defect therein shall affect the legality or
validity of the proceedings described in clauses (1) through (5) of this Section
2(d).
(e) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of the Security, the full number of shares
of Common Stock then issuable upon the conversion of this Security.
(f) Except as provided in the next sentence, the Company will pay any and
all taxes and duties that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of this Security. The Company shall not,
however, 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 this Security, 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.
(g) The Company agrees that all shares of Common Stock which may be
delivered upon conversion of the Security, upon such delivery, will have been
duly authorized and validly issued and will be fully paid and nonassessable (and
shall be issued out of the Company's authorized but unissued Common Stock) and,
except as provided in Section 2(f), the Company will pay all taxes, liens and
charges with respect to the issue thereof.
(h) In ease of any consolidation of the Company with any other person, any
merger of the Company into another person or of another person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the Company)
or any conveyance, sale, transfer or lease of all or substantially all of the
properties and assets of the Company, the person formed by such consolidation or
resulting from such merger or which acquires such properties and assets, as the
case may be, shall execute and deliver to the holder of this Security a
supplemental agreement providing that such holder has the right thereafter,
during the period this Security shall be convertible as specified in Section
2(a), to convert this Security only into the kind and amount of securities, cash
and other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease (including any Common Stock retainable) 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,
sale, transfer or
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<PAGE>
lease, assuming such holder of Common Stock of the Company (i) is not a person
with which the Company consolidated, into which the Company merged or which
merged into the Company or to which such conveyance, sale, transfer or lease was
made, as the case may be (a "Constituent Person"), or an Affiliate of a
Constituent Person and (ii) failed to exercise his rights of election, if any,
as to the kind or amount of securities, cash and other property receivable upon
such consolidation, merger, conveyance, sale, transfer or lease (provided that
if the kind or amount of securities, cash and other property receivable upon
such consolidation, merger, conveyance, sale, transfer, or lease is not the same
for each share of Common Stock of the Company held immediately prior to such
consolidation, merger, conveyance, sale, transfer or lease by others than a
Constituent Person or an Affiliate thereof and in respect of which such rights
of election shall not have been exercised ("Non-electing Share"), then for the
purpose of this Section 2(h) the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease by the holders of 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 agreement shall provide for adjustments which, for
events subsequent to the effective date of such supplemental agreement, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 2. The above provisions of this Section 2(h) shall similarly apply
to successive consolidations, mergers, conveyances, sales, transfers or leases.
In this paragraph, "securities of the kind receivable" upon such consolidation,
merger, conveyance, transfer, sale or lease by a holder of Common Stock means
securities that, among other things, are registered and transferable under the
Securities Act, and listed and approved for quotation in all securities markets,
in each case to the same extent as such securities so receivable by a holder of
Common Stock.
(i) The Company (i) will effect all registrations with, and obtain all
approvals by, all governmental authorities that may be necessary under any
United States Federal or state law (including the Securities Act of 1933, the
Securities Exchange Act of 1934 and state securities and Blue Sky laws) for the
shares of Common Stock issuable upon conversion of this Security to be lawfully
issued and delivered as provided herein, and thereafter publicly traded (if
permissible under such Securities Act) and qualified or listed as contemplated
by clause (ii) (it being understood that the Company shall not be required to
register the Common Stock issuable on conversion hereof under the Securities
Act, except pursuant to the Registration Rights Agreement between the Company
and the initial holder of this Security); and (ii) will list the shares of
Common Stock required to be issued and delivered upon conversion of Securities,
prior to such issuance or delivery, on each national Securities exchange on
which outstanding Common Stock is listed or quoted at the time of such delivery,
or if the Common Stock is not then listed on any securities exchange, to qualify
the Common Stock for quotation on the Nasdaq National Market or such other
inter-dealer quotation system, if any, on which the Common Stock is then quoted.
(j) For purposes hereof:
"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.
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"Cash Distribution" means the distribution by the Company to all holders of
its Common Stock of cash, other than any cash that is distributed upon a merger
or consolidation to which Section 2(h) applies or as part of a distribution
referred to in paragraph (4) of Section 2(b).
"Closing Price" means, with respect to the Common Stock of the Company, for
any day, the reported last sale price per share on the Nasdaq National Market,
or, if the Common Stock is not admitted to trading on the Nasdaq National
Market, on the principal national securities exchange or inter-dealer quotation
system on which the Common Stock is listed or admitted to trading, or if not
admitted to trading on the Nasdaq National Market, or listed or admitted to
trading on any national securities exchange or inter-dealer quotation system,
the average of the closing bid and asked prices per share in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that purpose.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 2(h), shares issuable on conversion or
repurchase of this Security shall include only shares of Common Stock or shares
of any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of this
Security shall include shares of all such classes, and 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.
"Determination Date" means, in the case of a dividend or other
distribution, including the issuance of rights, options or warrants, to
shareholders, the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution and, in the case of a tender offer,
the last time that tenders could have been made pursuant to such tender offer.
"Excess Purchase Payment" means the product of (A) the excess, if any, of
(i) the amount of cash plus the fair market value (as determined in good faith
by the Company's Board of Directors) of any non-cash consideration required to
be paid with respect to one share of Common Stock acquired or to be acquired in
a tender offer made by the Company or any subsidiary of the Company for all or
any portion of the Common Stock over (ii) the current market price per share as
of the last time that tenders could have been made pursuant to such tender offer
and (B) the number of shares validly tendered and not withdrawn as of the
Determination Date in respect of such tender offer.
"Trading Day" means (i) if the Common Stock is admitted to trading on the
Nasdaq National Market or any other system of automated dissemination of
quotations of securities prices, a day on which trades may be effected through
such system; (ii) if the Common Stock is listed or admitted for trading on the
New York Stock Exchange or any other national securities exchange, a day on
which such exchange is open for business; or (iii) if the Common Stock is not
admitted to trading on the Nasdaq National Market or listed or admitted for
trading on any national securities exchange or any other system of automated
dissemination of quotation of securities prices, a day on which the Common Stock
is traded regular way in the over-the-counter market and for which a closing bid
and a closing asked price for the Common Stock are available.
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3. Right to Require Repurchase. (a) In the event that a Change in Control
(as hereinafter defined) shall occur, then the holder of this Security shall
have the right, at such holder's option, to require the Company to repurchase,
and upon the exercise of such right the Company shall repurchase, this Security,
or any portion of the principal amount hereof that is equal to $1,000 or any
integral multiple thereof, on the date (the "Repurchase Date") that is fifteen
Trading Days after the date on which the Company gives notice thereof to the
holder of this Security, at a purchase price equal to 100% of the principal
amount of this Security to be repurchased plus interest accrued to the
Repurchase Date (the "Repurchase Price"); provided, however, that installments
of interest on this Security whose stated maturity is on or prior to the
Repurchase Date shall be payable to the holder of this Security, or one or more
predecessor Securities, registered as such on the relevant Record Date according
to their terms. 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 6 and subject to the limitations set forth therein, by delivery
of shares of Common Stock having a fair market value equal to the Repurchase
Price as described in Section 6. The Company agrees to give the holder of this
Security notice of any Change in Control, by facsimile transmission confirmed in
writing by overnight courier service, promptly and in any event within two
Trading Days of the occurrence thereof.
(b) To exercise a repurchase right, the holder shall deliver to the Company
on or before the 10th trading day prior to the Repurchase Date, together with
this Security, written notice of the holder's exercise of such right, which
notice shall set forth the name of the holder, the number of shares of Common
Stock then owned by such holder and its affiliates, the principal amount of this
Security to be repurchased (and, if this Security is to be repurchased in part,
the portion of the principal amount thereof to be repurchased and the name of
the person in which the portion thereof to remain outstanding after such
repurchase is to be registered) and 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 certificates for shares of Common Stock shall be issued.
Such written notice shall be irrevocable, except that the right of the holder to
convert this Security (or the portion hereof with respect to which the
repurchase right is being exercised) shall continue until the close of business
on the Repurchase Date (or if the Company elects to pay the Repurchase Price by
delivery of shares of Common Stock, until the close of business on the Trading
Day immediately preceding the first delivery of Common Stock in respect
thereof).
(c) In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid to the holder the
Repurchase Price in cash or shares of Common Stock, as provided above, together
with accrued and unpaid interest to the Repurchase Date; provided, however, that
installments of interest that mature on or prior to the Repurchase Date shall be
payable in cash, to the holders of this Security, or one or more predecessor
Securities, registered as such at the close of business on the relevant regular
record date.
(d) If this Security (or portion thereof) is surrendered for repurchase and
is not so paid on or prior to the Repurchase Date, the principal amount of this
Security (or such portion hereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date at
the rate per annum borne by this Security, and shall remain convertible into
Common Stock until the principal of this Security (or portion thereof, as the
case may be) shall have been paid or duly provided for.
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(e) If this Security is to be repurchased only in part, it shall be
surrendered to the Company at the Designated Office (with, if the Company so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company duly executed by, the holder hereof or his attorney
duly authorized in writing), and the Company shall execute and make available
for delivery to the holder without service charge, a new Security or Securities,
containing identical terms and conditions, each in an authorized denomination in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Security so surrendered.
(f) For purposes of this Section 3.
(1) the term "beneficial owner" shall be determined in accordance with Rule
13d-3 promulgated by the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934; and
(2) a "Change in Control" shall be deemed to have occurred at the time,
after the original issuance of this Security, of:
(i) the acquisition by any person of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling
such person to exercise 50% or more of the total voting power of all shares
of capital stock of the Company entitled to vote generally in the elections
of directors (any shares of voting stock of which such person is the
beneficial owner that are not then outstanding being deemed outstanding for
purposes of calculating such percentage) other than any such acquisition by
the Company or any employee benefit plan of the Company; or
(ii) any consolidation or merger of the Company with or into, any
other person, any merger of another person with or into the Company, or any
conveyance, transfer, sale, lease or other disposition of all or
substantially all of the assets of the Company to another person (other
than (a) any such transaction (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock and (y) pursuant to which holders of Common Stock
immediately prior to such transaction have the entitlement to exercise,
directly or indirectly, 50% or more of the total voting power of all shares
of capital stock entitled to vote generally in the election of directors of
the continuing or surviving person immediately after such transaction and
(b) any merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock into solely shares of
common stock);
provided, however, that a Change in Control shall not be deemed to have occurred
if the Closing Price for any five Trading Days within the period of 10
consecutive Trading Days (x) ending immediately after the later of the date of
the Change in Control or the date of the public announcement of the Change in
Control (in the case of a Change in Control under Clause (i) above) or (y)
ending immediately prior to the date of the Change in Control (in the case of a
Change in Control under Clause (ii) above) shall equal or exceed 105% of the
Conversion Price in effect on each such Trading Day.
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<PAGE>
4. Events of Default. (a) "Event of Default", wherever used herein, means
any one of the following events (whatever the reason for such Event of Default
and whether it shall 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) default in the payment of any interest upon this Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) default by the Company in the performance of its obligations in
respect of any conversion of this Security (or any portion hereof) in
accordance with Section 2; or
(3) failure by the Company to give any notice of a Change of Control
required to be delivered in accordance with Section 3(a); or
(4) default in the performance, or breach, of any material covenant or
warranty of the Company herein (other than a covenant or warranty a default
in the performance or breach of which is specifically dealt with elsewhere
in this Section 4(a)) and continuance of such default or breach for a
period of 30 days after there has been given, by registered or certified
mail, to the Company by the holder of this Security a written notice
specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; or
(5) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company, or under any agreement,
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed
by the Company, with a principal amount then outstanding in excess of
$1,000,000, whether such indebtedness now exists or shall hereafter be
created, which default shall constitute a failure to pay the principal of
such indebtedness (in whole or in any part greater than $1,000,000) when
due and payable or shall have resulted in such indebtedness (in whole or in
any part greater than $1,000,000) becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable, without such indebtedness having been discharged, or such
acceleration having been rescinded or annulled, within a period of 15 days
after there shall have been given, by registered or certified mail, to the
Company by the holder of this Security a written notice specifying such
default and requiring the Company to cause such indebtedness to be
discharged or cause such acceleration to be rescinded or annulled and
stating that such notice is a "Notice of Default" hereunder; or
(6) 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 any applicable 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 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
12
<PAGE>
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
(7) the commencement by the Company of a voluntary case or proceeding
under any applicable 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 it to the entry
of a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or similar
relief under any applicable Federal or State law, or the consent by it to
the filing of such petition or to the appointment of or 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 it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its
debts generally as they become due, or the taking of corporate action by
the Company in furtherance of any such action.
(b) If an Event of Default (other than an Event of Default specified in
Section 4(a)(6) or 4(a)(7)) occurs and is continuing, then in every such case
the holder of this Security may declare the principal hereof to be due and
payable immediately, by a notice in writing to the Company, and upon any such
declaration such principal and all accrued interest thereon shall become
immediately due and payable. If an Event of Default specified in Section 4(a)(6)
or 4(a)(7) occurs and is continuing, the principal of, and accrued interest on,
this Security shall ipso facto become immediately due and payable without any
declaration or other act of the holders.
5. Consolidation, Merger, Etc. (a) The Company shall not consolidate with
or merge into any other person or, directly or indirectly, convey, transfer,
sell or lease all or substantially all of its properties and assets to any
person, and the Company shall not permit any person to consolidate with or merge
into the Company or, directly or indirectly, convey, transfer, sell or lease all
or substantially all of its properties and assets to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
person or convey, transfer, sell or lease all or substantially all of its
properties and assets to any person, the person formed by such
consolidation or into which the Company is merged or the person which
acquires by conveyance, transfer or sale, or which leases, all or
substantially all the properties and assets of the Company shall be a
corporation, limited liability company, partnership or trust, shall be
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume, by an agreement supplemental hereto, executed and delivered to the
holder of this Security in form satisfactory to the holder, the due and
punctual payment of the principal of (and premium, if any) and interest on
this Security and the performance or observance of every covenant of this
Security on the part of the Company to be performed or observed, including
the conversion rights provided herein (which shall thereafter relate to
common stock of such successor, on a basis reasonably designed to preserve
the economic value to the holder of this Security of such conversion
rights);
13
<PAGE>
(2) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or a subsidiary
of the Company as a result of such transaction as having been incurred by
the Company or such subsidiary of the Company at the time 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;
(3) the Company has delivered to the holder of this Security an
officers' certificate stating that such consolidation, merger, conveyance,
transfer, sale or lease and, if a supplemental agreement is required in
connection with such transaction, such supplemental agreement, comply with
this Section and that all conditions precedent herein provided for relating
to such transaction have been complied with; and
(4) counsel for the Company has delivered to the holder of this
Security an opinion of such counsel with respect to such consolidation,
merger, conveyance, transfer, sale or lease, and if a supplemental
agreement is required in connection with such transaction, such
supplemental agreement, which opinion shall be, in form and substance,
reasonably acceptable to such holder and its counsel.
(b) Upon any consolidation of the Company with, or merger of the Company
into, any other person or any conveyance, transfer, sale or lease of all or
substantially all of the properties and assets of the Company in accordance with
Section 5(a), the successor person formed by such consolidation or into which
the Company is merged or to which such conveyance, transfer, sale or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Security with the same effect as if such
successor person had been named as the Company herein, and thereafter, except in
the case of a lease, the predecessor person shall be relieved of all obligations
and covenants under this Security.
6. Payment in Stock. (a) The Company may elect to pay any amount due
hereunder in respect of interest or Repurchase Price in respect hereof by
delivery of shares of Common Stock if and only if the following conditions have
been satisfied:
(1) Any such payment shall be made in five equal installments, on each of
the five consecutive Trading Days ending on and including the third Trading Day
immediately preceding the date when cash payment would otherwise be due, and the
shares of Common Stock deliverable in payment of each such installment shall
have a fair market value as of the date of such installment of not less than 20%
of the amount of such payment due hereunder. For purposes of this Section 6, the
fair market value of shares of Common Stock shall be equal to 95% of the Closing
Price for the immediately preceding Trading Day;
(2) In the event any shares of Common Stock to be issued in respect of such
amount due 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 of 1933 upon issuance, such
registration shall have been completed and shall have become effective prior to
the date of the first such installment;
14
<PAGE>
(3) In the event any shares of Common Stock to be issued in respect of such
amount due 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 issuance, such registration shall have been
completed or have become effective and such approval shall have been obtained,
in each case, prior to the date of the first such installment;
(4) The shares of Common Stock deliverable in payment of such amount due
hereunder shall have been approved for quotation in the Nasdaq National Market
immediately prior to the date of the first such installment;
(5) All shares of Common Stock deliverable in payment of such amount due
hereunder shall, upon issue, be duly and validly issued and fully paid and
non-assessable and free of any preemptive rights; and
(6) In respect of each such payment date, the Company shall have given the
holder of this Security not less than 10 nor more than 15 Trading Days' notice
of its election to effect payment in respect of such payment date by delivery of
shares of Common Stock; provided that any such notice in respect of amounts
payable on a Repurchase Date shall accompany the Company's notice of a Change of
Control relating thereto.
If all of the conditions set forth in this Section 6(a) are not satisfied
in accordance with the terms thereof, any such amount due hereunder shall be
paid by the Company only in cash.
Notwithstanding the foregoing, at no time will the Company deliver shares
of Common Stock to any holder in satisfaction of an obligation to pay interest
or Repurchase Price if the number of shares so delivered, together with the
number of shares of Common Stock owned (or deemed for bank regulatory purposes
to be owned) by such holder and its affiliates as theretofore notified to the
Company (in a notice delivered not less than five Trading Days prior to the
relevant interest payment date, in the case of interest, or as set forth in the
election of holder to require repurchase, in the case of Repurchase Price),
represent more than 4.9% of the Common Stock then outstanding. If the limitation
set forth in the previous sentence would apply to any payment of interest or
Repurchase Price, the Company may elect (by notice to the holder delivered not
less than three Trading Days prior to the relevant interest payment date, in the
case of interest, or not less than eight Trading Days prior to the Repurchase
Date, in the case of Repurchase Price) to satisfy a portion of such payment in
shares of Common Stock (up to the maximum number of shares permitted under the
limitation set forth in the previous sentence) and the balance in cash.
(b) Any issuance of shares of Common Stock in respect of any installment
due hereunder pursuant to this Section 6 shall be deemed to have been effected
immediately prior to the close of business on the date of delivery of such
installment and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such delivery
shall be deemed to have become on such date the holder or holders of record of
the shares represented thereby; provided, however, that in case any installment
shall be due on a date when the stock transfer books of the Company shall be
closed, the person or persons in whose name or names the certificate or
certificates for such shares are to be issued shall be deemed to have become the
record holder or holders thereof for all purposes at the opening of business on
the next succeeding day on
15
<PAGE>
which such stock transfer books are open. No payment or adjustment shall be made
for dividends or distributions on any Common Stock issued pursuant to this
Section 6 declared prior to the relevant delivery date.
(c) No fractions of shares shall be issued upon payment made in shares of
Common Stock in respect of this Security. Instead of any fractional share of
Common Stock which would otherwise be so issuable, the Company will round up to
the next higher whole share.
(d) Any issuance and delivery of certificates for shares of Common Stock
pursuant to this Section 6 shall be made without charge to the holder of this
Security for such certificates or for any tax or duty in respect of the issuance
or delivery of such certificates or the securities represented thereby;
provided, however, that the Company shall not be required to pay any tax or duty
which may be payable in respect of any transfer involved in the issuance or
delivery of certificates for shares of Common Stock in a name other than that of
the holder of this Security, and no such issuance or delivery shall be made
unless and until the person requesting such issuance or delivery has paid to the
Company the amount of any such tax or duty or has established, to the
satisfaction of the Company, that such tax or duty has been paid.
7. Other. (a) No provision of this Security shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Security at the times,
places and rate, and in the coin or currency, herein prescribed or to convert
this Security as herein provided.
(b) The Company will give prompt written notice to the holder of Security
of any change in the location of the Designated Office.
(c) The transfer of this Security is registrable on the Security Register
of the Company upon surrender of this Security for registration of transfer at
the Designated Office, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company duly executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees. Such
Securities are issuable only in registered form without coupons in denominations
of $1,000 and any integral multiple thereof. No service charge shall be made for
any such registration of transfer, but the Company may require payment of a sum
sufficient to recover any tax or other governmental charge payable in connection
therewith. Prior to due presentation of this Security for registration of
transfer, the Company and any agent of the Company may treat the person in whose
name this Security is registered as the owner thereof for all purposes, whether
or not this Security be overdue, and neither the Company nor any such agent
shall be affected by notice to the contrary.
Notwithstanding any other provision of this Security, this Security and the
shares of Common Stock issuable upon conversion hereof may only be transferred
by the holder of this Security (a) in the case of the Common Stock only, in a
widely dispersed registered public offering; (b) to one or more accredited
investors, in one or more transactions, any one of whom, after such purchase,
would hold not more than 2 % of the shares of Common Stock then outstanding
(assuming conversion of any portion of this Security so transferred); (c) to any
person or entity that already controls more
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<PAGE>
than 50% of the voting securities of the Company prior to such transfer; or (d)
in a transaction that complies with the volume and manner of sale restrictions
of Rule 144 under the Securities Act of 1933. The holder of this Security, by
acceptance thereof, shall be deemed to have agreed to the foregoing restriction
on transfers.
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<PAGE>
(D) THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
Dated: September __, 1998
CELGENE CORPORATION
By:
--------------------------------
Name:
Title:
Attest:
- --------------------------------
Name:
Title:
<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 3(a) of this Security, the undersigned hereby elects
to have all or a portion of this Security repurchased by the Company.
2. The undersigned hereby directs the Company to pay [choose one] (a) it or
(b) Name: _______________________; address: _____________________; Social
Security or Other Taxpayer Identification Number, if any: ___________________,in
amount in cash or, at the Company's election (subject to the limitations set
forth in the Security) Common Stock valued as set forth in the Security, equal
to 100 % of the principal amount to be repurchased (as set forth below), plus
interest accrued to the Repurchase Date, as provided herein.
Dated:
------------------------------
------------------------------
Signature
Number of shares of Common Stock
owned by the holder and its affiliates:
------------------------------
Principal amount to be repurchased
(an integral multiple of $1,000):
------------------------------
Remaining principal amount following such repurchase
(not less than $1,000):
------------------------------
NOTICE: The signature to the foregoing Election must correspond to the name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
CONVERSION NOTICE
The undersigned holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is an integral multiple of $1,000) below designated, into shares of
Common Stock (subject to the limitation set forth in the second paragraph of
Section 2(a) of the Security) in accordance with the terms of this Security, and
directs that such shares, together with a check in payment for any fractional
share and any Security representing any unconverted principal amount hereof, be
delivered to and be registered in the name of the undersigned unless a different
name has been indicated below. If shares of Common Stock or Securities are to be
registered 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 by the undersigned on account of interest accompanies this Security.
<PAGE>
Dated:
------------------------------
------------------------------
Signature
Number of shares of Common Stock
owned by the holder and its affiliates:
------------------------------
If shares or Securities are to be If only a portion of the Securities is
registered in the name of a person to be converted, please indicate:
other than the holder, please print
such person's name and address:
1. Principal amount to be converted:
$
------------------------------
Name
2. Principal amount and denomination
of Security representing
unconverted principal amount to
be issued:
------------------------------
Address
Amount: $________
Denominations: $________
(any integral multiple of $1,000)
------------------------------
Social Security or other Taxpayer
Identification Number, if any
EXHIBIT 10.21
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of September 16, 1998, by and
between Celgene Corporation, a Delaware corporation (the "Company"), and Warburg
Dillon Read LLC (the "Purchaser") entered into in connection with the issuance
of a Convertible Note due September 16, 2003 convertible into shares of Common
Stock, par value $.01 per share ("Common Stock") of the Company.
1. Certain Definitions.
For purposes of this Registration Rights Agreement, the following terms
shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Exchange Act or the
Securities Act, whichever is the relevant statute for the particular purpose.
(b) "Convertible Note" shall mean the Convertible Note due September
16, 2003, of the Company to be issued and sold to the Purchaser, and any
Convertible Note issued in exchange therefor or in lieu thereof.
(c) "Effective Time" shall mean the date on which the Commission
declares the Shelf Registration effective or on which the Shelf Registration
otherwise becomes effective.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, or
any successor thereto, as the same shall be amended from time to time.
(e) "Issue Date" shall mean the date on which a Convertible Note is
initially issued.
(f) The term "person" shall mean a corporation, association,
partnership, organization, business, individual, government or political
subdivision thereof or governmental agency.
(g) "Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
(h) "Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.
(i) "Shares" means the shares of Common Stock issuable upon exercise
of the Convertible Note.
(j) "Shelf Registration" shall have the meaning assigned thereto in
Section 2 hereof.
<PAGE>
In addition, capitalized terms not defined herein shall have the meaning
ascribed in the Convertible Note.
2. Shelf Registration of Shares.
(a) Not later than September 16, 1999, the Company shall file under the
Securities Act a "shelf" registration statement providing for the registration
of, and the sale on a continuous or delayed basis by the Purchaser of, all
Shares issuable upon conversion of the Convertible Notes, pursuant to Rule 415
under the Securities Act and/or any similar rule that may be adopted by the
Commission (the "Shelf Registration"). The Company agrees to use its best
efforts to cause the Shelf Registration to become or be declared effective no
later than 45 calendar days after the filing thereof and to keep such Shelf
Registration continuously effective for a period ending on the earliest to occur
of (i) the second anniversary of the Issue Date, (ii) notification to the
Company by the Purchaser that it has sold all Shares issuable upon conversion of
the Convertible Notes so owned by it, or (iii) such time as the Purchaser may
sell all of such shares pursuant to Rule 144(k) under the Securities Act. The
Company further agrees, if necessary, to supplement or make amendments to the
Shelf Registration, if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration or by the Securities Act or rules and regulations thereunder for
shelf registration, and the Company agrees to furnish to the Purchaser copies of
any such supplement or amendment prior to its being used and/or filed with the
Commission, and will not file any such supplement or amendment to which the
Purchaser reasonably objects.
(b) Notwithstanding the foregoing, following the effectiveness of the Shelf
Registration, the Company may, at any time, suspend the effectiveness of such
Shelf Registration for up to 60 days, as appropriate (a "Suspension Period"), by
giving notice to the Purchaser, if the Company shall have determined that the
Company may be required to disclose any material corporate development which
disclosure may jeopardize a material transaction or otherwise have a material
adverse effect on the Company. The Company will use its best efforts to minimize
the length of any Suspension Period. Notwithstanding the foregoing, no more than
one Suspension Period may occur within any 180 day period. The period of any
such suspension of the registration statement shall be added to the period of
time the Company agrees to keep the Shelf Registration effective as provided in
Section 2(a). The Purchaser agrees that, upon receipt of any notice from the
Company of a Suspension Period, the Purchaser shall forthwith discontinue
disposition of shares covered by the Shelf Registration until the Purchaser (i)
is advised in writing by the Company that the use of the applicable prospectus
may be resumed, (ii) has received copies of a supplemental or amended
prospectus, if applicable, and (iii) has received copies of any additional or
supplemental filings which are incorporated or deemed to be incorporated by
reference in such prospectus.
3. Registration Procedures.
(a) In connection with any obligation of the Company to register Shares,
the Company shall use its best efforts to effect or cause such registration to
permit the sale of the Shares by the Purchaser in accordance with the intended
method or methods of distribution thereof described in the applicable
registration statement. In connection therewith, the Company shall, within the
time specified in Section 2 above:
(i) prepare and file with the Commission a registration statement on
any form which may be utilized by the Company and which shall permit the
disposition of the Shares in accordance with the intended method or methods
thereof, as specified in writing by the Purchaser;
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<PAGE>
(ii) comply with the provisions of the Securities Act with respect to
the disposition of all of the Shares covered by such registration statement
in accordance with the intended methods of disposition by the Purchaser set
forth in such registration statement;
(iii) provide (A) the Purchaser, (B) the underwriters (which term, for
purposes of these Registration Rights, shall include a person deemed to be
an underwriter within the meaning of Section 2(1.1) of the Securities Act),
if any, thereof, (C) the sales or placement agent, if any, therefor, (D)
counsel for such underwriters or agent, and (E) counsel for the Purchaser
the opportunity to participate in the preparation of such registration
statement, each prospectus included therein or filed with the Commission,
and each amendment or supplement thereto;
(iv) for a reasonable period prior to the filing of such registration
statement, and throughout the period specified in Section 2 hereof, make
available for inspection by the parties referred to in Section 3(a)(iii)
above who shall certify to the Company that they have a current intention
to sell the Shares pursuant to the registration statement such financial
and other information and books and records of the Company, and cause the
officers, employees, counsel and independent certified public accountants
of the Company to respond to such inquiries, as shall be reasonably
necessary, in the judgment of the respective counsel referred to in such
Section, to conduct a reasonable investigation within the meaning of
Section 11 of the Securities Act; provided, however, that each such party
shall be required to maintain in confidence and not to disclose to any
other person any information or records provided by the Company until such
time as (A) such information becomes a matter of public record (whether by
virtue of its inclusion in such registration statement or otherwise), or
(B) such person shall be required so to disclose such information pursuant
to the subpoena or order of any court or other governmental agency or body
having jurisdiction over the matter (subject to the requirements of such
order, and only after such person shall have given the Company prompt prior
written notice of such requirement), or (C) such information is required to
be set forth in such registration statement, or the prospectus included
therein or in an amendment to such registration statement or an amendment
or supplement to such prospectus in order that such registration statement,
prospectus, amendment or supplement, as the case may be, does not contain
an untrue statement of a material fact or omit to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading;
(v) promptly notify the Purchaser, the sales or placement agent, if
any, therefor and the managing underwriter or underwriters, if any, thereof
and confirm such advice in writing, (A) when such registration statement or
the prospectus included therein or any prospectus amendment or supplement
or post-effective amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same has
become effective, (B) of any comments by the Commission and by the Blue Sky
or securities commissioner or regulator of any state with respect thereto
or any request by the Commission for amendments or supplements to such
registration statement or prospectus or for additional information, (C) of
the issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or the initiation or overt
threatening of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Company contemplated by Section 5
hereof cease to be true and correct in all material respects, (E) of the
receipt by the Company of any notification with respect to the suspension
of the qualification of the Shares for sale in any jurisdiction or the
initiation or overt threatening of any proceeding for such purpose, or (F)
at any time when a prospectus is required to be delivered under the
Securities Act, if such registration statement, prospectus, prospectus
amendment or supplement or post-effective amendment, or any document
incorporated by reference in any of the foregoing, contains an untrue
3
<PAGE>
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(vi) use its best efforts to obtain the withdrawal of any order
suspending the , effectiveness of such registration statement or any
post-effective amendment thereto at the earliest practicable date;
(vii) if requested by any managing underwriter or underwriters, any
placement or sales agent or the Purchaser, promptly incorporate in a
prospectus supplement or post-effective amendment such information as is
required by the applicable rules and regulations of the Commission that
such managing underwriter or underwriters, such agent or the Purchaser
specify should be included therein relating to the terms of the sale of
such Shares, including, without limitation, information with respect to the
number of Shares being sold by the Purchaser or agent or to any
underwriters, the name and description of the Purchaser, agent or
underwriter, the offering price of such Shares and any discount, commission
or other compensation payable in respect thereof, the purchase price being
paid therefor by such underwriters and with respect to any other terms of
the offering of the Shares to be sold by the Purchaser or agent or to such
underwriters; and make all required filings of such prospectus supplement
or post-effective amendment promptly after notification of the matters to
be incorporated in such prospectus supplement or post-effective amendment;
(viii) furnish to the Purchaser, each placement or sales agent, if
any, therefor, each underwriter, if any, thereof and the respective counsel
referred to in Section 3(a)(iii) a copy of such registration statement in
the form in which it became effective, each such amendment and supplement
thereto (in each case including all exhibits thereto and documents
incorporated by reference therein) and such number of copies of such
registration statement (excluding exhibits thereto and documents
incorporated by reference therein unless specifically so requested by the
Purchaser, agent or underwriter, as the case may be) and of the prospectus
included in such registration .statement (including each preliminary
prospectus and any summary prospectus), in conformity with the requirements
of the Securities Act, and such other documents, as the Purchaser, agent,
if any, and underwriter, if any, may reasonably request in order to
facilitate the offering and disposition of the Shares owned by the
Purchaser, offered or sold by such agent or underwritten by such
underwriter and to permit the Purchaser, agent and underwriter to satisfy
the prospectus delivery requirements of the Securities Act; and the Company
hereby consents to the use of such prospectus (including such preliminary
and summary prospectus) and any amendment or supplement thereto by the
Purchaser and by any such agent and underwriter, in each case in the form
most recently provided to such party by the Company, in connection with the
offering and sale of the Shares covered by the prospectus (including such
preliminary and summary prospectus) or any supplement or amendment thereto;
(ix) use its best efforts to (A) register or qualify the Shares to be
included in such registration statement under such securities laws or blue
sky laws of such jurisdictions as the Purchaser and each placement or sales
agent, if any, therefor and underwriter, if any, thereof shall reasonably
request, (B) keep such registrations or qualifications in effect and comply
with such laws so as to permit the continuance of offers, sales and
dealings therein in such jurisdictions during the respective periods such
registration statements are required to remain effective under Section 2
above and for so long as may be necessary to enable the Purchaser or any
agent or underwriter to complete its distribution of Shares pursuant to
such registration statement and (C) take any and all other actions as may
be reasonably necessary or advisable to enable the Purchaser, agent, if
any, and underwriter, if any, to consummate the disposition in such
jurisdictions of such Shares; provided, however, that the Company
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<PAGE>
shall not be required for any such purpose to (I) qualify as a foreign
corporation in any jurisdiction wherein it would not otherwise be required
to qualify but for the requirements of this Section 3(a)(ix) or (II)
consent to general service of process in any such jurisdiction;
(x) use its best efforts to obtain the consent or approval of each
governmental agency or authority, whether federal, state or local, which
may be required to effect the Shelf Registration or the offering or sale in
connection therewith or to enable the Purchaser to offer, or to consummate
the disposition of, its Shares;
(xi) cooperate with the Purchaser and the managing underwriters, if
any, to facilitate the timely preparation and delivery of any certificates
representing Shares to be sold, which certificates shall be printed,
lithographed or engraved, or produced by any combination of such methods,
and which shall not, once sold under the Shelf Registration, bear any
restrictive legends; and, in the case of an underwritten offering, enable
such Shares to be in such denominations and registered in such names as the
managing underwriters may request at least two business days prior to any
sale of the Shares:
(xii) enter into one or more underwriting agreements, engagement
letters, agency agreements or similar agreements, as appropriate, including
(without limitation) customary provisions relating to indemnification and
contribution, and take such other actions in connections therewith as the
Purchaser shall reasonably request in order to expedite or facilitate the
disposition of the Shares;
(xiii) notify the Purchaser in writing of any proposal by the Company
to amend or waive any provision of these Registration Rights pursuant to
Section 7(g) hereof and of any amendment or waiver effected pursuant
thereto, each of which notices shall contain the text of the amendment or
waiver proposed or effected, as the case may be;
(xiv) in the event that any broker-dealer registered under the
Exchange Act shall underwrite any Shares or participate as a member of an
underwriting syndicate or selling group or "assist in the distribution"
(within the meaning of the Rules of Fair Practice and the By-Laws of the
National Association of Securities Dealers, Inc. ("NASD")) thereof, whether
as an underwriter, a placement or sales agent or a broker or dealer in
respect thereof, or otherwise, assist such broker-dealer in complying with
the requirements of such Rules and By-Laws, including, without limitation,
by providing such information to such broker-dealer as may be required in
order for such broker-dealer to comply with the requirements of the Rules
of Fair Practice of the NASD;
(xv) comply with all applicable rules and regulations of the
Commission, and make generally available to its security holders as soon as
practicable but in any event not later than eighteen months after the
effective date of such registration statement, an earning statement of the
Company and its subsidiaries complying with Section 1l(a) of the Securities
Act (including, at the option of the Company, Rule 158 thereunder); and
(xvi) use its best efforts to have the Shares approved for trading on
the Nasdaq National Market.
(b) In the event that the Company would be required, pursuant to Section
3(a)(v)(F) above, to notify the Purchaser, the placement or sales agent, if any,
therefor and the managing underwriters, if any, thereof, the Company shall
without delay prepare and furnish to the Purchaser, to each placement or sales
agent,
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<PAGE>
if any, and to each underwriter, if any, a reasonable number of copies of a
prospectus supplemented or amended in form and substance reasonably satisfactory
to them, so that, as thereafter delivered to purchasers of Shares, such
prospectus shall 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 not misleading in light of the circumstances then existing.
The Purchaser agrees that upon receipt of any notice from the Company pursuant
to Section 3(a)(v)(F) hereof, the Purchaser shall forthwith discontinue the
disposition of Shares pursuant to the registration statement applicable to such
Shares until the Purchaser shall have received copies of such amended or
supplemented prospectus, and if so directed by the Company, the Purchaser shall
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in the Purchaser's possession of the prospectus
covering such Shares at the time of receipt of such notice.
(c) The Company may require the Purchaser to furnish to the Company such
information regarding the Purchaser and the Purchaser's intended method of
distribution of the Shares as the Company may from time to time reasonably
request in writing, but only to the extent that such information is required in
order to comply with the Securities Act. The Purchaser agrees to notify the
Company as promptly as practicable of any inaccuracy or change in information
previously furnished by the Purchaser to the Company or of the occurrence of any
event in either case as a result of which any prospectus relating to such
registration contains or would contain an untrue statement of a material fact
regarding the Purchaser or the Purchaser's intended method of distribution of
such Shares or omits to state any material fact regarding the Purchaser or the
Purchaser's intended method of distribution of such Shares required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and promptly to furnish to the Company any
additional information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with respect
to the Purchaser or the distribution of such Shares, 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 not misleading in light of the
circumstances then existing. The Purchaser agrees that upon delivering any
notice to the Company pursuant to this Section 3(c), the Purchaser shall
forthwith discontinue the disposition of Shares pursuant to the registration
statement applicable to such Shares until the Purchaser shall have received
copies of such amended or supplemented prospectus, and if so directed by the
Company, the Purchaser shall deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in the Purchaser's possession
of the prospectus covering such Shares at the time of receipt of such notice.
4. Registration Expenses.
The Company agrees to bear and to pay or cause to be paid promptly upon
request being made therefor all expenses incident to the Company's performance
of or compliance with these Registration Rights as they relate to the Shelf
Registration, including, without limitation, (i) all Commission and any NASD
registration and filing fees and expenses, (ii) all fees and expenses in
connection with the qualification of the Shares for offering and sale under the
State securities and blue sky laws referred to in Section 3(a)(ix) hereof,
including reasonable fees and disbursements of counsel for the placement or
sales agent or underwriters in connection with such qualifications, (iii) all
fees and expenses in connection with the approval for trading of the Shares on
the Nasdaq National Market, (iv) all expenses relating to the preparation,
printing, distribution and reproduction of each registration statement required
to be filed hereunder, each prospectus included therein or prepared for
distribution pursuant hereto, each amendment or supplement to the foregoing, the
certificates representing the Shares and all other documents relating hereto,
(v) internal expenses (including, without limitation, all salaries and expenses
of the Company's officers and employees performing legal or accounting duties),
and (vi) fees, disbursements and expenses of counsel and independent certified
public accountants of the Company (including the expenses of any opinions or
"cold comfort" letters required by or incident to such
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<PAGE>
performance and compliance) (collectively, the "Registration Expenses").
Notwithstanding the foregoing, the Purchaser shall pay all agency fees and
commissions and underwriting discounts and commissions attributable to the sale
of the Shares and the fees and disbursements of any counsel or other advisors or
experts retained by the Purchaser.
5. Representations and Warranties.
The Company represents and warrants to, and agrees with, the Purchaser
that:
(a) Each registration statement covering Shares and each prospectus
(including any preliminary or summary prospectus) contained therein or furnished
pursuant to Section 3(a)(viii) hereof and any further amendments or supplements
to any such registration statement or prospectus, when it becomes effective or
is filed with the Commission, as the ease may be, and, in the case of an
underwritten offering of Shares, at the time of the closing under the
underwriting agreement relating thereto will conform in all material respects to
the requirements of the Securities Act, and 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 not misleading; and at all
times subsequent to the Effective Time when a prospectus would be required to be
delivered under the Securities Act, other than from (i) such time as a notice
has been given to the Purchaser pursuant to Section 3(a)(v)(F) hereof until (ii)
such time as the Company furnishes an amended or supplemented prospectus
pursuant to Section 3(b) hereof, each such registration statement, and each
prospectus (including any summary prospectus) contained therein or furnished
pursuant to Section 3(a)(viii) hereof, as then amended or supplemented, will
conform in all material respects to the requirements of the Securities Act, and
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 not misleading in the light of the circumstances then existing;
provided, however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by the Purchaser expressly for use therein.
(b) Any documents incorporated by reference in any prospectus referred
to in Section 5(a) hereof, when they become or became effective or are or were
filed with the Commission, or if amended, when amended, as the case may be, will
conform or conformed in all material respects to the requirements of the
Exchange Act, and none of such documents will contain or contained an untrue
statement of a material fact or will omit or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by the Purchaser expressly
for use therein.
6. Indemnification.
(a) Indemnification by the Company. Upon the registration of Shares
pursuant to Section 2 hereof, and in consideration of the agreements of the
Purchaser contained herein, and as an inducement to the Purchaser to purchase
the Convertible Notes, the Company shall, and it hereby agrees to, indemnify and
hold harmless the Purchaser and each person who participates as a placement or
sales agent or as an underwriter in any offering or sale of such Shares against
any losses, claims, damages or liabilities, joint or several, to which the
Purchaser or any such agent or underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Shares were registered under the
Securities Act, or any preliminary,
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<PAGE>
final or summary prospectus contained therein or furnished by the Company to the
Purchaser, agent or underwriter, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Company shall, and it hereby agrees
to, reimburse the Purchaser, such agent and such underwriter for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable to any such person in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, or preliminary, final or
summary prospectus, or amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by such person
expressly for use therein; provided further, however, that the Company shall not
be liable to any such Person if such Person failed to deliver a prospectus in
the form most recently provided by the Company (including any amendments or
supplements thereto previously provided by the Company), in any such case to the
extent that any loss, claim, damage or liability arises out of or is based upon
an untrue statement or an omission which was corrected in such most recently
furnished prospectus (including any such amendments or supplements).
(b) Indemnification by the Purchaser and any Agents and Underwriters.
The Company may require, as a condition to including any Shares in any
registration statement filed pursuant to Section 2 hereof and to entering into
an underwriting agreement, if any, with respect thereto, that the Company shall
have received an undertaking reasonably satisfactory to it from the Purchaser
and from each underwriter, if any, named in any such underwriting agreement,
severally and not jointly, to (i) indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in such registration statement, or any preliminary, final or
summary prospectus contained therein or furnished by the Company to the
Purchaser, agent or underwriter, or any amendment or supplement thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by the Purchaser or underwriter expressly
for use therein, and (ii) reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.
(c) Notices of Claims. Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, such indemnifying party shall not be
liable to such indemnified party for any legal expenses of other counsel or any
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<PAGE>
other expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation.
(d) Contribution. Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 6(a) or Section 6(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to .therein, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by
indemnified party on the one hand and the indemnifying party on the other from
any offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the indemnifying party and
the indemnified party in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Purchaser on the other
shall be deemed to be in the same proportion as the total purchase price
received by the Company upon issuance of the Convertible Note bears to the
difference between the proceeds from the offering of the Shares received by the
Purchaser and such purchase price. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other things,
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
such indemnifying party or by such indemnified party, and the parties relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contributions pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Purchaser or any agents or underwriters or all
of them 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 this Section 6(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, or liabilities (or actions in respect
thereof) referred to above shall be deemed to include any legal or other fees or
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 Purchaser shall not be required to
contribute any amount in excess of the amount by which the dollar amount of the
proceeds received by the Purchaser from the sale of any Shares (after deducting
any fees, discounts and commissions applicable thereto) exceeds the amount of
any damages which the Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such underwriter 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 1 l(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any underwriters' obligations in
this Section 6(d) to contribute shall be several in proportion to the principal
amount of Shares underwritten by them and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and Conditions, to each officer, director and partner of the
Purchaser, any agent and any underwriter and each person, if any, who controls
the Purchaser or any agent or underwriter within the meaning of the Securities
Act; and the obligations of the Purchaser and any agents and underwriters
contemplated by this Section 6 shall be in addition to any
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<PAGE>
liability which the Purchaser or any such agent or underwriter, respectively,
may otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who, with his consent,
is named in any registration statement as about to become a director of the
Company) and to each person, if any, who controls the Company within the meaning
of the Securities Act.
7. Miscellaneous.
(a) No Inconsistent Agreements. The Company represents, warrants,
covenants and agrees that it has not granted, and shall not grant, registration
rights with respect to Shares or any other securities which would conflict with
the terms contained in these Registration Rights.
(b) Specific Performance. The parties hereto acknowledge that there
may be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any such
failure, and accordingly agree that each party, in addition to any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under these
Registration Rights in accordance with the terms and conditions of these
Registration Rights, in any court of the United States or any State thereof
having jurisdiction.
(c) Notices. Any notice or other communication required or permitted
to be given hereunder shall be deemed effectively given when personally
delivered, telexed, transmitted by facsimile or mailed by pre-paid certified
mail, return receipt requested, or by telephone when confirmed in writing by one
of the preceding methods addressed as follows (as applicable):
If to the Company, to:
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
Attention: John W. Jackson
Telephone Number: (732) 271-1001 '
Facsimile Transmission Number: (732) 805-3931
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Robert A. Cantone, Esq.
Telephone Number: (212) 969-3000
Facsimile Transmission Number: (212) 969-2900
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If to Warburg Dillon Read LLC, to:
Warburg Dillon Read LLC
677 Washington Blvd.
Stamford, CT 06901
Attention: General Counsel
Capital Markets
Telephone Number: (203) 719-3000
Facsimile Transmission Number: (203) 719-6097
or to such other address or number and to the attention of such other person as
either party may designate by written notice to the other party. Notice shall be
effective upon actual receipt.
(d) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in these Registration Rights or
made pursuant hereto shall remain in full force and effect regardless of any
investigation (or statement as to the results thereof) made by or on behalf of
the Purchaser, any director, officer or partner of the Purchaser, any agent or
underwriter or any director, officer or partner thereof, or any controlling
person of any of the foregoing.
(e) Law Governing. These Registration Rights shall be governed by and
construed in accordance with the laws of the State of New York.
(f) Headings. The descriptive headings of the several Sections and
paragraphs of these Registration Rights are inserted for convenience only, do
not constitute a part of these Registration Rights and shall not affect in any
way the meaning or interpretation of these Registration Rights.
(g) Entire Agreement: Amendments. These Registration Rights and the
other writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. These Registration Rights supersede all prior agreements and
understandings between the parties with respect to its subject matter. These
Registration Rights may be amended and the observance of any term of these
Registration Rights may be waived (either generally or in a particular instance
and either retroactively or prospectively) only by a written instrument duly
executed by the Company and the Purchaser.
(h) Assignment. In connection with. any permitted transfer of the
Convertible Note or any portion thereof in a principal amount of not less than
$1,000,000 the Purchaser may assign its rights hereunder in respect of such
Convertible Note to the transferee. Upon such assignment the transferee shall,
insofar as the transferred Convertible Notes are concerned, be entitled to all
of the rights, and be subject to all of the obligations, of the Purchaser under
these Registration Rights, and all references to the "purchaser" herein shall
thereafter be deemed to refer to the Purchaser, or such transferee, or both, as
the circumstances warrant.
(i) Counterparts. This agreement may be executed by the parties
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
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Agreed to and accepted as of the date referred to above.
CELGENE CORPORATION
By:
----------------------------
Name:
Title:
WARBURG DILLON READ LLC
By:
----------------------------
Name:
Title:
EXHIBIT 10.22
NOTE PURCHASE AGREEMENT
January 20,1999
To the Purchasers
listed on attached
Schedule I
Dear Sirs:
CELGENE CORPORATION (the "Company") wishes to confirm its arrangement with
the Purchasers named on Schedule I to this Agreement (the "Purchasers" and
singly each "Purchaser") in connection with the issuance to the Purchasers,
against payment in immediately available funds of the purchase price of 100% of
the principal amount thereof, of one or more senior convertible notes in the
form attached hereto as Exhibit A (collectively the "Convertible Notes") in an
aggregate principal amount of $15,000,000 and convertible initially into 833,400
fully paid and non-assessable shares (each a "Share") of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), subject to adjustment as
set forth in the Convertible Notes.
Simultaneously with the issuance of the Convertible Notes pursuant to this
Agreement, the Company and the Purchasers have entered into a Registration
Rights Agreement, dated as of the date hereof (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to register the Shares
under certain circumstances. Any capitalized term not defined herein shall have
the meaning ascribed to such term in the Convertible Notes.
1. AGREEMENT TO ISSUE AND ACCEPT. On the basis of the representations and
warranties made by the Company to induce the Purchasers to purchase the
Convertible Notes and subject to the terms and conditions set forth herein, the
Company will issue to each Purchaser, and each Purchaser will accept from the
Company, the Convertible Notes in the principal amount specified opposite such
Purchaser's name on Schedule I attached hereto at the purchase price of 100% of
the principal amount thereof against payment of the above-specified purchase
price therefor. The closing (the "Closing") of the issuance and acceptance of
the Convertible Notes against such payment shall take place on the date hereof,
at which time the Company shall deliver to each Purchaser the Convertible Notes,
against delivery by each Purchaser of a wire transfer of the purchase price to
the Company's account at PNC Bank New Jersey Trust, ABA No. 031000053, benefit
Account No. 8511074024, for further credit to Account No. 42432012020943,
Celgene Corporation, Attn: Lisa Goldhammer, Telephone No. (732) 220-3112. If at
the Closing the Company shall fail to tender the Convertible Notes to each
Purchaser as provided in this Section 1 or any of the conditions specified in
Section 5 shall not have been fulfilled to each Purchaser's satisfaction, each
Purchaser, at its election, shall be relieved of all further obligations under
this Agreement, without thereby waiving any rights each Purchaser may have by
reason of such failure or such nonfulfillment.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes
the representations and warranties set forth on Annex II hereto to the
Purchasers.
3. AGREEMENTS OF PURCHASER. Each Purchaser covenants and agrees with the
Company that:
(a) Such Purchaser will not offer, sell, assign, hypothecate or
otherwise transfer the Convertible Notes except (i) pursuant to an effective
registration statement under the Securities Act of 1933 (the "Act"), (ii) to a
person you reasonably believe to be an "accredited investor" within the meaning
of Rule 501 under the Act, pursuant to an available exemption under the Act or
(iii) in offshore transactions within the meaning and meeting the requirements
of Rule 903 under the Act.
(b) Such Purchaser will not offer, sell, assign, hypothecate or
otherwise transfer any Shares issued upon conversion of the Convertible Notes
except (i) pursuant to an effective registration statement under the Act; (ii)
to a person you reasonably believe to be an "accredited investor" within the
meaning of Rule 501 under the Act, pursuant to an available exemption under the
Act or (iii) in an offshore transaction within the meaning and meeting the
requirements of Rule 903 under the Act.
(c) Such Purchaser is an "accredited investor" within the meaning of
Rule 501 under the Act.
(d) During the period that the Company is prohibited from making an
optional redemption under Section 1 of the Convertible Note, so long as a
Purchaser holds a Convertible Note, such Purchaser shall not undertake any form
of short sale, derivative or other transaction which has the effect of taking a
"short position" in the Common Stock of the Company to hedge such Purchaser's
investment in the Company, provided, however, that no affiliate of any Purchaser
shall be subject to the provisions of this subsection 3(d). The covenant
contained in this Section 3(d) shall be, subject to the limitations contained
herein, binding on any holder of a Convertible Note.
(e) Each Purchaser represents that at least one of the following
statements is an accurate representation as to each source of funds (a "Source")
to be used by such Purchaser to pay the purchase price of the Convertible Notes
to be purchased by it hereunder:
(i) the Source is an "insurance company general account" within the
meaning of Department of Labor Prohibited Transaction Exemption ("PTE")
95-60 (issued July 12, 1995) and there is no employee benefit plan,
treating as a single plan all plans, maintained by the same employer (or
affiliate thereof as defined in Section V(a)(1) of PTE 95-60) or employee
organization, with respect to which the amount of the general account
reserves and liabilities for all contracts held by or on behalf of such
plan exceeds ten percent (10%) of the total reserves and liabilities of
such general account (exclusive of separate account liabilities) plus
surplus, as set forth in the NAIC Annual Statement filed with such
Purchaser's state of domicile; or
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(ii) the Source is either (a) an insurance company pooled separate
account, within the meaning of Prohibited Transaction Exemption ("PTE")
90-1 (issued January 29, 1990), or (b) a bank collective investment fund,
within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as
you have disclosed to the Company in writing pursuant to this paragraph
(ii), no employee benefit plan or group of plans maintained by the same
employer or employee organization beneficially owns more than 10% of all
assets allocated to such pooled separate account or collective investment
fund; or
(iii) the Source constitutes assets of an "investment fund" (within
the meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer or by an
affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of
such employer or by the same employee organization and managed by such
QPAM, exceed 20% of the total client assets managed by such QPAM, the
conditions of Part I(c) and (g) of the QPAM Exemption are satisfied,
neither the QPAM nor a person controlling or controlled by the QPAM
(applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (a) the identity
of such QPAM and (b) the names of all employee benefit plans whose assets
are included in such investment fund have been disclosed to the Company in
writing pursuant to this paragraph (iii); or
(iv) the Source is a governmental plan; or
(v) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each
of which has been identified to the Company in writing pursuant to this
paragraph (e); or
(vi) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA.
As used in this Section 3(e), the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
Prior to any holder of this Security transferring this Security, the holder of
this Security shall provide a certificate from such proposed subsequent
transferee wherein such proposed subsequent transferee shall make the
representations made in this Section 3(e) and shall simultaneously deliver any
disclosure letter required under Section 3(e)(iii). Such subsequent transferee's
failure to deliver such a certificate shall not relieve the Company from any of
the terms, covenants or conditions of this Security.
3
<PAGE>
4. Agreements of the Company. From and after the date of this Agreement,
and thereafter so long as any of the Convertible Notes remain outstanding, the
Company will duly perform and observe, for the benefit of the holders of the
Convertible Notes, each and all of the covenants and agreements hereinafter set
forth:
(a) The Company shall deliver to each holder of a Convertible Note:
i. Quarterly Statements -- upon the earlier of (x) when the
Company files its Form 10-Q with the Securities and Exchange
Commission for a fiscal period and (y) 50 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than
the last quarterly fiscal period of each such fiscal year), duplicate
copies of,
(1) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and
(2) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the second and
third quarters) for the portion of the fiscal year ending with
such quarter,
setting forth in each case in comparative form the figures for
the corresponding periods in the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and certified by a
Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported
on and their results of operations and cash flows, subject to
changes resulting from year-end adjustments, provided that
delivery within the time period specified above of copies of the
Company's Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the Securities and
Exchange Commission shall be deemed to satisfy the requirements
of this Section 4(a)(i);
ii. Annual Statements -- upon the earlier of(x) when the Company
files its Form 10-K with the Securities and Exchange Commission for a
fiscal period and (y) 105 days after the end of each fiscal year of
the Company, duplicate copies of,
(1) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and
(2) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied
4
<PAGE>
(A) by an opinion thereon of independent certified
public accountants of recognized national standing, which
opinion shall state that such financial statements present
fairly, in all material respects, the financial position of
the companies being reported upon and their results of
operations and cash flows and have been prepared in
conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has
been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis
for such opinion in the circumstances, and
(B) a certificate of such accountants stating that they
have reviewed this Agreement and stating further whether, in
making their audit, they have become aware of any condition
or event that then constitutes a Default or an Event of
Default, and, if they are aware that any such condition or
event then exists, specifying the nature and period of the
existence thereof (it being understood that such accountants
shall not be liable, directly or indirectly, for any failure
to obtain knowledge of any Default or Event of Default
unless such accountants should have obtained knowledge
thereof in making an audit in accordance with generally
accepted auditing standards or did not make such an audit),
provided that the delivery within the time period specified above
of the Company's Annual Report on Form 10-K for such fiscal year
(together with the Company's annual report to shareholders, if
any, prepared pursuant to Rule 14a-3 under the Exchange Act)
prepared in accordance with the requirements therefor and filed
with the Securities and Exchange Commission, together with the
accountant's certificate described in clause (B) above, shall be
deemed to satisfy the requirements of this Section 4(a)(ii);
iii. SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company or any Subsidiary to public
securities holders generally, and (ii) each regular or periodic
report, each registration statement that shall have become effective
(without exhibits except as expressly requested by such holder), and
each prospectus and all amendments thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission and of all
press releases and statements in the nature thereof made available
generally by the Company or any Subsidiary to the public concerning
developments that are Material;
iv. Notice of Default or Event of Default -- promptly, and in any
event within five days after a Responsible Officer becoming aware of
the existence of any Default or Event of Default or that any Person
has given any notice or taken any action with respect to a claimed
default under any of the Convertible Notes or that any Person has
given any notice or taken may action with respect to a claimed default
of the type referred to in Section
5
<PAGE>
4(a)(7) of the Convertible Notes, a written notice specifying the
nature and period of existence thereof and what action the Company is
taking or proposes to take with respect thereto;
v. ERISA Matters -- promptly, and in any event within five days
after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if
any, that the Company or an ERISA Affiliate proposes to take with
respect thereto:
(1) with respect to any Plan, any reportable event, as
defined in section 4043(c) of ERISA and the regulations
thereunder, for which notice thereof has not been waived pursuant
to such regulations as in effect on the date hereof; or
(2) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the
Company or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with respect to
such Multiemployer Plan; or
(3) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit
plans, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, could reasonably
be expected to have a Material Adverse Effect;
vi. Notices from Governmental Authority -- promptly, and in any
event within thirty days of receipt thereof, copies of any notice to
the Company or any Subsidiary from any Federal or state Governmental
Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material
Adverse Effect; and
vii. Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Convertible Notes as
from time to time may be reasonably requested by any such holder of
Convertible Notes.
(b) The Company shall permit the representatives of each holder of
Convertible Notes:
6
<PAGE>
i. No Default -- if no Default or Event of Default then exists,
at the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to
discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and each Subsidiary, all at such
reasonable times and as often as may be reasonably requested in
writing; and
ii. Default -- if a Default or Event of Default then exists, at
the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to
make copies and extracts therefrom, and to discuss their respective
affairs, finances and accounts with their respective officers and
independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and
accounts of the Company and its Subsidiaries), all at such times and
as often as may be requested.
(c) The Company will and will cause each of its Subsidiaries to comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(d) The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
(e) The Company will and will cause each of its Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
7
<PAGE>
(f) The Company will and will cause each of its Subsidiaries to file
all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies imposed on them or any of
their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
(g) The Company will at all times preserve and keep in full force and
effect its corporate existence. The Company will at all times preserve and keep
in full force and effect the corporate existence of each of its Subsidiaries
(unless merged into the Company or a Subsidiary) and all rights and franchises
of the Company and its Subsidiaries unless, in the good faith judgment of the
Company, the termination of or failure to preserve and keep in full force and
effect such corporate existence, right or franchise could not, individually or
in the aggregate, have a Material Adverse Effect.
(h) The Company will promptly notify the holders in the event the
Company discovers or determines that any computer application (including those
of its suppliers, vendors and customers) that is Material to its or any of its
Subsidiaries' business and operations will not be Year 2000 compliant, except to
the extent that such failure could not reasonably be expected to have a Material
Adverse Effect.
(i) The Company will not and will not permit any Subsidiary to enter
into directly or indirectly any transaction or Material group of related
transactions (including without limitation the purchase, lease, sale or exchange
of properties of any kind or the rendering of any service) with any Affiliate
(other than the Company or another Subsidiary), except in the ordinary course
and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon terms determined by the Company's Board of
Directors, in its good faith judgment, to be fair and reasonable terms and no
less favorable to the Company or such Subsidiary than would be obtainable in a
comparable transaction with a Person not an Affiliate.
5. CONDITIONS. The obligations of the Purchasers under this Agreement shall
be subject to the condition that all representations and warranties and other
statements of the Company herein are true and correct at and as of the closing
of the purchase and sale of the Convertible Notes, the condition that the
Company shall have performed all of its obligations hereunder theretofore to be
performed, and the following additional conditions:
8
<PAGE>
(a) Counsel for the Company specified in Annex III hereto shall have
furnished to you its written opinion, dated the date of such closing, in form
and substance satisfactory to each Purchaser, to the effect set forth in Annex
III hereto.
(b) On the date of such closing, the Company shall have furnished to
each Purchaser such appropriate further information, certificates and documents
as such Purchaser may reasonably request.
(c) The representations and warranties of the Company in this
Agreement shall be correct when made and at the time of the Closing.
(d) The Company shall have performed and complied with all agreements
and conditions contained in this Agreement required to be performed or complied
with by it prior to or at the Closing and after giving effect to the issue and
sale of the Convertible Notes, no Default or Event of Default shall have
occurred and be continuing.
(e) The Company shall have delivered to each Purchaser an Officer's
Certificate, dated the date of the Closing, certifying that the conditions
specified in Sections 5(c), 5(d) and 5(k) have been fulfilled.
(f) The Company shall have delivered to each Purchaser a certificate
certifying as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery of the
Convertible Notes and the Agreements.
(g) On the date of the Closing the purchase of Convertible Notes by
each Purchaser shall (i) be permitted by the laws and regulations of each
jurisdiction to which such Purchaser is subject, without recourse to provisions
(such as Section 1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the character of
the particular investment, (ii) not violate any applicable law or regulation
(including, without limitation, Regulation U, T or X of the Board of Governors
of the Federal Reserve System) and (iii) not subject such Purchaser to any tax,
penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
any Purchaser, such Purchaser shall have received an Officer's Certificate
certifying as to such matters of fact as such Purchaser may reasonably specify
to enable such Purchaser to determine whether such purchase is so permitted.
(h) The Company shall sell the entire principal amount of the
Convertible Notes scheduled to be sold at the Closing as specified in Schedule I
hereto.
(i) Without limiting the provisions of Section 6(f), the Company shall
have paid on or before the Closing the fees, charges and disbursements of the
Purchasers' special counsel.
9
<PAGE>
(j) A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
the Convertible Notes.
(k) The Company shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other entity,
at any time following the date of the most recent financial statements referred
to in the Memorandum (defined below).
(1) All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to each Purchaser and its
special counsel, and each Purchaser and its special counsel shall have received
all such counterpart originals or certified or other copies of such documents as
such Purchaser or it may reasonably request.
6. MISCELLANEOUS.
(a) This Agreement shall be binding upon, and inure solely to the
benefit of, the Purchasers and the Company and the respective successors and
assigns thereof, and no other person shall acquire or have any right raider or
by virtue of this Agreement. No purchaser of the Convertible Notes from a
Purchaser shall be deemed a successor or assign by reason merely of such
purchase.
(b) Any notice or other communication required or permitted to be
given hereunder shall be deemed effectively given when personally delivered,
telexed, transmitted by facsimile or mailed by pre-paid certified mail, return
receipt requested, or by telephone when confirmed in writing by one of the
preceding methods addressed as follows (as applicable):
If to the Company, to:
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
Attention: John W. Jackson
Telephone Number: (732) 271-1001
Facsimile Transmission Number: (732) 805-3931
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
10
<PAGE>
Attention: Robert A. Cantone, Esq.
Telephone Number: (212) 969-3000
Facsimile Transmission Number: (212) 969-2900
If to Purchaser:
at the address and to the Person appearing on Schedule I to
this Agreement
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Attention: Frank B. Porter, Jr.
Telephone Number: (617) 248-5000
Facsimile Transmission Number: (617) 248-4000
or to such other address or number and to the attention of such other person as
either party may designate by written notice to the other party. Notice shall be
effective upon actual receipt.
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
(d) Time shall be of the essence in the performance of this Agreement.
(e) This Agreement may be executed by the parties hereto in any number
of counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
(f) Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of a special counsel) incurred by each Purchaser or holder of a
Convertible Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this Agreement or the
Convertible Notes (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the costs and expenses incurred
in enforcing or defending (or determining whether or how to enforce or defend)
any rights under this Agreement or the Convertible Notes or in responding to any
subpoena or other legal process or informal investigative demand issued in
connection with this Agreement or the Convertible Notes, or by reason of being a
holder of any Convertible Note, and (b) the costs and expenses, including
financial advisors' fees, incurred in connection with the insolvency or
bankruptcy of the Company or any Subsidiary or in connection with any work-out
or restructuring of the
11
<PAGE>
transactions contemplated hereby and by the Convertible Notes. The Company will
pay, and will save each Purchaser and each other holder of a Convertible Note
harmless from, all claims in respect of any fees, costs or expenses if any, of
brokers and finders (other than those retained by you).
(g) Anything in this Agreement or the Convertible Notes to the
contrary notwithstanding, any payment of principal of or Make-Whole Amount or
interest on any Convertible Note that is due on a date other than a Business Day
shall be made on the next succeeding Business Day without including the
additional days elapsed in the computation of the interest payable on such next
succeeding Business Day.
(h) This Agreement and the Convertible Notes may be amended, and the
observance of any term hereof or of the Convertible Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and each of the holders.
(i) From time to time hereafter, the Company will execute and deliver,
or will cause to be executed and delivered, such additional agreements,
documents and instruments and will take all such other actions as any holder or
holders of the Convertible Notes may reasonably request
[END OF PAGE]
12
<PAGE>
Signature Page of Note Purchase Agreement
for the purpose of implementing or effectuating the provisions contained herein,
in the Convertible Notes or in the Registration Rights Agreement.
Very truly yours,
CELGENE CORPORATION
By:/s/ Sol J. Barer
------------------------
Name: Sol J. Barer
Title: Pres/COO
<PAGE>
Signature Page of Note Purchase Agreement with Celgene Corporation
Accepted as of the date hereof:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
SIGNATURE lA (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance
Company, Portfolio Advisor
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
Signature 3 Limited
By: John Hancock Mutual Life Insurance Company,
as Portfolio Advisor
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
Hancock Mezzanine Partners L.P.
By: Hancock Mezzanine Investments LLC, its General Partner
By: John Hancock Mutual Life Insurance Company.
as Investment Manager
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
<PAGE>
EXHIBIT A
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
CELGENE CORPORATION
9.00% SENIOR CONVERTIBLE NOTE DUE JANUARY , 2004
_______ $______
No. R-
CELGENE CORPORATION, a corporation duly organized and existing under the
laws of Delaware (the "Company") for value received, hereby promises to pay to
__________________, or registered assigns, the principal sum of
___________________________________________ Dollars ($__________________) on
January _____, 2004 and to pay interest thereon, from __________________, 1999,
or from the most recent interest payment date to which interest has been paid or
duly provided for, semi-annually on January __ and July __ in each year,
commencing July __, 1999, at the rate of 9.00% per annum, until the principal
hereof is due, and at the rate of 11.00% per annum on any overdue principal and
premium, if any, and, to the extent permitted by law, on any overdue interest.
The interest so payable, and punctually paid or duly provided for, on any
interest payment date will 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 the January 1 or July
1 (whether or not a Business Day), as the case may be, next preceding such
interest payment date. Payment of the principal of (and premium, if any, on)
this Security shall be made upon the surrender of this Security to the Company,
at its office at 7 Powder Horn Drive, Warren, NJ 07059 (or such other office
within the United States as shall be notified by the Company to the holder
hereof) (the "Designated Office"), 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, by transfer to a U.S. dollar account maintained by the
payee with a bank in the United States of America. Payment of interest on this
Security shall be made by wire transfer to a U.S. dollar account maintained by
the payee with a bank in the United States of America, provided that if the
holder shall not have furnished wire instructions in writing to the Company no
later than the record date relating to an interest payment date, such payment
may be made by U.S. dollar check mailed to the address of the Person entitled
thereto as such address shall appear in the Company security register. This
Security will rank pari passu with all existing and future senior debt of the
Company.
<PAGE>
This Security is one of the Company's 9.00% Senior Convertible Notes due
January 20, 2004, limited to $15,000,000.00 aggregate principal amount, issued
pursuant to that certain Note Purchase Agreement dated January 20, 1999 (such
agreements, as amended, modified and supplemented from time to time, the "Note
Purchase Agreement") between the Company and the Purchasers named therein, and
the holder hereof is entitled to the benefits of the Note Purchase Agreement,
and may enforce the agreements contained herein and therein and exercise the
remedies provided for hereby and thereby or otherwise available in respect
hereof and thereof, all in accordance with the terms hereof and thereof.
1. Optional Redemption With Premium. This Security is subject to
redemption upon not less than 30 nor more than 60 days' notice by mail, at any
time on or after January 20, 2001, as a whole or in part, (in any amount that is
an integral multiple of $1000) at the election of the Company, at a redemption
price of 103% the principal amount thereof, together with accrued interest to
the redemption date, but interest installments whose stated maturity is on or
prior to such redemption date will be payable to the holder of this Security, or
one or more predecessor Securities, of record at the close of business on the
relevant record dates referred to on the face hereof; provided, however, that
the Company may not redeem this Security on or prior to January 20, 2002 unless
the Closing Price of the Common Stock exceeds 225 % of the Conversion Price for
each Trading Day in a period of 20 Consecutive Trading Days commencing not
earlier than January 20, 2001. The term "Conversion Price" on any day shall
equal $1,000 divided by the Conversion Rate in effect on each such day.
2. Conversion. (a) The holder of this Security is entitled at any time
on or after January 20, 2000 and before the close of business on January 20,
2004 (or, in case this Security or a portion hereof is called for redemption or
the holder hereof has exercised its right to require the Company to repurchase
this Security or a portion hereof, then in respect of this Security or such
portion hereof, as the case may be, until and including, but (unless the Company
defaults in making the payment due upon redemption or repurchase, as the case
may be) not after, the close of business on the redemption date or the
Repurchase Date, as the case may be) to convert this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000), into fully
paid and nonassessable shares (calculated as to each conversion to the nearest
1/100 of a share) of Common Stock of the Company at the rate of 55.56 shares of
Common Stock for each $1,000 principal amount of Security (or at the current
adjusted rate if an adjustment has been made as provided below) (the "Conversion
Rate") by surrender of this Security, duly endorsed or assigned to the Company
or in blank to the Company at the Designated Office, accompanied by written
notice to the Company that the holder hereof elects to convert this Security (or
if less than the entire principal amount hereof is to be converted, specifying
the portion hereof to be converted). Upon surrender of this Security for
conversion, the holder will be entitled to receive the interest accruing on the
principal amount of this Security then being converted from the interest payment
date next preceding the date of such conversion to such date of conversion. No
payment or adjustment is to be made on conversion for dividends on the
2
<PAGE>
Common Stock issued on conversion hereof. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but instead of
any fractional interest, the Company shall pay a cash adjustment, computed on
the basis of the Closing Price of the Common Stock on the date of conversion,
or, at its option, the Company shall round up to the next higher whole share.
This Security shall be deemed to have been converted immediately prior to the
close of business on the day of surrender hereof for conversion, in accordance
with the foregoing provisions, and at such time the rights of the holder hereof,
as a holder hereof, shall cease, and the Person or Persons entitled to receive
the Common Stock issuable on conversion shall be treated by all Persons as the
holder or holders of such Common Stock at such time. Upon any partial conversion
of this Security, the Company, at its expense, will forthwith issue and deliver
to, or upon the order of the holder hereof, a new Convertible Note or
Convertible Notes in principal amount equal to the unconverted principal amount
of such surrendered Convertible Note, such new Convertible Note or Convertible
Notes to be dated and to bear interest from the date to which interest has been
paid on such surrendered Convertible Note.
As promptly as possible after the conversion of this Security, in
whole or in part, and in any event within ten (10) days thereafter, the Company,
at its expense, will issue and deliver a certificate or certificates for the
number of full shares of Common Stock issuable upon such conversion.
(b) The Conversion Rate shall be subject to adjustments from time to
time as follows:
(1) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company payable in shares
of Common Stock, the Conversion Rate in effect at the opening of business
on the day following the Determination Date for such dividend or other
distribution shall be increased by dividing such Conversion Rate by a
fraction of which the numerator shall be the number of shares of Common
Stock outstanding at the close of business on such Determination Date 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
increase to become effective immediately after the opening of business on
the day following such Determination Date. For the purposes of this
paragraph (1), 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.
(2) Subject to the last sentence of paragraph (7) of this Section
2(b), in case the Company shall issue rights, options, warrants or
convertible securities entitling the holders thereof to subscribe for or
purchase shares of Common Stock at a
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price per share less than the current market price per share (determined as
provided in paragraph (8) of this Section 2(b)) of the Common Stock on the
Determination Date for such distribution, the Conversion Rate in effect at
the opening of business on the day following such Determination Date, shall
be increased by dividing such Conversion Rate by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the
close of business on such Determination Date plus the number of shares of
Common Stock which the aggregate amount received by the Company upon the
issuance of such rights, options, warrants or convertible securities plus
the aggregate amount receivable by the Company upon the exercise or
conversion of such rights, options, warrants or convertible securities
would purchase at such current market price and the denominator shall be
the number of shares of Common Stock outstanding at the close of business
on such Determination Date plus the number of shares of Common Stock so
offered for subscription or purchase, such increase to become effective
immediately after the opening of business on the day following such
Determination Date provided, that no such adjustment need to be made in the
case of the granting by the Company to employees or directors of the
Company or consultants to the Company of Common Stock and/or options to
purchase Common Stock and the issuance of Common Stock upon the exercise of
such options. For the purposes of this paragraph (2), 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 issue any rights, options, warrants or convertible
securities in respect of shares of Common Stock held in the treasury of the
Company.
(3) In case outstanding shares of Common Stock shall each be
subdivided into a greater number of shares of Common Stock, the Conversion
Rate in effect at the opening of business on the day following the day upon
which such subdivision becomes effective shall be proportionately
increased, and, conversely, in case outstanding shares of Common Stock
shall each be combined into a smaller number of shares of Common Stock, the
Conversion Rate in effect at the opening of business on the day following
the day upon which such combination becomes effective shall be
proportionately reduced, such increase or reduction, 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.
(4) Subject to the last sentence of paragraph (7) of this Section
2(b), in case the Company shall, by dividend or otherwise, distribute
evidences of its indebtedness, shares of any class of capital stock, or
other property (including securities, but excluding (i) any rights,
options, warrants or convertible security referred to in paragraph (2) of
this Section 2(b) (ii) any dividend or distribution paid exclusively in
cash, (iii) any dividend or distribution referred to in paragraph (1) of
this Section 2(b) and (iv) any merger or consolidation to which Section
2(h) applies),
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the Conversion Rate shall be adjusted so that the same shall equal the rate
determined by dividing the Conversion Rate in effect immediately prior to
the close of business on the Determination Date for such distribution by a
fraction of which the numerator shall be the current market price per share
(determined as provided in paragraph (8) of this Section 2(b)) of the
Common Stock on such Determination Date less the then fair market value (as
determined in good faith by the Board of Directors of the Company) of the
portion of the assets, shares or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be such
current market price per share of the Common Stock, such adjustment to
become effective immediately prior to the opening of business on the day
following such Determination Date provided, that no such adjustment need be
made in the case of an underwritten public offering of Common Stock in
which the shares of Common Stock are sold to the public at a price per
share equal to or in excess of 95 % of the market price per share of the
Common Stock as of the date of the pricing of such underwritten public
offering. If the Board of Directors determines the fair market value of any
distribution for purposes of this paragraph (4) by reference to the actual
or when issued trading market for any securities comprising such
distribution, it must in doing so consider the prices in such market over
the same period used in computing the current market price per share
pursuant to paragraph (8) of this Section 2(b).
(5) In case the Company shall, by dividend or otherwise, make a Cash
Distribution, then, and in each such case, immediately after the close of
business on the Determination Date for such Cash Distribution, the
Conversion Rate shall be adjusted so that the same shall equal the rate
determined by dividing the Conversion Rate in effect immediately prior to
the close of business on such Determination Date by a fraction (a) the
numerator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 2(b)) of the
Common Stock on such Determination Date less an amount equal to the
quotient of (1) the amount of such Cash Distribution divided by (2) the
number of shares of Common Stock outstanding on such Determination Date and
(b) the denominator of which shall be equal to the current market price per
share (determined as provided in paragraph (8) of this Section 2(b)) of the
Common Stock on such Determination Date.
(6) In case the Company or any Subsidiary shall make an Excess
Purchase Payment, then, and in each such case, immediately prior to the
opening of business on the day after the tender offer in respect of which
such Excess Purchase Payment is to be made expires, the Conversion Rate
shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close of
business on the Determination Date for such tender offer by a fraction (a)
the numerator of which shall be equal to the current market price per share
(determined as provided in paragraph (8) of this Section 2(b)) of the
Common Stock on such Determination Date less an amount equal to the
quotient of (A) the Excess Purchase
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Payment divided by (B) the number of shares of Common Stock outstanding
(including any tendered shares) as of the Determination Date less the
number of all shares validly tendered and not withdrawn as of the
Determination Date and (b) the denominator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of
this Section 2(b)) of the Common Stock as of such Determination Date.
(7) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or
merger to which Section 2(h) applies) shall be deemed to involve (a) a
distribution of such securities other than Common Stock to all holders of
Common Stock (and the effective date of such reclassification shall be
deemed to be the Determination Date), and (b) a subdivision or combination,
as the case may be, of the number of shares of Common Stock outstanding
immediately prior to such reclassification into the number of shares of
Common Stock outstanding immediately thereafter (and the effective date of
such reclassification shall be deemed to be "the day upon which such
subdivision becomes effective" or "the day upon which such combination
becomes effective", as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of
paragraph (3) of this Section 2(b)). Rights, options, warrants or
convertible securities issued by the Company entitling the holders thereof
to subscribe for or purchase shares of Common Stock, which rights, options,
warrants or convertible securities (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, in each case in
clauses (i) through (iii) until the occurrence of a specified event or
events ("Trigger Event"), shall for purposes of this Section 2(b) not be
deemed issued until the occurrence of the earliest Trigger Event.
(8) Except as otherwise provided in the last sentence of this
subsection (8) of Section 2(b) for the purpose of any computation under
paragraphs (2), (4), (5) or (6) of this Section 2(b) the current market
price per share of Common Stock on any date shall be calculated by the
Company and be deemed to be the average of the daily Closing Prices for the
five (5) consecutive Trading Days selected by the Company commencing not
more than ten (10) Trading Days before, and ending not later than, the
earlier of the day in question and the day before the "ex date" with
respect to the issuance or distribution requiring such computation. For
purposes of this paragraph, the term "ex date", when used with respect to
any issuance or distribution, means the first date on which the Common
Stock trades regular way in the applicable securities market or on the
applicable securities exchange without the right to receive such issuance
or distribution. The current market price with respect to any option issued
to any employee or director of the Company or consultant to the Company
shall be the fair market value on the date of grant determined by reference
to the market price on the day of the grant of such option or to the market
price at the close of business on the Trading Day immediately preceding
such grant.
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(9) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this
paragraph (9)) would require an increase or decrease of at least one
percent in such rate; provided, however, that any adjustments which by
reason of this paragraph (9) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 2 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
(10) The Company may make such increases in the Conversion Rate, for
the remaining term of the Securities or any shorter term, in addition to
those required by paragraphs (1), (2), (3), (4), (5) and (6) of this
Section 2(b) as it considers to be advisable in order to avoid or diminish
any income tax to any holders of shares of Common Stock resulting from any
dividend or distribution of stock or issuance of rights, options, warrants
or convertible securities to purchase or subscribe for stock or from any
event treated as such for income tax purposes.
(c) Whenever the Conversion Rate is adjusted as provided in Section
2(b), the Company shall compute the adjusted Conversion Rate in accordance with
Section 2(b) and shall prepare a certificate (the "Conversion Rate Certificate")
signed by the Senior Financial Officer of the Company setting forth the adjusted
Conversion Rate and showing in reasonable detail the facts upon which such
adjustment is based, and shall promptly deliver such certificate to the holder
of this Security. If the holders of the Convertible Notes and the Company cannot
agree in writing as to the adjusted Conversion Rate in accordance with Section
2(b), the holders of the Convertible Notes and the Company shall determine the
adjusted Conversion Rate in accordance with the following procedure. The holders
of the Convertible Notes and the Company shall each appoint one registered
securities broker, licensed with the Securities and Exchange Commission to sell
securities to the public, which broker shall be a senior vice president,
managing director or equivalent of a major securities brokerage company with
offices in New York, New York. Each of such brokers shall have no less than ten
(10) years experience in such field, shall be unaffiliated with, and their
employer securities brokerage company shall be unaffiliated with, the holders of
the Convertible Notes and the Company and shall not have previously participated
in any underwriting of the Company's Common Stock in any public offering or
provided any Material investment banking or corporate advisory services to the
Company. The holders of the Convertible Notes and the Company shall make their
appointments promptly and, in any event, within thirty (30) days from the date
of the Conversion Rate Certificate. The two brokers shall meet and shall be
instructed to render a determination of the adjusted Conversion Rate to the
holders of the Convertible Notes and the Company within sixty (60) days of the
date of the Conversion Rate Certificate. If the two brokers cannot agree, then
each broker shall render their independent determination and the two brokers
shall simultaneously therewith provide the name of a third broker acceptable to
the two brokers meeting the criteria set forth above. The third broker shall be
instructed to render a determination of the adjusted Conversion Rate within
thirty (30) days of his or her
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<PAGE>
appointment. The two closest determinations of the adjusted Conversion Rate
shall be averaged and shall constitute the adjusted Conversion Rate. If the two
brokers cannot agree upon a third broker, the selection of a third broker shall
be submitted to binding arbitration in New York, New York under the rules of the
American Arbitration Association. In the event that the difference between the
Company's calculation of the adjusted Conversion Rate and the calculation of the
adjusted Conversion Rate determined by the foregoing process is five percent (5
%) or greater then the costs and expenses of the brokers and any arbitration
shall be paid by and be the obligation of the Company and in the event that such
difference is less than five percent (5 %) the holders of the Convertible Notes
(as a group) shall each pay its pro rata share of 50% of such costs and expenses
and the Company shall pay 50% of such costs and expenses.
(d) In case:
(1) the Company shall declare a dividend or other distribution on its
Common Stock payable (i) otherwise than exclusively in cash or (ii)
exclusively in cash in an amount that would require any adjustment pursuant
to Section 2(b); or
(2) the Company shall authorize the granting to the holders of its
Common Stock of rights, options, warrants or convertible securities to
subscribe for or purchase any shares of capital stock of any class or of
any other rights; or
(3) of any reclassification of the Common Stock of the Company, or of
any consolidation, merger or share exchange to which the Company is a party
and for which approval of any shareholders of the Company is required, or
of the conveyance, sale, transfer or lease of all or substantially all of
the assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(5) the Company or any Subsidiary shall commence a tender offer for
all or a portion of the Company's outstanding shares of Common Stock (or
shall amend any such tender offer);
then the Company shall cause to be delivered to the holder of this Security, at
least 20 days (or 10 days in any case specified in clause (1) or (2) above)
prior to the applicable record, expiration or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights, options, warrants or
convertible securities or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution, rights, options,
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warrants or convertible securities are to be determined, (y) the date on which
the right to make tenders under such tender offer expires or (z) the date on
which such reclassification, consolidation, merger, share exchange, conveyance,
transfer, sale, 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, share exchange, conveyance, transfer, sale, lease,
dissolution, liquidation or winding up. Neither the failure to give such notice
nor any defect therein shall affect the legality or validity of the proceedings
described in clauses (1) through (5) of this Section 2(d).
(e) The Company shall at all times reserve and keep available, free
from preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of the Security, the full number of shares
of Common Stock then issuable upon the conversion of this Security.
(f) Except as provided in the next sentence, the Company will pay any
and all taxes and duties that may be payable in respect of the issue or delivery
of shares of Common Stock on conversion of this Security. The Company shall not,
however, 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 this Security, 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.
(g) The Company agrees that all shares of Common Stock which may be
delivered upon conversion of the Security, upon such delivery, will have been
duly authorized and validly issued and will be fully paid and nonassessable (and
shall be issued out of the Company's authorized but unissued Common Stock) and,
except as provided in the second sentence of Section 2(f), the Company will pay
all taxes, liens and charges with respect to the issue thereof.
(h) In case of any consolidation of the Company with any other Person,
any merger of the Company into another Person or of another Person into the
Company (other than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company) or any conveyance, sale, transfer or lease of all or substantially
all of the properties and assets of the Company, the Person formed by such
consolidation or resulting from such merger or which acquires such properties
and assets, as the case may be, shall execute and deliver to the holder of this
Security a supplemental agreement providing that such holder has the right,
during the period this Security shall be convertible as specified in Section
2(a), to convert this Security only into the kind and amount of securities, cash
and other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease (including any Common Stock
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<PAGE>
retainable) 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, sale, transfer or lease, assuming such holder
of Common Stock of the Company (i) is not a Person with which the Company
consolidated, into which the Company merged or which merged into the Company or
to which such conveyance, sale, transfer or lease was made, as the case may be
(a "Constituent Person"), or an Affiliate of a Constituent Person and (ii)
failed to exercise its rights of election, if any, as to the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
conveyance, sale, transfer or lease (provided that if the kind or amount of
securities, cash and other property receivable upon such consolidation, merger,
conveyance, sale, transfer, or lease is not the same for each share of Common
Stock of the Company held immediately prior to such consolidation, merger,
conveyance, sale, transfer or lease by others than a Constituent Person or an
Affiliate of a Constituent Person and in respect of which such rights of
election shall not have been exercised ("Non-electing Share"), then for the
purpose of this Section 2(h) the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease by the holders of 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 agreement shall provide for adjustments which, for
events subsequent to the effective date of such supplemental agreement, shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section 2. The above provisions of this Section 2(h) shall similarly apply
to successive consolidations, mergers, conveyances, sales, transfers or leases.
In this paragraph, "securities of the kind receivable" upon such consolidation,
merger, conveyance, transfer, sale or lease by a holder of Common Stock means
securities that, among other things, are registered and freely transferable
under the Securities Act, and listed and approved for quotation in all
securities markets, in each case to the same extent as such securities so
receivable by a holder of Common Stock.
(i) The Company (i) will effect all registrations with, and obtain all
approvals by, all governmental authorities that may be necessary under any
United States Federal or state law (including the Securities Act, the Exchange
Act and state securities and Blue Sky laws) for the shares of Common Stock
issuable upon conversion of this Security to be lawfully issued and delivered as
provided herein, and thereafter publicly traded (if permissible under the
Securities Act) and qualified or listed as contemplated by clause (ii) (it being
understood that the Company shall not be required to register the Common Stock
issuable on conversion hereof under the Securities Act, except pursuant to the
Registration Rights Agreement between the Company and the initial holder of this
Security); and (ii) will list the shares of Common Stock required to be issued
and delivered upon conversion of Securities, prior to such issuance or delivery,
on each national securities exchange on which outstanding Common Stock is listed
or quoted at the time of such delivery, or if the Common Stock is not then
listed on any securities exchange, to qualify the Common Stock for quotation on
the Nasdaq National Market or such other inter-dealer quotation system, if any,
on which the Common Stock is then quoted.
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(j) For purposes hereof: (references to Sections shall mean Sections
of this Security unless otherwise specified)
"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.
"Business Day" means any day other than a Saturday, a Sunday or other
day which shall be in Boston, Massachusetts or New York, New York or a legal
holiday or a day on which commercial banks in Boston, Massachusetts or New York,
New York are required or authorized to be closed.
"Cash Distribution" means the distribution by the Company to holders
of its Common Stock of cash, other than any cash that is distributed upon a
merger or consolidation to which Section 2(h) applies or as part of a
distribution referred to in paragraph (4) of Section 2(b).
"Change of Control" is defined in Section 3(f)(2).
"Closing" is defined in Section 1 of the Note Purchase Agreement.
"Closing Price" means, with respect to the Common Stock of the
Company, for any day, the reported last sale price per share on the Nasdaq
National Market, or, if the Common Stock is not admitted to trading on the
Nasdaq National Market, on the principal national securities exchange or
inter-dealer quotation system on which the Common Stock is listed or admitted to
trading, or if not admitted to trading on the Nasdaq National Market, or listed
or admitted to trading on any national securities exchange or inter-dealer
quotation system, the average of the closing bid and asked prices per share in
the over-the-counter market as furnished by any New York Stock Exchange member
firm selected from time to time by the Company for that purpose.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to time.
"Common Stock" means the Common Stock, par value $.01 per share, of
the Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 2(h), shares issuable on conversion or
repurchase of this Security shall include only shares of Common Stock or shares
of any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at
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any time there shall be more than one such resulting class, the shares so
issuable on conversion of this Security shall include shares of all such
classes, and 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.
"Convertible Note(s)"shall mean one or more of the Company's 9.00%
Senior Convertible Notes due January 20, 2004.
"Conversion Price" is defined in Section 1.
"Conversion Rate" is defined in Section 2(a).
"Default" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"Designated Office" is defined in the Preamble.
"Determination Date" means, in the case of a dividend or other
distribution, including the issuance of rights, options, warrants or convertible
securities, to the date fixed for the determination of those entitled to receive
such dividend or other distribution, and in the case of a tender offer, the last
time that tenders could have been made pursuant to such tender offer.
"Environmental Laws" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, licenses, written agreements or written governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"Excess Purchase Payment" means the product of (A) the excess, if any,
of (i) the amount of cash plus the fair market value (as determined in good
faith by the Company's Board of Directors) of any non-cash consideration
required to be paid with respect to one share of Common Stock acquired or to be
acquired in a tender offer made by the Company
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or any Subsidiary of the Company for all or any portion of the Common Stock over
(ii) the current market price per share as of the last time that tenders could
have been made pursuant to such tender offer and (B) the number of shares
validly tendered and not withdrawn as of the Determination Date in respect of
such tender offer.
"Event of Default" is defined in the preamble to Section 4.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, all as the same shall
be in effect from time to time.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America.
"Hazardous Materials" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
remediation of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
restricted, prohibited or penalized by any applicable Environmental Law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"holder" means, with respect to this Security or any other Convertible
Note, the Person in whose name it is registered in the register maintained by
the Company pursuant to Section 6(d).
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease (as defined
by GAAP), upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust agreements
and all similar arrangements).
"Make-Whole Amount" is defined in Section 4(g).
"Material" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Company
and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets, properties or
prospects of the Company and its Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under the Note Purchase
Agreement, the Registration Rights Agreement and the Convertible Notes, or (cc.)
the validity or enforceability of this Agreement or the Convertible Notes.
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"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
"Note Purchase Agreement" is defined in the Preamble.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Person" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Purchaser(s)" JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY; JOHN
HANCOCK VARIABLE LIFE INSURANCE COMPANY; SIGNATURE 1A (CAYMAN), LTD; SIGNATURE 3
LIMITED; and HANCOCK MEZZANINE PARTNERS L.P.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof among the Purchasers and the Company.
"Repurchase Date" is defined in Section 3(a).
"Repurchase Price" is defined in Section 3(a).
"Responsible Officer" means any), Senior Financial Officer and any
other senior officer of the Company with responsibility for the administration
of the relevant covenants in this Security or in the Note Purchase Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor Federal statute, and the rules and regulations of the Securities
and Exchange Commission promulgated thereunder, all as the same shall be in
effect from time to time.
"Senior Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"Subsidiary" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or
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more of its Subsidiaries owns sufficient equity or voting interests to enable it
or them (as a group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of such
entity, and any partnership or joint venture if more than a 50% interest in the
profits or capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries (unless such
partnership can and does ordinarily take major business actions without the
prior approval of such Person or one or more of its Subsidiaries). Unless the
context otherwise clearly requires, any reference to a "Subsidiary" is a
reference to a Subsidiary of the Company.
"Trading Day" means (i) if the Common Stock is admitted to trading on
the Nasdaq National Market or any other system of automated dissemination of
quotations of securities prices, a day on which trades may be effected through
such system; (ii) if the Common Stock is listed or admitted for trading on the
New York Stock Exchange or any other national securities exchange, a day on
which such exchange is open for business; or (iii) if the Common Stock is not
admitted to trading on the Nasdaq National Market or listed or admitted for
trading on any national securities exchange or any other system of automated
dissemination of quotation of securities prices, a day on which the Common Stock
is traded regular way in the over-the-counter market and for which a closing bid
and a closing asked price for the Common Stock are available.
3. Right to Require Repurchase. (a) In the event that a Change in
Control shall occur, then the holder of this Security shall have the right, at
such holder's option, to require the Company to repurchase, and upon the
exercise of such right the Company shall repurchase, this Security, or any
portion of the principal amount hereof that is equal to $1,000 or any integral
multiple thereof, on the date (the "Repurchase Date") that is thirty (30)
Trading Days after the date on which the Company gives notice thereof to the
holder of this Security, at a purchase price equal to 100% of the principal
amount of this Security to be repurchased plus interest accrued to the
Repurchase Date (the "Repurchase Price"); provided, however, that installments
of interest on this Security whose stated maturity is on or prior to the
Repurchase Date shall be payable to the holder of this Security, or one or more
predecessor Securities, registered as such on the relevant Record Date according
to their terms. 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 each of Section 5 and Section 6 and subject to the limitations set forth in
each of Section 5 and Section 6, by delivery of shares of Common Stock or in
common stock of any Person which succeeds the Company up to a maximum amount of
ten percent (10%) of the then issued and outstanding Common Stock or common
stock of such Person following any Change in Control, provided, however, the
cash plus the fair market value of such shares shall equal the Repurchase Price.
The Company agrees to give the holder of this Security notice of any Change in
Control, by facsimile transmission confirmed in writing by overnight courier
service, promptly and in any event within two (2) Trading Days of the occurrence
thereof.
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(b) To exercise a repurchase right, the holder shall deliver to the
Company on or before the 10th Trading Day prior to the Repurchase Date, together
with this Security, written notice of the holder's exercise of such right, which
notice shall set forth the name of the holder, the number of shares of Common
Stock then owned by such holder and its affiliates, the principal amount of this
Security to be repurchased (and, if this Security is to be repurchased in part,
the portion of the principal amount thereof to be repurchased and the name of
the person in which the portion thereof to remain outstanding after such
repurchase is to be registered) and a statement that an election to exercise the
repurchase fight is being made thereby and, in the event that the Repurchase
Price shall be paid in whole or in part by the delivery of shares, as provided
above, the name or names (and the addresses) in which the certificates for
shares shall be issued. Such written notice shall be irrevocable, except that
the fight of the holder to convert this Security (or the portion hereof with
respect to which the repurchase right is being exercised) shall continue until
the close of business on the Repurchase Date (or if the Company elects to pay
the Repurchase Price by delivery of shares as provided above, until the close of
business on the Trading Day immediately preceding the first delivery of shares
with respect thereto).
(c) In the event a repurchase right shall be exercised in accordance
with the terms hereof, the Company shall pay or cause to be paid to the holder
the Repurchase Price in cash or shares, as provided above, together with accrued
and unpaid interest to the Repurchase Date; provided, however, that installments
of interest that mature on or prior to the Repurchase Date shall be payable in
cash, to the holders of this Security, or one or more predecessor Securities,
registered as such at the close of business on the relevant regular record date.
(d) If this Security (or portion thereof) is surrendered for
repurchase and is not so paid on or prior to the Repurchase Date, the principal
amount of this Security (or such portion hereof, as the case may be) shall,
until paid, bear interest to the extent permitted by applicable law from the
Repurchase Date at eleven percent (11%) per annum, and shall remain convertible
into Common Stock until the principal of this Security (or portion thereof, as
the case may be) shall have been paid or duly provided for.
(e) If this Security is to be repurchased only in part, it shall be
surrendered to the Company at the Designated Office (with, if the Company so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company duly executed by, the holder hereof or his attorney
duly authorized in writing), and the Company shall execute and make available
for delivery to the holder without service charge, a new Security or Securities,
containing identical terms and conditions, each in an authorized denomination in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Security so surrendered.
(f) For purposes of this Section 3.
(1) the term "beneficial owner" shall be determined in accordance with
Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant to the
Exchange Act; and
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<PAGE>
(2) a "Change in Control" shall be deemed to have occurred at the
time, after the original issuance of this Security, of:
(i) the acquisition by any Person of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling
such Person to exercise 50% or more of the total voting power of all shares
of capital stock of the Company entitled to vote generally in the election
of directors (any shares of voting stock of which such Person is the
beneficial owner that are not then outstanding being deemed outstanding for
purposes of calculating such percentage) other than any such acquisition by
the Company or any employee benefit plan of the Company; or
(ii) any consolidation or merger of the Company with or into, any
other Person, any merger of another Person with or into the Company, or any
conveyance, transfer, sale, lease or other disposition of all or
substantially all of the assets of the Company to another Person (other
than (a) any such transaction (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock and (y) pursuant to which holders of Common Stock
immediately prior to such transaction have the entitlement to exercise,
directly or indirectly, 50% or more of the total voting power of all shares
of capital stock entitled to vote generally in the election of directors of
the continuing or surviving Person immediately after such transaction and
(b) any merger which is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock into solely shares of
common stock,
4. Events of Default. (a) "Event of Default", wherever used herein,
means any one of the following events (whatever the reason for such Event of
Default and whether it shall 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) (A) default in the payment of any principal or premium, if any,
upon this Security when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise
or (B) default in the payment of any interest upon this Security when it
becomes due and payable, and continuance of such default for a period of
five (5) days; or
(2) default by the Company in the performance of its obligations in
respect of any conversion of this Security (or any portion hereof) in
accordance with Section 2; or
(3) failure by the Company to give any notice of a Change of Control
required to be delivered in accordance with Section 3(a); or
(4) default in the performance, or breach, of any material covenant or
warranty of the Company herein, in the Note Purchase Agreement, or in the
Registration
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Rights Agreements (other than a covenant or warranty a default in the
performance or breach of which is specifically dealt with elsewhere in this
Section 4(a)) and continuance of such default or breach for a period of 30
days after the earlier to occur of (A) the Company's obtaining knowledge of
such default or (B) the Company's receiving written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder; or
(5) any representation or warranty made in writing by or on behalf of
the Company or by any officer of the Company furnished in connection with
the transactions contemplated hereby proves to have been false or incorrect
in any material respect on the date as of which made; or
(6) a final judgment or judgments for the payment of money aggregating
in excess of $250,000 are rendered against one or more of the Company and
its Subsidiaries and which judgments are not, within 60 days after entry
thereof, bonded, discharged or stayed pending appeal, or are not discharged
within 60 days after the expiration of such stay; or
(7) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company, or under any agreement,
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed
by the Company, with a principal amount then outstanding in excess of
$1,000,000, whether such indebtedness now exists or shall hereafter be
created, which default shall constitute a failure to pay the principal of
such indebtedness (in whole or in any part greater than $1,000,000) when
due and payable or shall have resulted in such indebtedness (in whole or in
any part greater than $1,000,000) becoming or being declared due and
payable prior to the date on which it would otherwise have become due and
payable; or
(8) if(i) any Plan other than a Multiemployer Plan shall fail to
satisfy the minimum funding standards of ERISA or the Code for any plan
year or part thereof or a waiver of such standards or extension of any
amortization period is sought or granted under section 412 of the Code,
(ii) a notice of intent to terminate any Plan other than a Multiemployer
Plan shall have been or is reasonably expected to be filed with the PBGC or
the PBGC shall have instituted proceedings under ERISA section 4042 to
terminate or appoint a trustee to administer any Plan other than a
Multiemployer Plan or the PBGC shall have notified the Company or any ERISA
Affiliate that a Plan other than a Multiemployer Plan may become a subject
of any such proceedings, (iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all
Plans other than a Multiemployer Plan, determined in accordance with Title
IV of ERISA, shall exceed $250,000, (iv) the Company or any ERISA Affiliate
shall have incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax provisions
of the Code relating to employee benefit plans, (v) the Company or any
ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company
or any Subsidiary establishes or amends any employee welfare benefit plan
that provides post-employment welfare benefits in a manner that would
increase the liability of the
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Company or any Subsidiary thereunder; and any such event or events
described in clauses (i) through (vi) above, either individually or
together with any other such event or events, could reasonably be expected
to have a Material Adverse Effect. (As used in this Section 4(a)(8), the
terms "employee benefit plan" and "employee welfare benefit plan" shall
have the respective meanings assigned to such terms in Section 3 of
ERISA.); or
(9) if, as a result of any Change of Control or any other
consolidation or merger, the holding by the Purchasers or any assignees
thereof of this Security or the holding of any Common Stock or common stock
of any Person succeeding the Company, issued to the Purchasers or any
assignees thereof after conversion of this Security would constitute, with
respect to any Plan (other than a Multiemployer Plan) a prohibited
transaction which would violate the prohibitions of section 406 of ERISA or
which would subject any "disqualified person" (as defined in section
4975(e)(2) of the Code) to a tax pursuant to section 4975(c)(1)(A)-(D) of
the Code; or
(10) 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 any applicable 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 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
(11) the commencement by the Company of a voluntary case or proceeding
under any applicable 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 it to the entry
of a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or similar
relief under any applicable Federal or State law, or the consent by it to
the filing of such petition or to the appointment of or 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 it of an assignment for the benefit of
creditors, or not paying its debts as they become due or the admission by
it in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company in furtherance of any
such action.
(b) If an Event of Default (other than an Event of Default specified
in Section 4(a)(10) or 4(a)(11)) occurs and is continuing, then in every such
case the holder of this Security may declare the principal hereof to be due and
payable immediately, by a notice in
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<PAGE>
writing to the Company, and upon any such declaration such principal and all
accrued interest hereon shall become immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, and the Company shall forthwith upon any such
acceleration pay to the holder of this Security 0) the entire principal of and
interest accrued on this Security, and (ii) in addition, to the extent permitted
by applicable law, an amount equal to the Make Whole Amount, as liquidated
damages and not as a penalty; and, in case of the occurrence of an Event of
Default of the character described in subdivisions 4(a)(10) or 4(a)(11) the
principal of and accrued interest on this Security, ipso facto shall become
immediately due and payable without any declaration or other act of the holder
of this Security and without presentment, demand, protest or other notice of any
kind, all of which are hereby expressly waived, and the Company shall forthwith
upon any such acceleration pay to the holder of this Security (x) the entire
principal of and interest accrued on this Security and (y) in addition, if such
Event of Default is "Voluntary" (as hereinafter defined), to the extent
permitted by applicable law, an amount equal to the Make-Whole Amount, as
liquidated damages and not as a penalty.
For purposes of this section 4(a), "Voluntary" shall mean an Event of
Default of the character described in subdivisions 4(a)(10) or 4(a)(11) which
shall have been (x-) procured by the Company or any officer, director,
stockholder or Affiliate of the Company or (y) primarily the result of action or
inaction by the Company or by any officer, director, stockholder or Affiliate of
the Company.
(c) In case any one or more of the Events of Default specified in
section 4(a) shall have occurred, and irrespective of whether this Security has
become or has been declared immediately due and payable under section 4(a), the
holder of this Security may proceed to protect and enforce its rights either by
suit in equity or by action at law, or both. The Company stipulates that the
remedies at law of the holder of this Security in the event of any Default or
threatened Default by the Company in the performance of or compliance with any
covenant or agreement in this Security, the Note Purchase Agreement or the
Registration Rights Agreement are not and will not be adequate and that, to the
fullest extent permitted by law, such terms may be specifically enforced by a
decree for the specific performance thereof, whether by an injunction against a
violation thereof or otherwise.
(d) No remedy conferred in this Security, the Note Purchase Agreement
or the Registration Rights Agreement is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or thereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
(e) No course of dealing between the Company and any of its
Subsidiaries, on the one hand, and the holder of this Security, on the other
hand, and no delay by any such holder in exercising any rights hereunder or
under the Note Purchase Agreement or the Registration Rights Agreement shall
operate as a waiver of any rights of such holder.
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(f) In case any one or more of the Events of Default specified in
section 4(a) shall have occurred, all amounts to be applied to the prepayment or
payment of this Security shall be applied, after the payment of all related
costs and expenses incurred by the holder of this Security (including, without
limitation, compensation to any and all trustees, liquidators, receivers or
similar officials and reasonable fees, expenses and disbursements of counsel) in
such order of priority as is determined by the holder of this Security.
(g) The term "Make-Whole Amount" means, with respect to this Security,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of this Security over
the amount of such Called Principal, provided that the Make-Whole Amount may in
no event be less than zero. For the purposes of determining the Make-Whole
Amount, the following terms have the following meanings:
"Called Principal" means, with respect to this Security, the principal
of this Security that has become or is declared to be immediately due and
payable pursuant to Section 4(b).
"Discounted Value" means, with respect to the Called Principal of this
Security, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a discount
factor (applied on the same periodic basis as that on which interest on
this Security is payable) equal to the Reinvestment Yield with respect to
such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of
this Security, 150 basis points over the yield to maturity implied by (i)
the yields reported, as of 10:00 A.M. (New York City time) on the second
Business Day preceding the Settlement Date with respect to such Called
Principal, on the display designated as "PX-I" of the Bloomberg Financial
Markets Services Screen for actively traded U.S. Treasury securities having
a maturity equal to the Remaining Average Life of such Called Principal as
of such Settlement Date, or (ii) if such yields are not reported as of such
time or the yields reported as of such time are not ascertainable, the
Treasury Constant Maturity Series Yields reported, for the latest day for
which such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H. 15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities having
a constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill quotations
to bond-equivalent yields in accordance with accepted financial practice
and (b) interpolating linearly between (1) the actively traded U.S.
Treasury security with the duration closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security
with the duration closest to and less than the Remaining Average Life.
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<PAGE>
"Remaining Average Life" means, with respect to any Called Principal,
the number of years (calculated to the nearest one-twelfth year) obtained
by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (,a.) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (b) the number
of years (calculated to the nearest one-twelfth year) that will elapse
between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payment" means, with respect to the Called
Principal of this Security, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with respect
to such Called Principal if no payment of such Called Principal were made
prior to its scheduled due date, provided that if such Settlement Date is
not a date on which interest payments are due to be made under the terms of
this Security, then the amount of the next succeeding scheduled interest
payment will be reduced by the amount of interest accrued to such
Settlement Date.
"Settlement Date" means, with respect to the Called Principal of this
Security, the date on which such Called Principal or has become or is
declared to be immediately due and payable pursuant to Section 4(b).
5. Consolidation, Merger, Etc. (a) The Company shall not consolidate
with or merge into any other Person or, directly or indirectly, convey,
transfer, sell or lease all or substantially all of its properties and assets to
any Person, and the Company shall not permit any Person to consolidate with or
merge into the Company or, directly or indirectly, convey, transfer, sell or
lease all or substantially all of its properties and assets to the Company,
unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer, sell or lease all or substantially all of its
properties and assets to any Person, the Person formed by such
consolidation or into which the Company is merged or the Person which
acquires by conveyance, transfer or sale, or which leases, all or
substantially all the properties and assets of the Company shall be a
corporation, limited liability company, partnership or trust, shall be
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall expressly
assume, by an agreement supplemental hereto, executed and delivered to the
holder of this Security in form satisfactory to the holder, the due and
punctual payment of the principal of (and premium, if any) and interest on
this Security and the performance or observance of every covenant of this
Security on the part of the Company to be performed or observed, including
the conversion rights provided herein (which shall thereafter relate to
common stock of such successor, on a basis reasonably designed to preserve
the economic value to the holder of this Security of such conversion
rights);
(2) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Company or a Subsidiary
of the Company as a result of such transaction as having been incurred by
the Company or such Subsidiary of the Company at the time of such
transaction, no Event of Default, and no
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<PAGE>
event which, after notice or lapse of time or both, would become an Event
of Default, shall have happened and be continuing;
(3) the Company has delivered to the holder of this Security an
officers' certificate stating that such consolidation, merger, conveyance,
transfer, sale or lease and, if a supplemental agreement is required in
connection with such transaction, such supplemental agreement, comply with
this Section and that all conditions precedent herein provided for relating
to such transaction have been complied with; and
(4) counsel for the Company has delivered to the holder of this
Security an opinion of such counsel with respect to such consolidation,
merger, conveyance, transfer, sale or lease, and if a supplemental
agreement is required in connection with such transaction, such
supplemental agreement, which opinion shall be, in form and substance,
reasonably acceptable to such holder and its counsel.
(b) upon any consolidation of the Company with, or merger of the
Company into, any other Person or any conveyance, transfer, sale or lease of all
or substantially all of the properties and assets of the Company in accordance
with Section 5(a), the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer, sale or lease
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Security with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all obligations
and covenants under this Security.
6. Payment in Stock. (a) The Company may elect to pay some or all of
the Repurchase Price by delivery of shares of Common Stock or shares of common
stock in any Person succeeding the Company, if and only if, each of the
following conditions shall be satisfied (without limiting any other conditions
contained herein):
(1) Any such payment shall be made in five equal installments, on each
of the five consecutive Trading Days ending on and including the third Trading
Day immediately preceding the date when any cash payment would otherwise be due,
and the shares of Common Stock or common stock of any Person succeeding the
Company deliverable in payment of each such installment shall have a fair market
value as of the date of such installment of not less than 20% of the amount of
such payment due hereunder which is payable in shares of stock. For purposes of
this Section 6, the fair market value of shares of Common Stock shall be equal
to 95% of the Closing Price for the immediately preceding Trading Day;
(2) In the event any shares of Common Stock or common stock of any
Person succeeding the Company to be issued in respect of any amount due
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 of 1933 upon
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issuance, such registration shall have been completed and shall have become
effective prior to the date of the first such installment;
(3) In the event any shares of Common Stock or common stock of any
Person succeeding the Company to be issued in respect of any amount due
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 issuance or transferred freely, such registration shall
have been completed or have become effective and such approval shall have been
obtained, in each case, prior to the date of the first such installment;
(4) The shares of Common Stock or common stock of any Person
succeeding the Company deliverable in payment of such amount due hereunder shall
have been approved for quotation in the Nasdaq National Market immediately prior
to the date of the first such installment or, if at the time its shares of
Common Stock or shares of common stock of any Person succeeding the Company are
listed or admitted for trading on any national securities exchange, the shares
of Common Stock or common stock in any Person succeeding the Company and
deliverable shall have been so listed or admitted for trading.
(5) All shares of Common Stock or common stock of any Person
succeeding the Company deliverable in payment of such amount due hereunder
shall, upon issue, be duly and validly issued and fully paid and non-assessable
and free of any preemptive rights;
(6) In respect of each such payment date, the Company shall have given
the holder of this Security not less than 10 nor more than 15 Trading Days'
notice of its election to effect payment in respect of such payment date by
delivery of shares of Common Stock; provided that any such notice shall
accompany the Company's notice of a Change of Control relating thereto; and
(7) The Company shall deliver, or cause to be delivered a certificate
from the Person succeeding the Company which states, that after giving effect to
any Change of Control that the holding by the Purchasers or any assignees
thereof of this Security, or the holding of any Common Stock or common stock of
any Person succeeding the Company after conversion of this Security would not
constitute a prohibited transaction which would violate the prohibition of
section 406 of ERISA or which would subject any "disqualified person" (as
defined in section 4975(e)(2) of the Code) to a tax pursuant to section 4975
(c)(1)(A)-(D) of the Code.
If all of the conditions set forth in this Section 6(a) are not
satisfied in accordance with the terms hereof, any such amount due hereunder
shall be paid by the Company only in cash.
(b) Any issuance of shares of Common Stock or shares of common stock
of any Person succeeding the Company in respect of any installment due hereunder
pursuant to this Section 6 shall be deemed to have been effected immediately
prior to the close of
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<PAGE>
business on the date of delivery of such installment and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such delivery shall be deemed to have become on
such date the holder or holders of record of the shares represented thereby;
provided, however, that in case any installment shall be due on a date when the
stock transfer books of the Company shall be closed, the person or persons in
whose name or names the certificate or certificates for such shares are to be
issued shall be deemed to have become 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 pursuant to this Section 6
declared prior to the relevant delivery date; and
(c) Any issuance and delivery of certificates for shares of common
stock or shares of common stock of any Person succeeding the Company pursuant to
this Section 6 shall be made without charge to the holder of this Security for
such certificates or for any tax or duty in respect of the issuance or delivery
of such certificates or the securities represented thereby.
7. Other. (a) No provision of this Security shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Security in cash at the
times, places and rate, and in the coin or currency, herein prescribed or to
convert this Security as herein provided.
(b) The Company will give prompt written notice to the holder of
Security of any change in the location of the Designated Office.
(c) The transfer of this Security is registrable on the Security
Register of the Company upon surrender of this Security for registration of
transfer at the Designated Office, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company duly executed by, the
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Such Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof, No service charge
shall be made for any such registration of transfer, but the Company may require
payment of a sum sufficient to recover any tax or other governmental charge
payable in connection therewith. Prior to due presentation of this Security for
registration of transfer, the Company and any agent of the Company may treat the
Person in whose name this Security is registered as the owner thereof for all
purposes, whether or not this Security be overdue, and neither the Company nor
any such agent shall be affected by notice to the contrary.
(d) The Company shall keep at the Designated Office a register for the
registration and registration of transfers of Convertible Notes. The name and
address of each holder of one or more Convertible Notes, each transfer thereof
and the name and address of each transferee of one or more Convertible Notes
shall be registered in such register. Prior to due presentment for registration
of transfer, the Person in whose name any Convertible Note
25
<PAGE>
shall be registered shall be deemed and treated as the owner and holder thereof
for all purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary. The Company shall give to any holder of a Convertible
Note promptly upon request therefor, a complete and correct copy of the names
and addresses of all registered holders of Convertible Notes.
(e) Upon surrender of any Convertible Note at the Designated Office
for registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Convertible Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Convertible Note or part thereof), the
Company shall execute and deliver, at the Company's expense (except as provided
below), one or more new Convertible Notes (as requested by the holder thereof)
in exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Convertible Note. Each such new Convertible
Note shall be payable to such Person as such holder may request and shall be
substantially in the form of this Security. Each such new Convertible Note shall
be dated and bear interest from the date to which interest shall have been paid
on the surrendered Convertible Note or dated the date of the surrendered
Convertible Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of this Security. Convertible
Notes shall not be transferred in denominations of less than $100,000, provided
that if necessary to enable the registration of transfer by a holder of its
entire holding of Convertible Notes, one Convertible Note may be in a
denomination of less than $100,000. Any transferee, by its acceptance of a
Convertible Note registered in its name (or the name of its nominee), shall be
deemed to have made the representation set forth in Section 3 of the Note
Purchase Agreement.
(f) Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of this
Security (which evidence shall be notice from such holder of such ownership and
such loss, theft, destruction or mutilation), and
(i) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provide) that if the holder of this Security is, or is
a nominee for, an original holder or another institutional investor holder
of this Security, such Person's own unsecured agreement of indemnity shall
be deemed to be satisfactory), or
(ii) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Convertible Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Convertible
Note or dated the date of such lost, stolen, destroyed or mutilated Convertible
Note if no interest shall have been paid thereon.
26
<PAGE>
(G) THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
(h) So long as you or your nominee shall be holder of this Security
and notwithstanding anything in this Security to the contrary, the Company will
pay all sums becoming due hereunder for principal, Make-Whole Amount, if any,
and interest by the method and at the address specified for such purpose below
your name in Schedule I of the Note Purchase Agreement, or by such other method
provided in the Preamble or at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of this Security, or the making of any notation
hereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment in full of this Security, you shall
surrender this Security for cancellation, reasonably promptly after any such
request to the Company at its principal executive office or at the place of
payment most recently designated by the Company. Prior to any sale or other
disposition of this Security you will, at your election, either endorse thereon
the amount of principal paid thereon and the last date to which interest has
been paid thereon or surrender this Security to the Company in exchange for a
new Convertible Note pursuant to the terms hereof. The Company will afford the
benefits of this Section to any institutional investor that is the direct or
indirect transferee of this Security.
[END OF PAGE - SIGNATURE PAGE FOLLOWS]
27
<PAGE>
Signature Page of Note Purchase Agreement
for the purpose of implementing or effectuating the provisions contained herein,
in the Convertible Notes or in the Registration Rights Agreement.
Very truly yours,
CELGENE CORPORATION
By:/s/ Sol J. Barer
------------------------
Name: Sol J. Barer
Title: Pres/COO
<PAGE>
Signature Page of Note Purchase Agreement with Celgene Corporation
Accepted as of the date hereof:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
SIGNATURE 1A (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance
Company, Portfolio Advisor .
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
Signature 3 Limited
By: John Hancock Mutual Life Insurance Company,
as Portfolio Advisor
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
Hancock Mezzanine Partners L.P.
By: Hancock Mezzanine Investments LLC, its General Partner
By: John Hancock Mutual Life Insurance Company.
as Investment Manager
By: /s/Stephen J. Blewitt
-----------------------------------
Name: Stephen J. Blewitt
---------------------------------
Title: Senior Investment Officer
--------------------------------
<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 3(a) of this Security, the undersigned hereby elects
to have all or a portion of this Security repurchased by the Company.
2. The undersigned hereby directs the Company to pay [choose one] (a) it or
(b) Name: _______________________; address: _______________________; Social
Security or Other Taxpayer Identification Number, if any: __________________, an
amount in cash or equal to 100% of the principal amount to be repurchased (as
set forth below), plus interest accrued to the Repurchase Date, as provided
herein.
Dated:
------------------------------
------------------------------
Signature
Number of shares of Common Stock
owned by the holder and its affiliates:
--------------------
Principal amount to be repurchased
(an integral multiple of $1,000):
--------------------
Remaining principal amount following such repurchase
(not less than $1,000):
--------------------
NOTICE: The signature to the foregoing Election must correspond to the name as
written upon the face of this Security in every particular, without alteration
or any change whatsoever.
<PAGE>
CONVERSION NOTICE
The undersigned holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is an integral multiple of $1,000) below designated, into shares of
Common Stock (subject to the limitation set forth in the second paragraph of
Section 2(a) of the Security) in accordance with the terms of this Security, and
directs that such shares, together with a check in payment for any fractional
share and any Security representing any unconverted principal amount hereof, be
delivered to and be registered in the name of the undersigned unless a different
name has been indicated below. If shares of Common Stock or Securities are to be
registered 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 by the undersigned on account of interest accompanies this Security.
Dated:
------------------------------ ------------------------------
Signature
Number of shares of Common Stock
owned by the holder and its affiliates:
------------------------------
If shares or Securities are to be If only a portion of the Securities is
registered in the name of a person to be converted, please indicate:
other than the holder, please print
such person's name and address:
1. Principal amount to be converted:
$
- ------------------------------ ------
Name
2. Principal amount and denomination
of Security representing
unconverted principal amount to
be issued:
- ------------------------------
Address
Amount: $__________
Denominations: $__________
(any integral multiple of $1,000)
- ------------------------------
Social Security or other Taxpayer
Identification Number, if any
<PAGE>
ANNEX II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
(a) Each of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, and each report filed by the Company pursuant to the Exchange
Act after the filing of such Annual Report on Form 10-K (collectively, the
"Exchange Act Reports") conforms in all material respects with the requirements
of the Exchange Act and the rules and regulations of the Securities and Exchange
Commission thereunder; and no such document, when it was filed (or, if an
amendment with respect to any such document was filed, when such amendment was
filed), contained any untrue statement of a material fact or omitted 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.
(b) All the outstanding shares of capital stock of the Company have been
authorized duly and validly issued and are fully paid, non-assessable and not
subject to any preemptive or similar rights; the Shares initially issuable upon
conversion of the Convertible Notes have been duly and validly authorized and
reserved for issuance out of the Company's authorized and unissued shares of
Common Stock and, when issued and delivered in accordance with the provisions of
the Convertible Notes will be duly and validly issued, fully paid and
non-assessable and will conform to the description of the Common Stock contained
in the Company's Registration Statement on Form 8-A, File No. 0-16132.
(c) The Convertible Notes has been duly authorized and, when issued and
delivered pursuant to this Agreement, will have been duly executed, issued and
delivered and will constitute a valid and legally binding obligation of the
Company; and the Registration Rights Agreement has been duly authorized and,
when executed and delivered by the parties thereto, will constitute a valid and
legally binding obligation of the Company, enforceable in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(d) The execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Convertible Notes, compliance by the
Company with all provisions hereof and thereof and the consummation of the
transactions contemplated hereby or thereby and the issuance and delivery of the
Convertible Notes will not conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the charter or by-laws of the
Company or any of its Subsidiaries, or any agreement, indenture or other
instrument to which it or any of its Subsidiaries is a party or by which it or
any of its Subsidiaries or their respective properties are bound, or violate or
conflict with any laws, administrative regulations or rulings or court decrees
applicable to the Company, any of its subsidiaries or their respective property;
and, except (i) as required pursuant to the Registration Rights Agreement, or
(ii) for the disclosure required to be included in the Company's next Quarterly
Report on Form 10-Q, when filed, pursuant to Item 2(c) of Form 10-Q, no consent,
approval, authorization or order of or filing or registration with, any such
court or governmental agency or body is required for the execution, delivery and
performance of this Agreement, the Registration
1
<PAGE>
Rights Agreement and the Convertible Notes by the Company and the consummation
of the transactions contemplated hereby and thereby.
(e) Except as otherwise set forth in the Exchange Act Reports, there are no
material legal or governmental proceedings pending to which the Company or any
of its subsidiaries is a party or of which any of their respective property is
the subject which, if determined adversely to the Company or its subsidiaries,
might have a Material Adverse Effect, and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated.
(f) The Company is not, and the Company covenants that at any time when the
Convertible Notes are outstanding it will not be, an open-end investment
company, unit investment trust or face-amount certificate company that is or is
required to be registered under Section 8 of the United States Investment
Company Act of 1940, as amended.
(g) When the Convertible Notes are issued and delivered pursuant to this
Agreement, the Convertible Notes will not be of the same class (within the
meaning of Rule 144A under the Securities Act of 1933) as securities which are
listed on a national securities exchange registered under Section 6 of the
Exchange Act or quoted in a U.S. automated inter-dealer quotation system.
(h) The Company is, and the Company covenants that while the Convertible
Notes are outstanding it will remain, subject to Section 13 or 15(d) of the
Exchange Act.
(i) Neither the Company nor any person acting on its behalf has offered or
sold the Convertible Notes by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the Act.
(j) The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. The Company has the corporate power and authority to own or hold
under lease the properties it purports to own or hold under lease, to transact
the business it transacts and proposes to transact, to execute and deliver this
Agreement and the Other Agreements and the Convertible Notes and to perform the
provisions hereof and thereof.
(k) The Company, through its agent, Warburg, Dillon, Read LLC, has
delivered to each Purchaser a copy of a Private Placement Memorandum, dated
December 1998 (the "MEMORANDUM"), relating to the transactions contemplated
hereby. The "Executive Summary", "Investment Highlights" and "Management and
Directors" sections of the Memorandum, when read together with Exhibits 1, 2 and
3 of the Memorandum, fairly describe, in all material respects, the general
nature of the business and principal properties of the Company and its
Subsidiaries. This Agreement, the aforesaid sections of the Memorandum and the
documents, certificates or other writings delivered to you by or on behalf of
the Company pursuant hereto
2
<PAGE>
taken as a whole, do not contain any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made. Except as
disclosed in the Memorandum or in one of the documents, certificates or other
writings identified therein, or in the financial statements comprising part of
Exhibits 1, 2 or 3 of the Memorandum, since September 30, 1998, there has been
no change in the financial condition, operations, business, properties or
prospects of the Company or any Subsidiary except changes that individually or
in the aggregate could not reasonably be expected to have a Material Adverse
Effect. There is no fact known to the Company that could reasonably be expected
to have a Material Adverse Effect that has not been set forth herein or in the
Memorandum (including the Exhibits thereto) or in the other documents,
certificates and other writings delivered to you by or on behalf of the Company
specifically for use in connection with the transactions contemplated hereby.
The projections referred to in the Memorandum in Section 4 were prepared in good
faith, are based upon assumptions that the Company believes are reasonable to
make and, in good faith judgment of the Company, take into account all Material
information regarding the matters set forth therein. Such projections represent
a reasonable estimate by the Company of the future financial performance of the
Company. The Company does not presently anticipate any Material deviation from
such projections and the Company reasonably believes that the results of
operations reflected therein are obtainable. The statements of action the
Company plans to take, the prediction of potential sales and returns on
investments and similar statements regarding events to occur in the future
contained in Section 2 of the Memorandum were made in good faith, are based upon
assumptions that the Company believes are reasonable to make and take into
account all Material information regarding the matters set forth therein. Such
statements represent a reasonable estimate by the Company of the future
performance of the Company and are not statements of currently existing facts.
The Company does not presently anticipate any Material deviation from such plans
or predictions and the Company reasonably believes that the results suggested by
such predictions are obtainable.
(1) No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Convertible Notes.
(m) (i) the Company and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service marks,
trademarks and trade names, or rights thereto, that individually or in the
aggregate are Material, without known conflict with the rights of others,
except for those conflicts that individually, or in the aggregate, would
not have a Material Adverse Effect;
(ii) to the best knowledge of the Company, no product of the Company
infringes in any material respect any license, permit, franchise,
authorization, patent, copyright, service mark, trademark, trade name or
other right owned by any other Person except for those infringements which
would not individually, or in the aggregate, have a Material Adverse
Effect; and
3
<PAGE>
(iii) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other fight owned or used by the Company or any of
its Subsidiaries.
(n) (i) The Company and each ERISA Affiliate have operated and administered
each Plan in compliance with all applicable laws except for such instances
of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor
any ERISA Affiliate has incurred any liability pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans (as defined in Section 3 of ERISA), and no event,
transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company
or any ERISA Affiliate, or in the imposition of any Lien on any of the
rights, properties or assets of the Company or any ERISA Affiliate, in
either case pursuant to Title I or IV of ERISA or to such penalty or excise
tax provisions or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate
Material.
(ii) The present value of the aggregate benefit liabilities under each
of the Plans subject to Title IV of ERISA (other than Multiemployer Plans),
determined as of the end of such Plan's most recently ended plan year on
the basis of the actuarial assumptions specified for funding purposes in
such Plan's most recent actuarial valuation report, did not exceed the
aggregate current value of the assets of such Plan allocable to such
benefit liabilities. The term "benefit liabilities" has the meaning
specified in section 4001 of ERISA and the terms "current value" and
"present value" have the meaning specified in section 3 of ERISA.
(iii) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.
(iv) The expected postretirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard
to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of the Company and its Subsidiaries is not Material.
(v) The execution and delivery of this Agreement and the issuance and
sale of the Convertible Notes hereunder will not involve any transaction
that is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Company in the
first sentence of this Section Annex II n(v) is made in reliance upon and
subject
4
<PAGE>
to the accuracy of the representation made by each Purchaser in Section 3
of this Agreement as to the sources of the funds used to pay the purchase
price of the Convertible Notes to be purchased by the Purchasers.
(o) Neither the Company nor anyone acting on its behalf has offered the
Convertible Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than you, the Other Purchasers and no other
Institutional Investors, each of which has been offered the Convertible Notes at
a private sale for investment. Neither the Company nor anyone acting on its
behalf has taken, or will take, any action that would subject the issuance or
sale of the Convertible Notes to the registration requirements of Section 5 of
the Securities Act.
(p) No part of the proceeds from the sale of the Convertible Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR 221), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224) or
to involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). As used in this Section, the terms "margin stock" and "purpose of
buying or carrying" shall have the meanings assigned to them in said Regulation
U.
(q) Neither the sale of the Convertible Notes by the Company hereunder nor
its use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
(r) Neither the Company nor any Subsidiary has knowledge of any claim or
has received any notice of any claim, and neither the Company nor any Subsidiary
has any knowledge of any proceeding that has been instituted raising any claim
against the Company or any of its Subsidiaries or any of their respective real
properties now or formerly owned, leased or operated by any of them or other
assets, alleging any damage to the environment or violation of any Environmental
Laws, except, in each case, such as could not reasonably be expected to result
in a Material Adverse Effect. Except as otherwise disclosed to you in writing,
(i) neither the Company nor any Subsidiary has knowledge of any facts
which is reasonably likely to give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real properties now or formerly
owned, leased or operated by the Company or any Subsidiary or to their
respective assets or the use thereof, except, in each case, such as could
not reasonably be expected to result in a Material Adverse Effect;
(ii) neither the Company nor any of its Subsidiaries has stored any
Hazardous Materials on real properties now or formerly owned, leased or
operated by the Company
5
<PAGE>
or any Subsidiary and has not disposed of any Hazardous Materials in a
manner contrary to any Environmental Laws, in each case in any manner that
could reasonably be expected to result in a Material Adverse Effect; and
(iii) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance with
applicable Environmental Laws, except where the failure to comply could not
reasonably be expected to result in a Material Adverse Effect.
(s) The Company has (i) initiated a review and assessment of all areas
within its and each of its Subsidiaries' business and operations (including
those affected by suppliers, vendors and customers) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Company or any of its Subsidiaries (or suppliers,
vendors and customers) may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), (ii) developed a plan and timeline for addressing the Year
2000 Problem on a timely basis, and (iii) to date, implemented that plan in
accordance with that timetable. Based on the foregoing, the Company believes
that its computer applications that are material to its or any of its
Subsidiaries' business and operations are reasonably expected on a timely basis
to be able to perform properly date-sensitive functions for all dates before and
after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent
that a failure to do so could not reasonably be expected to have Material
Adverse Effect. The Company is not aware that any of its suppliers, vendors and
customers' computer applications that are Material to the Company's or any of
its Subsidiaries' business and operations are not expected on a timely basis to
be Year 2000 compliant. The Company has requested a certificate from suppliers,
vendors and customers certifying that such Person is Year 2000 compliant. As of
the date hereof, the Company has not received all of such certificates.
All representations and warranties contained herein shall survive the
execution and delivery of this Note Purchase Agreement, the Convertible Notes
and the Registration Rights Agreement, the purchase or transfer by a holder of a
Convertible Note or any portion thereof or interest therein and the payment of
any Convertible Note and may be relied upon by any subsequent holder of a
Convertible Note regardless of any investigation made at any time by or on
behalf of you or any other holder of a Convertible Note. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant to this Note Purchase Agreement shall be deemed
representations and warranties of the Company under this Note Purchase
Agreement. Subject to the preceding sentence, this Note Purchase Agreement, the
Convertible Notes, and the Registration Rights Agreement, embody the entire
agreement and understanding between you and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.
6
<PAGE>
ANNEX III
OPINION OF COMPANY COUNSEL
(a) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
and has the corporate power and authority required to carry on its business as
described in the Exchange Act Reports and to own, lease and operate its
properties.
(b) All the outstanding shares of Common Stock have been duly authorized
and validly issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights.
(c) The Shares initially issuable upon conversion of the Convertible Notes
have been duly authorized and reserved for issuance and when issued and
delivered upon conversion in accordance with the provisions of the Convertible
Notes, will have been validly issued and will be fully paid and non-assessable,
and the issuance of such Shares is not subject to any preemptive or similar
rights.
(d) This Note Purchase Agreement has been duly authorized, executed and
delivered by the Company and is enforceable in accordance with its terms.
(e) The Convertible Notes have been duly authorized, executed, issued and
delivered, and constitutes the valid and legally binding obligation of the
Company enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
(f) The Registration Rights Agreement has been duly authorized, executed
and delivered by the Company and constitutes a valid and legally binding
agreement of the Company, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles; provided that such counsel need express no
opinion with respect to Section 6 of such Agreement.
(g) The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained in the
Company's Registration Statement on Form 8-A, File No. 0-16132.
(h) Except (i) as required pursuant to the Registration Rights Agreement,
or (ii) for the disclosure required to be included in the Company's next
Quarterly Report on Form 10-Q, when filed, pursuant to Item 2(c) of Form 10-Q,
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
Convertible Notes by the Company and the consummation of the transactions
contemplated by this Agreement and thereby.
(i) The execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the Convertible Notes by the Company,
compliance by the Company with all the
1
<PAGE>
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not conflict with or constitute a breach of
any of the terms or provisions of, or a default under, the charter or by-laws of
the Company or any agreement, indenture or other instrument to which the Company
is a party or by which the Company or its properties are bound, or violate or
conflict with any laws, administrative regulations or rulings or court decrees
applicable to the Company or its properties in any case which is reasonably
likely to have a Material Adverse Effect.
(j) The Company is not and is not controlled by a company that is an
open-end investment company, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the United
States Investment Company Act of 1940, as amended.
(k) Assuming that the proceeds are used in accordance with the Officers'
Certificate, no part of the proceeds of the sale of the Convertible Notes will
be used directly or indirectly to purchase, acquire or carry any "margin
security" or "margin stock" as such terms are used in Regulation U, X and T of
the Board of Governors of the Federal Reserve System 12 C.F.R. Parts 221,224 and
220 respectively.
['33 Act and '39 Act opinion]
[litigation]
2
<PAGE>
SCHEDULE I
Cover Page
<TABLE>
<CAPTION>
Payee Amount No.
----- ------ ---
<S> <C> <C>
John Hancock Mutual Life Insurance $2,100,000 R-1
Company
John Hancock Mutual Life Insurance $2,000,000 R-2
Company
John Hancock Mutual Life Insurance $200,000 R-3
Company
John Hancock Variable Life Insurance $200,000 R-4
Company
John Hancock Mutual Life Insurance $500,000 R-5
Company
Signature lA (Cayman), Ltd. $500,000 R-6
(nominee: Barnett & Co.)
Signature 3 Limited $2,000,000 R-7
(nominee: Hare & Co.)
Hancock Mezzanine Partners L.P. $7,500,000 R-8
</TABLE>
<PAGE>
SCHEDULE I
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
$2,100,000 GENERAL ACCOUNT
$2,000,000 GUARANTEED BENEFIT SUB ACCOUNT
$200,000 SEPARATE ACCOUNT 12
1. All payments on account of the Convertible Notes or other obligations in
accordance with the provisions thereof shall be made by bank wire transfer
of immediately available funds for credit, not later than 12 noon, Boston
time, to:
BankBoston
ABA No. 011000390
Boston, Massachusetts 02110
Account of: John Hancock Mutual Life Insurance Company
Private Placement Collection Account
Account Number: 541-55417
On Order of: Celgene Corporation [PPN No.]o
Celgene Corporation 9.00% Senior Convertible Notes due January 20, 2004
2. Contemporaneous with the above wire transfer, advice setting forth:
(1) the full name, interest rate and maturity date of the Convertible
Notes or other obligations;
(2) allocation of payment between principal and interest and any
special payment; and
(3) name and address of Bank (or Trustee) from which wire transfer
was sent shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3. All notices with respect to prepayments, both scheduled and unscheduled,
whether partial or in full, and notice of maturity shall be delivered or
faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
1 of 12
<PAGE>
Investment Accounting Division, B-3
Fax: 617-572-0628
4. All other communications which shall include, but not be limited to,
financial statements and certificates of compliance with financial
covenants, shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
5. A copy of any notices relating to change in issuer's name, address or
principal place of business or location of collateral and a copy of any
legal opinions shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Investment Law Division, T-50
Fax: 617-572-9268
6. All securities shall be registered in the name of: John Hancock Mutual Life
Insurance Company
7. Tax I.D. No. 04-1414660
2 of 12
<PAGE>
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
$200,000
1. All payments on account of the Convertible Notes or other obligations in
accordance with the provisions thereof shall be made by bank wire transfer
of immediately available funds for credit, not later than 12 noon, Boston
time, to:
BankBoston
ABA No. 011000390
Boston, Massachusetts 02110
Account of: John Hancock Mutual Life Insurance Company
Private Placement Collection Account
Account Number: 541-55417
On Order of: Celgene Corporation [PPN No.]
Celgene Corporation 9.00% Senior Convertible Notes due January 20, 2004
2. Contemporaneous with the above wire transfer, advice setting forth:
(1) the full name, interest rate and maturity date of the Convertible
Notes or other obligations;
(2) allocation of payment between principal and interest and any
special payment; and
(3) name and address of Bank (or Trustee) from which wire transfer
was sent shall be delivered or fixed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3. All notices with respect to prepayments, both scheduled and unscheduled,
whether partial or in full, and notice of maturity shall be delivered or
faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3 of 12
<PAGE>
4. All other communications which shall include, but not be limited to,
financial statements and certificates of compliance with financial
covenants, shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
5. A copy of any notices relating to change in issuer's name, address or
principal place of business or location of collateral and a copy of any
legal opinions shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Investment Law Division, T-50
Fax: 617-572-9268
6. All securities shall be registered in the name of: John Hancock Variable
Life Insurance Company
7. Tax I.D. No. 04-2664016
4 of 12
<PAGE>
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
$500,000
SEPARATE ACCOUNT 18
1. All payments on account of the Convertible Notes or other obligations in
accordance with the provisions thereof shall be made by bank wire transfer
of immediately available funds for credit, not later than 12 noon, Boston
time, to:
Investors Bank & Trust Company
Boston, Massachusetts 02110 ABA No. 011001438
Account Number: 79650-9107
for further credit to Separate Account 18, Account 99266
On Order of: Celgene Corporation [PPN No.]
Celgene Corporation 9.00% Senior Convertible Notes due January 20, 2004
2. Contemporaneous with the above wire transfer, advice setting forth:
(1) the full name, interest rate and maturity date of the Convertible
Notes or other obligations;
(2) allocation of payment between principal and interest and any
special payment; and
(3) name and address of Bank (or Trustee) from which wire transfer
was sent shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3. All notices with respect to prepayments, both scheduled and unscheduled,
whether partial or in full, and notice of maturity shall be delivered or
faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
5 of 12
<PAGE>
4. All other communications which shall include, but not be limited to,
financial statements and certificates of compliance with financial
covenants, shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
5. A copy of any notices relating to change in issuer's name, address or
principal place of business or location of collateral and a copy of any
legal opinions shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Investment Law Division, T-50
Fax: 617-572-9268
6. All securities shall be registered in the name of: John Hancock Mutual Life
Insurance Company
7. Tax I.D. No. 04-1414660
6 of 12
<PAGE>
SIGNATURE lA (CAYMAN), LTD.
$500,000
1. All payments on account of the Convertible Notes or other obligations in
accordance with the provisions thereof shall be made by bank wire transfer
of immediately available funds for credit, not later than 12 noon, Boston
time, to:
Bankers Trust Company
ABA #021-001-033 Acct. #99-911-145
For further credit to: Bankers Trust Company, as Indenture Trustee for
Signature lA (Cayman), Ltd., Account #98016
2. Contemporaneous with the above wire transfer, advice setting forth:
(1) the full name, interest rate and maturity date of the Convertible
Notes or other obligations;
(2) allocation of payment between principal and interest and any
special payment; and
(3) name and address of Bank (or Trustee) from which wire transfer
was sent, shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
Company, Portfolio Advisor
200 Clarendon Street
Boston, MA 02117
Attention: George H. Braun
Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
with a copy to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3. All notices with respect to prepayments, both scheduled and unscheduled,
whether partial or in full, and notice of maturity shall be delivered or
faxed and mailed to:
John Hancock Mutual Life Insurance Company
Company, Portfolio Advisor
200 Clarendon Street
Boston, MA 02117
7 of 12
<PAGE>
Attention: George H. Braun
Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
with a copy to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
4. All other communications which shall include, but not be limited to,
financial statements and certificates of compliance with financial
covenants, shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
Company, Portfolio Advisor
200 Clarendon Street
Boston, MA 02117
Attention: George H. Braun
Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
5. A copy of any notices relating to change in issuer's name, address or
principal place of business or location of collateral and a copy of any
legal opinions shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Investment Law Division, T-50
Fax: 617-572-9268
6. Execution documents shall be executed as follows:
SIGNATURE lA (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance
Company, Portfolio Advisor
By:
----------------------------------------
Title:
-------------------------------------
[authorized John Hancock Officer]
7. All securities shall be registered in the name of: BARNETT & CO.
8 of 12
<PAGE>
SIGNATURE 3 LIMITED $2,000,000
1. All payments on account of the Convertible Notes or other obligations in
accordance with the provisions thereof shall be made by bank wire transfer
of immediately available funds for credit, not later than 12 noon, Boston
time, to:
Investors Bank & Trust Company
Boston, Massachusetts 02110
ABA No. 011001438
Account Number: 796509107
for further credit to Signature 3 Limited, Account 99292
On Order of: Celgene Corporation [PPN No.]
Celgene Corporation 9.00% Senior Convertible Notes due January 20, 2004
2. Contemporaneous with the above wire transfer, advice setting forth:
(1) the full name, interest rate and maturity date of the Convertible
Notes or other obligations;
(2) allocation of payment between principal and interest and any
special payment; and
(3) name and address of Bank (or Trustee) from which wire transfer
was sent shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3. All notices with respect to prepayments, both scheduled and unscheduled,
whether partial or in full, and notice of maturity shall be delivered or
faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
4. All other communications which shall include, but not be limited to,
financial statements and certificates of compliance with financial
covenants, shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
9 of 12
<PAGE>
Boston, MA 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
5. A copy of any notices relating to change in issuer's name, address or
principal place of business or location of collateral and a copy of any
legal opinions shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Investment Law Division, T-50
Fax: 617-572-9268
6. Execution documents shall be executed as follows:
Signature 3 Limited
By: John Hancock Mutual Life Insurance Company,
as Portfolio Advisor
By:
----------------------------------------
[authorized John Hancock Officer]
7. All securities shall be registered in the name of: Hare & Co.
8. Tax I.D. No.: Not Applicable.
10 of 12
<PAGE>
HANCOCK MEZZANINE PARTNERS L.P.
$7,500,000
1. All payments on account of the Notes or other obligations in accordance
with the provisions thereof shall be made by bank wire transfer of
immediately available funds for credit, not later than 12 noon, Boston
time, to:
Investors Bank & Trust Company
Boston, Massachusetts 02110
ABA No. 011001438
Account Number: 58215013
for further credit to Hancock Mezzanine Partners L.P., Account 99274
On Order of: Celgene Corporation [PNN No.]
Celgene Corporation 9.00% Senior Convertible Notes due January 20, 2004
2. Contemporaneous with the above wire transfer, advice setting forth:
(1) the full name, interest rate and maturity date of the Notes or
other obligations;
(2) allocation of payment between principal and interest and any
special payment; and
(3) name and address of bank (or Trustee) from which wire transfer
was sent shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3. All notices with respect to prepayments, both scheduled and unscheduled,
whether partial or in full, and notice of maturity shall be delivered or
faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
4. All other communications which shall include, but not be limited to,
financial statements and certificates of compliance with financial
covenants, shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
11 of 12
<PAGE>
Boston, MA 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
5. A copy of any notices relating to change in issuer's name, address or
principal place of business or location of collateral and a copy of any
legal opinions shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Investment Law Division, T-50
Fax: 617-572-9268
6. Execution documents shall be executed as follows:
Hancock Mezzanine Partners L.P.
By: Hancock Mezzanine Investments LLC, its General Partner
By: John Hancock Mutual Life Insurance Company.
as Investment Manager
By:
----------------------------------------
[authorized John Hancock Officer]
7. All securities shall be registered in the name of: Hancock Mezzanine
Partners L.P.
8. Tax I.D. No. 04-3428544
12 of 12
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS
CONVERSION HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
CELGENE CORPORATION
9.00% SENIOR CONVERTIBLE NOTE DUE JANUARY 20, 2004
PPN No.: $2,100,000
No. R-1
CELGENE CORPORATION, a corporation duly organized and existing
under the laws of Delaware (the "Company") for value received, hereby promises
to pay to JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY, or registered assigns, the
principal sum of TWO MILLION ONE HUNDRED THOUSAND DOLLARS ($2,100,000) on
January 20, 2004 and to pay interest thereon, from January 20, 1999, or from the
most recent interest payment date to which interest has been paid or duly
provided for, semiannually on January 20 and July 20 in each year, commencing
July 20, 1999, at the rate of 9.00% per annum, until the principal hereof is
due, and at the rate of 11.00% per annum on any overdue principal and premium,
if any, and, to the extent permitted by law, on any overdue interest. The
interest so payable, and punctually paid or duly provided for, on any interest
payment date will 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 the January 1 or July 1
(whether or not a Business Day), as the case may be, next preceding such
interest payment date. Payment of the principal of (and premium, if any, on)
this Security shall be made upon the surrender of this Security to the Company,
at its office at 7 Powder Horn Drive, Warren, NJ 07059 (or such other office
within the United States as shall be notified by the Company to the holder
hereof) (the "Designated Office"), 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, by transfer to a U.S. dollar account maintained by the
payee with a bank in the United States of America. Payment of interest on this
Security shall be made by wire transfer to a U.S. dollar account maintained by
the payee with a bank in the United States of America, provided that if the
holder shall not have furnished wire instructions in writing to the Company no
later than the record date relating to an interest payment date, such payment
may be made by U.S. dollar check mailed to the address of the Person entitled
thereto as such address shall appear in the Company security register. This
Security will rank pari passu with all existing and future senior debt of the
Company.
<PAGE>
This Security is one of the Company's 9.00% Senior Convertible Notes
due January 20, 2004, limited to $15,000,000.00 aggregate principal amount,
issued pursuant to that certain Note Purchase Agreement dated January 20, 1999
(such agreements, as amended, modified and supplemented from time to time, the
"Note Purchase Agreement") between the Company and the Purchasers named therein,
and the holder hereof is entitled to the benefits of the Note Purchase
Agreement, and may enforce the agreements contained herein and therein and
exercise the remedies provided for hereby and thereby or otherwise available in
respect hereof and thereof, all in accordance with the terms hereof and thereof.
1. Optional Redemption With Premium. This Security is subject
to redemption upon not less than 30 nor more than 60 days' notice by mail, at
any time on or after January 20, 2001, as a whole or in part, (in any amount
that is an integral multiple of $1000) at the election of the Company, at a
redemption price of 103% the principal amount thereof, together with accrued
interest to the redemption date, but interest installments whose stated maturity
is on or prior to such redemption date will be payable to the holder of this
Security, or one or more predecessor Securities, of record at the close of
business on the relevant record dates referred to on the face hereof; provided,
however, that the Company may not redeem this Security on or prior to January
20, 2002 unless the Closing Price of the Common Stock exceeds 225 % of the
Conversion Price for each Trading Day in a period of 20 Consecutive Trading Days
commencing not earlier than January 20, 2001. The term "Conversion Price" on any
day shall equal $1,000 divided by the Conversion Rate in effect on each such
day.
2. Conversion. (a) The holder of this Security is entitled at
any time on or after January 20, 2000 and before the close of business on
January 20, 2004 (or, in case this Security or a portion hereof is called for
redemption or the holder hereof has exercised its right to require the Company
to repurchase this Security or a portion hereof, then in respect of this
Security or such portion hereof, as the case may be, until and including, but
(unless the Company defaults in making the payment due upon redemption or
repurchase, as the case may be) not after, the close of business on the
redemption date or the Repurchase Date, as the case may be) to convert this
Security (or any portion of the principal amount hereof that is an integral
multiple of $1,000), into fully paid and nonassessable shares (calculated as to
each conversion to the nearest 1/100 of a share) of Common Stock of the Company
at the rate of 55.56 shares of Common Stock for each $1,000 principal amount of
Security (or at the current adjusted rate if an adjustment has been made as
provided below) (the "Conversion Rate") by surrender of this Security, duly
endorsed or assigned to the Company or in blank to the Company at the Designated
Office, accompanied by written notice to the Company that the holder hereof
elects to convert this Security (or if less than the entire principal amount
hereof is to be converted, specifying the portion hereof to be converted). Upon
surrender of this Security for conversion, the holder will be entitled to
receive the interest accruing on the principal amount of this Security then
being converted from the interest payment date next preceding the date of such
conversion to such date of conversion. No payment or adjustment is to be made on
conversion for dividends on the
2
<PAGE>
Common Stock issued on conversion hereof. No fractions of shares or scrip
representing fractions of shares will be issued on conversion, but instead of
any fractional interest, the Company shall pay a cash adjustment, computed on
the basis of the Closing Price of the Common Stock on the date of conversion,
or, at its option, the Company shall round up to the next higher whole share.
This Security shall be deemed to have been converted immediately prior to the
close of business on the day of surrender hereof for conversion, in accordance
with the foregoing provisions, and at such time the rights of the holder hereof,
as a holder hereof, shall cease, and the Person or Persons entitled to receive
the Common Stock issuable on conversion shall be treated by all Persons as the
holder or holders of such Common Stock at such time. Upon any partial conversion
of this Security, the Company, at its expense, will forthwith issue and deliver
to, or upon the order of the holder hereof, a new Convertible Note or
Convertible Notes in principal amount equal to the unconverted principal amount
of such surrendered Convertible Note, such new Convertible Note or Convertible
Notes to be dated and to bear interest from the date to which interest has been
paid on such surrendered Convertible Note.
As promptly as possible after the conversion of this Security,
in whole or in part, and in any event within ten (10) days thereafter, the
Company, at its expense, will issue and deliver a certificate or certificates
for the number of full shares of Common Stock issuable upon such conversion.
(b) The Conversion Rate shall be subject to adjustments from
time to time as follows:
(1) In case the Company shall pay or make a dividend or other
distribution on any class of capital stock of the Company payable in
shares of Common Stock, the Conversion Rate in effect at the opening of
business on the day following the Determination Date for such dividend
or other distribution shall be increased by dividing such Conversion
Rate by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding at the close of business on such
Determination Date 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 increase to become effective immediately after
the opening of business on the day following such Determination Date.
For the purposes of this paragraph (1), 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.
(2) Subject to the last sentence of paragraph (7) of this
Section 2(b), in case the Company shall issue rights, options, warrants
or convertible securities entitling the holders thereof to subscribe
for or purchase shares of Common Stock at a
<PAGE>
price per share less than the current market price per share (determined as
provided in paragraph (8) of this Section 2(b)) of the Common Stock on the
Determination Date for such distribution, the Conversion Rate in effect at the
opening of business on the day following such Determination Date, shall be
increased by dividing such Conversion Rate by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on such Determination Date plus the number of shares of Common Stock
which the aggregate amount received by the Company upon the issuance of such
rights, options, warrants or convertible securities plus the aggregate amount
receivable by the Company upon the exercise or conversion of such rights,
options, warrants or convertible securities would purchase at such current
market price and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on such Determination Date plus the number
of shares of Common Stock so offered for subscription or purchase, such increase
to become effective immediately after the opening of business on the day
following such Determination Date provided, that no such adjustment need to be
made in the case of the granting by the Company to employees or directors of the
Company or consultants to the Company of Common Stock and/or options to purchase
Common Stock and the issuance of Common Stock upon the exercise of such options.
For the purposes of this paragraph (2), 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
issue any rights, options, warrants or convertible securities in respect of
shares of Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall each be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately reduced, such increase or
reduction, 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.
(4) Subject to the last sentence of paragraph (7) of this Section 2(b),
in case the Company shall, by dividend or otherwise, distribute evidences of its
indebtedness, shares of any class of capital stock, or other property (including
securities, but excluding (i) any rights, options, warrants or convertible
security referred to in paragraph (2) of this Section 2(b) (ii) any dividend or
distribution paid exclusively in cash, (iii) any dividend or distribution
referred to in paragraph (1) of this Section 2(b) and (iv) any merger or
consolidation to which Section 2(h) applies),
4
<PAGE>
the Conversion Rate shall be adjusted so that the same shall equal the rate
determined by dividing the Conversion Rate in effect immediately prior to the
close of business on the Determination Date for such distribution by a fraction
of which the numerator shall be the current market price per share (determined
as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such
Determination Date less the then fair market value (as determined in good faith
by the Board of Directors of the Company) of the portion of the assets, shares
or evidences of indebtedness so distributed applicable to one share of Common
Stock and the denominator shall be such current market price per share of the
Common Stock, such adjustment to become effective immediately prior to the
opening of business on the day following such Determination Date provided, that
no such adjustment need be made in the case of an underwritten public offering
of Common Stock in which the shares of Common Stock are sold to the public at a
price per share equal to or in excess of 95% of the market price per share of
the Common Stock as of the date of the pricing of such underwritten public
offering. If the Board of Directors determines the fair market value of any
distribution for purposes of this paragraph (4) by reference to the actual or
when issued trading market for any securities comprising such distribution, it
must in doing so consider the prices in such market over the same period used in
computing the current market price per share pursuant to paragraph (8) of this
Section 2(b).
(5) In case the Company shall, by dividend or otherwise, make a Cash
Distribution, then, and in each such case, immediately after the close of
business on the Determination Date for such Cash Distribution, the Conversion
Rate shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close of
business on such Determination Date by a fraction (a) the numerator of which
shall be equal to the current market price per share (determined as provided in
paragraph (8) of this Section 2(b)) of the Common Stock on such Determination
Date less an amount equal to the quotient of (1) the amount of such Cash
Distribution divided by (2) the number of shares of Common Stock outstanding on
such Determination Date and (b) the denominator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date.
(6) In case the Company or any Subsidiary shall make an Excess Purchase
Payment, then, and in each such case, immediately prior to the opening of
business on the day after the tender offer in respect of which such Excess
Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so
that the same shall equal the rate determined by dividing the Conversion Rate in
effect immediately prior to the close of business on the Determination Date for
such tender offer by a fraction (a) the numerator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date less an amount
equal to the quotient of (A) the Excess Purchase
<PAGE>
Payment divided by (B) the number of shares of Common Stock outstanding
(including any tendered shares) as of the Determination Date less the number of
all shares validly tendered and not withdrawn as of the Determination Date and
(b) the denominator of which shall be equal to the current market price per
share (determined as provided in paragraph (8) of this Section 2(b)) of the
Common Stock as of such Determination Date.
(7) The reclassification of Common Stock into securities other than
Common Stock (other than any reclassification upon a consolidation or merger to
which Section 2(h) applies) shall be deemed to involve (a) a distribution of
such securities other than Common Stock to all holders of Common Stock (and the
effective date of such reclassification shall be deemed to be the Determination
Date), and (b) a subdivision or combination, as the case may be, of the number
of shares of Common Stock outstanding immediately prior to such reclassification
into the number of shares of Common Stock outstanding immediately thereafter
(and the effective date of such reclassification shall be deemed to be "the day
upon which such subdivision becomes effective" or "the day upon which such
combination becomes effective", as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of paragraph
(3) of this Section 2(b)). Rights, options, warrants or convertible securities
issued by the Company entitling the holders thereof to subscribe for or purchase
shares of Common Stock, which rights, options, warrants or convertible
securities (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, in each case in clauses (i) through (iii) until the
occurrence of a specified event or events ("Trigger Event"), shall for purposes
of this Section 2(b) not be deemed issued until the occurrence of the earliest
Trigger Event.
(8) Except as otherwise provided in the last sentence of this
subsection (8) of Section 2(b) for the purpose of any computation under
paragraphs (2), (4), (5) or (6) of this Section 2(b) the current market price
per share of Common Stock on any date shall be calculated by the Company and be
deemed to be the average of the daily Closing Prices for the five (5)
consecutive Trading Days selected by the Company commencing not more than ten
(10) Trading Days before, and ending not later than, the earlier of the day in
question and the day before the "ex date" with respect to the issuance or
distribution requiring such computation. For purposes of this paragraph, the
term "ex date", when used with respect to any issuance or distribution, means
the first date on which the Common Stock trades regular way in the applicable
securities market or on the applicable securities exchange without the right to
receive such issuance or distribution. The current market price with respect to
any option issued to any employee or director of the Company or consultant to
the Company shall be the fair market value on the date of grant determined by
reference to the market price on the day of the grant of such option or to the
market price at the close of business on the Trading Day immediately preceding
such grant.
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<PAGE>
(9) No adjustment in the Conversion Rate shall be required
unless such adjustment (plus any adjustments not previously made by
reason of this paragraph (9)) would require an increase or decrease of
at least one percent in such rate; provided, however, that any
adjustments which by reason of this paragraph (9) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 2 shall be
made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
(10) The Company may make such increases in the Conversion
Rate, for the remaining term of the Securities or any shorter term, in
addition to those required by paragraphs (1), (2), (3), (4), (5) and
(6) of this Section 2(b) as it considers to be advisable in order to
avoid or diminish any income tax to any holders of shares of Common
Stock resulting from any dividend or distribution of stock or issuance
of rights, options, warrants or convertible securities to purchase or
subscribe for stock or from any event treated as such for income tax
purposes.
(c) Whenever the Conversion Rate is adjusted as provided in
Section 2(b), the Company shall compute the adjusted Conversion Rate in
accordance with Section 2(b) and shall prepare a certificate (the "Conversion
Rate Certificate") signed by the Senior Financial Officer of the Company setting
forth the adjusted Conversion Rate and showing in reasonable detail the facts
upon which such adjustment is based, and shall promptly deliver such certificate
to the holder of this Security. If the holders of the Convertible Notes and the
Company cannot agree in writing as to the adjusted Conversion Rate in accordance
with Section 2(b), the holders of the Convertible Notes and the Company shall
determine the adjusted Conversion Rate in accordance with the following
procedure. The holders of the Convertible Notes and the Company shall each
appoint one registered securities broker, licensed with the Securities and
Exchange Commission to sell securities to the public, which broker shall be a
senior vice president, managing director or equivalent of a major securities
brokerage company with offices in New York, New York. Each of such brokers shall
have no less than ten (10) years experience in such field, shall be unaffiliated
with, and their employer securities brokerage company shall be unaffiliated
with, the holders of the Convertible Notes and the Company and shall not have
previously participated in any underwriting of the Company's Common Stock in any
public offering or provided any Material investment banking or corporate
advisory services to the Company. The holders of the Convertible Notes and the
Company shall make their appointments promptly and, in any event, within thirty
(30) days from the date of the Conversion Rate Certificate. The two brokers
shall meet and shall be instructed to render a determination of the adjusted
Conversion Rate to the holders of the Convertible Notes and the Company within
sixty (60) days of the date of the Conversion Rate Certificate. If the two
brokers cannot agree, then each broker shall render their independent
determination and the two brokers shall simultaneously therewith provide the
name of a third broker acceptable to the two brokers meeting the criteria set
forth above. The third broker shall be instructed to render a determination of
the adjusted Conversion Rate within thirty (30) days of his or her
<PAGE>
appointment. The two closest determinations of the adjusted Conversion Rate
shall be averaged and shall constitute the adjusted Conversion Rate. If the two
brokers cannot agree upon a third broker, the selection of a third broker shall
be submitted to binding arbitration in New York, New York under the rules of the
American Arbitration Association. In the event that the difference between the
Company's calculation of the adjusted Conversion Rate and the calculation of the
adjusted Conversion Rate determined by the foregoing process is five percent
(5%) or greater then the costs and expenses of the brokers and any arbitration
shall be paid by and be the obligation of the Company and in the event that such
difference is less than five percent (5%) the holders of the Convertible Notes
(as a group) shall each pay its pro rata share of 50% of such costs and expenses
and the Company shall pay 50% of such costs and expenses.
(d) In case:
(1) the Company shall declare a dividend or other distribution
on its Common Stock payable (i) otherwise than exclusively in cash or
(ii) exclusively in cash in an amount that would require any adjustment
pursuant to Section 2(b); or
(2) the Company shall authorize the granting to the holders of
its Common Stock of rights, options, warrants or convertible securities
to subscribe for or purchase any shares of capital stock of any class
or of any other rights; or
(3) of any reclassification of the Common Stock of the
Company, or of any consolidation, merger or share exchange to which the
Company is a party and for which approval of any shareholders of the
Company is required, or of the conveyance, sale, transfer or lease of
all or substantially all of the assets of the Company; or
(4) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(5) the Company or any Subsidiary shall commence a tender
offer for all or a portion of the Company's outstanding shares of
Common Stock (or shall amend any such tender offer);
then the Company shall cause to be delivered to the holder of this Security, at
least 20 days (or 10 days in any case specified in clause (1) or (2) above)
prior to the applicable record, expiration or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights, options, warrants or
convertible securities or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution, rights, options,
<PAGE>
warrants or convertible securities are to be determined, (y)
the date on which the right to make tenders under such tender
offer expires or (z) the date on which such reclassification,
consolidation, merger, share exchange, conveyance, transfer,
sale, 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, share exchange,
conveyance, transfer, sale, lease, dissolution, liquidation or
winding up. Neither the failure to give such notice nor any
defect therein shall affect the legality or validity of the
proceedings described in clauses (1) through (5) of this
Section 2(d).
(e) The Company shall at all times reserve
and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock, for the purpose of
effecting the conversion of the Security, the full number of
shares of Common Stock then issuable upon the conversion of
this Security.
(f) Except as provided in the next sentence,
the Company will pay any and all taxes and duties that may be
payable in respect of the issue or delivery of shares of
Common Stock on conversion of this Security. The Company shall
not, however, 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 this Security, 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.
(g) The Company agrees that all shares of
Common Stock which may be delivered upon conversion of the
Security, upon such delivery, will have been duly authorized
and validly issued and will be fully paid and nonassessable
(and shall be issued out of the Company's authorized but
unissued Common Stock) and, except as provided in the second
sentence of Section 2(f), the Company will pay all taxes,
liens and charges with respect to the issue thereof.
(h) In case of any consolidation of the
Company with any other Person, any merger of the Company into
another Person or of another Person into the Company (other
than a merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company) or any conveyance, sale, transfer
or lease of all or substantially all of the properties and
assets of the Company, the Person formed by such consolidation
or resulting from such merger or which acquires such
properties and assets, as the case may be, shall execute and
deliver to the holder of this Security a supplemental
agreement providing that such holder has the right, during the
period this Security shall be convertible as specified in
Section 2(a), to convert this Security only into the kind and
amount of securities, cash and other property receivable upon
such consolidation, merger, conveyance, sale, transfer or
lease (including any Common Stock
9
<PAGE>
retainable) 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, sale, transfer or lease, assuming such holder of
Common Stock of the Company (i) is not a Person with which the
Company consolidated, into which the Company merged or which
merged into the Company or to which such conveyance, sale,
transfer or lease was made, as the case may be (a "Constituent
Person"), or an Affiliate of a Constituent Person and (ii)
failed to exercise its rights of election, if any, as to the
kind or amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance, sale,
transfer or lease (provided that if the kind or amount of
securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer, or lease is
not the same for each share of Common Stock of the Company
held immediately prior to such consolidation, merger,
conveyance, sale, transfer or lease by others than a
Constituent Person or an Affiliate of a Constituent Person and
in respect of which such rights of election shall not have
been exercised ("Non-electing Share"), then for the purpose of
this Section 2(h) the kind and amount of securities, cash and
other property receivable upon such consolidation, merger,
conveyance, sale, transfer or lease by the holders of 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 agreement shall provide for
adjustments which, for events subsequent to the effective date
of such supplemental agreement, shall be as nearly equivalent
as may be practicable to the adjustments provided for in this
Section 2. The above provisions of this Section 2(h) shall
similarly apply to successive consolidations, mergers,
conveyances, sales, transfers or leases. In this paragraph,
"securities of the kind receivable" upon such consolidation,
merger, conveyance, transfer, sale or lease by a holder of
Common Stock means securities that, among other things, are
registered and freely transferable under the Securities Act,
and listed and approved for quotation in all securities
markets, in each case to the same extent as such securities so
receivable by a holder of Common Stock.
(i) The Company (i) will effect all
registrations with, and obtain all approvals by, all
governmental authorities that may be necessary under any
United States Federal or state law (including the Securities
Act, the Exchange Act and state securities and Blue Sky laws)
for the shares of Common Stock issuable upon conversion of
this Security to be lawfully issued and delivered as provided
herein, and thereafter publicly traded (if permissible under
the Securities Act) and qualified or listed as contemplated by
clause (ii) (it being understood that the Company shall not be
required to register the Common Stock issuable on conversion
hereof under the Securities Act, except pursuant to the
Registration Rights Agreement between the Company and the
initial holder of this Security); and (ii) will list the
shares of Common Stock required to be issued and delivered
upon conversion of Securities, prior to such issuance or
delivery, on each national securities exchange on which
outstanding Common Stock is listed or quoted at the time of
such delivery, or if the Common Stock is not then listed on
any securities exchange, to qualify the Common Stock for
quotation on the Nasdaq National Market or such other
inter-dealer quotation system, if any, on which the Common
Stock is then quoted.
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<PAGE>
(i) For purposes hereof: (references to Sections shall mean
Sections of this Security unless otherwise specified)
"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.
"Business Day" means any day other than a Saturday, a Sunday
or other day which shall be in Boston, Massachusetts or New York, New York or a
legal holiday or a day on which commercial banks in Boston, Massachusetts or New
York, New York are required or authorized to be closed.
"Cash Distribution" means the distribution by the Company to
holders of its Common Stock of cash, other than any cash that is distributed
upon a merger or consolidation to which Section 2(h) applies or as part of a
distribution referred to in paragraph (4) of Section 2(b).
"Change of Control" is defined in Section 3(f)(2).
"Closing" is defined in Section 1 of the Note Purchase
Agreement.
"Closing Price" means, with respect to the Common Stock of the
Company, for any day, the reported last sale price per share on the Nasdaq
National Market, or, if the Common Stock is not admitted to trading on the
Nasdaq National Market, on the principal national securities exchange or
inter-dealer quotation system on which the Common Stock is listed or admitted to
trading, or if not admitted to trading on the Nasdaq National Market, or listed
or admitted to trading on any national securities exchange or inter-dealer
quotation system, the average of the closing bid and asked prices per share in
the over-the-counter market as furnished by any New York Stock Exchange member
firm selected from time to time by the Company for that purpose.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company authorized at the date of this instrument as originally
executed. Subject to the provisions of Section 2(h), shares issuable on
conversion or repurchase of this Security shall include only shares of Common
Stock or shares of any class or classes of common stock resulting from any
reclassification or reclassifications thereof; provided, however, that if at
11
<PAGE>
any time there shall be more than one such resulting class, the shares so
issuable on conversion of this Security shall include shares of all such
classes, and 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.
"Convertible Note(s)"shall mean one or more of the Company's
9.00% Senior Convertible Notes due January 20, 2004.
"Conversion Price" is defined in Section 1.
"Conversion Rate" is defined in Section 2(a).
"Default" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
"Designated Office" is defined in the Preamble.
"Determination Date" means, in the case of a dividend or other
distribution, including the issuance of rights, options, warrants or convertible
securities, to the date fixed for the determination of those entitled to receive
such dividend or other distribution, and in the case of a tender offer, the last
time that tenders could have been made pursuant to such tender offer.
"Environmental Laws" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, licenses, written agreements or written governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"Excess Purchase Payment" means the product of (A) the excess,
if any, of (i) the amount of cash plus the fair market value (as determined in
good faith by the Company's Board of Directors) of any non-cash consideration
required to be paid with respect to one share of Common Stock acquired or to be
acquired in a tender offer made by the Company
12
<PAGE>
or any Subsidiary of the Company for all or any portion of the Common Stock over
(ii) the current market price per share as of the last time that tenders could
have been made pursuant to such tender offer and (B) the number of shares
validly tendered and not withdrawn as of the Determination Date in respect of
such tender offer.
"Event of Default" is defined in the preamble to Section 4.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor Federal statute, and the rules and regulations of
the Securities and Exchange Commission promulgated thereunder, all as the same
shall be in effect from time to time.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"Hazardous Materials" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health or
safety, the remediation of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration of
which is restricted, prohibited or penalized by any applicable Environmental Law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"holder" means, with respect to this Security or any other
Convertible Note, the Person in whose name it is registered in the register
maintained by the Company pursuant to Section 6(d).
"Lien" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease (as
defined by GAAP), upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust agreements
and all similar arrangements).
"Make-Whole Amount" is defined in Section 4(g).
"Material" means material in relation to the business,
operations, affairs, financial condition, assets, properties, or prospects of
the Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the business, operations, affairs, financial condition, assets, properties
or prospects of the Company and its Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under the Note Purchase
Agreement, the Registration Rights Agreement and the Convertible Notes, or (c)
the validity or enforceability of this Agreement or the Convertible Notes.
13
<PAGE>
"Multiemployer Plan" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"Note Purchase Agreement" is defined in the Preamble.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"Person" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.
"Purchaser(s)" JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY;
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY; SIGNATURE lA (CAYMAN), LTD;
SIGNATURE 3 LIMITED; and HANCOCK MEZZANINE PARTNERS L.P.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the date hereof among the Purchasers and the Company.
"Repurchase Date" is defined in Section 3(a).
"Repurchase Price" is defined in Section 3(a).
"Responsible Officer" means any Senior Financial Officer and
any other senior officer of the Company with responsibility for the
administration of the relevant covenants in this Security or in the Note
Purchase Agreement.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, all as the same shall
be in effect from time to time.
"Senior Financial Officer" means the chief financial officer,
principal accounting officer, treasurer or comptroller of the Company.
"Subsidiary" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or
14
<PAGE>
more of its Subsidiaries owns sufficient equity or voting interests to enable it
or them (as a group) ordinarily, in the absence of contingencies, to elect a
majority of the directors (or Persons performing similar functions) of such
entity, and any partnership or joint venture if more than a 50% interest in the
profits or capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries (unless such
partnership can and does ordinarily take major business actions without the
prior approval of such Person or one or more of its Subsidiaries). Unless the
context otherwise clearly requires, any reference to a "Subsidiary" is a
reference to a Subsidiary of the Company.
"Trading Day" means (i) if the Common Stock is admitted to
trading on the Nasdaq National Market or any other system of automated
dissemination of quotations of securities prices, a day on which trades may be
effected through such system; (ii) if the Common Stock is listed or admitted for
trading on the New York Stock Exchange or any other national securities
exchange, a day on which such exchange is open for business; or (iii) if the
Common Stock is not admitted to trading on the Nasdaq National Market or listed
or admitted for trading on any national securities exchange or any other system
of automated dissemination of quotation of securities prices, a day on which the
Common Stock is traded regular way in the over-the-counter market and for which
a closing bid and a closing asked price for the Common Stock are available.
3. Right to Require Repurchase. (a) In the event that a Change
in Control shall occur, then the holder of this Security shall have the right,
at such holder's option, to require the Company to repurchase, and upon the
exercise of such right the Company shall repurchase, this Security, or any
portion of the principal amount hereof that is equal to $1,000 or any integral
multiple thereof, on the date (the "Repurchase Date") that is thirty (30)
Trading Days after the date on which the Company gives notice thereof to the
holder of this Security, at a purchase price equal to 100% of the principal
amount of this Security to be repurchased plus interest accrued to the
Repurchase Date (the "Repurchase Price"): provided, however, that installments
of interest on this Security whose stated maturity is on or prior to the
Repurchase Date shall be payable to the holder of this Security, or one or more
predecessor Securities, registered as such on the relevant Record Date according
to their terms. 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 each of Section 5 and Section 6 and subject to the limitations set forth in
each of Section 5 and Section 6, by delivery of shares of Common Stock or in
common stock of any Person which succeeds the Company up to a maximum amount of
ten percent (10%) of the then issued and outstanding Common Stock or common
stock of such Person following any Change in Control, provided, however, the
cash plus the fair market value of such shares shall equal the Repurchase Price.
The Company agrees to give the holder of this Security notice of any Change in
Control, by facsimile transmission confirmed in writing by overnight courier
service, promptly and in any event within two (2) Trading Days of the occurrence
thereof.
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<PAGE>
(b) To exercise a repurchase right, the holder shall deliver
to the Company on or before the 10th Trading Day prior to the Repurchase Date,
together with this Security, written notice of the holder's exercise of such
right, which notice shall set forth the name of the holder, the number of shares
of Common Stock then owned by such holder and its affiliates, the principal
amount of this Security to be repurchased (and, if this Security is to be
repurchased in part, the portion of the principal amount thereof to be
repurchased and the name of the person in which the portion thereof to remain
outstanding after such repurchase is to be registered) and 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 whole or in part by the
delivery of shares, as provided above, the name or names (and the addresses) in
which the certificates for shares shall be issued. Such written notice shall be
irrevocable, except that the right of the holder to convert this Security (or
the portion hereof with respect to which the repurchase right is being
exercised) shall continue until the close of business on the Repurchase Date (or
if the Company elects to pay the Repurchase Price by delivery of shares as
provided above, until the close of business on the Trading Day immediately
preceding the first delivery of shares with respect thereto).
(c) In the event a repurchase right shall be exercised in
accordance with the terms hereof, the Company shall pay or cause to be paid to
the holder the Repurchase Price in cash or shares, as provided above, together
with accrued and unpaid interest to the Repurchase Date; provided, however, that
installments of interest that mature on or prior to the Repurchase Date shall be
payable in cash, to the holders of this Security, or one or more predecessor
Securities, registered as such at the close of business on the relevant regular
record date.
(d) If this Security (or portion thereof) is surrendered for
repurchase and is not so paid on or prior to the Repurchase Date. the principal
amount of this Security (or such portion hereof, as the case maybe) shall, until
paid, bear interest to the extent permitted by applicable law from the
Repurchase Date at eleven percent (11%) per annum, and shall remain convertible
into Common Stock until the principal of this Security (or portion thereof, as
the case may be) shall have been paid or duly provided for.
(e) If this Security is to be repurchased only in part, it
shall be surrendered to the Company at the Designated Office (with, if the
Company so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company duly executed by, the holder hereof or his
attorney duly authorized in writing), and the Company shall execute and make
available for delivery to the holder without service charge, a new Security or
Securities, containing identical terms and conditions, each in an authorized
denomination in aggregate principal amount equal to and in exchange for the
unrepurchased portion of the principal of the Security so surrendered.
(f) For purposes of this Section 3.
(1) the term "beneficial owner" shall be determined in
accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission
pursuant to the Exchange Act; and
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<PAGE>
(2) a "Change in Control" shall be deemed to have occurred at
the time, after the original issuance of this Security, of:
(i) the acquisition by any Person of beneficial ownership,
directly or indirectly, through a purchase, merger or other acquisition
transaction or series of transactions, of shares of capital stock of
the Company entitling such Person to exercise 50% or more of the total
voting power of all shares of capital stock of the Company entitled to
vote generally in the election of directors (any shares of voting stock
of which such Person is the beneficial owner that are not then
outstanding being deemed outstanding for purposes of calculating such
percentage) other than any such acquisition by the Company or any
employee benefit plan of the Company; or
(ii) any consolidation or merger of the Company with or into,
any other Person, any merger of another Person with or into the
Company, or any conveyance, transfer, sale, lease or other disposition
of all or substantially all of the assets of the Company to another
Person (other than (a) any such transaction (x) which does not result
in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock and (y) pursuant to which holders of
Common Stock immediately prior to such transaction have the entitlement
to exercise, directly or indirectly, 50% or more of the total voting
power of all shares of capital stock entitled to vote generally in the
election of directors of the continuing or surviving Person immediately
after such transaction and (b) any merger which is effected solely to
change the jurisdiction of incorporation of the Company and results in
a reclassification, conversion or exchange of outstanding shares of
Common Stock into solely shares of common stock,
4. Events of Default. (a) "Event of Default", wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall 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) (A) default in the payment of any principal or premium, if
any, upon this Security when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or
otherwise or (B) default in the payment of any interest upon this
Security when it becomes due and payable, and continuance of such
default for a period of five (5) days; or
(2) default by the Company in the performance of its
obligations in respect of any conversion of this Security (or any
portion hereof) in accordance with Section 2; or
(3) failure by the Company to give any notice of a Change of
Control required to be delivered in accordance with Section 3(a); or
(4) default in the performance, or breach, of any material
covenant or warranty of the Company herein, in the Note Purchase
Agreement, or in the Registration
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<PAGE>
Rights Agreements (other than a covenant or warranty a default in the
performance or breach of which is specifically dealt with elsewhere in
this Section 4(a)) and continuance of such default or breach for a
period of 30 days after the earlier to occur of(A) the Company's
obtaining knowledge of such default or (B) the Company's receiving
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default"
hereunder; or
(5) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company furnished in
connection with the transactions contemplated hereby proves to have
been false or incorrect in any material respect on the date as of which
made; or
(6) a final judgment or judgments for the payment of money
aggregating in excess of $250,000 are rendered against one or more of
the Company and its Subsidiaries and which judgments are not, within 60
days after entry thereof, bonded, discharged or stayed pending appeal,
or are not discharged within 60 days after tile expiration of such
stay; or
(7) a default under all3, bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company, or under
any agreement, mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company. with a principal amount
then outstanding in excess of $1,000,000, whether such indebtedness now
exists or shall hereafter be created, which default shall constitute a
failure to pay the principal of such indebtedness (in whole or in any
part greater than $1,000,0003 when due and payable or shall have
resulted in such indebtedness (in whole or in any part greater than
$1,000.0003 becoming or being declared due and payable prior to the
date on which it would otherwise have become due and payable; or
(8) if(i) any Plan other than a Multiemployer Plan shall fail
to satisfy the minimum funding standards of ERISA or the Code for any plan year
or part thereof or a waiver of such standards or extension of any amortization
period is sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan other than a Multiemployer Plan shall have been or
is reasonably expected to be filed with the PBGC or the PBGC shall have
instituted proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any Plan other than a Multiemployer Plan or the PBGC shall
have notified the Company or any ERISA Affiliate that a Plan other than a
Multiemployer Plan may become a subject of any such proceedings, (iii) the
aggregate "amount of unfunded benefit liabilities" (within the meaning of
section 4001(a)(183 of ERISA) under all Plans other than a Multiemployer Plan,
determined in accordance with Title IV of ERISA, shall exceed $250,000, (iv) the
Company or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the Company
or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the
Company or any Subsidiary establishes or amends any employee welfare benefit
plan that provides post-employment wealthier benefits in a manner that would
increase the liability of the
18
<PAGE>
Company or any Subsidiary thereunder; and any such event or
events described in clauses (i) through (vi) above, either
individually or together with any other such event or events,
could reasonably be expected to have a Material Adverse
Effect. (As used in this Section 4(a)(8), the terms "employee
benefit plan" and "employee welfare benefit plan" shall have
the respective meanings assigned to such terms in Section 3 of
ERISA.); or
(9) if, as a result of any Change of Control
or any other consolidation or merger, the holding by
the Purchasers or any assignees thereof of this
Security or the holding of any Common Stock or common
stock of any Person succeeding the Company, issued to
the Purchasers or any assignees thereof after
conversion of this Security would constitute, with
respect to any Plan (other than a Multiemployer Plan)
a prohibited transaction which would violate the
prohibitions of section 406 of ERISA or which would
subject any "disqualified person" (as defined in
section 4975(e)(2) of the Code) to a tax pursuant to
section 4975(c)(1)(A)-(D) of the Code; or
(10) 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 any applicable
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 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
(11) the commencement by the Company of a
voluntary case or proceeding under any applicable
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 it to the entry of a
decree or order for relief in respect of the Company
in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a
petition or answer or consent seeking reorganization
or similar relief under any applicable Federal or
State law, or the consent by it to the filing of such
petition or to the appointment of or 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 it of an assignment
for the benefit of creditors, or not paying its debts
as they become due or the admission by it in writing
of its inability to pay its debts generally as they
become due, or the taking of corporate action by the
Company in furtherance of any such action.
(b) If an Event of Default (other than an
Event of Default specified in Section 4(a)(l0) or 4(a)(11))
occurs and is continuing, then in every such case the holder
of this Security may declare the principal hereof to be due
and payable immediately, by a notice in
19
<PAGE>
writing to the Company, and upon any such declaration such
principal and all accrued interest hereon shall become
immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby
expressly waived, and the Company shall forthwith upon any
such acceleration pay to the holder of this Security (i) the
entire principal of and interest accrued on this Security, and
(ii) in addition, to the extent permitted by applicable law,
an amount equal to the Make Whole Amount, as liquidated
damages and not as a penalty; and, in
case of the occurrence of an Event of Default of the character
described in subdivisions 4(a)(10) or 4(a)(11) the principal
of and accrued interest on this Security, ipso facto shall
become immediately due and payable without any declaration or
other act of the holder of this Security and without
presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived, and the Company shall
forthwith upon any such acceleration pay to the holder of this
Security (x) the entire principal of and interest accrued on
this Security and (y) in addition, if such Event of Default is
"Voluntary" (as hereinafter defined), to the extent permitted
by applicable law, an amount equal to the Make-Whole Amount,
as liquidated damages and not as a penalty.
For purposes of this section 4(a), "Voluntary" shall
mean an Event of Default of the character described in
subdivisions 4(a)(l 0) or 4(a)(11 ) which shall have been (x)
procured by the Company or any officer, director, stockholder
or Affiliate of the Company or (y) primarily the result of
action or inaction by the Company or by any officer, director,
stockholder or Affiliate of the Company.
(c) In case any one or more of the Events of
Default specified in section 4(a) shall have occurred, and
irrespective of whether this Security has become or has been
declared immediately due and payable under section 4(a), the
holder of this Security may proceed to protect and enforce its
rights either by suit in equity or by action at law, or both.
The Company stipulates that the remedies at law of the holder
of this Security in the event of any Default or threatened
Default by the Company in the performance of or compliance
width any covenant or agreement in this Security, the Note
Purchase Agreement or the Registration Rights Agreement are
not and will not be adequate and that, to the fullest extent
permitted by law, such terms may be specifically enforced by a
decree for the specific performance thereof, whether by an
injunction against a violation thereof or otherwise.
(d) No remedy conferred in this Security,
the Note Purchase Agreement or the Registration Rights
Agreement is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or thereunder
or now or hereafter existing at law or in equity or by statute
or otherwise.
(e) No course of dealing between the Company
and any of its Subsidiaries, on the one hand, and the holder
of this Security, on the other hand, and no delay by any such
holder in exercising any rights hereunder or under the Note
Purchase Agreement or the Registration Rights Agreement shall
operate as a waiver of any rights of such holder.
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<PAGE>
(f) In case any one or more of the Events of Default specified
in section 4(a) shall have occurred, all amounts to be applied to the prepayment
or payment of this Security shall be applied, after the payment of all related
costs and expenses incurred by the holder of this Security (including, without
limitation, compensation to any and all trustees, liquidators, receivers or
similar officials and reasonable fees, expenses and disbursements of counsel) in
such order of priority as is determined by the holder of this Security.
(g) The term "Make-Whole Amount" means, with respect to this
Security, an amount equal to the excess, if any, of the Discounted Value of the
Remaining Scheduled Payments with respect to the Called Principal of this
Security over the amount of such Called Principal, provided that the Make-Whole
Amount may in no event be less than zero. For the purposes of determining the
Make-Whole Amount, the following terms have the following meanings:
"Called Principal" means, with respect to this Security, the
principal of this Security that has become or is declared to be
immediately due and payable pursuant to Section 4(b).
"Discounted Value" means, with respect to the Called Principal
of this Security, the amount obtained by discounting all Remaining
Scheduled Payments with respect to such Called Principal from their
respective scheduled due dates to the Settlement Date with respect to
such Called Principal, in accordance with accepted financial practice
and at a discount factor (applied on the same periodic basis as that on
which interest on this Security is payable) equal to the Reinvestment
Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of this Security, 150 basis points over the yield to maturity
implied by (i) the yields reported, as of 10:00 A.M. (New York City
time) on the second Business Day preceding the Settlement Date with
respect to such Called Principal, on the display designated as "PX-I"
of the Bloomberg Financial Markets Services Screen for actively traded
U.S. Treasury securities having a maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date, or
(ii) if such yields are not reported as of such time or the yields
reported as of such time are not ascertainable, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such
yields have been so reported as of the second Business Day preceding
the Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between (1) the
actively traded U.S. Treasury security with the duration closest to and
greater than the Remaining Average Life and (2) the actively traded
U.S. Treasury security with the duration closest to and less than the
Remaining Average Life.
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<PAGE>
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payment" means, with respect to the
Called Principal of this Security, all payments of such Called
Principal and interest thereon that would be due after the Settlement
Date with respect to such Called Principal if no payment of such Called
Principal were made prior to its scheduled due date, provided that if
such Settlement Date is not a date on which interest payments are due
to be made under the terms of this Security, then the amount of the
next succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date.
"Settlement Date" means, with respect to the Called Principal
of this Security, the date on which such Called Principal or has become
or is declared to be immediately due and payable pursuant to Section
4(b).
5. Consolidation. Merger, Etc. (a) The Company shall not
consolidate with or merge into any other Person or, directly or indirectly,
convey, transfer, sell or lease all or substantially all of its properties and
assets to any Person, and the Company shall not permit any Person to consolidate
with or merge into the Company or, directly or indirectly, convey, transfer,
sell or lease all or substantially all of its properties and assets to the
Company, unless:
(1) in case the Company shall consolidate with or merge into
another Person or convey, transfer, sell or lease all or substantially
all of its properties and assets to any Person, the Person formed by
such consolidation or into which the Company is merged or the Person
which acquires by conveyance, transfer or sale, or which leases, all or
substantially all the properties and assets of the Company shall be a
corporation, limited liability company, partnership or trust, shall be
organized and validly existing under the laws of the United States of
America, any State thereof or the District of Columbia and shall
expressly assume, by an agreement supplemental hereto, executed and
delivered to the holder of this Security in form satisfactory to the
holder, the due and punctual payment of the principal of(and premium,
if any) and interest on this Security and the performance or observance
of every covenant of this Security on the part of the Company to be
performed or observed, including the conversion rights provided herein
(which shall thereafter relate to common stock of such successor, on a
basis reasonably designed to preserve the economic value to the holder
of this Security of such conversion rights);
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of the Company or
a Subsidiary of the Company as a result of such transaction as having
been incurred by the Company or such Subsidiary of the Company at the
time of such transaction, no Event of Default, and no
22
<PAGE>
event which, after notice or lapse of time or both, would become an
Event of Default, shall have happened and be continuing;
(3) the Company has delivered to the holder of this Security
an officers' certificate stating that such consolidation, merger,
conveyance, transfer, sale or lease and, if a supplemental agreement is
required in connection with such transaction, such supplemental
agreement, comply with this Section and that all conditions precedent
herein provided for relating to such transaction have been complied
with; and
(4) counsel for the Company has delivered to the holder of
this Security an opinion of such counsel with respect to such
consolidation, merger, conveyance, transfer, sale or lease, and if a
supplemental agreement is required in connection with such transaction,
such supplemental agreement, which opinion shall be, in form and
substance, reasonably acceptable to such holder and its counsel.
(b) Upon any consolidation of the Company with, or merger of
the Company into, any other Person or any conveyance, transfer, sale or lease of
all or substantially all of the properties and assets of the Company in
accordance with Section 5(a), the successor Person formed by such consolidation
or into which the Company is merged or to which such conveyance, transfer, sale
or lease is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under this Security with the same effect
as if such successor Person had been named as the Company herein, and
thereafter, except in the case of a lease, the predecessor Person shall be
relieved o fall obligations and covenants under this Security.
6. Payment in Stock. (a) The Company may elect to pay some or
all of the Repurchase Price by delivery of shares of Common Stock or shares of
common stock in any Person succeeding the Company, if and only if, each of the
following conditions shall be satisfied (without limiting any other conditions
contained herein):
(1) Any such payment shall be made in five equal installments,
on each of the five consecutive Trading Days ending on and including the third
Trading Day immediately preceding the date when any cash payment would otherwise
be due, and the shares of Common Stock or common stock of any Person succeeding
the Company deliverable in payment of each such installment shall have a fair
market value as of the date of such installment of not less than 20% of the
amount of such payment due hereunder which is payable in shares of stock. For
purposes of this Section 6, the fair market value of shares of Common Stock
shall be equal to 95% of the Closing Price for the immediately preceding Trading
Day;
(2) In the event any shares of Common Stock or common stock of
any Person succeeding the Company to be issued in respect of any amount due
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 of 1933 upon
23
<PAGE>
issuance, such registration shall have been completed and shall have become
effective prior to the date of the first such installment;
(3) In the event any shares of Common Stock or common stock of
any Person succeeding the Company to be issued in respect of any amount due
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 issuance or transferred freely, such registration shall
have been completed or have become effective and such approval shall have been
obtained, in each case, prior to the date of the first such installment;
(4) The shares of Common Stock or common stock of any Person
succeeding the Company deliverable in payment of such amount due hereunder shall
have been approved for quotation in the Nasdaq National Market immediately prior
to the date of the first such installment or, if at the time its shares of
Common Stock or shares of common stock of any Person succeeding the Company are
listed or admitted for trading on any national securities exchange, the shares
of Common Stock or common stock in any Person succeeding the Company and
deliverable shall have been so listed or admitted for trading.
(5) All shares of Common Stock or common stock of any Person
succeeding the Company deliverable in payment of such amount due hereunder
shall, upon issue, be duly and validly issued and fully paid and non-assessable
and free of any preemptive rights;
(6) In respect of each such payment date, the Company shall
have given the holder of this Security not less than 10 nor more than 15 Trading
Days' notice of its election to effect payment in respect of such payment date
by delivery of shares of Common Stock; provided that any such notice shall
accompany the Company's notice of a Change of Control relating thereto; and
(7) The Company shall deliver, or cause to be delivered a
certificate from the Person succeeding the Company which states, that after
giving effect to any Change of Control that the holding by the Purchasers or any
assignees thereof of this Security, or the holding of any Common Stock or common
stock of any Person succeeding the Company after conversion of this Security
would not constitute a prohibited transaction which would violate the
prohibition of section 406 of ERISA or which would subject any "disqualified
person" (as defined in section 4975(e)(2) of the Code) to a tax pursuant to
section 4975 (c)(1)(A)-(D) of the Code.
If all of the conditions set forth in this Section 6(a) are
not satisfied in accordance with the terms hereof, any such amount due hereunder
shall be paid by the Company only in cash.
(b) Any issuance of shares of Common Stock or shares of common
stock of any Person succeeding the Company in respect of any installment due
hereunder pursuant to this Section 6 shall be deemed to have been effected
immediately prior to the close of
24
<PAGE>
business on the date of delivery of such installment and the
person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon
such delivery shall be deemed to have become on such date the
holder or holders of record of the shares represented thereby;
provided, however, that in case any installment shall be due
on a date when the stock transfer books of the Company shall
be closed, the person or persons in whose name or names the
certificate or certificates for such shares are to be issued
shall be deemed to have become 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 pursuant to this
Section 6 declared prior to the relevant delivery date; and
(c) Any issuance and delivery of
certificates for shares of common stock or shares of common
stock of any Person succeeding the Company pursuant to this
Section 6 shall be made without charge to the holder of this
Security for such certificates or for any tax or duty in
respect of the issuance or delivery of such certificates or
the securities represented thereby.
7. Other. (a) No provision of this Security
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of, premium, if any, and interest on this
Security in cash at the times, places and rate, and in the coin or currency,
herein prescribed or to convert this Security as herein provided.
(b) The Company will give prompt written
notice to the holder of Security of any change in the location
of the Designated Office.
(c) The transfer of this Security is
registrable on the Security Register of the Company upon
surrender of this Security for registration of transfer at the
Designated Office, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the
Company duly executed by, the holder hereof or his attorney
duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated
transferee or transferees. Such Securities are issuable only
in registered form without coupons in denominations of $1,000
and any integral multiple thereof. No service charge shall be
made for any such registration of transfer, but the Company
may require payment of a sum sufficient to recover any tax or
other governmental charge payable in connection therewith.
Prior to due presentation of this Security for registration of
transfer, the Company and any agent of the Company may treat
the Person in whose name this Security is registered as the
owner thereof for all purposes, whether or not this Security
be overdue, and neither the Company nor any such agent shall
be affected by notice to the contrary.
(d) The Company shall keep at the Designated
Office a register for the registration and registration of
transfers of Convertible Notes. The name and address of each
holder of one or more Convertible Notes, each transfer thereof
and the name and address of each transferee of one or more
Convertible Notes shall be registered in such register. Prior
to due presentment for registration of transfer, the Person in
whose name any Convertible Note
25
<PAGE>
shall be registered shall be deemed and treated as the owner and holder thereof
for all purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary. The Company shall give to any holder of a Convertible
Note promptly upon request therefor, a complete and correct copy of the names
and addresses of all registered holders of Convertible Notes.
(e) Upon surrender of any Convertible Note at the Designated
Office for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such
Convertible Note or his attorney duly authorized in writing and accompanied by
the address for notices of each transferee of such Convertible Note or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Convertible Notes (as requested by
the holder thereof) in exchange therefor, in an aggregate principal amount equal
to the unpaid principal amount of the surrendered Convertible Note. Each such
new Convertible Note shall be payable to such Person as such holder may request
and shall be substantially in the form of this Security. Each such new
Convertible Note shall be dated and bear interest from the date to which
interest shall have been paid on the surrendered Convertible Note or dated the
date of the surrendered Convertible Note if no interest shall have been paid
thereon. The Company may require payment of a sum sufficient to cover any stamp
tax or governmental charge imposed in respect of any such transfer of this
Security. Convertible Notes shall not be transferred in denominations of less
than $100,000, provided that if necessary to enable the registration of transfer
by a holder of its entire holding of Convertible Notes, one Convertible Note may
be in a denomination of less than $100,000. Any transferee, by its acceptance of
a Convertible Note registered in its name (or the name of its nominee), shall be
deemed to have made the representation set forth in Section 3 of the Note
Purchase Agreement.
(f) Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Security (which evidence shall be notice from such holder of
such ownership and such loss, theft, destruction or mutilation), and
(i) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of this
Security is, or is a nominee for, an original holder or another
institutional investor holder of this Security, such Person's own
unsecured agreement of indemnity shall be deemed to be satisfactory),
or
(ii) in the case of mutilation, upon surrender and
cancellation thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Convertible Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Convertible
Note or dated the date of such lost, stolen, destroyed or mutilated Convertible
Note if no interest shall have been paid thereon.
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<PAGE>
(g) This Security shall be governed by and construed in
accordance with the laws of the State of New York, United States of America.
(h) So long as you or your nominee shall be holder of this
Security and notwithstanding anything in this Security to the contrary, the
Company will pay all sums becoming due hereunder for principal, Make-Whole
Amount, if any, and interest by the method and at the address specified for such
purpose below your name in Schedule I of the Note Purchase Agreement, or by such
other method provided in the Preamble or at such other address as you shall have
from time to time specified to the Company in writing for such purpose, without
the presentation or surrender of this Security, or the making of any notation
hereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment in full of this Security, you shall
surrender this Security for cancellation, reasonably promptly after any such
request to the Company at its principal executive office or at the place of
payment most recently designated by the Company. Prior to any sale or other
disposition of this Security you will, at your election, either endorse thereon
the amount of principal paid thereon and the last date to which interest has
been paid thereon or surrender this Security to the Company in exchange for a
new Convertible Note pursuant to the terms hereof. The Company will afford the
benefits of this Section to any institutional investor that is the direct or
indirect transferee of this Security.
[END OF PAGE - SIGNATURE PAGE FOLLOWS]
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<PAGE>
Signature Page of 9.00% Senior Convertible Note due January
20, 2004
1N WITNESS WHEREOF, the Company has caused this Security to be
duly executed under its corporate seal.
Dated: January 20, 1999
CELGENE CORPORATION
Name:
Title:
Attest:
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ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 3(a) of this Security, the
undersigned hereby elects to have all or a portion of this
Security repurchased by the Company.
2. The undersigned hereby directs the Company to pay
[choose one] (a) it or (b) Name: ; address: ; Social Security or Other
Taxpayer Identification Number, if any: , an amount in cash or equal to
100% of the principal amount to be repurchased (as set forth below), plus
interest accrued to the Repurchase Date, as provided herein.
Dated:
Signature
Number of shares of Common Stock owned by the holder and its affiliates:
Principal amount to be repurchased (an integral multiple of $1,000):
Remaining principal amount following such repurchase (not less than
$1,000):
NOTICE: The signature to the foregoing Election must correspond to the
name as written upon the face of this Security in every particular,
without alteration or any change whatsoever.
<PAGE>
CONVERSION NOTICE
The undersigned holder of this Security hereby irrevocably
exercises the option to convert this Security, or any portion of the principal
amount hereof (which is an integral multiple of $1,000) below designated, into
shares of Common Stock (subject to the limitation set forth in the second
paragraph of Section 2(a) of the Security) in accordance with the terms of this
Security, and directs that such shares, together with a check in payment for any
fractional share and any Security representing any unconverted principal amount
hereof, be delivered to and be registered in the name of the undersigned unless
a different name has been indicated below. If shares of Common Stock or
Securities are to be registered 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 by the undersigned on account of
interest accompanies this Security.
Dated:
Signature
Number of shares of Common Stock owned by the holder and its affiliates:
If shares or Securities are to be registered in If only a portion of the
Securities is to be the name of a person other than the holder, converted,
please indicate: please print such person's name and address:
1. Principal amount to be converted:
$
Name
2. Principal amount and denomination
of Security representing unconverted
principal amount to be issued:
Address
Amount: $
Denominations: $
(any integral multiple of $1,000)
Social Security or other Taxpayer
Identification Number, if any
EXHIBIT 10.24
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of January 20, 1999, by and between
Celgene Corporation, a Delaware corporation (the "Company"), and John Hancock
Mutual Life Insurance Company, John Hancock Variable Life Insurance Company,
Signature lA (Cayman) Ltd., Signature 3 Limited and Hancock Mezzanine Partners
L.P. (collectively, the "Purchasers" and singly, each "Purchaser") entered into
in connection with the issuance of a Convertible Note due January 20, 2004
convertible into shares of Common Stock, par value $.01 per share ("Common
Stock") of the Company.
1. Certain Definitions.
For purposes of this Registration Rights Agreement, the following terms
shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Exchange Act or the
Securities Act, whichever is the relevant statute for the particular purpose.
(b) Convertible Note" shall mean the Convertible Note due January 20, 2004,
of the Company to be issued and sold to the Purchaser, and any Convertible Note
issued in exchange therefor or in lieu thereof.
(c) "Effective Time" shall mean the date on which the Commission declares
the Shelf Registration effective or on which the Shelf Registration otherwise
becomes effective.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, or any
successor thereto and the rules and regulations promulgated thereunder, as the
same shall be amended from time to time.
(e) "Issue Date" shall mean the date on which a Convertible Note is
initially issued.
(f) The term "person" shall mean a corporation, association, partnership,
organization, business, individual, government or political subdivision thereof
or governmental agency.
(g) "Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
(h) "Securities Act" shall mean the Securities Act of 1933, or any
successor thereto and the rules and regulations promulgated thereunder, as the
same shall be amended from time to time.
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(i) "Shares" means the shares of Common Stock issuable upon exercise of the
Convertible Note.
(j) "Shelf Registration" shall have the meaning assigned thereto in Section
2 hereof.
In addition, capitalized terms not defined herein shall have the meaning
ascribed in the Convertible Note.
2. Shelf Registration of Shares.
(a) Not later than January 20, 2000, the Company shall file under the
Securities Act a "shelf" registration statement providing for the registration
of, and the sale on a continuous or delayed basis by the Purchasers of, all
shares issuable upon conversion of the Convertible Notes, pursuant to Rule 415
under the Securities Act and/or any similar rule that may be adopted by the
Commission (the "Shelf Registration"). The Company agrees to use its best
efforts to cause the Shelf Registration to become or be declared effective no
later than 45 calendar days after the filing thereof and to keep such Shelf
Registration continuously effective for a period ending on the earliest to occur
of (i) the second anniversary of the Issue Date, (ii) notification to the
Company by each Purchaser that it has sold all Shares issuable upon conversion
of the Convertible Notes so owned by it, or (iii) such time as the Purchasers
may sell all of such shares pursuant to Rule 144(k) under the Securities Act.
The Company further agrees, if necessary, to supplement or make amendments to
the Shelf Registration, if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration or by the Securities Act or rules and regulations thereunder for
shelf registration, and the Company agrees to furnish to each Purchaser copies
of any such supplement or amendment prior to its being used and/or filed with
the Commission, and will not file any such supplement or amendment to which any
Purchaser reasonably objects.
(b) Notwithstanding the foregoing, following the effectiveness of the Shelf
Registration, the Company many, at any time, suspend the effectiveness of such
Shelf Registration for up to 60 days, as appropriate (a "Suspension Period"), by
giving notice to each Purchaser, if the Company shall have determined that the
Company may be required to disclose any material corporate development which
disclosure may jeopardize a material transaction or otherwise have a material
adverse effect on the Company. The Company will use its best efforts to minimize
the length of any Suspension Period. Notwithstanding the foregoing, no more than
one Suspension Period may occur within any 180 day period, and no Suspension
Period shall be effective at any time the Company or any affiliate of the
Company is publicly selling shares of the capital stock of the Company (other
than pursuant to a registration statement on the Securities and Exchange
Commission Form S-8). The period of any such suspension of registration
statement shall be added to the period of time the Company agrees to keep the
Shelf Registration effective as provided in Section 2(a). Each Purchaser agrees
that, upon receipt of any notice from the Company of a Suspension Period, such
Purchaser shall forthwith discontinue disposition of shares covered by the Shelf
Registration until such Purchaser (i) is advised in writing by the Company that
the use of the
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<PAGE>
applicable prospectus may be resumed, (ii) has received copies of a supplemental
or amended prospectus, if applicable, and (iii) has received copies of any
additional or supplemental filings which are incorporation or deemed to be
incorporated by reference in such prospectus.
3. Registration Procedures.
(a) In connection with any obligation of the Company to register Shares,
the Company shall use its best efforts to effect or cause such registration to
permit the sale of the Shares by the Purchasers in accordance with the intended
method or methods of distribution thereof described in the applicable
registration statement. In connection therewith, the Company shall, within the
time specified in Section 2 above:
(i) prepare and file with the Commission a registration statement on any
form which may be utilized by the Company and which shall permit the disposition
of the Shares in accordance with the intended method or methods thereof, as
specified in writing by each Purchaser;
(ii) comply with the provisions of the Securities Act with respect to the
disposition of all of the Shares covered by such registration statement in
accordance with the intended methods of disposition by each Purchaser set forth
in such registration statements;
(iii) provide (A) each Purchaser, (B) the underwriters (which term, for
purposes of these Registration Rights, shall include a person deemed to be an
underwriter within the meaning of Section 2(11) of the Securities Act), if any,
thereof, (C) the sales or placement agent, if any, therefor, (D) counsel for
such underwriters or agent, and (E) counsel for the Purchasers the opportunity
to participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each amendment or
supplement thereto;
(iv) for a reasonable period prior to the filing of such registration
statement, and throughout the period specified in Section 2 hereof, make
available for inspection by the parties referred to in Section 3(a)(iii) above
who shall certify to the Company that they have a current intention to sell the
Shares pursuant to the registration statement such financial and other
information and books and records of the Company, and cause the officers,
employees, counsel and independent certified public accountants of the Company
to respond to such inquiries, as shall be reasonably necessary, in the judgment
of the respective counsel referred to in such Section, to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act; provided,
however, that each such party shall be required to maintain in confidence and
not to disclose to any other person any information or records provided by the
Company and clearly marked or otherwise adequately identified by the Company as
being confidential until such time as (A) such information becomes a matter of
public record (whether by virtue of its inclusion in
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<PAGE>
such registration statement or otherwise), or (B) such person shall be required
so to disclose such information pursuant to the subpoena or order of any court
or other governmental agency or body having jurisdiction over the matter or over
such party (subject to the requirements of such order, and only after such
person shall have given the Company prompt prior written notice of such
requirement), or (C) such information is required to be set forth in such
registration statement or the prospectus included therein or in an amendment to
such registration statement or an amendment or supplement to such prospectus in
order that such registration statement, prospectus, amendment or supplement, as
the case may be, does not contain an untrue statement of a material fact or omit
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(v) promptly notify each Purchaser, the sales or placement agent, if any,
therefor and the managing underwriter or underwriters, if any, thereof and
confirm such advice in writing, (A) when such registration statement or the
prospectus included therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to such registration
statement or any post-effective amendment, when the same has become effective,
(B) of any comments by the Commission and by the Blue Sky or securities
commissioner or regulator of any state with respect thereto or any request by
the Commission for amendments or supplements to such registration statement or
prospectus or for additional information, (C) of the issuance by the Commission
of any stop order suspending the effectiveness of such registration statement or
the initiation or overt threatening of any proceedings for that purpose, (D) if
at any time the representations and warranties of the Company contemplated by
Section 5 hereof cease to be true and correct in all material respects, (E) of
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Shares for sale in any jurisdiction or the initiation
or overt threatening of any proceeding for such purpose, or (F) at any time when
a prospectus is required to be delivered under the Securities Act, if such
registration statement, prospectus, prospectus amendment or supplement or
post-effective amendment, or any document incorporated by reference in any of
the foregoing, contains an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(vi) use its best efforts to obtain the withdrawal of any order suspending
the effectiveness of such registration statement or any post-effective amendment
thereto at the earliest practicable date;
(vii) if requested by any managing underwriter or underwriters, any
placement or sales agent or any Purchaser, promptly incorporate in a prospectus
supplement or post-effective amendment such information as is required by the
applicable rules and regulations of the Commission that such managing
underwriter or underwriters, such agent or such Purchaser specify should be
included therein
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<PAGE>
relating to the terms of the sale of such Shares, including, without limitation,
information with respect to the number of Shares being sold by such Purchaser or
agent or to any underwriters, the name and description of such Purchaser, agent
or underwriter, the offering price of such Shares and any discount, commission
or other compensation payable in respect thereof, the purchase price being paid
therefor by such underwriters and with respect to any other terms of the
offering of the Shares to be sold by such Purchaser or agent or to such
underwriters; and make all required filings of such prospectus supplement or
post-effective amendment promptly after notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(viii) furnish to each Purchaser, each placement or sales agent, if any,
therefor, each underwriter, if any, thereof and the respective counsel referred
to in Section 3(a)(iii) a copy of such registration statement in the form in
which it became effective, each such amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by reference
therein) and such number of copies of such registration statement (excluding
exhibits thereto and documents incorporated by reference therein unless
specifically so requested by any Purchaser, agent or underwriter, as the case
may be) and of the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents, as any Purchaser,
agent, if any, and underwriter, if any, may reasonably request in order to
facilitate the offering and disposition of the Shares owned by such Purchaser,
offered or sold by such agent or underwritten by such underwriter and to permit
such Purchaser, agent and underwriter to satisfy the prospectus delivery
requirements of the Securities Act; and the Company hereby consents to the use
of such prospectus (including such preliminary and summary prospectus) and any
amendment or supplement thereto by any Purchaser and by any such agent and
underwriter, in each case in the form most recently provided to such party by
the Company, in connection with the offering and sale of the Shares covered by
the prospectus (including such preliminary and summary prospectus) or any
supplement or amendment thereto;
(ix) use its best efforts to (A) register or qualify the Shares to be
included in such registration statement under such securities laws or blue sky
laws of such jurisdictions as each Purchaser and each placement or sales agent,
if any, therefor and underwriter, if any, thereof shall reasonably request, (B)
keep such registrations or qualifications in effect and comply with such laws so
as to permit the continuance of offers, sales and dealings therein in such
jurisdictions during the respective periods such registration statements are
required to remain effective under Section 2 above and for so long as may be
necessary to enable each Purchaser or any agent or underwriter to complete its
distribution of Shares pursuant to such registration statement and (C) take any
and all other actions as may be reasonably necessary or advisable to enable each
Purchaser, agent, if any, and underwriter, if any, to
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<PAGE>
consummate the disposition in such jurisdictions of such Shares; provided,
however, that the Company shall not be required for any such purpose to (I)
qualify as a foreign corporation in any jurisdiction wherein it would not
otherwise be required to qualify but for the requirements of this Section
3(a)(ix) or (II) consent to general service of process in any such jurisdiction;
(x) use its best efforts to obtain the consent or approval of each
governmental agency or authority, whether federal, state or local, which may be
required to effect the Shelf Registration or the offering or sale in connection
therewith or to enable the Purchaser to offer, or to consummate the disposition
of, its Shares;
(xi) cooperate with each Purchaser and the managing underwriters, if any,
to facilitate the timely preparation and delivery of any certificates
representing Shares to be sold, which certificates shall be printed,
lithographed or engraved, or produced by any combination of such methods, and
which shall not, once sold under the Shelf Registration, bear any restrictive
legends; and, in the case of an underwritten offering, enable such Shares to be
in such denominations and registered in such names as the managing underwriters
may request at least two business days prior to any sale of the Shares;
(xii) enter into one or more underwriting agreements, engagement letters,
agency agreements or similar agreements, as appropriate, including (without
limitation) customary provisions relating to indemnification and contribution,
and take such other actions in connections therewith as any Purchaser shall
reasonably request in order to expedite or facilitate the disposition of the
Shares;
(xiii) notify each Purchaser in writing of any proposal by the Company to
amend or waive any provision of these Registration Rights pursuant to Section
7(g) hereof and of any amendment or waiver effected pursuant thereto, each of
which notices shall contain the text of the amendment or waiver proposed or
effected, as the case may be;
(xiv) in the event that any broker-dealer registered under the Exchange Act
shall underwrite any Shares or participate as a member of an underwriting
syndicate or selling group or "assist in the distribution" (within the meaning
of the Rules of Fair Practice and the By-Laws of the National Association of
Securities Dealers, Inc. ("NASD")) thereof, whether as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or otherwise,
assist such broker-dealer in complying with the requirements of such Rules and
By-Laws, including, without limitation, by providing such information to such
broker-dealer as may be required in order for such broker-dealer to comply with
the requirements of the Rules of Fair Practice of the NASD;
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(xv) comply with all applicable rules and regulations of the Commission,
and make generally available to its security holders as soon as practicable but
in any event not later than eighteen months after the effective date of such
registration statement, an earning statement of the Company and in subsidiaries
complying with Section 11 (a) of the Securities Act (including, at the option of
the Company, Rule 158 thereunder); and
(xvi) use its best efforts to have the Shares approved for trading on the
Nasdaq National Market.
(b) In the event that the Company would be required, pursuant to Section
3(a)(v)(F) above, to notify each Purchaser, the placement or sales agent, if
any, therefor and the managing underwriters, if any, thereof, the Company shall
without delay prepare and furnish to each Purchaser, to each placement or sales
agent, if any, and to each underwriter, if any, a reasonable number of copies of
a prospectus supplemented or amended in form and substance reasonably
satisfactory to them, so that, as thereafter delivered to purchasers of Shares,
such prospectus shall 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 not misleading in light of the circumstances then existing.
Each Purchaser agrees that upon receipt of any notice from the Company pursuant
to Section 3(a)(v)(F) hereof, such Purchaser shall forthwith discontinue the
disposition of Shares pursuant to the registration statement applicable to such
Shares until such Purchaser shall have received copies of such amended or
supplemented prospectus, and if so directed by the Company, such Purchaser shall
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Purchaser's possession of the prospectus
covering such Shares at the time of receipt of such notice.
(c) The Company may require any Purchaser to furnish to the Company such
information regarding such Purchaser and such Purchaser's intended method of
distribution of the Shares as the Company may from time to time reasonably
request in writing, but only to the extent that such information is required in
order to comply with the Securities Act. Each Purchaser agrees to notify the
Company as promptly as practicable of any inaccuracy or change in information
previously furnished by such Purchaser to the Company or of the occurrence of
any event in either case as a result of which any prospectus relating to such
registration contains or would contain an untrue statement of a material fact
regarding such Purchaser or such Purchaser's intended method of distribution of
such Shares or omits to state any material fact regarding such Purchaser or such
Purchaser's intended method of distribution of such Shares required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and promptly to furnish to the Company any
additional information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with respect
to such Purchaser or the distribution of such Shares, 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 not misleading in light of the
circumstances then existing. Each Purchaser agrees that upon delivering any
notice to the Company pursuant to this Section 3(c), such Purchaser shall
forthwith discontinue the disposition of Shares pursuant to the registration
statement applicable to such Shares until such
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Purchaser shall have received copies of such amended or supplemented prospectus,
and if so directed by the Company, such Purchaser shall deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such Purchaser's possession of the prospectus covering such Shares at the time
of receipt of such notice.
4. Registration Expenses.
The Company agrees to bear and to pay or cause to be paid promptly upon
request being made therefor all expenses incident to the Company's performance
of or compliance with these Registration Rights as they relate to the Shelf
Registration, including, without limitation, (i) all Commission and any NASD
registration and filing fees and expenses, (ii) all fees and expenses in
connection with the qualification of the Shares for offering and sale under the
State securities and blue sky laws referred to in Section 3(a)(ix) hereof,
including reasonable fees and disbursements of counsel for the placement or
sales agent or underwriters in connection with such qualifications, (iii) all
fees and expenses in connection with the approval for trading of the Shares on
the Nasdaq National Market, (iv) all expenses relating to the preparation,
printing, distribution and reproduction of each registration statement required
to be filed hereunder, each prospectus included therein or prepared for
distribution pursuant hereto, each amendment or supplement to the foregoing, the
certificates representing the Shares and all other documents relating hereto,
(v) internal expenses (including, without limitation, all salaries and expenses
of the Company's officers and employees performing legal or accounting duties),
and (vi) fees, disbursements and expenses of counsel and independent certified
public accountants of the Company (including the expenses of any opinions or
"cold comfort" letters required by or incident to such performance and
compliance) (collectively, the "Registration Expenses"). Notwithstanding the
foregoing, such Purchaser shall pay all agency fees and commissions and
underwriting discounts and commissions attributable to the sale of the Shares
and the fees and disbursements of any counsel or other advisors or experts
retained by such Purchaser in connection with the sale of its shares.
5. Representations and Warranties.
The Company represents and warrants to, and agrees with, each
Purchaser that:
(a) Each registration statement covering Shares and each prospectus
(including any preliminary or summary prospectus) contained therein or furnished
pursuant to Section 3(a)(viii) hereof and any further amendments or supplements
to any such registration statement or prospectus, when it becomes effective or
is filed with the Commission, as the case may be, and, in the case of an
underwritten offering of Shares, at the time of the closing under the
underwriting agreement relating thereto will conform in all material respects to
the requirements of the Securities Act, and 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 not misleading; and at all
times subsequent to the Effective Time when a prospectus would be required to be
delivered under the Securities Act, other than from (i) such time as a notice
has been give to such Purchaser pursuant to Section 3(a)(v)F) hereof until (ii)
such time as the Company furnishes an amended or supplemented prospectus
pursuant to Section 3(b) hereof, each such registration statement, and each
prospectus
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(including any summary prospectus) contained therein or furnished pursuant to
Section 3(a)(viii) hereof, as then amended or supplemented, will conform in all
material respects to the requirements of the Securities Act, and 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 not
misleading in the light of the circumstances then existing; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished in
writing to the Company by such Purchaser expressly for use therein.
(b) Any documents incorporated by reference in any prospectus referred to
in Section 5(a) hereof, when they become or became effective or are or were
filed with the Commission, or if amended, when amended, as the case may be, will
conform or conformed in all material respects to the requirements of the
Exchange Act, and none of such documents will contain or contained an untrue
statement of a material fact or will omit or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by such Purchaser expressly
for use therein.
6. Indemnification.
(a) Indemnification by the Company. Upon the registration of Shares
pursuant to Section 2 hereof, and in consideration of the agreements of the
Purchasers contained herein, and as an inducement to the Purchasers to purchase
the Convertible Notes, the Company shall, and it hereby agrees to, indemnify and
hold harmless each Purchaser and each person who participates as a placement or
sales agent or as an underwriter in any offering or sale of such Shares against
any losses, claims, damages or liabilities, joint or several, to which such
Purchaser or any such agent or underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Shares were registered under the
Securities Act, or any preliminary, final or summary prospectus contained
therein or furnished by the Company to such Purchaser, agent or underwriter, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company shall, and it hereby agrees to, reimburse such Purchaser, such agent
and such underwriter for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company shall not be liable
to any such Person in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or preliminary, final or summary prospectus, or amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Person expressly for use therein; provided
further, however, that the Company shall not be liable to any such Person if
such Person failed to deliver a prospectus in the form most recently provided by
the Company (including any amendments or supplements thereto previously provided
by the
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Company), in any such case to the extent that any loss, claim, damage or
liability arises out of or is based upon an untrue statement or an omission
which was corrected in such most recently furnished prospectus (including any
such amendments or supplements).
(b) Indemnification by the Purchaser and any Agents and Underwriters. The
Company may require, as a condition to including any Shares in any registration
statement filed pursuant to Section 2 hereof and to entering into an
underwriting agreement, if any, with respect thereto, that the Company shall
have received an undertaking reasonably satisfactory to it from each
participating Purchaser and from each underwriter, if any, named in any such
underwriting agreement, severally and not jointly or jointly and severally, to
(i) indemnify and hold harmless the Company against any losses, claims, damages
or liabilities to which the Company may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof') arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, or any preliminary, final or summary prospectus contained therein or
furnished by the Company to any Purchaser, agent or underwriter, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such
Purchaser or underwriter expressly for use therein, and (ii) reimburse the
Company for any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such action or claim as such
expenses are incurred. Notwithstanding the above, the obligation of such
Purchaser for indemnity shall be limited to an amount equal to the net proceeds
received by such Purchaser in the applicable underwriting.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party
under subsection (a) or (b) above of written notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, such indemnifying party shall not be
liable to such indemnified party for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of investigation
unless, in the case of an indemnification obligation arising under Section (a),
(i) the employment of such additional counsel has been authorized in writing by
the Company in connection with defending such action,
10
<PAGE>
or (ii) the Company and the Purchaser are advised by such additional counsel
that the Purchaser has available defenses involving a potential conflict with
the interests of the Company, in which event, the fees and expenses of such
additional counsel shall be borne by the Company. No indemnifying party shall
consent to entry of any judgment or enter into any settlement of a claim against
an indemnified party without the consent of the indemnified party which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of an unconditional release from all liability in
respect to such claim or litigation.
(d) Contribution. Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 6(a) or Section 6(b) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by indemnified party on
the one hand and the indemnifying party on the other from any offering of the
Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party failed
to give the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the indemnifying party and the indemnified party
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and each Purchaser on the other shall be deemed to be in
the same proportion as the total purchase price received by the Company upon
issuance of the Convertible Note bears to the difference between the proceeds
from the offering of the Shares received by such Purchaser and such purchase
price. The relative fault of such indemnifying party and indemnified party shall
be determined by reference to, among other things, 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 such indemnifying party or by
such indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 6(d) were determined by pro rata
allocation (even if any Purchaser or any agents or underwriters or all of them
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 this Section 6(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, or liabilities (or actions in respect
thereof) referred to above shall be deemed to include any legal or other fees or
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), no Purchaser shall be required to contribute
any amounts in excess of the amount by which the dollar amount of the proceeds
received by such Purchaser from the sale of any Shares (after deducting any
fees, discounts and commissions applicable thereto) exceeds the amount of any
damages which such Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
underwriter shall be required to contribute any amount in excess of the amount
by
11
<PAGE>
which the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter 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 contribute from any person who was not
guilty of such fraudulent misrepresentation. Any underwriters' obligations in
this Section 6(d) to contribute shall be several in proportion to the principal
amount of Shares underwritten by them and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
each Purchaser, any agent and any underwriter and each person, if any, who
controls such Purchaser or any agent or underwriter within the meaning of the
Securities Act; and the obligations of each Purchaser and any agents and
underwriters contemplated by this Section 6 shall be in addition to any
liability which such Purchaser or any such agent or underwriter, respectively,
may otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who, with his consent,
is named in any registration statement as about to become a director of the
Company) and to each person, if any, who controls the Company within the meaning
of the Securities Act.
7. Miscellaneous
(a) No Inconsistent Agreements. The Company represents, warrants, covenants
and agrees that it has not granted, and shall not grant, registration rights
with respect to Shares or any other securities which would conflict with the
terms contained in these Registration Rights.
(b) Specific Performance. The parties hereto acknowledge that there may be
no adequate remedy at law if any party fails to perform any of its obligations
hereunder and that each party may be irreparably harmed by any such failure, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to compel specific
performance of the obligations of any other party under the Registration Rights
in accordance with the terms and conditions of these Registration Rights, in any
court of the United States or any State thereof having jurisdiction.
(c) Notices. Any notice or other communication required or permitted to be
given hereunder shall be deemed effectively given when personally delivered,
telexed, transmitted by facsimile or mailed by pre-paid certified mail, return
receipt requested, or by telephone when confirmed in writing by one of the
preceding methods addressed as follows (as applicable):
If to the Company, to:
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
12
<PAGE>
Attention: John W. Jackson
Telephone Number: (732) 271-1001
Facsimile Transmission Number: (732) 805-3931
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Robert A. Cantone, Esq.
Telephone Number: (212) 969-3000
Facsimile Transmission Number: (212) 969-2900
If to Purchasers, to the Person designated by Purchaser and at the address
as set forth on Schedule I in the Note Purchase Agreement dated the date
hereof between the Purchasers and the Company
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Attention: Frank B. Porter, Jr.
Telephone Number: (617) 248-5000
Facsimile Transmission Number: (617) 248-4000
or to such other address or number and to the attention of such other person as
either party may designate by written notice to the other party. Notice shall be
effective upon actual receipt.
(d) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in these Registration Rights or
made pursuant hereto shall remain in full force and effect regardless of any
investigation (or statement as to the results thereof) made by or on behalf of
each Purchaser, any director, officer or partner of such Purchaser, any agent or
underwriter or any director, officer or partner thereof, or any controlling
person of any of the foregoing and shall survive the transfer of the Shares by
such Purchaser.
(e) Law Governing. These Registration Rights shall be governed by and
construed in accordance with the laws of the State of New York.
(f) Headings. The descriptive headings of the several Sections and
paragraphs of these Registration Rights are inserted for convenience only, do
not constitute a part of these
13
<PAGE>
Registration Rights and shall not affect in any way the meaning or
interpretation of these Registration Rights.
(g) Entire Agreement; Amendments. These Registration Rights and the other
writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. These Registration Rights supersede all prior agreements and
understandings between the parties with respect to its subject matter. These
Registration Rights may be amended and the observance of any term of these
Registration Rights may be waived (either generally or in a particular instance
and either retroactively or prospectively) only be a written instrument duly
executed by the Company and each Purchaser.
(h) Assignment. In connection with any permitted transfer of the
Convertible Note or any portion thereof in a principal amount of not less than
$100,000 any Purchaser may assign its rights hereunder in respect of such
Convertible Note to the transferee. Upon such assignment the transferee shall,
insofar as the transferred Convertible Notes are concerned, be entitled to all
of the rights, and be subject to all of the obligations, of a Purchaser under
these Registration Rights, and all references to such "Purchaser" herein shall
thereafter be deemed to refer to the Purchaser, or such transferee, or both, as
the circumstances warrant.
(i) Counterparts. This agreement may be executed by the parties
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
[the remainder of this page is intentionally left blank]
14
<PAGE>
Signature Page of Registration Rights Agreement
Agreed to and accepted as of the date referred to above,
CELGENE CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
SIGNATURE 1 A (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance
Company, Portfolio Advisor
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
Signature Page of Registration Rights Agreement
Agreed to and accepted as of the date referred to above,
CELGENE CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
SIGNATURE lA (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance
Company, Portfolio Advisor
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
Signature Page of Registration Rights Agreement
Agreed to and accepted as of the date referred to above.
CELGENE CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title: Senior Investment Officer
--------------------------------
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By:
-----------------------------------
Name:
---------------------------------
Title: Senior Investment Officer
--------------------------------
SIGNATURE lA (CAYMAN), LTD.
By: John Hancock Mutual Life Insurance
Company, Portfolio Advisor
By:
-----------------------------------
Name:
---------------------------------
Title: Senior Investment Officer
--------------------------------
<PAGE>
Signature Page of Registration Rights Agreement Continued
Signature 3 Limited
By: John Hancock Mutual Life Insurance Company,
as Portfolio Advisor
By:
-----------------------------------
Name:
---------------------------------
Title: Senior Investment Officer
--------------------------------
Hancock Mezzanine Partners L.P.
By: Hancock Mezzanine Investments LLC, its General Partner
By: John Hancock Mutual Life Insurance Company.
as Investment Manager
By:
-----------------------------------
Name:
---------------------------------
Title: Senior Investment Officer
--------------------------------
EXHIBIT 10.25
CONFORMED COPY
NOTE PURCHASE AGREEMENT
July 6, 1999
To the Purchasers
listed on attached
Schedule I
Dear Sirs:
CELGENE CORPORATION (the "Company") wishes to confirm its arrangement with
the Purchasers named on Schedule I to this Agreement (the "Purchasers" and
singly each "Purchaser") in connection with the issuance to the Purchasers,
against payment in immediately available funds of the purchase price of 100% of
the principal amount thereof, of one or more senior convertible notes in the
form attached hereto as Exhibit A (collectively the "Convertible Notes") in an
aggregate principal amount of $15,000,000 and convertible initially into 789,474
fully paid and non-assessable shares (each a "Share") of the Company's Common
Stock, par value $.01 per share (the "Common Stock"), subject to adjustment as
set forth in the Convertible Notes.
Simultaneously with the issuance of the Convertible Notes pursuant to this
Agreement, the Company and the Purchasers have entered into a Registration
Rights Agreement, dated as of the date hereof(the "Registration Rights
Agreement"), pursuant to which the Company has agreed to register the Shares
under certain circumstances. Any capitalized term not defined herein shall have
the meaning ascribed to such term in the Convertible Notes.
1. AGREEMENT TO ISSUE AND ACCEPT. On the basis of the representations and
warranties made by the Company to induce the Purchasers to purchase the
Convertible Notes and subject to the terms and conditions set forth herein, the
Company will issue to each Purchaser, and each Purchaser will accept from the
Company, the Convertible Notes in the principal amount specified opposite such
Purchaser's name on Schedule I attached hereto at the purchase price of 100% of
the principal amount thereof against payment of the above-specified purchase
price therefor. The closing (the "Closing") of the issuance and acceptance of
the Convertible Notes against such payment shall take place on the date hereof,
at which time the Company shall deliver to each Purchaser the Convertible Notes,
against delivery by each Purchaser of a wire transfer of the purchase price to
the Company's account at PNC Bank New Jersey Trust, ABA No. 031000053, benefit
Account No. 8511074024, for further credit to Account No. 42432012020943,
Celgene Corporation, Attn: Lisa Goldhammer, Telephone No. (732) 220-3112. If at
the Closing the Company shall fail to tender the Convertible Notes to each
Purchaser as provided in this Section 1 or any of the conditions specified in
Section
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes
the representations and warranties set forth on Annex II hereto to the
Purchasers.
3. AGREEMENTS OF PURCHASER. Each Purchaser covenants and agrees with the
Company that:
(a) Such Purchaser will not offer, sell, assign, hypothecate or otherwise
transfer the Convertible Notes except (i) pursuant to an effective registration
statement under the Securities Act of 1933 (the "Act"), (ii) to a person you
reasonably believe to be an "accredited investor" within the meaning of Rule 501
under the Act, pursuant to an available exemption under the Act or (iii) in
offshore transactions within the meaning and meeting the requirements of Rule
903 under the Act.
(b) Such Purchaser will not offer, sell, assign, hypothecate or otherwise
transfer any Shares issued upon conversion of the Convertible Notes except (i)
pursuant to an effective registration statement under the Act; (ii) to a person
you reasonably believe to be an "accredited investor" within the meaning of Rule
501 under the Act, pursuant to an available exemption under the Act or (iii) in
an offshore transaction within the meaning and meeting the requirements of Rule
903 under the Act.
(c) Such Purchaser is an "accredited investor" within the meaning of Rule
501 under the Act.
(d) During the period that the Company is prohibited from making an
optional redemption under Section 1 of the Convertible Note, so long as a
Purchaser holds a Convertible Note, such Purchaser shall not undertake any form
of short sale, derivative or other transaction which has the effect of taking a
"short position" in the Common Stock of the Company to hedge such Purchaser's
investment in the Company, provided, however, that no affiliate of any Purchaser
shall be subject to the provisions of this subsection 3(d). The covenant
contained in this Section 3(d) shall be, subject to the limitations contained
herein, binding on any holder of a Convertible Note.
(e) Each Purchaser represents that at least one of the following statements
is an accurate representation as to each source of funds (a "Source") to be used
by such Purchaser to pay the purchase price of the Convertible Notes to be
purchased by it hereunder:
(i) the Source is an "insurance company general account" within the meaning
of Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (issued
July 12, 1995) and there is no employee benefit plan, treating as a single plan
all plans, maintained by the same employer (or affiliate thereof as defined in
Section V(a)(1) of PTE 95-60) or employee organization, with respect to which
the amount of the general account reserves and liabilities for all contracts
held by or on behalf of such plan exceeds ten percent (10%) of the total
reserves and liabilities of such general account (exclusive of separate account
liabilities) plus surplus, as set forth in the NAIC Annual Statement filed with
such Purchaser's state of domicile; or
2
<PAGE>
(ii) the Source is either (a) an insurance company pooled separate account,
within the meaning of Prohibited Transaction Exemption CPTE") 90-1 (issued
January 29, 1990), or (b) a bank collective investment fund, within the meaning
of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the
Company in writing pursuant to this paragraph (ii), no employee benefit plan or
group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled separate
account or collective investment fund; or
(iii) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified professional
asset manager" or "QPAM" (within the meaning of Part V of the QPAM 'Exemption),
no employee benefit plan's assets that are included in such investment fund,
when combined with the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client assets
managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption
are satisfied, neither the QPAM nor a person controlling or controlled by the
QPAM (applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5 % or more interest in the Company and (a) the identity of
such QPAM and (b) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company in writing
pursuant to this paragraph (iii); or
(iv) the Source is a governmental plan; or
(v) the Source is one or more employee benefit plans, or a separate account
or trust fund comprised of one or more employee benefit plans, each of which has
been identified to the Company in writing pursuant to this paragraph (e); or
(vi) the Source does not include assets of any employee benefit plan, other
than a plan exempt from the coverage of ERISA.
As used in this Section 3(e), the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
Prior to any holder of this Security transferring this Security, the holder of
this Security shall provide a certificate from such proposed subsequent
transferee wherein such proposed subsequent transferee shall make the
representations made in this Section 3(e) and shall simultaneously deliver any
disclosure letter required under Section 3(e)(iii). Such subsequent transferee's
failure to deliver such a certificate shall not relieve the Company from any of
the terms, covenants or conditions of this Security.
3
<PAGE>
4. AGREEMENTS OF THE COMPANY. From and after the date of this Agreement,
and thereafter so long as any of the Convertible Notes remain outstanding, the
Company will duly perform and observe, for the benefit of the holders of the
Convertible Notes, each and all of the covenants and agreements hereinafter set
forth:
(a) The Company shall deliver to each holder of a Convertible Note:
i. Quarterly Statements -- upon the earlier of (x) when the Company files
its Form 10-Q with the Securities and Exchange Commission for a fiscal period
and (y) 50 days after the end of each quarterly fiscal period in each fiscal
year of the Company (other than the last quarterly fiscal period of each such
fiscal year), duplicate copies of,
(1) a consolidated balance sheet of the Company and its Subsidiaries as at
the end of such quarter, and
(2) consolidated statements of income, changes in shareholders' equity and
cash flows of the Company and its Subsidiaries, for such quarter and (in the
case of the second and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported on and their
results of operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified above of
copies of the Company's Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this Section 4(a)(i);
ii. Annual Statements -- upon the earlier of(x) when the Company files its
Form 10-K with the Securities and Exchange Commission for a fiscal period and
(y) 105 days after the end of each fiscal year of the Company, duplicate copies
of,
(1) a consolidated balance sheet of the Company and its Subsidiaries, as at
the end of such year, and
(2) consolidated statements of income, changes in shareholders' equity and
cash flows of the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied
4
<PAGE>
(A) by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that suchfinancial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, and
(B) a certificate of such accountants stating that they have reviewed this
Agreement and stating further whether, in making their audit, they have become
aware of any condition or event that then constitutes a Default or an Event of
Default, and, if they are aware that any such condition or event then exists,
specifying the nature and period of the existence thereof (it being understood
that such accountants shall not be liable, directly or indirectly, for any
failure to obtain knowledge of any Default or Event of Default unless such
accountants should have obtained knowledge thereof in making an audit in
accordance with generally accepted auditing standards or did not make such an
audit),
provided that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together with the
Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3
under the Exchange Act) prepared in accordance with the requirements therefor
and filed with the Securities and Exchange Commission, together with the
accountant's certificate described in clause (B) above, shall be deemed to
satisfy the requirements of this Section 4(a)(ii);
iii. SEC and Other Reports -- promptly upon their becoming available, one
copy of (i) each financial statement, report, notice or proxy statement sent by
the Company or any Subsidiary to public securities holders generally, and (ii)
each regular or periodic report, each registration statement that shall have
become effective (without exhibits except as expressly requested by such
holder), and each prospectus and all amendments thereto filed by the Company or
any Subsidiary with the Securities and Exchange Commission and of all press
releases and statements in the nature thereof made available generally by the
Company or any Subsidiary to the public concerning developments that are
Material;
iv. Notice of Default or Event of Default -- promptly, and in any event
within five days after a Responsible Officer becoming aware of the existence of
any Default or Event of Default or that any Person has given any notice or taken
any action with respect to a claimed default under any of the Convertible Notes
or that any Person has given any notice or taken any action with respect to a
claimed default of the type referred to in Section
5
<PAGE>
4(a)(7) of the Convertible Notes, a written notice specifying the nature and
period of existence thereof and what action the Company is taking or proposes to
take with respect thereto;
v. ERISA Matters -- promptly, and in any event within five days after a
Responsible Officer becoming aware of any of the following, a written notice
setting forth the nature thereof and the action, if any, that the Company or an
ERISA Affiliate proposes to take with respect thereto:
(1) with respect to any Plan, any reportable event, as defined in section
4043(c) of ERISA and the regulations thereunder, for which notice thereof has
not been waived pursuant to such regulations as in effect on the date hereof; or
(2) the taking by the PBGC of steps to institute, or the threatening by the
PBGC of the institution of, proceedings under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with respect to such
Multiemployer Plan; or
(3) any event, transaction or condition that could result in the incurrence
of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV
of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate pursuant to Title I
or IV of ERISA or such penalty or excise tax provisions, if such liability or
Lien, taken together with any other such liabilities or Liens then existing,
could reasonably be expected to have a Material Adverse Effect;
vi. Notices from Governmental Authority -- promptly, and in any event
within thirty days of receipt thereof, copies of any notice to the Company or
any Subsidiary from any Federal or state Governmental Authority relating to any
order, ruling, statute or other law or regulation that could reasonably be
expected to have a Material Adverse Effect; and
vii. Requested Information -- with reasonable promptness, such other data
and information relating to the business, operations, affairs, financial
condition, assets or properties of the Company or any of its Subsidiaries or
relating to the ability of the Company to perform its obligations hereunder and
under the Convertible Notes as from time to time may be reasonably requested by
any such holder of Convertible Notes.
(b) The Company shall permit the representatives of each. holder of
Convertible
Notes:
6
<PAGE>
i. No Default -- if no Default or Event of Default then exists, at the
expense of such holder and upon reasonable prior notice to the Company, to visit
the principal executive office of the Company, to discuss the affairs, finances
and accounts of the Company and its Subsidiaries with the Company's officers,
and (with the consent of the Company, which consent will not be unreasonably
withheld) its independent public accountants, and (with the consent of the
Company, which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and each Subsidiary, all at such
reasonable times and as often as may be reasonably requested in writing; and
ii. Default -- if a Default or Event of Default then exists, at the expense
of the Company to visit and inspect any of the offices or properties of the
Company or any Subsidiary, to examine all their respective books of account,
records, reports and other papers, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
officers and independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such times and as often as may be
requested.
(c) The Company will and will cause each of its Subsidiaries to comply with
all laws, ordinances or governmental rules or regulations to which each of them
is subject, including, without limitation, Environmental Laws, and will obtain
and maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
(d) The Company will and will cause each of its Subsidiaries to maintain,
with financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated.
(e) The Company will and will cause each of its Subsidiaries to maintain
and keep, or cause to be maintained and kept, their respective properties in
good repair, working order and condition (other than ordinary wear and tear), so
that the business carried on in connection therewith may be properly conducted
at all times, provided that this Section shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
7
<PAGE>
(f) The Company will and will cause each of its Subsidiaries to file all
tax returns required to be filed in any jurisdiction and to pay and discharge
all taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
(g) The Company will at all times preserve and keep in full force and
effect its corporate existence. The Company will at all times preserve and keep
in full force and effect the corporate existence of each of its Subsidiaries
(unless merged into the Company or a Subsidiary) and all rights and franchises
of the Company and its Subsidiaries unless, in the good faith judgment of the
Company, the termination of or failure to preserve and keep in full force and
effect such corporate existence, right or franchise could not, individually or
in the aggregate, have a Material Adverse Effect.
(h) The Company will promptly notify the holders in the event the Company
discovers or determines that any computer application (including those of its
suppliers, vendors and customers) that is Material to its or any of its
Subsidiaries' business and operations will not be Year 2000 compliant, except to
the extent that such failure could not reasonably be expected to have a Material
Adverse Effect.
(i) The Company will not and will not permit any Subsidiary to enter into
directly or indirectly any transaction or Material group of related transactions
(including without limitation the purchase, lease, sale or exchange of
properties of any kind or the rendering of any service) with any Affiliate
(other than the Company or another Subsidiary), except in the ordinary course
and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon terms determined by the Company's Board of
Directors, in its good faith judgment, to be fair and reasonable terms and no
less favorable to the Company or such Subsidiary than would be obtainable in a
comparable transaction with a Person not an Affiliate.
5. CONDITIONS. The obligations of the Purchasers under this Agreement shall
be subject to the condition that all representations and warranties and other
statements of the Company herein are true and correct at and as of the closing
of the purchase and sale of the Convertible Notes, the condition that the
Company shall have performed all of its obligations hereunder theretofore to be
performed, and the following additional conditions:
8
<PAGE>
(a) Counsel for the Company specified in Annex III hereto shall have
furnished to you its written opinion, dated the date of such closing, in form
and substance satisfactory to each Purchaser, to the effect set forth in Annex
III hereto.
(b) On the date of such closing, the Company shall have furnished to each
Purchaser such appropriate further information, certificates and documents as
such Purchaser may reasonably request.
(c) The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.
(d) The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Convertible Notes, no Default or Event of Default shall have occurred and
be continuing.
(e) The Company shall have delivered to each Purchaser an Officer's
Certificate, dated the date of the Closing, certifying that the conditions
specified in Sections 5(c), 5(d) and 5(k) have been fulfilled.
(f) The Company shall have delivered to each Purchaser a certificate
certifying as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery of the
Convertible Notes and the Agreements.
(g) On the date of the Closing the purchase of Convertible Notes by each
Purchaser shall (i) be permitted by the laws and regulations of each
jurisdiction to which such Purchaser is subject, without recourse to provisions
(such as Section 1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the character of
the particular investment, (ii) not violate any applicable law or regulation
(including, without limitation, Regulation U, T or X of the Board of Governors
of the Federal Reserve System) and (iii) not Subject such Purchaser to any tax,
penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
any Purchaser, such Purchaser shall have received an Officer's Certificate
certifying as to such matters of fact as such Purchaser may reasonably specify
to enable such Purchaser to determine whether such purchase is so permitted.
(h) The Company shall sell the entire principal amount of the Convertible
Notes scheduled to be sold at the Closing as specified in Schedule I hereto.
(i) Without limiting the provisions of Section 6(f), the Company shall have
paid on or before the Closing the fees, charges and disbursements of the
Purchasers' special counsel.
9
<PAGE>
(j) A Private Placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the
Convertible Notes.
(k) The Company shall not have changed its jurisdiction of incorporation or
been a party to any merger or consolidation and shall not have succeeded to all
or any substantial part of the liabilities of any other entity, at any time
following the date of the most recently filed Exchange Act Report (defined
below).
(1) All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to each Purchaser and its special
counsel, and each Purchaser and its special counsel shall have received all such
counterpart originals or certified or other copies of such documents as such
Purchaser or it may reasonably request.
6. MISCELLANEOUS.
(a) This Agreement shall be binding upon, and inure solely to the benefit
of, the Purchasers and the Company and the respective successors and assigns
thereof, and no other person shall acquire or have any right under or by virtue
of this Agreement. No purchaser of the Convertible Notes from a Purchaser shall
be deemed a successor or assign by reason merely of such purchase.
(b) Any notice or other communication required or permitted to be given
hereunder shall be deemed effectively given when personally delivered, telexed,
transmitted by facsimile or mailed by pre-paid certified mail, return receipt
requested, or by telephone when confirmed in writing by one of the preceding
methods addressed as follows (as applicable):
If to the Company, to:
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
Attention: John W. Jackson
Telephone Number: (732) 271-1001
Facsimile Transmission Number: (732) 805-3931
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
10
<PAGE>
Attention: Robert A. Cantone, Esq.
Telephone Number: (212) 969-3000
Facsimile Transmission Number: (212) 969-2900
If to Purchaser:
at the address and to the Person appearing on Schedule I to this Agreement
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Attention: Frank B. Porter, Jr.
Telephone Number: (617) 248-5000
Facsimile Transmission Number: (617) 248-4000
or to such other address or number and to the attention of such other person as
either party may designate by written notice to the other party. Notice shall be
effective upon actual receipt.
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
(d) Time shall be of the essence in the performance of this Agreement.
(e) This Agreement may be executed by the parties hereto in any number of
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
(f) Whether or not the transactions contemplated hereby are consummated,
the Company will pay all costs and expenses (including reasonable attorneys'
fees of a special counsel) incurred by each Purchaser or holder of a Convertible
Note in connection with such transactions and in connection with any amendments,
waivers or consents under or in respect of this Agreement or the Convertible
Notes (whether or not such amendment, waiver or consent becomes effective),
including, without limitation: (3) the costs and expenses incurred in enforcing
or defending (or determining whether or how to enforce or defend) any rights
under this Agreement or the Convertible Notes or in responding to any subpoena
or other legal process or informal investigative demand issued in connection
with this Agreement or the Convertible Notes, or by reason of being a holder of
any Convertible Note, and (b) the costs and expenses, including financial
advisors' fees, incurred in connection with the insolvency or bankruptcy of the
Company or any Subsidiary or in connection with any work-out or restructuring of
the
11
<PAGE>
transactions contemplated hereby and by the Convertible Notes. The Company will
pay, and will save each Purchaser and each other holder of a Convertible Note
harmless from, all claims in respect of any fees, costs or expenses if any, of
brokers and finders (other than those retained by you).
(g) Anything in this Agreement or the Convertible Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Convertible Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day without including the additional days
elapsed in the computation of the interest payable on such next succeeding
Business Day.
(h) This Agreement and the Convertible Notes may be amended, and the
observance of any term hereof or of the Convertible Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and each of the holders.
(i) From time to time hereafter, the Company will execute and deliver, or
will cause to be executed and delivered, such additional agreements, documents
and instruments and will take all such other actions as any holder or holders of
the Convertible Notes may reasonably request
[END OF PAGE]
12
<PAGE>
for the purpose of implementing or effectuating the provisions contained herein,
in the Convertible Notes or in the Registration Rights Agreement.
Very truly yours,
CELGENE CORPORATION
By: /s/Robert J. Hugin
--------------------------------
Name: Robert J. Hugin
Title: Senior Voice President & CFO
Accepted as of the date hereof:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By:
By: /s/ Stephen J. Blewitt
---------------------------------------
Name: Stephen J. Blewitt
------------------------------------
Title: Senior Investment Officer
------------------------------------
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By:
By: /s/ Stephen J. Blewitt
---------------------------------------
Name: Stephen J. Blewitt
------------------------------------
Title: Senior Investment Officer
------------------------------------
By: /s/ Stephen J. Blewitt
---------------------------------------
Name: Stephen J. Blewitt
------------------------------------
Title: Senior Investment Officer
------------------------------------
13
<PAGE>
SCHEDULE I
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
$3,500,000 GENERAL ACCOUNT
$6,000,000 GUARANTEED BENEFIT SUB ACCOUNT
$200,000 SEPARATE ACCOUNT 12
1. All payments on account of the Convertible Notes or other obligations in
accordance with the provisions thereof shall be made by bank wire transfer
of immediately available funds for credit, not later than 12 noon, Boston
time, to:
BankBoston
ABA No. 011000390
Boston, Massachusetts 02110
Account of: John Hancock Mutual Life Insurance Company
Private Placement Collection Account
Account Number: 541-55417
On Order of: Celgene Corporation (PPN: 151020 A@3)
Celgene Corporation 9.00% Senior Convertible Notes due June 30, 2004
2. Contemporaneous with the above wire transfer, advice setting forth:
(1) the full name, interest rate and maturity date of the Convertible
Notes or other obligations;
(2) allocation of payment between principal and interest and any special
payment; and
(3) name and address of Bank (or Trustee) from which wire transfer was
sent shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3. All notices with respect to prepayments, both scheduled and unscheduled,
whether partial or in full, and notice of maturity shall be delivered or
faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
1 of 6
<PAGE>
Investment Accounting Division, B-3
Fax: 617-572-0628
4. All other communications which shall include, but not be limited to,
financial statements and certificates of compliance with financial
covenants, shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
5. A copy of any notices relating to change in issuer's name, address or
principal place of business or location of collateral and a copy of any
legal opinions shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Investment Law Division, T-50
Fax: 617-572-9268
6. All securities shall be registered in the name of: John Hancock Mutual Life
Insurance Company
7. Tax I.D. No. 04-1414660
2 of 6
<PAGE>
JOHN HANCOCK VARIABLE HFE INSURANCE COMPANY
$300,000
1. All payments on account of the Convertible Notes or other obligations in
accordance with the provisions thereof shall be made by bank wire transfer
of immediately available funds for credit, not later than 12 noon, Boston
time, to:
BankBoston
ABA No. 011000390
Boston, Massachusetts 02110
Account of: John Hancock Mutual Life Insurance Company
Private Placement Collection Account
Account Number: 541-55417
On Order of: Celgene Corporation (PPN: 151020 A@ 3)
Celgene Corporation 9.00% Senior Convertible Notes due June 30, 2004
2. Contemporaneous with the above wire transfer, advice setting forth:
(1) the full name, interest rate and maturity date of the Convertible
Notes or other obligations;
(2) allocation of payment between principal and interest and any
special payment; and
(3) name and address of Bank (or Trustee) from which wire transfer was
sent shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3. All notices with respect to prepayments, both scheduled and unscheduled,
whether partial or in full, and notice of maturity shall be delivered or
faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
3 of 6
<PAGE>
4. All other communications which shall include, but not be limited to,
financial statements and certificates of compliance with financial
covenants, shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
5. A copy of any notices relating to change in issuer's name, address or
principal place of business or location of collateral and a copy of any
legal opinions shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Investment Law Division, T-50
Fax: 617-572-9268
6. All securities shall be registered in the name of: John Hancock Variable
Life Insurance Company
7. Tax I.D. No. 04-2664016
4 of 6
<PAGE>
HANCOCK MEZZANINE PARTNERS L.P.
$5,000,000
1. All payments on account of the Convertible Notes or other obligations in
accordance with the provisions thereof shall be made by bank wire transfer
of immediately available funds for credit, not later than 12 noon, Boston
time, to:
Investors Bank & Trust Company
Boston, Massachusetts 02110
ABA No. 011001438
Account Number: 58215013
for further credit to Hancock Mezzanine Partners L.P., Account 99274
On Order of: Celgene Corporation (PPN: 151020 A@ 3)
Celgene Corporation 9.00% Senior Convertible Notes due June 30, 2004
2. Contemporaneous with the above wire transfer, advice setting forth:
(1) the full name, interest rate and maturity date of the Notes
or other obligations;
(2) allocation of payment between principal and interest and any
special payment; and
(3) name and address of bank (or Trustee) from which wire transfer
was sent shall be delivered or faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager Investment Accounting Division, B-3
Fax: 617-572-0628
3. All notices with respect to prepayments, both scheduled and unscheduled,
whether partial or in full, and notice of maturity shall be delivered or
faxed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Manager
Investment Accounting Division, B-3
Fax: 617-572-0628
4. All other communications which shall include, but not be limited to,
financial statements and certificates of compliance with financial
covenants, shall be delivered or faxed and mailed to:
5 of 6
<PAGE>
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Bond and Corporate Finance Group, T-57
Fax: 617-572-1605
5. A copy of any notices relating to change in issuer's name, address or
principal place of business or location of collateral and a copy of any
legal opinions shall be delivered or fixed and mailed to:
John Hancock Mutual Life Insurance Company
200 Clarendon Street
Boston, MA 02117
Attention: Investment Law Division, T-50
Fax: 617-572-9268
6. Execution documents shall be executed as follows:
Hancock Mezzanine Partners L.P.
By: Hancock Mezzanine Investments LLC, its General Partner
By: John Hancock Mutual Life Insurance Company. as Investment Manager
By:
-------------------------------------
[authorized John Hancock Officer]
7. All securities shall be registered in the name of: Hancock Mezzanine
Partners L.P.
8. Tax I.D. No. 04-3428544
6 of 6
<PAGE>
EXHIBIT A
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
CELGENE CORPORATION
9.00% SENIOR CONVERTIBLE NOTE DUE JUNE --, 2004
PPN No.:
No. R- $
----------
CELGENE CORPORATION, a corporation duly organized and existing under the
laws of Delaware (the "Company") for value received, hereby promises to pay to
or registered assigns, the principal sum of Dollars ($. )on June, 2004 and to
pay interest thereon, from , 1999, or from the most recent interest payment date
to which interest has been paid or duly provided for, semi-annually on June ----
and December in each year, commencing December ---,1999, at the rate of 9.00%
per annum, until the principal hereof is due, and at the rate of 11.00% per
annum on any overdue principal and premium, if any, and, to the extent permitted
by law, on any overdue interest. The interest so payable, and punctually paid or
duly provided for, on any interest payment date will 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 the June 1 or December 1 (whether or not a Business Day), as the case
may be, next preceding such interest payment date. Payment of the principal
of(and premium, if any, on) this Security shall be made upon the surrender of
this Security to the Company, at its office at 7 Powder Horn Drive, Warren, NJ
07059 (or such other office within the United States as shall be notified by the
Company to the holder hereof) (the "Designated Office"), 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, by transfer to a U.S.
dollar account maintained by the payee with a bank in the United States of
America. Payment of interest on this Security shall be made by wire transfer to
a U.S. dollar account maintained by the payee with a bank in the United States
of America, provided that if the holder shall not have furnished wire
instructions in writing to the Company no later than the record date relating to
an interest payment date, such payment may be made by U.S. dollar check mailed
to the address of the Person entitled thereto as such address shall appear
<PAGE>
This Security is one of the Company's 9.00% Senior Convertible Notes due
June 30, 2004, limited to $15,000,000.00 aggregate principal amount, issued
pursuant to that certain Note Purchase Agreement dated July 6, 1999 (such
agreements, as amended, modified and supplemented from time to time, the "Note
Purchase Agreement") between the Company and the Purchasers named therein, and
the holder hereof is entitled to the benefits of the Note Purchase Agreement,
and may enforce the agreements contained herein and therein and exercise the
remedies provided for hereby and thereby or otherwise available in respect
hereof and thereof, all in accordance with the terms hereof and thereof.
1. Optional Redemption With Premium. This Security is subject to redemption
upon not less than 30 nor more than 60 days' notice by mail, at any time on or
after July 6, 2001, as a whole or in part, (in any amount that is an integral
multiple of $1000) at the election of the Company, at a redemption price of 103%
the principal amount thereof, together with accrued interest to the redemption
date, but interest installments whose stated maturity is on or prior to such
redemption date will be payable to the holder of this Security, or one or more
predecessor Securities, of record at the close of business on the relevant
record dates referred to on the face hereof; provided, however, that the Company
may not redeem this Security on or prior to July 6, 2002 unless the Closing
Price of the Common Stock exceeds 225% of the Conversion Price for each Trading
Day in a period of 20 Consecutive Trading Days commencing not earlier than July
6, 2001. The term "Conversion Price" on any day shall equal $1,000 divided by
the Conversion Rate in effect on each such day.
2. Conversion. (a) The holder of this Security is entitled at any time on
or after July 6, 2000 and before the close of business on June 30, 2004 (or, in
case this Security or a portion hereof is called for redemption or the holder
hereof has exercised its right to require the Company to repurchase this
Security or a portion hereof, then in respect of this Security or such portion
hereof, as the case may be, until and including, but (unless the Company
defaults in making the payment due upon redemption or repurchase, as the case
may be) not after, the close of business on the redemption date or the
Repurchase Date, as the case may be) to convert this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000), into fully
paid and nonassessable shares (calculated as to each conversion to the nearest
1/100 of a share) of Common Stock of the Company at the rate of 52.63 shares of
Common Stock for each $1,000 principal amount of Security (or at the current
adjusted rate if an adjustment has been made as provided below) (the "Conversion
Rate") by surrender of this Security, duly endorsed or assigned to the Company
or in blank to the Company at the Designated Office, accompanied by written
notice to the Company that the holder hereof elects to convert this Security (or
if less than the entire principal amount hereof is to be converted, specifying
the portion hereof to be converted). Upon surrender of this Security for
conversion, the holder will be entitled to receive the interest accruing on the
principal amount of this Security then being converted from the interest payment
date next preceding the date of such conversion to such date of conversion. No
payment or adjustment is to be made on conversion for dividends on the Common
Stock issued on conversion hereof. No fractions of shares or scrip representing
fractions of shares will be issued on conversion, but instead of any fractional
interest, the Company shall pay a cash adjustment,
2
<PAGE>
computed on the basis of the Closing Price of the Common Stock on the date of
conversion, or, at its option, the Company shall round up to the next higher
whole share. This Security shall be deemed to have been converted immediately
prior to the close of business on the day of surrender hereof for conversion, in
accordance with the foregoing provisions, and at such time the rights of the
holder hereof, as a holder hereof, shall cease, and the Person or Persons
entitled to receive the Common Stock issuable on conversion shall be treated by
all Persons as the holder or holders of such Common Stock at such time. Upon any
partial conversion of this Security, the Company, at its expense, will forthwith
issue and deliver to, or upon the order of the holder hereof, a new Convertible
Note or Convertible Notes in principal amount equal to the unconverted principal
amount of such surrendered Convertible Note, such new Convertible Note or
Convertible Notes to be dated and to bear interest from the date to which
interest has been paid on such surrendered Convertible Note.
As promptly as possible after the conversion of this Security, in whole or
in part, and in any event within ten (10) days thereafter, the Company, at its
expense, will issue and deliver a certificate or certificates for the number of
full shares of Common Stock issuable upon such conversion.
(b) The Conversion Rate shall be subject to adjustments from time to time
as follows:
(1) In case the Company shall pay or make a dividend or other distribution
on any class of capital stock of the Company payable in shares of Common Stock,
the Conversion Rate in effect at the opening of business on the day following
the Determination Date for such dividend or other distribution shall be
increased by dividing such Conversion Rate by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on such Determination Date 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 increase to become effective immediately after the
opening of business on the day following such Determination Date. For the
purposes of this paragraph (1), 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.
(2) Subject to the last sentence of paragraph (7) of this Section 2(b), in
case the Company shall issue rights, options, warrants or convertible securities
entitling the holders thereof to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per share
(determined as provided in paragraph (8) of this Section 2(b)) of the Common
Stock on the Determination Date for such distribution, the Conversion Rate in
effect at the opening of business on the day following such Determination Date,
shall be increased by dividing such Conversion Rate by a fraction of
3
<PAGE>
which the numerator shall be the number of shares of Common Stock outstanding at
the close of business on such Determination Date plus the number of shares of
Common Stock which the aggregate amount received by the Company upon the
issuance of such rights, options, warrants or convertible securities plus the
aggregate amount receivable by the Company upon the exercise or conversion of
such rights, options, warrants or convertible securities would purchase at such
current market price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on such Determination Date plus the
number of shares of Common Stock so offered for subscription or purchase, such
increase to become effective immediately after the opening of business on the
day following such Determination Date provided, that no such adjustment need to
be made in the case of the granting by the Company to employees or directors of
the Company or consultants to the Company of Common Stock and/or options to
purchase Common Stock and the issuance of Common Stock upon the exercise of such
options. For the purposes of this paragraph (2), 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
issue any rights, options, warrants or convertible securities in respect of
shares of Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall each be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately reduced, such increase or
reduction, 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.
(4) Subject to the last sentence of paragraph (7) of this Section 2(b), in
case the Company shall, by dividend or otherwise, distribute evidences of its
indebtedness, shares of any class of capital stock, or other property (including
securities, but excluding (i) any rights, options, warrants or convertible
security referred to in paragraph (2) of this Section 2(b) (ii) any dividend or
distribution paid exclusively in cash, (iii) any dividend or distribution
referred to in paragraph (1) of this Section 2(b) and (iv) any merger or
consolidation to which Section 2(h) applies), the Conversion Rate shall be
adjusted so that the same shall equal the rate determined by dividing the
Conversion Rate in effect immediately prior to the close of business on the
Determination Date for such distribution by a fraction of which the numerator
shall be the current market price per share (determined as provided in paragraph
(8) of this Section 2(b)) of the Common Stock on such Determination Date less
the then fair market value (as determined in good faith by the Board of
Directors of the Company) of the portion of the assets, shares or evidences of
4
<PAGE>
indebtedness so distributed applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common Stock,
such adjustment to become effective immediately prior to the opening of business
on the day following such Determination Date provided, that no such adjustment
need be made in the case of an underwritten public offering of Common Stock in
which the shares of Common Stock are sold to the public at a price per share
equal to or in excess of 95% of the market price per share of the Common Stock
as of the date of the pricing of such underwritten public offering. If the Board
of Directors determines the fair market value of any distribution for purposes
of this paragraph (4) by reference to the actual or when issued trading market
for any securities comprising such distribution, it must in doing so consider
the prices in such market over the same period used in computing the current
market price per share pursuant to paragraph (8) of this Section 2(b).
(5) In case the Company shall, by dividend or otherwise, make a Cash
Distribution, then, and in each such case, immediately after the close of
business on the Determination Date for such Cash Distribution, the Conversion
Rate shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close of
business on such Determination Date by a fraction (a) the numerator of which
shall be equal to the current market price per share (determined as provided in
paragraph (8) of this Section 2(b)) of the Common Stock on such Determination
Date less an amount equal to the quotient of(l) the amount of such Cash
Distribution divided by (2) the number of shares of Common Stock outstanding on
such Determination Date and (b) the denominator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date.
(6) In case the Company or any Subsidiary shall make an Excess Purchase
Payment, then, and in each such case, immediately prior to the opening of
business on the day after the tender offer in respect of which such Excess
Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so
that the same shall equal the rate determined by dividing the Conversion Rate in
effect immediately prior to the close of business on the Determination Date for
such tender offer by a fraction (a) the numerator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date less an amount
equal to the quotient of (A) the Excess Purchase Payment divided by (B) the
number of shares of Common Stock outstanding (including any tendered shares) as
of the Determination Date less the number of all shares validly tendered and not
withdrawn as of the Determination Date and (b) the denominator of which shall be
equal to the current market price per share (determined as provided in paragraph
(8) of this Section 2(b)) of the Common Stock as of such Determination Date.
(7) The reclassification of Common Stock into securities other than Common
Stock (other than any reclassification upon a consolidation or merger to which
Section 2(h)
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applies) shall be deemed to involve (a) a distribution of such securities other
than Common Stock to all holders of Common Stock (and the effective date of such
reclassification shall be deemed to be the Determination Date), and (b) a
subdivision or combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such reclassification into the
number of shares of Common Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day upon
which such subdivision becomes effective" or "the day upon which such
combination becomes effective", as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of paragraph
(3) of this Section 2(b)). Rights, options, warrants or convertible securities
issued by the Company entitling the holders thereof to subscribe for or purchase
shares of Common Stock, which rights, options, warrants or convertible
securities (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, in each case in clauses (i) through (iii) until the
occurrence of a specified event or events ("Trigger Event"), shall for purposes
of this Section 2(b) not be deemed issued until the occurrence of the earliest
Trigger Event.
(8) Except as otherwise provided in the last sentence of this subsection
(8) of Section 2(b) for the purpose of any computation under paragraphs (2),
(4), (5) or (6) of this Section 2(b) the current market price per share of
Common Stock on any date shall be calculated by the Company and be deemed to be
the average of the daily Closing Prices for the five (5) consecutive Trading
Days selected by the Company commencing not more than ten (10) Trading Days
before, and ending not later than, the earlier of the day in question and the
day before the "ex date" with respect to the issuance or distribution requiring
such computation. For purposes of this paragraph, the term "ex date", when used
with respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way in the applicable securities market or on the
applicable securities exchange without the fight to receive such issuance or
distribution. The current market price with respect to any option issued to any
employee or director of the Company or consultant to the Company shall be the
fair market value on the date of grant determined by reference to the market
price on the day of the grant of such option or to the market price at the close
of business on the Trading Day immediately preceding such grant.
(9) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this paragraph
(9)) would require an increase or decrease of at least one percent in such rate;
provided, however, that any adjustments which by reason of this paragraph (9)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 2 shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case may
be.
(10) The Company may make such increases in the Conversion Rate, for the
remaining term of the Securities or any shorter term, in addition to those
required by
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paragraphs (1), (2), (3), (4), (5) and (6) of this Section 2(b) as it considers
to be advisable in order to avoid or diminish any income tax to any holders of
shares of Common Stock resulting from any dividend or distribution of stock or
issuance of rights, options, warrants or convertible securities to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
(c) Whenever the Conversion Rate is adjusted as provided in Section 2(b),
the Company shall compute the adjusted Conversion Rate in accordance with
Section 2(b) and shall prepare a certificate (the "Conversion Rate Certificate")
signed by the Senior Financial Officer of the Company setting forth the adjusted
Conversion Rate and showing in reasonable detail the facts upon which such
adjustment is based, and shall promptly deliver such certificate to the holder
of this Security. If the holders of the Convertible Notes and the Company cannot
agree in writing as to the adjusted Conversion Rate in accordance with Section
2(b), the holders of the Convertible Notes and the Company shall determine the
adjusted Conversion Rate in accordance with the following procedure. The holders
of the Convertible Notes and the Company shall each appoint one registered
securities broker, licensed with the Securities and Exchange Commission to sell
securities to the public, which broker shall be a senior vice president,
managing director or equivalent of a major securities brokerage company with
offices in New York, New York. Each of such brokers shall have no less than ten
(10) years experience in such field, shall be unaffiliated with, and their
employer securities brokerage company shall be unaffiliated with, the holders of
the Convertible Notes and the Company and shall not have previously participated
in any underwriting of the Company's Common Stock in any public offering or
provided any Material investment banking or corporate advisory services to the
Company. The holders of the Convertible Notes and the Company shall make their
appointments promptly and, in any event, within thirty (30) days from the date
of the Conversion Rate Certificate. The two brokers shall meet and shall be
instructed to render a determination of the adjusted Conversion Rate to the
holders of the Convertible Notes and the Company within sixty (60) days of the
date of the Conversion Rate Certificate. If the two brokers cannot agree, then
each broker shall render their independent determination and the two brokers
shall simultaneously therewith provide the name of a third broker acceptable to
the two brokers meeting the criteria set forth above. The third broker shall be
instructed to render a determination of the adjusted Conversion Rate within
thirty (30) days of his or her appointment. The two closest determinations of
the adjusted Conversion Rate shall be averaged mad shall constitute the adjusted
Conversion Rate. If the two brokers cannot agree upon a third broker, the
selection of a third broker shaI1 be submitted to binding arbitration in New
York, New York under the rules of the American Arbitration Association. In the
event that the difference between the Company's calculation of the adjusted
Conversion Rate and the calculation of the adjusted Conversion Rate determined
by the foregoing process is five percent (5%) or greater then the costs and
expenses of the brokers and any arbitration shall be paid by and be the
obligation of the Company and in the event that such difference is less than
five percent (5O/o) the holders of the Convertible Notes (as a group) shall each
pay its pro rata share of 50% of such costs and expenses and the Company shall
pay 50% of such costs and expenses.
(d) In case:
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(1) the Company shall declare a dividend or other distribution on its
Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively
in cash in an amount that would require any adjustment pursuant to Section 2(b);
or
(2) the Company shall authorize the granting to the holders of its Common
Stock of rights, options, warrants or convertible securities to subscribe for or
purchase any shares of capital stock of any class or of any other rights; or
(3) of any reclassification of the Common Stock of the Company, or of any
consolidation, merger or share exchange to which the Company is a party and for
which approval of any shareholders of the Company is required, or of the
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company; or
(5) the Company or any Subsidiary shall commence a tender offer for all or
a portion of the Company's outstanding shares of Common Stock (or shall amend
any such tender offer);
then the Company shall cause to be delivered to the holder of this Security, at
least 20 days (or 10 days in any case specified in clause (1) or (2) above)
prior to the applicable record, expiration or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights, options, warrants or
convertible securities or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution, rights, options, warrants or convertible securities are to be
determined, (y) the date on which the right to make tenders under such tender
offer expires or (z) the date on which such reclassification, consolidation,
merger, share exchange, conveyance, transfer, sale, lease, dissolution,
liquidation or winding up is expected to become effective, and the dale as 0f
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, share exchange,
conveyance, transfer, sale, lease, dissolution, liquidation or winding up.
Neither the failure to give such notice nor any defect therein shall affect the
legality or validity of the proceedings described in clauses (1) through (5) of
this Section 2(d).
(e) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of the Security, the full number of shares
of Common Stock then issuable upon the conversion of this Security.
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<PAGE>
(f) Except as provided in the next sentence, the Company will pay any and
all taxes and duties that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of this Security. The Company shall not,
however, 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 this Security, 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.
(g) The Company agrees that all shares of Common Stock which may be
delivered upon conversion of the Security, upon such delivery, will have been
duly authorized and validly issued and will be fully paid and nonassessable (and
shall be issued out of the Company's authorized but unissued Common Stock) and,
except as provided in the second sentence of Section 2(0, the Company will pay
all taxes, liens and charges with respect to the issue thereof.
(h) In case of any consolidation of the Company with any other Person, any
merger of the Company into another Person or of another Person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the Company)
or any conveyance, sale, transfer or lease of all or substantially all of the
properties and assets of the Company, the Person formed by such consolidation or
resulting from such merger or which acquires such properties and assets, as the
case may be, shall execute and deliver to the holder of this Security a
supplemental agreement providing that such holder has the right, during the
period this Security shall be convertible as specified in Section 2(a), to
convert this Security only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease (including any Common Stock retainable) 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,
sale, transfer or lease, assuming such holder of Common Stock of the Company (i)
is not a Person with which the Company consolidated, into which the Company
merged or which merged into the Company or to which such conveyance, sale,
transfer or lease was made, as the case may be (a "Constituent Person"), or an
Affiliate of a Constituent Person and (ii) failed to exercise its fights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease (provided that if the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer,
or lease is not the same for each share of Common Stock of the Company held
immediately prior to such consolidation, merger, conveyance, sale, transfer or
lease by others than a Constituent Person or an Affiliate of a Constituent
Person and in respect of which such fights of election shall not have been
exercised ("Non-electing Share"), then for the purpose of this Section 2(h) the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease by the holders of
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
agreement shall provide for adjustments which, for events subsequent to the
effective date of such
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<PAGE>
supplemental agreement, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 2. The above provisions of this
Section 2(h) shall similarly apply to successive consolidations, mergers,
conveyances, sales, transfers or leases. In this paragraph, "securities of the
kind receivable" upon such consolidation, merger, conveyance, transfer, sale or
lease by a holder of Common Stock means securities that, among other things, are
registered and freely transferable under the Securities Act, and listed and
approved for quotation in all securities markets, in each case to the same
extent as such securities so receivable by a holder of Common Stock.
(i) The Company (i) will effect all registrations with, and obtain all
approvals by, all governmental authorities that may be necessary under any
United States Federal or state law (including the Securities Act, the Exchange
Act arid state securities and Blue Sky laws) for the shares of Common Stock
issuable upon conversion of this Security to be lawfully issued and delivered as
provided herein, and thereafter publicly traded (if permissible under the
Securities Act) and qualified or listed as contemplated by clause (ii) (it being
understood that the Company shall not be required to register the Common Stock
issuable on conversion hereof under the Securities Act, except pursuant to the
Registration Rights Agreement between the Company and the initial holder of this
Security); and (ii) will list the shares of Common Stock required to be issued
and delivered upon conversion of Securities, prior to such issuance or delivery,
on each national securities exchange on which outstanding Common Stock is listed
or quoted at the time of such delivery, or if the Common Stock is not then
listed On any securities exchange, to qualify the Common Stock for quotation on
the Nasdaq National Market or such other inter-dealer quotation system, if any,
on which the Common Stock is then quoted.
(j) For purposes hereof: (references to Sections shall mean Sections of
this Security unless otherwise specified)
"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.
"Business Day" means any day other than a Saturday, a Sunday or other day
which shall be in Boston, Massachusetts or New York, New York or a legal holiday
or a day on which commercial banks in Boston, Massachusetts or New York, New
York are required or authorized to be closed.
"Cash Distribution" means the distribution by the Company to holders of its
Common Stock of cash, other than any cash that is distributed upon a merger or
consolidation to which Section 2(h) applies or as part of a distribution
referred to in paragraph (4) of Section 2(b).
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<PAGE>
"Change of Control" is defined in Section 3(0(2).
"Closing" is defined in Section 1 of the Note Purchase Agreement.
"Closing Price" means, with respect to the Common Stock of the Company, for
any day, the reported last sale price per share on the Nasdaq National Market,
or, if the Common Stock is not admitted to trading on the Nasdaq National
Market, on the principal national securities exchange or inter-dealer quotation
system on which the Common Stock is listed or admitted to trading, or if not
admitted to trading on the Nasdaq National Market, or listed or admitted to
trading on any national securities exchange or inter-dealer quotation system,
the average of the closing bid and asked prices per share in the
over-the-counter market as furnished by any New York Stock Exchange member firm
selected from time to time by the Company for that purpose.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 2(h), shares issuable on conversion or
repurchase of this Security shall include only shares of Common Stock or shares
of any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of this
Security shall include shares of all such classes, and 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.
"Convertible Note(s)"shall mean one or more of the Company's 9.00% Senior
Convertible Notes due June ---, 2004.
"Conversion Price" is defined in Section 1.
"Conversion Rate" is defined in Section 2(a).
"Default" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
"Designated Office" is defined in the Preamble.
"Determination Date" means, in the case of a dividend or other
distribution, including the issuance of rights, options, warrants or convertible
securities, to the date fixed for the determination of those entitled to receive
such dividend or other distribution, and in the case of a tender offer, the last
time that tenders could have been made pursuant to such tender offer.
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"Environmental Laws" means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, licenses, written agreements or written governmental restrictions
relating to pollution and the protection of the environment or the release of
any materials into the environment, including but not limited to those related
to hazardous substances or wastes, air emissions and discharges to waste or
public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
"Excess Purchase Payment" means the product of (A) the excess, if any, of
(i) the amount of cash plus the fair market value (as determined in good faith
by the Company's Board of Directors) of any non-cash consideration required to
be paid with respect to one share of Common Stock acquired or to be acquired in
a tender offer made by the Company or any Subsidiary of the Company for all or
any portion of the Common Stock over (ii) the current market price per share as
of the last time that tenders could have been made pursuant to such tender offer
and (B) the number of shares validly tendered and not withdrawn as of the
Determination Date in respect of such tender offer.
"Event of Default" is defined in the preamble to Section 4.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, all as the same shall
be in effect from time to time.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Hazardous Materials" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
remediation of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
restricted, prohibited or penalized by any applicable Environmental Law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"holder" means, with respect to this Security or any other Convertible
Note, the Person in whose name it is registered in the register maintained by
the Company pursuant to Section 6(d).
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"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease (as defined
by GAAP), upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust agreements
and all similar arrangements).
"Make-Whole Amount" is defined in Section 4(g).
"Material" means material in relation to the business, operations, affairs,
financial condition, assets, properties, or prospects of the Company and its
Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets, properties or
prospects of the Company and its Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under the Note Purchase
Agreement, the Registration Rights Agreement and the Convertible Notes, or (c)
the validity or enforceability of this Agreement or the Convertible Notes.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).
"Note Purchase Agreement" is defined in the Preamble.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Purchaser(s)" JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY; JOHN HANCOCK
VARIABLE LIFE INSURANCE COMPANY and HANCOCK MEZZANINE PARTNERS
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the date hereof among the Purchasers and the Company.
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<PAGE>
"Repurchase Date" is defined in Section 3(a).
"Repurchase Price" is defined in Section 3(a).
"Responsible Officer" means any Senior Financial Officer and any other
senior officer of the Company with responsibility for the administration of the
relevant covenants in this Security or in the Note Purchase Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor Federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, all as the same shall be in effect
from time to time.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
"Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.
"Trading Day" means (i) if the Common Stock is admitted to trading on the
Nasdaq National Market or any other system of automated dissemination of
quotations of securities prices, a day on which trades may be effected through
such system; (ii) if the Common Stock is listed or admitted for trading on the
New York Stock Exchange or any other national securities exchange, a day on
which such exchange is open for business; or (iii) if the Common Stock is not
admitted to trading on the Nasdaq National Market or listed or admitted for
trading on any national securities exchange or any other system of automated
dissemination of quotation of securities prices, a day on which the Common Stock
is traded regular way in the over-the-counter market and for which a closing bid
and a closing asked price for the Common Stock are available.
3. Right to Require Repurchase. (a) In the event that a Change in Control
shall occur, then the holder of this Security shall have the right, at such
holder's option, to require the Company to repurchase, and upon the exercise of
such fight the Company shall repurchase, this Security, or any portion of the
principal amount hereof that is equal to $1,000 or any integral multiple
thereof, on the date (the "Repurchase Date") that is thirty (30) Trading Days
after the date on which the Company gives notice thereof to the holder of this
Security, at a purchase price equal to 100% of the principal amount of this
Security to be repurchased plus interest accrued to
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<PAGE>
the Repurchase Date (the "Repurchase Price"); provided, however, that
installments of interest on this Security whose stated maturity is on or prior
to the Repurchase Date shall be payable to the holder of this Security, or one
or more predecessor Securities, registered as such on the relevant Record Date
according to their terms. 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 each of Section 5 and Section 6 and subject to the limitations set
forth in each of Section 5 and Section 6, by delivery of shares of Common Stock
or in common stock of any Person which succeeds the Company up to a maximum
amount often percent (10%) of the then issued and outstanding Common Stock or
common stock of such Person following any Change in Control, provided, however,
the cash plus the fair market value of such shares shall equal the Repurchase
Price. The Company agrees to give the holder of this Security notice of any
Change in Control, by facsimile transmission confirmed in writing by overnight
courier service, promptly and in any event within two (2) Trading Days of the
occurrence thereof.
(b) To exercise a repurchase right, the holder shall deliver to the Company
on or before the 10th Trading Day prior to the Repurchase Date, together with
this Security, written notice of the holder's exercise of such right, which
notice shall set forth the name of the holder, the number of shares of Common
Stock then owned by such holder and its affiliates, the principal amount of this
Security to be repurchased (and, if this Security is to be repurchased in part,
the portion of the principal amount thereof to be repurchased and the name of
the person in which the portion thereof to remain outstanding after such
repurchase is to be registered) and 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 whole or in part by the delivery of shares, as provided
above, the name or names (and the addresses) in which the certificates for
shares shall be issued. Such written notice shall be irrevocable, except that
the fight of the holder to convert this Security (or the portion hereof with
respect to which the repurchase right is being exercised) shall continue until
the close of business on the Repurchase Date (or if the Company elects to pay
the Repurchase Price by delivery of shares as provided above, until the close of
business on the Trading Day immediately preceding the first delivery of shares
with respect thereto).
(c) In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid to the holder the
Repurchase Price in cash or shares, as provided above, together with accrued and
unpaid interest to the Repurchase Date; provided, however, that installments of
interest that mature on or prior to the Repurchase Date shall be payable in
cash, to the holders of this Security, or one or more predecessor Securities,
registered as such at the close of business on the relevant regular record date.
(d) If this Security (or portion thereof) is surrendered for repurchase and
is not so paid on or prior to the Repurchase Date, the principal amount of this
Security (or such portion hereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date at
eleven percent (11%) per annum, and shall remain convertible into Common Stock
until the principal of this Security (or portion thereof, as the case may be)
shall have been paid or duly provided for.
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(e) If this Security is to be repurchased only in part, it shall be
surrendered to the Company at the Designated Office (with, if the Company so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company duly executed by, the holder hereof or his attorney
duly authorized in writing), and the Company shall execute and make available
for delivery to the holder without service charge, a new Security or Securities,
containing identical terms and conditions, each in an authorized denomination in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Security so surrendered.
(f) For purposes of this Section 3.
(1) the term "beneficial owner" shall be determined in accordance with Rule
13d-3 promulgated by the Securities and Exchange Commission pursuant to the
Exchange Act; and
(2) a "Change in Control" shall be deemed to have occurred at the time,
after the original issuance of this Security, of:
(i) the acquisition by any Person of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling such
Person to exercise 50% or more of the total voting power of all shares of
capital stock of the Company entitled to vote generally in the election of
directors (any shares of voting stock of which such Person is the beneficial
owner that are not then outstanding being deemed outstanding for purposes of
calculating such percentage) other than any such acquisition by the Company or
any employee benefit plan of the Company; or
(ii) any consolidation or merger of the Company with or into, any other
Person, any merger of another Person with or into the Company, or any
conveyance, transfer, sale, lease or other disposition of all or substantially
all of the assets of the Company to another Person (other than (a) any such
transaction (x) which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock and (y) pursuant
to which holders of Common Stock immediately prior to such transaction have the
entitlement to exercise, directly or indirectly, 50% or more of the total voting
power of all shares of capital stock entitled to vote generally in the election
of directors of the continuing or surviving Person immediately after such
transaction and (b) any merger which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock into solely shares
of common stock,
4. Events of Default. (a) "Event of Default", wherever used herein, means
any one of the following events (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment,
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decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) (A) default in the payment of any principal or premium, if any, upon
this Security when the same becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration or otherwise or (B) default in the
payment of any interest upon this Security when it becomes due and payable, and
continuance of such default for a period of five (5) days; or
(2) default by the Company in the performance of its obligations in respect
of any conversion of this Security (or any portion hereof) in accordance with
Section 2; or
(3) failure by the Company to give any notice of a Change of Control
required to be delivered in accordance with Section 3(a); or
(4) default in the performance, or breach, of any material covenant or
warranty of the Company herein, in the Note Purchase Agreement, or in the
Registration Rights Agreements (other than a covenant or warranty a default in
the performance or breach of which is specifically dealt with elsewhere in this
Section 4(a)) and continuance of such default or breach for a period of 30 days
after the earlier to occur of(A) the Company's obtaining knowledge of such
default or (B) the Company's receiving written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(5) any representation or warranty made in writing by or on behalf of the
Company or by any officer of the Company furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect in any
material respect on the date as of which made; or
(6) a final judgment or judgments for the payment of money aggregating in
excess of $250,000 are rendered against one or more of the Company and its
Subsidiaries and which judgments are not, within 60 days after entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay; or
(7) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company, or under any agreement,
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by the
Company, with a principal amount then outstanding in excess of $1,000,000,
whether such indebtedness now exists or shall hereafter be created, which
default shall constitute a failure to pay the principal of such indebtedness (in
whole or in any part greater than $1,000,000) when due and payable or shall have
resulted in such indebtedness (in whole or in any part greater than $1,000,000)
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable; or
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(8) if (i) any Plan other than a Multiemployer Plan shall fail to satisfy
the minimum funding standards of ERISA or the Code for any plan year or part
thereof or a waiver of such standards or extension of any amortization period is
sought or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan other than a Multiemployer Plan shall have been or is
reasonably expected to be filed with the PBGC or the PBGC shall have instituted
proceedings under ERISA section 4042 to terminate or appoint a trustee to
administer any Plan other than a Multiemployer Plan or the PBGC shall have
notified the Company or any ERISA Affiliate that a Plan other than a
Multiemployer Plan may become a subject of any such proceedings, (iii) the
aggregate "amount of unfunded benefit liabilities" (within the meaning of
section 4001(a)(18) of ERISA) under all Plans other than a Multiemployer Plan,
determined in accordance with Title IV of ERISA, shall exceed $250,000, (iv) the
Company or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the Company
or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the
Company or any Subsidiary establishes or amends any employee welfare benefit
plan that provides post-employment welfare benefits in a manner that would
increase the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either individually
or together with any other such event or events, could reasonably be expected to
have a Material Adverse Effect. (As used in this Section 4(a)(8), the terms
"employee benefit plan" and "employee welfare benefit plan" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.); or
(9) if, as a result of any Change of Control or any other consolidation or
merger, the holding by the Purchasers or any assignees thereof of this Security
or the holding of any Common Stock or common stock of any Person succeeding the
Company, issued to the Purchasers or any assignees thereof after conversion of
this Security would constitute, with respect to any Plan (other than a
Multiemployer Plan) a prohibited transaction which would violate the
prohibitions of section 406 of ERISA or which would subject any "disqualified
person" (as defined in section 4975(e)(2) of the Code) to a tax pursuant to
section 4975 (c)(1)(A)-(D) of the Code; or
(10) 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 any applicable 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 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
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(11) the commencement by the Company of a voluntary case or proceeding
under any applicable 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 it to the entry
of a decree or order for relief in respect of the Company in an involuntary
case or proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the commencement of
any bankruptcy or insolvency case or proceeding against it, or the filing
by it of a petition or answer or consent seeking reorganization or similar
relief under any applicable Federal or State law, or the consent by it to
the filing of such petition or to the appointment of or 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 it of an assignment for the benefit of
creditors, or not paying its debts as they become due or the admission by
it in writing of its inability to pay its debts generally as they become
due, or the taking of corporate action by the Company in furtherance of any
such action.
(b) If an Event of Default (other than an Event of Default specified in
Section 4(a)(10) or 4(a)(11)) occurs and is continuing, then in every such case
the holder of this Security may declare the principal hereof to be due and
payable immediately, by a notice in writing to the Company, and upon any such
declaration such principal and all accrued interest hereon shall become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived, and the Company shall
forthwith upon any such acceleration pay to the holder of this Security (i) the
entire principal of and interest accrued on this Security, and (ii) in addition,
to the extent permitted by applicable law, an amount equal to the Make Whole
Amount, as liquidated damages and not as a penalty; and, in case of the
occurrence of an Event of Default of the character described in subdivisions
4(a)(10) or 4(a)(11) the principal of and accrued interest on this Security,
ipso facto shall become immediately due and payable without any declaration or
other act of the holder of this Security and without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
and the Company shall forthwith upon any such acceleration pay to the holder of
this Security (x) the entire principal of and interest accrued on this Security
and (y) in addition, if such Event of Default is "Voluntary" (as hereinafter
defined), to the extent permitted by applicable law, an amount equal to the
Make-Whole Amount, as liquidated damages and not as a penalty.
For purposes of this section 4(a), "Voluntary" shall mean an Event of
Default of the character described in subdivisions 4(a)(10) or 4(a)(11) which
shall have been (x) procured by the Company or any officer, director,
stockholder or Affiliate of the Company or (y) primarily the result of action or
inaction by the Company or by any officer, director, stockholder or Affiliate of
the Company.
(c) In case any one or more of the Events of Default specified in section
4(a) shall have occurred, and irrespective of whether this Security has become
or has been declared immediately due and payable under section 4(a), the holder
of this Security may proceed to protect and enforce its rights either by suit in
equity or by action at law, or both. The Company stipulates that the remedies at
law of the holder of this Security in the event of any Default or threatened
Default by the Company in the performance of or compliance with any covenant or
agreement in
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this Security, the Note Purchase Agreement or the Registration Rights Agreement
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance thereof, whether by an injunction against a violation thereof or
otherwise.
(d) No remedy conferred in this Security, the Note Purchase Agreement or
the Registration Rights Agreement is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or thereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
(e) No course of dealing between the Company and any of its Subsidiaries,
on the one hand, and the holder of this Security, on the other hand, and no
delay by any such holder in exercising any rights hereunder or under the Note
Purchase Agreement or the Registration Rights Agreement shall operate as a
waiver of any rights of such holder.
(f) In case any one or more of the Events of Default specified in section
4(a) shall have occurred, all amounts to be applied to the prepayment or payment
of this Security shall be applied, after the payment of all related costs and
expenses incurred by the holder of this Security (including, without limitation,
compensation to any and all trustees, liquidators, receivers or similar
officials and reasonable fees, expenses and disbursements of counsel) in such
order of priority as is determined by the holder of this Security.
(g) The term "Make-Whole Amount" means, with respect to this Security, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of this Security over
the amount of such Called Principal, provided that the Make-Whole Amount may in
no event be less than zero. For the purposes of determining the Make-Whole
Amount, the following terms have the following meanings:
"Called Principal" means, with respect to this Security, the principal of
this Security that has become or is declared to be immediately due and payable
pursuant to Section 4(b).
"Discounted Value" means, with respect to the Called Principal of this
Security, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on this Security is payable) equal to
the Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of this
Security, 150 basis points over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "PX-I" of the Bloomberg Financial Markets Services Screen
for actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such
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Settlement Date, or (ii) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such yields have
been so reported as of the second Business Day preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical Release H.
15 (519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the actively traded U.S.
Treasury security with the duration closest to and greater than the Remaining
Average Life and (2) the actively traded U.S. Treasury security with the
duration closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called Principal, the
number of years (calculated to the nearest one-twelfth year) obtained by
dividing (i) such Called Principal into (ii) the sum of the products obtained by
multiplying (a) the principal component of each Remaining Scheduled Payment with
respect to such Called Principal by (b) the number of years (calculated to the
nearest one-twelfth year) that will elapse between the Settlement Date with
respect to such Called Principal and the scheduled due date of such Remaining
Scheduled Payment.
"Remaining Scheduled Payment" means, with respect to the Called Principal
of this Security, all payments of such Called Principal and interest thereon
that would be due after the Settlement Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date, provided that if such Settlement Date is not a date on which
interest payments are due to be made under the terms of this Security, then the
amount of the next succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date.
"Settlement Date" means, with respect to the Called Principal of this
Security, the date on which such Called Principal or has become or is declared
to be immediately due and payable pursuant to Section 4(b).
5. Consolidation, Merger, Etc. (a) The Company shall not consolidate with
or merge into any other Person or, directly or indirectly, convey, transfer,
sell or lease all or substantially all of its properties and assets to any
Person, and the Company shall not permit any Person to consolidate with or merge
into the Company or, directly or indirectly, convey, transfer, sell or lease all
or substantially all of its properties and assets to the Company, unless:
(1) in case the Company shall consolidate with or merge into another Person
or convey, transfer, sell or lease all or substantially all of its properties
and assets to any Person, the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance, transfer or
sale, or which leases, all or substantially all the properties and assets of the
Company shall be a corporation, limited
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liability company, partnership or trust, shall be organized and validly existing
under the laws of the United States of America, any State thereof or the
District of Columbia and shall expressly assume, by an agreement supplemental
hereto, executed and delivered to the holder of this Security in form
satisfactory to the holder, the due and punctual payment of the principal of(and
premium, if any) and interest on this Security and the performance or observance
of every covenant of this Security on the part of the Company to be performed or
observed, including the conversion rights provided herein (which shall
thereafter relate to common stock of such successor, on a basis reasonably
designed to preserve the economic value to the holder of this Security of such
conversion rights);
(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or a Subsidiary of the
Company as a result of such transaction as having been incurred by the Company
or such Subsidiary of the Company at the time 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;
(3) the Company has delivered to the holder of this Security an officers'
certificate stating that such consolidation, merger, conveyance, transfer, sale
or lease and, if a supplemental agreement is required in connection with such
transaction, such supplemental agreement, comply with this Section and that all
conditions precedent herein provided for relating to such transaction have been
complied with; and
(4) counsel for the Company has delivered to the holder of this Security an
opinion of such counsel with respect to such consolidation, merger, conveyance,
transfer, sale or lease, and if a supplemental agreement is required in
connection with such transaction, such supplemental agreement, which opinion
shall be, in form and substance, reasonably acceptable to such holder and its
counsel.
(b) Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer, sale or lease of all or
substantially all of the properties and assets of the Company in accordance with
Section 5(a), the successor Person formed by such consolidation or into which
the Company is merged or to which such conveyance, transfer, sale or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Security with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all obligations
and covenants under this Security.
6. Payment in Stock. (a) The Company may elect to pay some or all of the
Repurchase Price by delivery of shares of Common Stock or shares of common stock
in any Person succeeding the Company, if and only if, each of the following
conditions shall be satisfied (without limiting any other conditions contained
herein):
(1) Any such payment shall be made in five equal installments, on each of
the five consecutive Trading Days ending on and including the third Trading Day
immediately preceding
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the date when any cash payment would otherwise be due, and the shares of Common
Stock or common stock of any Person succeeding the Company deliverable in
payment of each such installment shall have a fair market value as of the date
of such installment of not less than 20% of the amount of such payment due
hereunder which is payable in shares of stock. For purposes of this Section 6,
the fair market value of shares of Common Stock shall be equal to 95% of the
Closing Price for the immediately preceding Trading Day;
(2) In the event any shares of Common Stock or common stock of any Person
succeeding the Company to be issued in respect of any amount due hereunder
require registration under any Federal securities law before such shares may be
freely transferable without being subject to any transfer restrictions under the
Securities Act of 1933 upon issuance, such registration shall have been
completed and shall have become effective prior to the date of the first such
installment;
(3) In the event any shares of Common Stock or common stock of any Person
succeeding the Company to be issued in respect of any amount due 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 issuance or transferred freely, such registration shall have been
completed or have become effective and such approval shall have been obtained,
in each case, prior to the date of the first such installment;
(4) The shares of Common Stock or common stock of any Person succeeding the
Company deliverable in payment of such amount due hereunder shall have been
approved for quotation in the Nasdaq National Market immediately prior to the
date of the first such installment or, if at the time its shares of Common Stock
or shares of common stock of any Person succeeding the Company are listed or
admitted for trading on any national securities exchange, the shares of Common
Stock or common stock in any Person succeeding the Company and deliverable shall
have been so listed or admitted for trading.
(5) All shares of Common Stock or common stock of any Person succeeding the
Company deliverable in payment of such amount due hereunder shall, upon issue,
be duly and validly issued and fully paid and non-assessable and free of any
preemptive rights;
(6) In respect of each such payment date, the Company shall have given the
holder of this Security not less than 10 nor more than 15 Trading Days' notice
of its election to effect payment in respect of such payment date by delivery of
shares of Common Stock; provided that any such notice shall accompany the
Company's notice of a Change of Control relating thereto; and
(7) The Company shall deliver, or cause to be delivered a certificate from
the Person succeeding the Company which states, that after giving effect to any
Change of Control that the holding by the Purchasers or any assignees thereof of
this Security, or the holding of any Common Stock or common stock of any Person
succeeding the Company after conversion of this Security would not constitute a
prohibited transaction which would violate the prohibition of
23
<PAGE>
section 406 of ERISA or which would subject any "disqualified person" (as
defined in section 4975(e)(2) of the Code) to a tax pursuant to section 4975
(c)(1)(A)-(D) of the Code.
If all of the conditions set forth in this Section 6(a) are not satisfied
in accordance with the terms hereof, any such amount due hereunder shall be paid
by the Company only in cash.
(b) Any issuance of shares of Common Stock or shares of common stock of any
Person succeeding the Company in respect of any installment due hereunder
pursuant to this Section 6 shall be deemed to have been effected immediately
prior to the close of business on the date of delivery of such installment and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such delivery shall be deemed to
have become on such date the holder or holders of record of the shares
represented thereby; provided, however, that in case any installment shall be
due on a date when the stock transfer books of the Company shall be closed, the
person or persons in whose name or names the certificate or certificates for
such shares are to be issued shall be deemed to have become 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 pursuant to this Section 6 declared prior to the relevant delivery date;
and
(c) Any issuance and delivery of certificates for shares of common stock or
shares of common stock of any Person succeeding the Company pursuant to this
Section 6 shall be made without charge to the holder of this Security for such
certificates or for any tax or duty in respect of the issuance or delivery of
such certificates or the securities represented thereby.
7. Other. (a) No provision of this Security shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Security in cash at the
times, places and rate, and in the coin or currency, herein prescribed or to
convert this Security as herein provided.
(b) The Company will give prompt written notice to the holder of Security
of any change in the location of the Designated Office.
(c) The transfer of this Security is registrable on the Security Register
of the Company upon surrender of this Security for registration of transfer at
the Designated Office, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company duly executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees. Such
Securities are issuable only in registered form without coupons in denominations
of $1,000 and any integral multiple thereof. No service charge shall be made for
any such registration of transfer, but the Company may require payment of a sum
sufficient to recover any tax or other governmental charge payable in connection
therewith. Prior to due presentation of this Security for registration of
transfer, the Company and any agent of the Company may treat the Person in whose
name this
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<PAGE>
Security is registered as the owner thereof for all purposes, whether or not
this Security be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
(d) The Company shall keep at the Designated Office a register for the
registration and registration of transfers of Convertible Notes. The name and
address of each holder of one or more Convertible Notes, each transfer thereof
and the name and address of each transferee of one or more Convertible Notes
shall be registered in such register. Prior to due presentment for registration
of transfer, the Person in whose name any Convertible Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Convertible Note promptly
upon request therefor, a complete and correct copy of the names and addresses of
all registered holders of Convertible Notes.
(e) Upon surrender of any Convertible Note at the Designated Office for
registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Convertible Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Convertible Note or part thereof), the
Company shall execute and deliver, at the Company's expense (except as provided
below), one or more new Convertible Notes (as requested by the holder thereof)
in exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Convertible Note. Each such new Convertible
Note shall be payable to such Person as such holder may request and shall be
substantially in the form of this Security. Each such new Convertible Note shall
be dated and bear interest from the date to which interest shall have been paid
on the surrendered Convertible Note or dated the date of the surrendered
Convertible Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of this Security. Convertible
Notes shall not be transferred in denominations of less than $100,000, provided
that if necessary to enable the registration of transfer by a holder of its
entire holding of Convertible Notes, one Convertible Note may be in a
denomination of less than $100,000. Any transferee, by its acceptance of a
Convertible Note registered in its name (or the name of its nominee), shall be
deemed to have made the representation set forth in Section 3 of the Note
Purchase Agreement.
(f) Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of this
Security (which evidence shall be notice from such holder of such ownership and
such loss, theft, destruction or mutilation), and
(i) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of this Security is, or is a
nominee for, an original holder or another institutional investor holder of this
Security, such Person's own unsecured agreement of indemnity shall be deemed to
be satisfactory), or
(ii) in the case of mutilation, upon surrender and cancellation thereof,
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<PAGE>
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Convertible Note. dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen. destroyed or mutilated Convertible
Note or dated the date of such lost, stolen, destroyed or mutilated Convertible
Note if no interest shall have been paid thereon.
(G) THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
(h) So long as you or your nominee shall be holder of this Security and
notwithstanding anything in this Security to the contrary, the Company will pay
all sums becoming due hereunder for principal, Make-Whole Amount, if any, and
interest by the method and at the address specified for such purpose below your
name in Schedule I of the Note Purchase Agreement, or by such other method
provided in the Preamble or at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of this Security, or the making of any notation
hereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment in full of this Security, you shall
surrender this Security for cancellation, reasonably promptly after any such
request to the Company at its principal executive office or at the place of
payment most recently designated by the Company. Prior to any sale or other
disposition of this Security you will, at your election, either endorse thereon
the amount of principal paid thereon and the last date to which interest has
been paid thereon or surrender this Security to the Company in exchange for a
new Convertible Note pursuant to the terms hereof. The Company will afford the
benefits of this Section to any institutional investor that is the direct or
indirect transferee of this Security.
[END OF PAGE - SIGNATURE PAGE FOLLOWS]
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1N WITNESS WHEREOF, the Company has caused this Security to be duly
executed under its corporate seal.
Dated: ,1999
CELGENE CORPORATION
By:
----------------------
Name:
Title:
Attest:
- -----------------------------------
Name:
Title:
27
EXHIBIT 10.26
THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT
BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.
CELGENE CORPORATION
9.00% SENIOR CONVERTIBLE NOTE DUE JUNE 30, 2004
PPN No.: 151020 A@ 3 $3,500,000
No. R-1 July 6, 1999
CELGENE CORPORATION, a corporation duly organized and existing under the
laws of Delaware (the "Company") for value received, hereby promises to pay to
John Hancock Mutual Life Insurance Company, or registered assigns, the principal
sum of Three Million Five Hundred Thousand Dollars ($3,500,000) on June 30, 2004
and to pay interest thereon, from July 6, 1999, or from the most recent interest
payment date to which interest has been paid or duly provided for, semi-annually
on June 30 and December 31 in each year, commencing December 31, 1999, at the
rate of 9.00% per annum, until the principal hereof is due, and at the rate of
11.00% per annum on any overdue principal and premium, if any, and, to the
extent permitted by law, on any overdue interest. The interest so payable, and
punctually paid or duly provided for, on any interest payment date will 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 the June 1 or December 1 (whether or not a
Business Day), as the case may be, next preceding such interest payment date.
Payment of the principal of (and premium, if any, on) this Security shall be
made upon the surrender of this Security to the Company, at its office at 7
Powder Horn Drive, Warren, NJ 07059 (or such other office within the United
States as shall be notified by the Company to the holder hereof) (the
"Designated Office"), 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, by transfer to a U.S. dollar account maintained by the payee with
a bank in the United States of America. Payment of interest on this Security
shall be made by wire transfer to a U.S. dollar account maintained by the payee
with a bank in the United States of America, provided that if the holder shall
not have furnished wire instructions in writing to the Company no later than the
record date relating to an interest payment date, such payment may be made by
U.S. dollar check mailed to the address of the Person entitled thereto as such
address shall appear in the Company security register. This Security will rank
pari passu with all existing and future senior debt of the Company.
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This Security is one of the Company's 9.00% Senior Convertible Notes due
June 30, 2004, limited to $15,000,000.00 aggregate principal amount, issued
pursuant to that certain Note Purchase Agreement dated July 6, 1999 (such
agreements, as amended, modified and supplemented from time to time, the "Note
Purchase Agreement") between the Company and the Purchasers named therein, and
the holder hereof is entitled to the benefits of the Note Purchase Agreement,
and may enforce the agreements contained herein and therein and exercise the
remedies provided for hereby and thereby or otherwise available in respect
hereof and thereof, all in accordance with the terms hereof and thereof.
1. Optional Redemption With Premium. This Security is subject to redemption
upon not less than 30 nor more than 60 days' notice by mail, at any time on or
after July 6, 2001, as a whole or in part, (in any amount that is an integral
multiple of $1000) at the election of the Company, at a redemption price of 103%
the principal amount thereof, together with accrued interest to the redemption
date, but interest installments whose stated maturity is on or prior to such
redemption date will be payable to the holder of this Security, or one or more
predecessor Securities, of record at the close of business on the relevant
record dates referred to on the face hereof; provided, however, that the Company
may not redeem this Security on or prior to July 6, 2002 unless the Closing
Price of the Common Stock exceeds 225% of the Conversion Price for each Trading
Day in a period of 20 Consecutive Trading Days commencing not earlier than July
6, 2001. The term "Conversion Price" on any day shall equal $1,000 divided by
the Conversion Rate in effect on each such day.
2. Conversion. (a) The holder of this Security is entitled at any time on
or after July 6, 2000 and before the close of business on June 30, 2004 (or, in
case this Security or a portion hereof is called for redemption or the holder
hereof has exercised its fight to require the Company to repurchase this
Security or a portion hereof, then in respect of this Security or such portion
hereof, as the case may be, until and including, but (unless the Company
defaults in making the payment due upon redemption or repurchase, as the case
may be) not after, the close of business on the redemption date or the
Repurchase Date, as the case may be) to convert this Security (or any portion of
the principal amount hereof that is an integral multiple of $1,000), into fully
paid and nonassessable shares (calculated as to each conversion to the nearest
1/100 of a share) of Common Stock of the Company at the rate of 52.63 shares of
Common Stock for each $1,000 principal amount of Security (or at the current
adjusted rate if an adjustment has been made as provided below) (the "Conversion
Rate") by surrender of this Security, duly endorsed or assigned to the Company
or in blank to the Company at the Designated Office, accompanied by written
notice to the Company that the holder hereof elects to convert this Security (or
if less than the entire principal amount hereof is to be converted, specifying
the portion hereof to be converted). Upon surrender of this Security for
conversion, the holder will be entitled to receive the interest accruing on the
principal amount of this Security then being converted from the interest payment
date next preceding the date of such conversion to such date of conversion. No
payment or adjustment is to be made on conversion for dividends on the Common
Stock issued on conversion hereof. No fractions of shares or scrip representing
fractions of shares will be issued on conversion, but instead of any fractional
interest, the Company shall pay a cash adjustment,
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<PAGE>
computed on the basis of the Closing Price of the Common Stock on the date of
conversion, or, at its option, the Company shall round up to the next higher
whole share. This Security shall be deemed to have been converted immediately
prior to the close of business on the day of surrender hereof for conversion, in
accordance with the foregoing provisions, and at such time the rights of the
holder hereof, as a holder hereof, shall cease, and the Person or Persons
entitled to receive the Common Stock issuable on conversion shall be treated by
all Persons as the holder or holders of such Common Stock at such time. Upon any
partial conversion of this Security, the Company, at its expense, will forthwith
issue and deliver to, or upon the order of the holder hereof, a new Convertible
Note or Convertible Notes in principal amount equal to the unconverted principal
amount of such surrendered Convertible Note, such new Convertible Note or
Convertible Notes to be dated and to bear interest from the date to which
interest has been paid on such surrendered Convertible Note.
As promptly as possible after the conversion of this Security, in whole or
in part, and in any event within ten (10) days thereafter, the Company, at its
expense, will issue and deliver a certificate or certificates for the number of
full shares of Common Stock issuable upon such conversion.
(b) The Conversion Rate shall be subject to adjustments from time to time
as follows:
(1) In case the Company shall pay or make a dividend or other distribution
on any class of capital stock of the Company payable in shares of Common Stock,
the Conversion Rate in effect at the opening of business on the day following
the Determination Date for such dividend or other distribution shall be
increased by dividing such Conversion Rate by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on such Determination Date 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 increase to become effective immediately after the
opening of business on the day following such Determination Date. For the
purposes of this paragraph (1), 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.
(2) Subject to the last sentence of paragraph (7) of this Section 2(b), in
case the Company shall issue rights, options, warrants or convertible securities
entitling the holders thereof to subscribe for or purchase shares of Common
Stock at a price per share less than the current market price per share
(determined as provided in paragraph (8) of this Section 2(o)) of the Common
Stock on the Determination Date for such distribution, the Conversion Rate in
effect at the opening of business on the day following such Determination Date,
shall be increased by dividing such Conversion Rate by a fraction of
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<PAGE>
which the numerator shall be the number of shares of Common Stock outstanding at
the close of business on such Determination Date plus the number of shares of
Common Stock which the aggregate amount received by the Company upon the
issuance of such rights, options, warrants or convertible securities plus the
aggregate amount receivable by the Company upon the exercise or conversion of
such rights, options, warrants or convertible securities would purchase at such
current market price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on such Determination Date plus the
number of shares of Common Stock so offered for subscription or purchase, such
increase to become effective immediately after the opening of business on the
day following such Determination Date provided, that no such adjustment need to
be made in the case of the granting by the Company to employees or directors of
the Company or consultants to the Company of Common Stock and/or options to
purchase Common Stock and the issuance of Common Stock upon the exercise of such
options. For the purposes of this paragraph (2), 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
issue any rights, options, warrants or convertible securities in respect of
shares of Common Stock held in the treasury of the Company.
(3) In case outstanding shares of Common Stock shall each be subdivided
into a greater number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Conversion Rate in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately reduced, such increase or
reduction, 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.
(4) Subject to the last sentence of paragraph (7) of this Section 2(b), in
case the Company shall, by dividend or otherwise, distribute evidences of its
indebtedness, shares of any class of capital stock, or other property (including
securities, but excluding (i) any rights, options, warrants or convertible
security referred to in paragraph (2) of this Section 2(b) (ii) any dividend or
distribution paid exclusively in cash, (iii) any dividend or distribution
referred to in paragraph (1) of this Section 2(b) and (iv) any merger or
consolidation to which Section 2(h) applies), the Conversion Rate shall be
adjusted so that the same shall equal the rate determined by dividing the
Conversion Rate in effect immediately prior to the close of business on the
Determination Date for such distribution by a fraction of which the numerator
shall be the current market price per share (determined as provided in paragraph
(8) of this Section 2(b)) of the Common Stock on such Determination Date less
the then fair market value (as determined in good faith by the Board of
Directors of the Company) of the portion of the assets, shares or evidences of
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<PAGE>
indebtedness so distributed applicable to one share of Common Stock and the
denominator shall be such current market price per share of the Common Stock,
such adjustment to become effective immediately prior to the opening of business
on the day following such Determination Date provided, that no such adjustment
need be made in the case of an underwritten public offering of Common Stock in
which the shares of Common Stock are sold to the public at a price per share
equal to or in excess of 95% of the market price per share of the Common Stock
as of the date of the pricing of such underwritten public offering. If the Board
of Directors determines the fair market value of any distribution for purposes
of this paragraph (4) by reference to the actual or when issued trading market
for any securities comprising such distribution, it must in doing so consider
the prices in such market over the same period used in computing the current
market price per share pursuant to paragraph (8) of this Section 2(b).
(5) In case the Company shall, by dividend or otherwise, make a Cash
Distribution, then, and in each such case, immediately after the close of
business on the Determination Date for such Cash Distribution, the Conversion
Rate shall be adjusted so that the same shall equal the rate determined by
dividing the Conversion Rate in effect immediately prior to the close of
business on such Determination Date by a fraction (a) the numerator of which
shall be equal to the current market price per share (determined as provided in
paragraph (8) of this Section 2(b)) of the Common Stock on such Determination
Date less an amount equal to the quotient of(l) the amount of such Cash
Distribution divided by (2) the number of shares of Common Stock outstanding on
such Determination Date and (b) the denominator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date.
(6) In case the Company or any Subsidiary shall make an Excess Purchase
Payment, then, and in each such case, immediately prior to the opening of
business on the day after the tender offer in respect of which such Excess
Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so
that the same shall equal the rate determined by dividing the Conversion Rate in
effect immediately prior to the close of business on the Determination Date for
such tender offer by a fraction (a) the numerator of which shall be equal to the
current market price per share (determined as provided in paragraph (8) of this
Section 2(b)) of the Common Stock on such Determination Date less an amount
equal to the quotient of (A) the Excess Purchase Payment divided by (B) the
number of shares of Common Stock outstanding (including any tendered shares) as
of the Determination Date less the number of all shares validly tendered and not
withdrawn as of the Determination Date and (b)the denominator of which shall be
equal to the current market price per share (determined as provided in paragraph
(8) of this Section 2(b)) of the Common Stock as of such Determination Date.
(7) The reclassification of Common Stock into securities other than Common
Stock (other than any reclassification upon a consolidation or merger to which
Section 2(h)
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<PAGE>
applies) shall be deemed to involve (a) a distribution of such securities other
than Common Stock to all holders of Common Stock (and the effective date of such
reclassification shall be deemed to be the Determination Date), and (b) a
subdivision or combination, as the case may be, of the number of shares of
Common Stock outstanding immediately prior to such reclassification into the
number of shares of Common Stock outstanding immediately thereafter (and the
effective date of such reclassification shall be deemed to be "the day upon
which such subdivision becomes effective" or "the day upon which such
combination becomes effective", as the case may be, and "the day upon which such
subdivision or combination becomes effective" within the meaning of paragraph
(3) of this Section 2(b)). Rights, options, warrants or convertible securities
issued by the Company entitling the holders thereof to subscribe for or purchase
shares of Common Stock, which rights, options, warrants or convertible
securities (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, in each case in clauses (i) through (iii) until the
occurrence of a specified event or events ("Trigger Event"), shall for purposes
of this Section 2(b) not be deemed issued until the occurrence of the earliest
Trigger Event.
(8) Except as otherwise provided in the last sentence of this subsection
(8) of Section 2(0) for the purpose of any computation under paragraphs (2),
(4), (5) or (6) of this Section 2(b) the current market price per share of
Common Stock on any date shall be calculated by the Company and be deemed to be
the average of the daily Closing Prices for the five (5) consecutive Trading
Days selected by the Company commencing not more than ten (10) Trading Days
before, and ending not later than, the earlier of the day in question and the
day before the "ex date" with respect to the issuance or distribution requiring
such computation. For purposes of this paragraph, the term "ex date", when used
with respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way in the applicable securities market or on the
applicable securities exchange without the fight to receive such issuance or
distribution. The current market price with respect to any option issued to any
employee or director of the Company or consultant to the Company shall be the
fair market value on the date of grant determined by reference to the market
price on the day of the grant of such option or to the market price at the close
of business on the Trading Day immediately preceding such grant.
(9) No adjustment in the Conversion Rate shall be required unless such
adjustment (plus any adjustments not previously made by reason of this paragraph
(9)) would require an increase or decrease of at least one percent in such rate;
provided, however, that any adjustments which by reason of this paragraph (9)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 2 shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case may
be.
(10) The Company may make such increases in the Conversion Rate, for the
remaining term of the Securities or any shorter term, in addition to those
required by
<PAGE>
paragraphs (1), (2), (3), (4), (5) and (6) of this Section 2(b) as it
considers to be advisable in order to avoid or diminish any income tax to
any holders of shares of Common Stock resulting from any dividend or
distribution of stock or issuance of rights, options, warrants or
convertible securities to purchase or subscribe for stock or from any event
treated as such for income tax purposes.
(c) Whenever the Conversion Rate is adjusted as provided in Section 2(b),
the Company shall compute the adjusted Conversion Rate in accordance with
Section 2(b) and shall prepare a certificate (the "Conversion Rate Certificate")
signed by the Senior Financial Officer of the Company setting forth the adjusted
Conversion Rate and showing in reasonable detail the facts upon which such
adjustment is based, and shall promptly deliver such certificate to the holder
of this Security. If the holders of the Convertible Notes and the Company cannot
agree in writing as to the adjusted Conversion Rate in accordance with Section
2(b), the holders of the Convertible Notes and the Company shall determine the
adjusted Conversion Rate in accordance with the following procedure. The holders
of the Convertible Notes and the Company shall each appoint one registered
securities broker, licensed with the Securities and Exchange Commission to sell
securities to the public, which broker shall be a senior vice president,
managing director or equivalent of a major securities brokerage company with
offices in New York, New York. Each of such brokers shall have no less than ten
(10) years experience in such field, shall be unaffiliated with, and their
employer securities brokerage company shall be unaffiliated with, the holders of
the Convertible Notes and the Company and shall not have previously participated
in any underwriting of the Company's Common Stock in any public offering or
provided any Material investment banking or corporate advisory services to the
Company. The holders of the Convertible Notes and the Company shall make their
appointments promptly and, in any event, within thirty (30) days from the date
of the Conversion Rate Certificate. The two brokers shall meet and shall be
instructed to render a determination of the adjusted Conversion Rate to the
holders of the Convertible Notes and the Company within sixty (60) days of the
date of the Conversion Rate Certificate. If the two brokers cannot agree, then
each broker shall render their independent determination and the two brokers
shall simultaneously therewith provide the name of a third broker acceptable to
the two brokers meeting the criteria set forth above. The third broker shall be
instructed to render a determination of the adjusted Conversion Rate within
thirty (30) days of his or her appointment. The two closest determinations of
the adjusted Conversion Rate shall be averaged and shall constitute the adjusted
Conversion Rate. If the two brokers cannot agree upon a third broker, the
selection of a third broker shall be submitted to binding arbitration in New
York, New York under the rules of the American Arbitration Association. In the
event that the difference between the Company's calculation of the adjusted
Conversion Rate and the calculation of the adjusted Conversion Rate determined
by the foregoing process is five percent (5%) or greater then the costs and
expenses of the brokers and any arbitration shall be paid by and be the
obligation of the Company and in the event that such difference is less than
five percent (5%) the holders of the Convertible Notes (as a group) shall each
pay its pro rata share of 50% of such costs and expenses and the Company shall
pay 50% of such costs and expenses.
(d) In case:
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(1) the Company shall declare a dividend or other distribution on its
Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively
in cash in an amount that would require any adjustment pursuant to Section 2(b);
or
(2) the Company shall authorize the granting to the holders of its Common
Stock of rights, options, warrants or convertible securities to subscribe for or
purchase any shares of capital stock of any class or of any other rights; or
(3) of any reclassification of the Common Stock of the Company, or of any
consolidation, merger or share exchange to which the Company is a party and for
which approval of any shareholders of the Company is required, or of the
conveyance, sale, transfer or lease of all or substantially all of the assets of
the Company; or
(4) of the voluntary or involuntary dissolution, liquidation or winding up
of the Company; or
(5) the Company or any Subsidiary shall commence a tender offer for all or
a portion of the Company's outstanding shares of Common Stock (or shall amend
any such tender offer);
then the Company shall cause to be delivered to the holder of this Security, at
least 20 days (or 10 days in any case specified in clause (1) or (2) above)
prior to the applicable record, expiration or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, rights, options, warrants or
convertible securities or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution, rights, options, warrants or convertible securities are to be
determined, (y) the date on which the right to make tenders under such tender
offer expires or (z) the date on which such reclassification, consolidation,
merger, share exchange, conveyance, transfer, sale, 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, share exchange,
conveyance, transfer, sale, lease, dissolution, liquidation or winding up.
Neither the failure to give such notice nor any defect therein shall affect the
legality or validity of the proceedings described in clauses (1) through (5) of
this Section 2(d).
(e) The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, for the
purpose of effecting the conversion of the Security, the full number of shares
of Common Stock then issuable upon the conversion of this Security.
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(f) Except as provided in the next sentence, the Company will pay any and
all taxes and duties that may be payable in respect of the issue or delivery of
shares of Common Stock on conversion of this Security. The Company shall not,
however, 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 this Security, 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.
(g) The Company agrees that all shares of Common Stock which may be
delivered upon conversion of the Security, upon such delivery, will have been
duly authorized and validly issued and will be fully paid and nonassessable (and
shall be issued out of the Company's authorized but unissued Common Stock) and,
except as provided in the second sentence of Section 2(f), the Company will pay
all taxes, liens and charges with respect to the issue thereof.
(h) In case of any consolidation of the Company with any other Person, any
merger of the Company into another Person or of another Person into the Company
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock of the Company)
or any conveyance, sale, transfer or lease of all or substantially all of the
properties and assets of the Company, the Person formed by such consolidation or
resulting from such merger or which acquires such properties and assets, as the
case may be, shall execute and deliver to the holder of this Security a
supplemental agreement providing that such holder has the right, during the
period this Security shall be convertible as specified in Section 2(a), to
convert this Security only into the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease (including any Common Stock retainable) 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,
sale, transfer or lease, assuming such holder of Common Stock of the Company (i)
is not a Person with which the Company consolidated, into which the Company
merged or which merged into the Company or to which such conveyance, sale,
transfer or lease was made, as the case may be (a "Constituent Person"), or an
Affiliate of a Constituent Person and (ii) failed to exercise its rights of
election, if any, as to the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer
or lease (provided that if the kind or amount of securities, cash and other
property receivable upon such consolidation, merger, conveyance, sale, transfer,
or lease is not the same for each share of Common Stock of the Company held
immediately prior to such consolidation, merger, conveyance, sale, transfer or
lease by others than a Constituent Person or an Affiliate of a Constituent
Person and in respect of which such rights of election shall not have been
exercised ("Non-electing Share"), then for the purpose of this Section 2(h) the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance, sale, transfer or lease by the holders of
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
agreement shall provide for adjustments which, for events subsequent to the
effective date of such
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<PAGE>
supplemental agreement, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 2. The above provisions of this
Section 2(h) shall similarly apply to successive consolidations, mergers,
conveyances, sales, transfers or leases. In this paragraph, "securities of the
kind receivable" upon such consolidation, merger, conveyance, transfer, sale or
lease by a holder of Common Stock means securities that, among other things, are
registered and freely transferable under the Securities Act, and listed and
approved for quotation in all securities markets, in each case to the same
extent as such securities so receivable by a holder of Common Stock.
(i) The Company (i) will effect all registrations with, and obtain all
approvals by, all governmental authorities that may be necessary under any
United States Federal or state law (including the Securities Act, the Exchange
Act and state securities and Blue Sky laws) for the shares of Common Stock
issuable upon conversion of this Security to be lawfully issued and delivered as
provided herein, and thereafter publicly traded (if permissible under the
Securities Act) and qualified or listed as contemplated by clause (ii) (it being
understood that the Company shall not be required to register the Common Stock
issuable on conversion hereof under the Securities Act, except pursuant to the
Registration Rights Agreement between the Company and the initial holder of this
Security); and (ii) will list the shares of Common Stock required to be issued
and delivered upon conversion of Securities, prior to such issuance or delivery,
on each national securities exchange on which outstanding Common Stock is listed
or quoted at the time of such delivery, or if the Common Stock is not then
listed on any securities exchange, to qualify the Common Stock for quotation on
the Nasdaq National Market or such other inter-dealer quotation system, if any,
on which the Common Stock is then quoted.
(j) For purposes hereof: (references to Sections shall mean Sections of
this Security unless otherwise specified)
"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.
"Business Day" means any day other than a Saturday, a Sunday or other day
which shall be in Boston, Massachusetts or New York, New York or a legal holiday
or a day on which commercial banks in Boston, Massachusetts or New York, New
York are required or authorized to be closed.
"Cash Distribution" means the distribution by the Company to holders of its
Common Stock of cash, other than any cash that is distributed upon a merger or
consolidation to which Section 2(h) applies or as part of a distribution
referred to in paragraph (4) of Section 2(b).
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"Change of Control" is defined in Section 3(f)(2).
"Closing" is defined in Section 1 of the Note Purchase Agreement.
"Closing Price" means, with respect to the Common Stock of the Company, for
any day, the reported last sale price per share on the Nasdaq National Market,
or, if the Common Stock is not admitted to trading on the Nasdaq National
Market, on the principal national securities exchange or inter-dealer quotation
system on which the Common Stock is listed or admitted to trading, or if not
admitted to trading on the Nasdaq National Market, or listed or admitted to
trading on any national securities exchange or inter-dealer quotation system,
the average of the closing bid and asked prices per share in the
over-the-counter market as furnished by any New York Stock Exchange member from
selected from time to time by the Company for that purpose.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company authorized at the date of this instrument as originally executed.
Subject to the provisions of Section 20a), shares issuable on conversion or
repurchase of this Security shall include only shares of Common Stock or shares
of any class or classes of common stock resulting from any reclassification or
reclassifications thereof; provided, however, that if at any time there shall be
more than one such resulting class, the shares so issuable on conversion of this
Security shall include shares of all such classes, and 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.
"Convertible Note(s)"shall mean one or more of the Company's 9.00% Senior
Convertible Notes due June 30, 2004.
"Conversion Price" is defined in Section 1.
"Conversion Rate" is defined in Section 2(a).
"Default" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
"Designated Office" is defined in the Preamble.
"Determination Date" means, in the case of a dividend or other
distribution, including the issuance of rights, options, warrants or convertible
securities, to the date fixed for the determination of those entitled to receive
such dividend or other distribution, and in the case of a tender offer, the last
time that tenders could have been made pursuant to such tender offer.
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"Environmental Laws" means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, licenses, written agreements or written governmental restrictions
relating to pollution and the protection of the environment or the release of
any materials into the environment, including but not limited to those related
to hazardous substances or wastes, air emissions and discharges to waste or
public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
"Excess Purchase Payment" means the product of(A) the excess, if any, of(i)
the amount of cash plus the fair market value (as determined in good faith by
the Company's Board of Directors) of any non-cash consideration required to be
paid with respect to one share of Common Stock acquired or to be acquired in a
tender offer made by the Company or any Subsidiary of the Company for all or any
portion of the Common Stock over (ii) the current market price per share as of
the last time that tenders could have been made pursuant to such tender offer
and (B) the number of shares validly tendered and not withdrawn as of the
Determination Date in respect of such tender offer.
"Event of Default" is defined in the preamble to Section 4.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor Federal statute, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder, all as the same shall
be in effect from time to time.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Hazardous Materials" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
remediate, on of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
restricted, prohibited or penalized by any applicable Environmental Law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"holder" means, with respect to this Security or any other Convertible
Note, the Person in whose name it is registered in the register maintained by
the Company pursuant to Section 6(d).
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"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease (as defined
by GAAP), upon or with respect to any property or asset of such Person
(including in the case of stock, stockholder agreements, voting trust agreements
and all similar arrangements).
"Make-Whole Amount" is defined in Section 4(g).
"Material" means material in relation to the business, operations, affairs,
financial condition, assets, properties, or prospects of the Company and its
Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets, properties or
prospects of the Company and its Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under the Note Purchase
Agreement, the Registration Rights Agreement and the Convertible Notes, or (c)
the validity or enforceability of this Agreement or the Convertible Notes.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).
"Note Purchase Agreement" is defined in the Preamble.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Purchaser(s)" JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY; JOHN HANCOCK
VARIABLE LIFE INSURANCE COMPANY and HANCOCK MEZZANINE PARTNERS
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the date hereof among the Purchasers and the Company.
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"Repurchase Date" is defined in Section 3(a).
"Repurchase Price" is defined in Section 3(a).
"Responsible Officer" means any Senior Financial Officer and any other
senior officer of the Company with responsibility for the administration of the
relevant covenants in this Security or in the Note Purchase Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor Federal statute, and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder, all as the same shall be in effect
from time to time.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
"Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to a
"Subsidiary" is a reference to a Subsidiary of the Company.
"Trading Day" means (i) if the Common Stock is admitted to trading on the
Nasdaq National Market or any other system of automated dissemination of
quotations of securities prices, a day on which trades may be effected through
such system; (ii) if the Common Stock is listed or admitted for trading on the
New York Stock Exchange or any other national securities exchange, a day on
which such exchange is open for business; or (iii) if the Common Stock is not
admitted to trading on the Nasdaq National Market or listed or admitted for
trading on any national securities exchange or any other system of automated
dissemination of quotation of securities prices, a day on which the Common Stock
is traded regular way in the over-the-counter market and for which a closing bid
and a closing asked price for the Common Stock are available.
3. Right to Require Repurchase. (a) In the event that a Change in Control
shall occur, then the holder of this Security shall have the right, at such
holder's option, to require the Company to repurchase, and upon the exercise of
such right the Company shall repurchase, this Security, or any portion of the
principal amount hereof that is equal to $1,000 or any integral multiple
thereof, on the date (the "Repurchase Date") that is thirty (30) Trading Days
after the date on which the Company gives notice thereof to the holder of this
Security, at a purchase price equal to 100% of the principal amount of this
Security to be repurchased plus interest accrued to
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the Repurchase Date (the "Repurchase Price"); provided, however, that
installments of interest on this Security whose stated maturity is on or prior
to the Repurchase Date shall be payable to the holder of this Security, or one
or more predecessor Securities, registered as such on the relevant Record Date
according to their terms. 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 each of Section 5 and Section 6 and subject to the limitations set
forth in each of Section 5 and Section 6, by delivery of shares of Common Stock
or in common stock of any Person which succeeds the Company up to a maximum
amount often percent (10%) of the then issued and outstanding Common Stock or
common stock of such Person following any Change in Control, provided, however,
the cash plus the fair market value of such shares shall equal the Repurchase
Price. The Company agrees to give the holder of this Security notice of any
Change in Control, by facsimile transmission confirmed in writing by overnight
courier service, promptly and in any event within two (2) Trading Days of the
occurrence thereof.
(b) To exercise a repurchase right, the holder shall deliver to the Company
on or before the 10th Trading Day prior to the Repurchase Date, together with
this Security, written notice of the holder's exercise of such right, which
notice shall set forth the name of the holder, the number of shares of Common
Stock then owned by such holder and its affiliates, the principal amount of this
Security to be repurchased (and, if this Security is to be repurchased in part,
the portion of the principal amount thereof to be repurchased and the name of
the person in which the portion thereof to remain outstanding after such
repurchase is to be registered) and 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 whole or in pan by the delivery of shares, as provided
above, the name or names (and the addresses) in which the certificates for
shares shall be issued. Such written notice shall be irrevocable, except that
the right of the holder to convert this Security (or the portion hereof with
respect to which the repurchase fight is being exercised) shall continue until
the close of business on the Repurchase Date (or if the Company elects to pay
the Repurchase Price by delivery of shares as provided above, until the close of
business on the Trading Day immediately preceding the first delivery of shares
with respect thereto).
(c) In the event a repurchase right shall be exercised in accordance with
the terms hereof, the Company shall pay or cause to be paid to the holder the
Repurchase Price in cash or shares, as provided above, together with accrued and
unpaid interest to the Repurchase Date; provided, however, that installments of
interest that mature on or prior to the Repurchase Date shall be payable in
cash, to the holders of this Security, or one or more predecessor Securities,
registered as such at the close of business on the relevant regular record date.
(d) If this Security (or portion thereof) is surrendered for repurchase and
is not so paid on or prior to the Repurchase Date, the principal amount of this
Security (or such portion hereof, as the case may be) shall, until paid, bear
interest to the extent permitted by applicable law from the Repurchase Date at
eleven percent (11%) per annum, and shall remain convertible into Common Stock
until the principal of this Security (or portion thereof, as the case may be)
shall have been paid or duly provided for.
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(e) If this Security is to be repurchased only in part, it shall be
surrendered to the Company at the Designated Office (with, if the Company so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company duly executed by, the holder hereof or his attorney
duly authorized in writing), and the Company shall execute and make available
for delivery to the holder without service charge, a new Security or Securities,
containing identical terms and conditions, each in an authorized denomination in
aggregate principal amount equal to and in exchange for the unrepurchased
portion of the principal of the Security so surrendered.
(f) For purposes of this Section 3.
(1) the term "beneficial owner" shall be determined in accordance with Rule
13d-3 promulgated by the Securities and Exchange Commission pursuant to the
Exchange Act; and
(2) a "Change in Control" shall be deemed to have occurred at the time,
after the original issuance of this Security, of:
(i) the acquisition by any Person of beneficial ownership, directly or
indirectly, through a purchase, merger or other acquisition transaction or
series of transactions, of shares of capital stock of the Company entitling such
Person to exercise 50% or more of the total voting power of all shares of
capital stock of the Company entitled to vote generally in the election of
directors (any shares of voting stock of which such Person is the beneficial
owner that are not then outstanding being deemed outstanding for purposes of
calculating such percentage) other than any such acquisition by the Company or
any employee benefit plan of the Company; or
(ii) any consolidation or merger of the Company with or into, any other
Person, any merger of another Person with or into the Company, or any
conveyance, transfer, sale, lease or other disposition of all or substantially
all of the assets of the Company to another Person (other than (a) any such
transaction (x) which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock and (y) pursuant
to which holders of Common Stock immediately prior to such transaction have the
entitlement to exercise, directly or indirectly, 50% or more of the total voting
power of all shares of capital stock entitled to vote generally in the election
of directors of the continuing or surviving Person immediately after such
transaction and (b) any merger which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock into solely shares
of common stock,
4. Events of Default. (a) "Event of Default", wherever used herein, means
any one of the following events (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment,
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decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) (A) default in the payment of any principal or premium, if any, upon
this Security when the same becomes due and payable, whether at maturity or at a
date fixed for prepayment or by declaration or otherwise or (B) default in the
payment of any interest upon this Security when it becomes due and payable, and
continuance of such default for a period of five (5) days; or
(2) default by the Company in the performance of its obligations in respect
of any conversion of this Security (or any portion hereof) in accordance with
Section 2; or
(3) failure by the Company to give any notice of a Change of Control
required to be delivered in accordance with Section 3(a); or
(4) default in the performance, or breach, of any material covenant or
warranty of the Company herein, in the Note Purchase Agreement, or in the
Registration Rights Agreements (other than a covenant or warranty a default in
the performance or breach of which is specifically dealt with elsewhere in this
Section 4(a)) and continuance of such default or breach for a period of 30 days
after the earlier to occur of(A) the Company's obtaining knowledge of such
default or (B) the Company's receiving written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(5) any representation or warranty made in writing by or on behalf of the
Company or by any officer of the Company furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect in any
material respect on the date as of which made; or
(6) a final judgment or judgments for the payment of money aggregating in
excess of $250,000 are rendered against one or more of the Company and its
Subsidiaries and which judgments are not, within 60 days after entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay; or
(7) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company, or under any agreement,
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any indebtedness for money borrowed by the
Company, with a principal amount then outstanding in excess of $1,000,000,
whether such indebtedness now exists or shall hereafter be created, which
default shall constitute a failure to pay the principal of such indebtedness (in
whole or in any pan greater than $1,000,000) when due and payable or shall have
resulted in such indebtedness (in whole or in any part greater than $1,000,000)
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable; or
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(8) if(i) any Plan other than a Multiemployer Plan shall fail to
satisfy the minimum funding standards of ERISA or the Code for any plan year or
part thereof or a waiver of such standards or extension of any amortization
period is sought or granted under section 412 of the Code, (ii) a notice of
intent to terminate any Plan other than a Multiemployer Plan shall have been or
is reasonably expected to be filed with the PBGC or the PBGC shall have
instituted proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any Plan other than a Multiemployer Plan or the PBGC shall
have notified the Company or any ERISA Affiliate that a Plan other than a
Multiemployer Plan may become a subject of any such proceedings, (iii) the
aggregate "amount of unfunded benefit liabilities" (within the meaning of
section 4001(a)(18) of ERISA) under all Plans other than a Multiemployer Plan,
determined in accordance with Title IV of ERISA, shall exceed $250,000, (iv) the
Company or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the Company
or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the
Company or any Subsidiary establishes or amends any employee welfare benefit
plan that provides post-employment welfare benefits in a manner that would
increase the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either individually
or together with any other such event or events, could reasonably be expected to
have a Material Adverse Effect. (As used in this Section 4(a)(8), the terms
"employee benefit plan" and "employee welfare benefit plan" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.); or
(9) if, as a result of any Change of Control or any other consolidation
or merger, the holding by the Purchasers or any assignees thereof of this
Security or the holding of any Common Stock or common stock of any Person
succeeding the Company, issued to the Purchasers or any assignees thereof after
conversion of this Security would constitute, with respect to any Plan (other
than a Multiemployer Plan) a prohibited transaction which would violate the
prohibitions of section 406 of ERISA or which would subject any "disqualified
person" (as defined in section 4975(e)(2) of the Code) to a tax pursuant to
section 4975(c)(1)(A)-(D) of the Code; or
(10) 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 any applicable 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 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
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(11) the commencement by the Company of a voluntary case or proceeding
under any applicable 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 it to the entry of a decree or order
for relief in respect of the Company in an involuntary case or proceeding under
any applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or similar relief under any applicable Federal or State
law, or the consent by it to the filing of such petition or to the appointment
of or 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 it of an assignment for the benefit of
creditors, or not paying its debts as they become due or the admission by it in
writing of its inability to pay its debts generally as they become due, or the
taking of corporate action by the Company in furtherance of any such action.
b) If an Event of Default (other than an Event of Default specified in
Section 4(a)(10) or 4(a)(11)) occurs and is continuing, then in every such case
the holder of this Security may declare the principal hereof to be due and
payable immediately, by a notice in writing to the Company, and upon any such
declaration such principal and all accrued interest hereon shall become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived, and the Company shall
forthwith upon any such acceleration pay to the holder of this Security (i) the
entire principal of and interest accrued on this Security, and (ii) in addition,
to the extent permitted by applicable law, an amount equal to the Make Whole
Amount, as liquidated damages and not as a penalty; and, in case of the
occurrence of an Event of Default of the character described in subdivisions
4(a)(10) or 4(a)(11) the principal of and accrued interest on this Security,
ipso facto shall become immediately due and payable without any declaration or
other act of the holder of this Security and without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived,
and the Company shall forthwith upon any such acceleration pay to the holder of
this Security (x) the entire principal of and interest accrued on this Security
and (y) in addition, if such Event of Default is "Voluntary" (as hereinafter
defined), to the extent permitted by applicable law, an amount equal to the
Make-Whole Amount, as liquidated damages and not as a penalty.
For purposes of this section 4(a), "Voluntary" shall mean an Event of
Default of the character described in subdivisions 4(a)(10) or 4(a)(11) which
shall have been (X) procured by the Company or any officer, director,
stockholder or Affiliate of the Company or (y) primarily the result of action or
inaction by the Company or by any officer, director, stockholder or Affiliate of
the Company.
(c) In case any one or more of the Events of Default specified in section
4(a) shall have occurred, and irrespective of whether this Security has become
or has been declared immediately due and payable under section 4(a), the holder
of this Security may proceed to protect and enforce its rights either by suit in
equity or by action at law, or both. The Company stipulates that the remedies at
law of the holder of this Security in the event of any Default or threatened
Default by the Company in the performance of or compliance with any covenant or
agreement in
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this Security, the Note Purchase Agreement or the Registration Rights Agreement
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance thereof, whether by an injunction against a violation thereof or
otherwise.
(d) No remedy conferred in this Security, the Note Purchase Agreement or
the Registration Rights Agreement is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or thereunder or now or hereafter
existing at law or in equity or by statute or otherwise.
(e) No course of dealing between the Company and any of its Subsidiaries,
on the one hand, and the holder of this Security, on the other hand, and no
delay by any such holder in exercising any rights hereunder or under the Note
Purchase Agreement or the Registration Rights Agreement shall operate as a
waiver of any rights of such holder.
(f) In case any one or more of the Events of Default specified in section
4(a) shall have occurred, all amounts to be applied to the prepayment or payment
of this Security shall be applied, after the payment of all related costs and
expenses incurred by the holder of this Security (including, without limitation,
compensation to any and all trustees, liquidators, receivers or similar
officials and reasonable fees, expenses and disbursements of counsel) in such
order of priority as is determined by the holder of this Security.
(g) The term "Make-Whole Amount" means, with respect to this Security, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of this Security over
the amount of such Called Principal, provided that the Make-Whole Amount may in
no event be less than zero. For the purposes of determining the Make-Whole
Amount, the following terms have the following meanings:
"Called Principal" means, with respect to this Security, the principal of
this Security that has become or is declared to be immediately due and payable
pursuant to Section 4(b).
"Discounted Value" means, with respect to the Called Principal of this
Security, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on this Security is payable) equal to
the Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called Principal of this
Security, 150 basis points over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "PX-I" of the Bloomberg Financial Markets Services Screen
for actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such
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Settlement Date, or (ii) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such yields have
been so reported as of the second Business Day preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical Release H.
15 (519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the actively traded U.S.
Treasury security with the duration closest to and greater than the Remaining
Average Life and (2) the actively traded U.S. Treasury security with the
duration closest to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called Principal, the number
of years (calculated to the nearest one-twelfth year) obtained by dividing (i)
such Called Principal into (ii) the sum of the products obtained by multiplying
(a) the principal component of each Remaining Scheduled Payment with respect to
such Called Principal by (b) the number of years (calculated to the nearest
one-twelfth year) that will elapse between the Settlement Date with respect to
such Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payment" means, with respect to the Called Principal of
this Security, all payments of such Called Principal and interest thereon that
would be due after the Settlement Date with respect to such Called Principal if
no payment of such Called Principal were made prior to its scheduled due date,
provided that if such Settlement Date is not a date on which interest payments
are due to be made under the terms of this Security, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of interest
accrued to such Settlement Date.
"Settlement Date" means, with respect to the Called Principal of this
Security, the date on which such Called Principal or has become or is declared
to be immediately due and payable pursuant to Section 4(b).
5. Consolidation, Merger, Etc. (a) The Company shall not consolidate with
or merge into any other Person or, directly or indirectly, convey, transfer,
sell or lease all or substantially all of its properties and assets to any
Person, and the Company shall not permit any Person to consolidate with or merge
into the Company or, directly or indirectly, convey, transfer, sell or lease all
or substantially all of its properties and assets to the Company, unless:
(1) in case the Company shall consolidate with or merge into another Person
or convey, transfer, sell or lease all or substantially all of its properties
and assets to any Person, the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by conveyance, transfer or
sale, or which leases, all or substantially all the properties and assets of the
Company shall be a corporation, limited
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liability company, partnership or trust, shall be organized and validly existing
under the laws of the United States of America, any State thereof or the
District of Columbia and shall expressly assume, by an agreement supplemental
hereto, executed and delivered to the holder of this Security in form
satisfactory to the holder, the due and punctual payment of the principal of
(and premium, if any) and interest on this Security and the performance or
observance of every covenant of this Security on the part of the Company to be
performed or observed, including the conversion rights provided herein (which
shall thereafter relate to common stock of such successor, on a basis reasonably
designed to preserve the economic value to the holder of this Security of such
conversion rights);
(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or a Subsidiary of the
Company as a result of such transaction as having been incurred by the Company
or such Subsidiary of the Company at the time 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;
(3) the Company has delivered to the holder of this Security an officers'
certificate stating that such consolidation, merger, conveyance, transfer, sale
or lease and, if a supplemental agreement is required in connection with such
transaction, such supplemental agreement, comply with this Section and that all
conditions precedent herein provided for relating to such transaction have been
complied with; and
(4) counsel for the Company has delivered to the holder of this Security an
opinion of such counsel with respect to such consolidation, merger, conveyance,
transfer, sale or lease, and if a supplemental agreement is required in
connection with such transaction, such supplemental agreement, which opinion
shall be, in form and substance, reasonably acceptable to such holder and its
counsel.
(b) Upon any consolidation of the Company with, or merger of the Company
into, any other Person or any conveyance, transfer, sale or lease of all or
substantially all of the properties and assets of the Company in accordance with
Section 5(a), the successor Person formed by such consolidation or into which
the Company is merged or to which such conveyance, transfer, sale or lease is
made shall succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Security with the same effect as if such
successor Person had been named as the Company herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all obligations
and covenants under this Security.
6. payment in Stock. (a) The Company may elect to pay some or all of the
Repurchase Price by delivery of shares of Common Stock or shares of common stock
in any Person succeeding the Company, if and only if, each of the following
conditions shall be satisfied (without limiting any other conditions contained
herein):
(1) Any such payment shall be made in five equal installments, on each of
the five consecutive Trading Days ending on and including the third Trading Day
immediately preceding
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<PAGE>
the date when any cash payment would otherwise be due, and the shares of Common
Stock or common stock of any Person succeeding the Company deliverable in
payment of each such installment shall have a fair market value as of the date
of such installment of not less than 20% of the amount of such payment due
hereunder which is payable in shares of stock. For purposes of this Section 6,
the fair market value of shares of Common Stock shall be equal to 95% of the
Closing Price for the immediately preceding Trading Day;
(2) In the event any shares of Common Stock or common stock of any Person
succeeding the Company to be issued in respect of any amount due hereunder
require registration under any Federal securities law before such shares may be
freely transferable without being subject to any transfer restrictions under the
Securities Act of 1933 upon issuance, such registration shall have been
completed and shall have become effective prior to the date of the first such
installment;
(3) In the event any shares of Common Stock or common stock of any Person
succeeding the Company to be issued in respect of any amount due 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 issuance or transferred freely, such registration shall have been
completed or have become effective and such approval shall have been obtained,
in each case, prior to the date of the first such installment;
(4) The shares of Common Stock or common stock of any Person succeeding the
Company deliverable in payment of such amount due hereunder shall have been
approved for quotation in the Nasdaq National Market immediately prior to the
date of the first such installment or, if at the time its shares of Common Stock
or shares of common stock of any Person succeeding the Company are listed or
admitted for trading on any national securities exchange, the shares of Common
Stock or common stock in any Person succeeding the Company and deliverable shall
have been so listed or admitted for trading.
(5) All shares of Common Stock or common stock of any Person succeeding the
Company deliverable in payment of such amount due hereunder shall, upon issue,
be duly and validly issued and fully paid and non-assessable and free of any
preemptive rights;
(6) In respect of each such payment date, the Company shall have given the
holder of this Security not less than 10 nor more than 15 Trading Days' notice
of its election to effect payment in respect of such payment date by delivery of
shares of Common Stock; provided that any such notice shall accompany the
Company's notice of a Change of Control relating thereto; and
(7) The Company shall deliver, or cause to be delivered a certificate from
the Person succeeding the Company which states, that after giving effect to any
Change of Control that the holding by the Purchasers or any assignees thereof of
this Security, or the holding of any Common Stock or common stock of any Person
succeeding the Company after conversion of this Security would not constitute a
prohibited transaction which would violate the prohibition of
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<PAGE>
section 406 of ERISA or which would subject any "disqualified person" (as
defined in section 4975(e)(2) of the Code) to a tax pursuant to section 4975
(c)(1)(A)-(D) of the Code.
If all of the conditions set forth in this Section 6(a) are not satisfied
in accordance with the terms hereof, any such amount due hereunder shall be paid
by the Company only in cash.
(b) Any issuance of shares of Common Stock or shares of common stock of any
Person succeeding the Company in respect of any installment due hereunder
pursuant to this Section 6 shall be deemed to have been effected immediately
prior to the close of business on the date of delivery of such installment and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such delivery shall be deemed to
have become on such date the holder or holders of record of the shares
represented thereby; provided, however, that in case any installment shall be
due on a date when the stock transfer books of the Company shall be closed, the
person or persons in whose name or names the certificate or certificates for
such shares are to be issued shall be deemed to have become 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 pursuant to this Section 6 declared prior to the relevant delivery date;
and
(c) Any issuance and delivery of certificates for shares of common stock or
shares of common stock of any Person succeeding the Company pursuant to this
Section 6 shall be made without charge to the holder of this Security for such
certificates or for any tax or duty in respect of the issuance or delivery of
such certificates or the securities represented thereby.
7. Other. (a) No provision of this Security shall alter or impair the
obligation of the Company, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Security in cash at the
times, places and rate, and in the coin or currency, herein prescribed or to
convert this Security as herein provided.
(b) The Company will give prompt written notice to the holder of Security
of any change in the location of the Designated Office.
(c) The transfer of this Security is registrable on the Security Register
of the Company upon surrender of this Security for registration of transfer at
the Designated Office, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company duly executed by, the holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees. Such
Securities are issuable only in registered form without coupons in denominations
of $1,000 and any integral multiple thereof. No service Charge shall be made for
any such registration of transfer, but the Company may require payment of a sum
sufficient to recover any tax or other governmental charge payable in connection
therewith. Prior to due presentation of this Security for registration of
transfer, the Company and any agent of the Company may treat the Person in whose
name this
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<PAGE>
Security is registered as the owner thereof for all purposes, whether or not
this Security be overdue, and neither the Company nor any such agent shall be
affected by notice to the contrary.
(d) The Company shall keep at the Designated Office a register for the
registration and registration of transfers of Convertible Notes. The name and
address of each holder of one or more Convertible Notes, each transfer thereof
and the name and address of each transferee of one or more Convertible Notes
shall be registered in such register. Prior to due presentment for registration
of transfer, the Person in whose name any Convertible Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company Shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Convertible Note promptly
upon request therefor, a complete and correct copy of the names and addresses of
all registered holders of Convertible Notes.
(e) Upon surrender of any Convertible Note at the Designated Office for
registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written instrument
of transfer duly executed by the registered holder of such Convertible Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Convertible Note or part thereof), the
Company shall execute and deliver, at the Company's expense (except as provided
below), one or more new Convertible Notes (as requested by the holder thereof)
in exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Convertible Note. Each such new Convertible
Note shall be payable to such Person as such holder may request and shall be
substantially in the form of this Security. Each such new Convertible Note shall
be dated and bear interest from the date to which interest shall have been paid
on the surrendered Convertible Note or dated the date of the surrendered
Convertible Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of this Security. Convertible
Notes shall not be transferred in denominations of less than $100,000, provided
that if necessary to enable the registration of transfer by a holder of its
entire holding of Convertible Notes, one Convertible Note may be in a
denomination of less than $100,000. Any transferee, by its acceptance of a
Convertible Note registered in its name (or the name of its nominee), shall be
deemed to have made the representation set forth in Section 3 of the Note
Purchase Agreement.
(f) Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of this
Security (which evidence shall be notice from such holder of such ownership and
such loss, theft, destruction or mutilation), and
(i) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of this Security is, or is a
nominee for, an original holder or another institutional investor holder of this
Security, such Person's own unsecured agreement of indemnity shall be deemed to
be satisfactory), or
(ii) in the case of mutilation, upon surrender and cancellation thereof,
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<PAGE>
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Convertible Note, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Convertible
Note or dated the date of such lost, stolen, destroyed or mutilated Convertible
Note if no interest shall have been paid thereon.
(G) THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
(h) So long as you or your nominee shall be holder of this Security and
notwithstanding anything in this Security to the contrary, the Company will pay
all sums becoming due hereunder for principal, Make-Whole Amount, if any, and
interest by the method and at the address specified for such purpose below your
name in Schedule I of the Note Purchase Agreement, or by such other method
provided in the Preamble or at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of this Security, or the making of any notation
hereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment in full of this Security, you shall
surrender this Security for cancellation, reasonably promptly after any such
request to the Company at its principal executive office or at the place of
payment most recently designated by the Company. Prior to any sale or other
disposition of this Security you will, at your election, either endorse thereon
the amount of principal paid thereon and the last date to which interest has
been paid thereon or surrender this Security to the Company in exchange for a
new Convertible Note pursuant to the terms hereof. The Company will afford the
benefits of this Section to any institutional investor that is the direct or
indirect transferee of this Security.
[END OF PAGE - SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF. the Company has caused this Security to be duly
executed under its corporate seal.
Dated: July 6, ,1999
---------------------
CELGENE CORPORATION
By:
--------------------------
Name: Robert J. Hugin
Title: Senior Vice President CFO
Attest
- ------------------------------
Name: Sanford Kaston
Title: Treasurer; CIO
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<PAGE>
ELECTION OF HOLDER TO REQUIRE REPURCHASE
1. Pursuant to Section 3(a) of this Security, the undersigned hereby elects
to have all or a portion of this Security repurchased by the Company.
2. The undersigned hereby directs the Company to pay [choose one] (a) it or
(b) Name: ; address: ; Social Security or Other Taxpayer Identification Number,
if any: , an amount in cash or equal to 100% of the principal amount to be
repurchased (as set forth below), plus interest accrued to the Repurchase Date,
as provided herein.
<PAGE>
CONVERSION NOTICE
The undersigned holder of this Security hereby irrevocably exercises the
option to convert this Security, or any portion of the principal amount hereof
(which is an integral multiple of $1,000) below designated, into shares of
Common Stock (subject to the limitation set forth in the second paragraph of
Section 2(a) of the Security) in accordance with the terms of this Security, and
directs that such shares, together with a check in payment for any fractional
share and any Security representing any unconverted principal amount hereof, be
delivered to and be registered in the name of the undersigned unless a different
name has been indicated below. If shares of Common Stock or Securities are to be
registered 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 by the undersigned on account of interest accompanies this Security.
Dated:
--------------------------- -------------------------
Signature
EXHIBIT 10.27
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of July 6, 1999, by and between
Celgene Corporation, a Delaware corporation (the "Company"), and John Hancock
Mutual Life Insurance Company, John Hancock Variable Life Insurance Company, and
Hancock Mezzanine Partners L.P. (collectively, the "Purchasers" and singly, each
"Purchaser") entered into in connection with the issuance of a Convertible Note
due June 30, 2004 convertible into shares of Common Stock, par value $.01 per
share ("Common Stock") of the Company.
1. Certain Definitions.
For purposes of this Registration Rights Agreement, the following terms
shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Exchange Act or the
Securities Act, whichever is the relevant statute for the particular purpose.
(b) Convertible Note" shall mean the Convertible Note due June 30, 2004, of
the Company to be issued and sold to the Purchaser, and any Convertible Note
issued in exchange therefor or in lieu thereof.
(c) "Effective Time" shall mean the date on which the Commission declares
the Shelf Registration effective or on which the Shelf Registration otherwise
becomes effective.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, or any
successor thereto and the rules and regulations promulgated thereunder, as the
same shall be amended from time to time.
(e) "Issue Date" shall mean the date on which a Convertible Note is
initially issued.
(f) The term "person" shall mean a corporation, association, partnership,
organization, business, individual, government or political subdivision thereof
or governmental agency.
(g) ";Registration Expenses" shall have the meaning assigned thereto in
Section 4 hereof.
(h) ".Securities Act" shall mean the Securities Act of 1933, or any
successor thereto and the rules and regulations promulgated thereunder, as the
same shall be amended from time to time.
<PAGE>
(i) "Shares" means the shares of Common Stock issuable upon exercise of the
Convertible Note.
(j) "Shelf Registration" shall have the meaning assigned thereto in Section
2 hereof.
In addition, capitalized terms not defined herein shall have the meaning
ascribed in the Convertible Note.
2. Shelf Registration of Shares.
(a) Not later than July 6, 2000, the Company shall file under the
Securities Act a "shelf" registration statement providing for the registration
of, and the sale on a continuous or delayed basis by the Purchasers of, all
shares issuable upon conversion of the Convertible Notes, pursuant to Rule 415
under the Securities Act and/or any similar rule that may be adopted by the
Commission (the "Shelf Registration"). The Company agrees to use its best
efforts to cause the Shelf Registration to become or be declared effective no
later than 45 calendar days after the filing thereof and to keep such Shelf
Registration continuously effective for a period ending on the earliest to occur
of (i) the second anniversary of the Issue Date, (ii) notification to the
Company by each Purchaser that it has sold all Shares issuable upon conversion
of the Convertible Notes so owned by it, or (iii) such time as the Purchasers
may sell all of such shares pursuant to Rule 144(k) under the Securities Act.
The Company further agrees, if necessary, to supplement or make amendments to
the Shelf Registration, if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration or by the Securities Act or rules and regulations thereunder for
shelf registration, and the Company agrees to furnish to each Purchaser copies
of any such supplement or amendment prior to its being used and/or filed with
the Commission, and will not file any such supplement or amendment to which any
Purchaser reasonably objects.
(b) Notwithstanding the foregoing, following the effectiveness of the Shelf
Registration, the Company many, at any time, suspend the effectiveness of such
Shelf Registration for up to 60 days, as appropriate (a "Suspension Period"), by
giving notice to each Purchaser, if the Company shall have determined that the
Company may be required to disclose any material corporate development which
disclosure may jeopardize a material transaction or otherwise have a material
adverse effect on the Company. The Company will use its best efforts to minimize
the length of any Suspension Period. Notwithstanding the foregoing, no more than
one Suspension Period may occur within any 180 day period, and no Suspension
Period shall be effective at any time the Company or any affiliate of the
Company is publicly selling shares of the capital stock of the Company (other
than pursuant to a registration statement on the Securities and Exchange
Commission Form S-8). The period of any such suspension of registration
statement shall be added to the period of time the Company agrees to keep the
Shelf Registration effective as provided in Section 2(a). Each Purchaser agrees
that, upon receipt of any notice from the Company of a Suspension Period, such
Purchaser shall forthwith discontinue disposition of shares covered by the Shelf
Registration until such Purchaser (i) is advised in writing by the Company that
the use of the
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applicable prospectus may be resumed, (ii) has received copies of a supplemental
or amended prospectus, if applicable, and (iii) has received copies of any
additional or supplemental filings which are incorporation or deemed to be
incorporated by reference in such prospectus.
3. Registration Procedures.
(a) In connection with any obligation of the Company to register Shares,
the Company shall use its best efforts to effect or cause such registration to
permit the sale of the Shares by the Purchasers in accordance with the intended
method or methods of distribution thereof described in the applicable
registration statement. In connection therewith, the Company shall, within the
time specified in Section 2 above:
(i) prepare and file with the Commission a registration statement on any
form which may be utilized by the Company and which shall permit the disposition
of the Shares in accordance with the intended method or methods thereof, as
specified in writing by each Purchaser;
(ii) comply with the provisions of the Securities Act with respect to the
disposition of all of the Shares covered by such registration statement in
accordance with the intended methods of disposition by each Purchaser set forth
in such registration statements;
(iii) provide (A) each Purchaser, (B) the underwriters (which term, for
purposes of these Registration Rights, shall include a person deemed to be an
underwriter within the meaning of Section 2(11) of the Securities Act), if any,
thereof, (C) the sales or placement agent, if any, therefor, (D) counsel for
such underwriters or agent, and (E) counsel for the Purchasers the opportunity
to participate in the preparation of such registration statement, each
prospectus included therein or filed with the Commission, and each amendment or
supplement thereto;
(iv) for a reasonable period prior to the filing of such registration
statement, and throughout the period specified in Section 2 hereof, make
available for inspection by the parties referred to in Section 3(a)(iii) above
who shall certify to the Company that they have a current intention to sell the
Shares pursuant to the registration statement such financial and other
information and books and records of the Company, and cause the officers,
employees, counsel and independent certified public accountants of the Company
to respond to such inquiries, as shall be reasonably necessary, in the judgment
of the respective counsel referred to in such Section, to conduct a reasonable
investigation within the meaning of Section 11 of the Securities Act; provided,
however, that each such party shall be required to maintain in confidence and
not to disclose to any other person any information or records provided by the
Company and clearly marked or otherwise adequately identified by the Company as
being confidential until such time as (A) such information becomes a matter of
public record (whether by virtue of its inclusion in
3
<PAGE>
such registration statement or otherwise), or (B) such person shall be required
so to disclose such information pursuant to the subpoena or order of any court
or other governmental agency or body having jurisdiction over the matter or over
such party (subject to the requirements of such order, and only after such
person shall have given the Company prompt prior written notice of such
requirement), or (C) such information is required to be set forth in .such
registration statement or the prospectus included therein or in an amendment to
such registration statement or an amendment or supplement to such prospectus in
order that such registration statement, prospectus, amendment or supplement, as
the case may be, does not contain an untrue statement of a material fact or omit
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(v) promptly notify each Purchaser, the sales or placement agent, if any,
therefor and the managing underwriter or underwriters, if any, thereof and
confirm such advice in writing, (A) when such registration statement or the
prospectus included therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to such registration
statement or any post-effective amendment, when the same has become effective,
(B) of any comments by the Commission and by the Blue Sky or securities
commissioner or regulator of any state with respect thereto or any request by
the Commission for amendments or supplements to such registration statement or
prospectus or for additional information, (C) of the issuance by the Commission
of any stop order suspending the effectiveness of such registration statement or
the initiation or overt threatening of any proceedings for that purpose, (D) if
at any time the representations and warranties of the Company contemplated by
Section 5 hereof cease to be true and correct in all material respects, (E) of
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Shares for sale in any jurisdiction or the initiation
or overt threatening of any proceeding for such purpose, or (F) at any time when
a prospectus is required to be delivered under the Securities Act, if such
registration statement, prospectus, prospectus amendment or supplement or
post-effective amendment, or any document incorporated by reference in any of
the foregoing, contains an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(vi) use its best efforts to obtain the withdrawal of any order suspending
the effectiveness of such registration statement or any post-effective amendment
thereto at the earliest practicable date;
(vii) if requested by any managing underwriter or underwriters, any
placement or sales agent or any Purchaser, promptly incorporate in a prospectus
supplement or post-effective amendment such information as is required by the
applicable rules and regulations of the Commission that such managing
underwriter or underwriters, such agent or such Purchaser specify should be
included therein
4
<PAGE>
relating to the terms of the sale of such Shares, including, without limitation,
information with respect to the number of Shares being sold by such Purchaser or
agent or to any underwriters, the name and description of such Purchaser, agent
or underwriter, the offering price of such Shares and any discount, commission
or other compensation payable in respect thereof, the purchase price being paid
therefor by such underwriters and with respect to any other terms of the
offering of the Shares to be sold by such Purchaser or agent or to such
underwriters; and make all required filings of such prospectus supplement or
post-effective amendment promptly after notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(viii) furnish to each Purchaser, each placement or sales agent, if any,
therefor, each underwriter, if any, thereof and the respective counsel referred
to in Section 3(a)(iii) a copy of such registration statement in the form in
which it became effective, each such amendment and supplement thereto (in each
case including all exhibits thereto and documents incorporated by reference
therein) and such number of copies of such registration statement (excluding
exhibits thereto and documents incorporated by reference therein unless
specifically so requested by any Purchaser, agent or underwriter, as the case
may be) and of the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act, and such other documents, as any Purchaser,
agent, if any, and underwriter, if any, may reasonably request in order to
facilitate the offering and disposition of the Shares owned by such Purchaser,
offered or sold by such agent or underwritten by such underwriter and to permit
such Purchaser, agent and underwriter to satisfy the prospectus delivery
requirements of the Securities Act; and the Company hereby consents to the use
of such prospectus (including such preliminary and summary prospectus) and any
amendment or supplement thereto by any Purchaser and by any such agent and
underwriter, in each case in the form most recently provided to such party by
the Company, in connection with the offering and sale of the Shares covered by
the prospectus (including such preliminary and summary prospectus) or any
supplement or amendment thereto;
(ix) use its best efforts to (A) register or qualify the Shares to be
included in such registration statement under such securities laws or blue sky
laws of such jurisdictions as each Purchaser and each placement or sales agent,
if any, therefor and underwriter, if any, thereof shall reasonably request, (B)
keep such registrations or qualifications in effect and comply with such laws so
as to permit the continuance of offers, sales and dealings therein in such
jurisdictions during the respective periods such registration statements are
required to remain effective under Section 2 above and for so long as may be
necessary to enable each Purchaser or any agent or underwriter to complete its
distribution of Shares pursuant to such registration statement and (C) take any
and all other actions as may be reasonably necessary or advisable to enable each
Purchaser, agent, if any, and underwriter, if any, to
5
<PAGE>
consummate the disposition in such jurisdictions of such Shares; provided,
however, that the Company shall not be required for any such purpose to (I)
qualify as a foreign corporation in any jurisdiction wherein it would not
otherwise be required to qualify but for the requirements of this Section
3(a)(ix) or (II) consent to general service of process in any such jurisdiction;
(x) use its best efforts to obtain the consent or approval of each
governmental agency or authority, whether federal, state or local, which may be
required to effect the Shelf Registration or the offering or sale in connection
therewith or to enable the Purchaser to offer, or to consummate the disposition
of, its Shares;
(xi) cooperate with each Purchaser and the managing underwriters, if any,
to facilitate the timely preparation and delivery of any certificates
representing Shares to be sold, which certificates shall be printed,
lithographed or engraved, or produced by any combination of such methods, and
which shall not, once sold under the Shelf Registration, bear any restrictive
legends; and, in the case of an underwritten offering, enable such Shares to be
in such denominations and registered in such names as the managing underwriters
may request at least two business days prior to any sale of the Shares;
(xii) enter into one or more underwriting agreements, engagement letters,
agency agreements or similar agreements, as appropriate, including (without
limitation) customary provisions relating to indemnification and contribution,
and take such other actions in connections therewith as any Purchaser shall
reasonably request in order to expedite or facilitate the disposition of the
Shares;
(xiii) notify each Purchaser in writing of any proposal by the Company to
amend or waive any provision of these Registration Rights pursuant to Section
7(g) hereof and of any amendment or waiver effected pursuant thereto, each of
which notices shall contain the text of the amendment or waiver proposed or
effected, as the case may be;
(xiv) in the event that any broker-dealer registered under the Exchange Act
shall underwrite any Shares or participate as a member of an underwriting
syndicate or selling group or "assist in the distribution" (within the meaning
of the Rules of Fair Practice and the By-Laws of the National Association of
Securities Dealers, Inc. ("NASD")) thereof, whether as an underwriter, a
placement or sales agent or a broker or dealer in respect thereof, or otherwise,
assist such broker-dealer in complying with the requirements of such Rules and
By-Laws, including, without limitation, by providing such information to such
broker-dealer as may be required in order for such broker-dealer to comply with
the requirements of the Rules of Fair Practice of the NASD;
6
<PAGE>
(xv) comply with all applicable rules and regulations of the Commission,
and make generally available to its security holders as soon as practicable but
in any event not later than eighteen months after the effective date of such
registration statement, an earning statement of the Company and in subsidiaries
complying with Section 11(a) of the Securities Act (including, at the option of
the Company, Rule 158 thereunder); and
(xvi) use its best efforts to have the Shares approved for trading on the
Nasdaq National Market.
(b) In the event that the Company would be required, pursuant to Section
3(a)(v)(F) above, to notify each Purchaser, the placement or sales agent, if
any, therefor and the managing underwriters, if any, thereof, the Company shall
without delay prepare and furnish to each Purchaser, to each placement or sales
agent, if any, and to each underwriter, if any, a reasonable number of copies of
a prospectus supplemented or amended in form and substance reasonably
satisfactory to them, so that, as thereafter delivered to purchasers of Shares,
such prospectus shall 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 not misleading in light of the circumstances then existing.
Each Purchaser agrees that upon receipt of any notice from the Company pursuant
to Section 3(a)(v)(F) hereof, such Purchaser shall forthwith discontinue the
disposition of Shares pursuant to the registration statement applicable to such
Shares until such Purchaser shall have received copies of such amended or
supplemented prospectus, and if so directed by the Company, such Purchaser shall
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Purchaser's possession of the prospectus
covering such Shares at the time of receipt of such notice.
(c) The Company may require any Purchaser to furnish to the Company such
information regarding such Purchaser and such Purchaser's intended method of
distribution of the Shares as the Company may from time to time reasonably
request in writing, but only to the extent that such information is required in
order to comply with the Securities Act. Each Purchaser agrees to notify the
Company as promptly as practicable of any inaccuracy or change in information
previously furnished by such Purchaser to the Company or of the occurrence of
any event in either case as a result of which any prospectus relating to such
registration contains or would contain an untrue statement of a material fact
regarding such Purchaser or such Purchaser's intended method of distribution of
such Shares or omits to state any material fact regarding such Purchaser or such
Purchaser's intended method of distribution of such Shares required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, and promptly to furnish to the Company any
additional information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with respect
to such Purchaser or the distribution of such Shares, 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 not misleading in light of the
circumstances then existing. Each Purchaser agrees that upon delivering any
notice to the Company pursuant to this Section 3(c), such Purchaser shall
forthwith discontinue the disposition of Shares pursuant to the registration
statement applicable to such Shares until such
7
<PAGE>
Purchaser shall have received copies of such amended or supplemented prospectus,
and if so directed by the Company, such Purchaser shall deliver to the Company
(at the Company's expense) all copies, other than permanent file copies then in
such Purchaser's possession of the prospectus covering such Shares at the time
of receipt of such notice.
4. Registration Expenses.
The Company agrees to bear and to pay or cause to be paid promptly upon
request being made therefor all expenses incident to the Company's performance
of or compliance with these Registration Rights as they relate to the Shelf
Registration, including, without limitation, (i) all Commission and any NASD
registration and filing fees and expenses, (ii) all fees and expenses in
connection with the qualification of the Shares for offering and sale under the
State securities and blue sky laws referred to in Section 3(a)(ix) hereof,
including reasonable fees and disbursements of counsel for the placement or
sales agent or underwriters in connection with such qualifications, (iii) all
fees and expenses in connection with the approval for trading of the Shares on
the Nasdaq National Market, (iv) all expenses relating to the preparation,
printing, distribution and reproduction of each registration statement required
to be filed hereunder, each prospectus included therein or prepared for
distribution pursuant hereto, each amendment or supplement to the foregoing, the
certificates representing the Shares and all other documents relating hereto,
(v) internal expenses (including, without limitation, all salaries and expenses
of the Company's officers and employees performing legal or accounting duties),
and (vi) fees, disbursements and expenses of counsel and independent certified
public accountants of the Company (including the expenses of any opinions or
"cold comfort" letters required by or incident to such performance and
compliance) (collectively, the "Registration Expenses"). Notwithstanding the
foregoing, such Purchaser shall pay all agency fees and commissions and
underwriting discounts and commissions attributable to the sale of the Shares
and the fees and disbursements of any counsel or other advisors or experts
retained by such Purchaser in connection with the sale of its shares.
5. Representations and Warranties.
The Company represents and warrants to, and agrees with, each Purchaser
that:
(a) Each registration statement covering Shares and each prospectus
(including any preliminary or summary prospectus) contained therein or furnished
pursuant to Section 3(a)(viii) hereof and any further amendments or supplements
to any such registration statement or prospectus, when it becomes effective or
is filed with the Commission, as the case may be, and, in the case of an
underwritten offering of Shares, at the time of the closing under the
underwriting agreement relating thereto will conform in all material respects to
the requirements of the Securities Act, and 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 not misleading; and at all
times subsequent to the Effective Time when a prospectus would be required to be
delivered under the Securities Act, other than from (i) such time as a notice
has been give to such Purchaser pursuant to Section 3(a)(v)F) hereof until (ii)
such time as the Company furnishes an amended or supplemented prospectus
pursuant to Section 3(b) hereof, each such registration statement, and each
prospectus
8
<PAGE>
(including any summary prospectus) contained therein or furnished pursuant to
Section 3(a)(viii) hereof, as then amended or supplemented, will conform in all
material respects to the requirements of the Securities Act, and 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 not
misleading in the light of the circumstances then existing; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information furnished in
writing to the Company by such Purchaser expressly for use therein.
(b) Any documents incorporated by reference in any prospectus referred to
in Section 5(a) hereof, when they become or became effective or are or were
filed with the Commission, or if amended, when amended, as the case may be, will
conform or conformed in all material respects to the requirements of the
Exchange Act, and none of such documents will contain or contained an untrue
statement of a material fact or will omit or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Company by such Purchaser expressly
for use therein.
6. Indemnification.
(a) Indemnification by the Company. Upon the registration of Shares
pursuant to Section 2 hereof, and in consideration of the agreements of the
Purchasers contained herein, and as an inducement to the Purchasers to purchase
the Convertible Notes, the Company shall, and it hereby agrees to, indemnify and
hold harmless each Purchaser and each person who participates as a placement or
sales agent or as an underwriter in any offering or sale of such Shares against
any losses, claims, damages or liabilities, joint or several, to which such
Purchaser or any such agent or underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Shares were registered under the
Securities Act, or any preliminary, final or summary prospectus contained
therein or furnished by the Company to such Purchaser, agent or underwriter, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
the Company shall, and it hereby agrees to, reimburse such Purchaser, such agent
and such underwriter for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company shall not be liable
to any such Person in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or preliminary, final or summary prospectus, or amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Person expressly for use therein; provided
further, however, that the Company shall not be liable to any such Person if
such Person failed to deliver a prospectus in the form most recently provided by
the Company (including any amendments or supplements thereto previously provided
by the
9
<PAGE>
Company), in any such case to the extent that any loss, claim, damage or
liability arises out of or is based upon an untrue statement or an omission
which was corrected in such most recently furnished prospectus (including any
such amendments or supplements).
(b) Indemnification by the Purchaser and any Agents and Underwriters. The
Company may require, as a condition to including any Shares in any registration
statement filed pursuant to Section 2 hereof and to entering into an
underwriting agreement, if any, with respect thereto, that the Company shall
have received an undertaking reasonably satisfactory to it from each
participating Purchaser and from each underwriter, if any, named in any such
underwriting agreement, severally and not jointly or jointly and severally, to
(i) indemnify and hold harmless the Company against any losses, claims, damages
or liabilities to which the Company may become subject, under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, or any preliminary, final or summary prospectus contained therein or
furnished by the Company to any Purchaser, agent or underwriter, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon and
in conformity with written information furnished to the Company by such
Purchaser or underwriter expressly for use therein, and (ii) reimburse the
Company for any legal or other expenses reasonably incurred by the Company in
connection with investigating or defending any such action or claim as such
expenses are incurred. Notwithstanding the above, the obligation of such
Purchaser for indemnity shall be limited to an amount equal to the net proceeds
received by such Purchaser in the applicable underwriting.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified party
under subsection (a) or (b) above of written notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, such indemnifying party shall not be
liable to such indemnified party for any legal expenses of other counsel or any
other expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of investigation
unless, in the case of an indemnification obligation arising under Section (a),
(i) the employment of such additional counsel has been authorized in writing by
the Company in connection with defending such action,
10
<PAGE>
or (ii) the Company and the Purchaser are advised by such additional counsel
that the Purchaser has available defenses involving a potential conflict with
the interests of the Company, in which event, the fees and expenses of such
additional counsel shall be borne by the Company. No indemnifying party shall
consent to entry of any judgment or enter into any settlement of a claim against
an indemnified party without the consent of the indemnified party which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of an unconditional release from all liability in
respect to such claim or litigation.
(d) Contribution. Each party hereto agrees that, if for any reason the
indemnification provisions contemplated by Section 6(a) or Section 6Co) are
unavailable to or insufficient to hold harmless an indemnified party in respect
of any losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by indemnified party on
the one hand and the indemnifying party on the other from any offering of the
Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party failed
to give the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the indemnifying party and the indemnified party
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and each Purchaser on the other shall be deemed to be in
the same proportion as the total purchase price received by the Company upon
issuance of the Convertible Note bears to the difference between the proceeds
from the offering of the Shares received by such Purchaser and such purchase
price. The relative fault of such indemnifying party and indemnified party shall
be determined by reference to, among other things, 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 such indemnifying party or by
such indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if
contributions pursuant to this Section 6(d) were determined by pro rata
allocation (even if any Purchaser or any agents or underwriters or all of them
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 this Section 6(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, or liabilities (or actions in respect
thereof) referred to above shall be deemed to include any legal or other fees or
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), no Purchaser shall be required to contribute
any amounts in excess of the amount by which the dollar amount of the proceeds
received by such Purchaser from the sale of any Shares (after deducting any
fees, discounts and commissions applicable thereto) exceeds the amount of any
damages which such Purchaser has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
underwriter shall be required to contribute any amount in excess of the amount
by
11
<PAGE>
which the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter 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 contribute from any person who was not
guilty of such fraudulent misrepresentation. Any underwriters' obligations in
this Section 6(d) to contribute shall be several in proportion to the principal
amount of Shares underwritten by them and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall emend,
upon the same terms and conditions, to each officer, director and partner of
each Purchaser, any agent and any underwriter and each person, if any, who
controls such Purchaser or any agent or underwriter within the meaning of the
Securities Act; and the obligations of each Purchaser and any agents and
underwriters contemplated by this Section 6 shall be in addition to any
liability which such Purchaser or any such agent or underwriter, respectively,
may otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company (including any person who, with his consent,
is named in any registration statement as about to become a director of the
Company) and to each person, if any, who controls the Company within the meaning
of the Securities Act.
7. Miscellaneous
(a) No Inconsistent Agreements. The Company represents, warrants, covenants
and agrees that it has not granted, and shall not grant, registration rights
with respect to Shares or any other securities which would conflict with the
terms contained in these Registration Rights.
(b) Specific Performance. The parties hereto acknowledge that there may be
no adequate remedy at law if any party fails to perform any of its obligations
hereunder and that each party may be irreparably harmed by any such failure, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to compel specific
performance of the obligations of any other party under the Registration Rights
in accordance with the terms and conditions of these Registration Rights, in any
court of the United States or any State thereof having jurisdiction.
(c) Notices. Any notice or other communication required or permitted to be
given hereunder shall be deemed effectively given when personally delivered,
telexed, transmitted by facsimile or mailed by pre-paid certified mail, return
receipt requested, or by telephone when confirmed in writing by one of the
preceding methods addressed as follows (as applicable):
If to the Company, to:
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
12
<PAGE>
Attention: John W. Jackson
Telephone Number: (732) 271-1001
Facsimile Transmission Number: (732) 805-3931
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attention: Robert A. Cantone, Esq.
Telephone Number: (212) 969-3000
Facsimile Transmission Number: (212) 969-2900
If to Purchasers, to the Person designated by Purchaser and at
the address as set forth on Schedule I in the Note Purchase
Agreement dated the date hereof between the Purchasers and the
Company
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, MA 02109
Attention: Frank B. Porter, Jr.
Telephone Number: (617) 248-5000
Facsimile Transmission Number: (617) 248-4000
or to such other address or number and to the attention of such other person as
either party may designate by written notice to the other party. Notice shall be
effective upon actual receipt.
(d) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in these Registration Rights or
made pursuant hereto shall remain in full force and effect regardless of any
investigation (or statement as to the results thereof) made by or on behalf of
each Purchaser, any director, officer or partner of such Purchaser, any agent or
underwriter or any director, officer or partner thereof, or any controlling
person of any of the foregoing and shall survive the transfer of the Shares by
such Purchaser.
(e) Law Governing. These Registration Rights shall be governed by and
construed in accordance with the laws of the State of New York.
(f) Headings. The descriptive headings of the several Sections and
paragraphs of these Registration Rights are inserted for convenience only, do
not constitute a part of these
13
<PAGE>
Registration Rights and shall not affect in any way the meaning or
interpretation of these Registration Rights.
(g) Entire Agreement; Amendments. These Registration Rights and the other
writings referred to herein or delivered pursuant hereto which form a part
hereof contain the entire understanding of the parties with respect to its
subject matter. These Registration Rights supersede all prior agreements and
understandings between the parties with respect to its subject matter. These
Registration Rights may be amended and the observance of any term of these
Registration Rights may be waived (either generally or in a particular instance
and either retroactively or prospectively) only be a written instrument duly
executed by the Company and each Purchaser.
(h) Assignment. In connection with any permitted transfer of the
Convertible Note or any portion thereof in a principal amount of not less than
$100,000 any Purchaser may assign its rights hereunder in respect of such
Convertible Note to the transferee. Upon such assignment the transferee shall,
insofar as the transferred Convertible Notes are concerned, be entitled to all
of the rights, and be subject to all of the obligations, of a Purchaser under
these Registration Rights, and all references to such "Purchaser" herein shall
thereafter be deemed to refer to the Purchaser, or such transferee, or both, as
the circumstances warrant.
(i) Counterparts. This agreement may be executed by the parties
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
[the remainder of this page is intentionally left blank]
14
<PAGE>
[Signature Page of Registration Rights Agreement]
Agreed to and accepted as of the date referred to above.
CELGENE CORPORATION
By:
---------------------------------
Name: Robert J. Hugin
-------------------------------
Title: Senior Vice President & CFO
------------------------------
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By:
---------------------------------
Name:. Stephen J. Blewitt
-------------------------------
Title: Senior Investment Officer
------------------------------
JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY
By:
---------------------------------
Name: Stephen J. Blewitt
-------------------------------
Title: Senior Investment Officer
------------------------------
HANCOCK MEZZANINE PARTNERS L.P.
By: Hancock Mezzanine Investments LLC, its General Partner
By: John Hancock Mutual Life Insurance Company.
as Investment Manager
By:
---------------------------------
Name: Stephen J. Blewitt
--------------------------------
Title: Senior Investment Officer
-------------------------------
Exchange.3019985.2
15
EXHIBIT 23.1
Accountants' Consent
The Board of Directors
Celgene Corporation:
We consent to incorporation by reference in the registration statements (No.
333-70083, 33-21462, 33-38296, 33-62510 and 333-91977) on Form S-8 and (No.
333-02517, 333-32115, 333-38861, 333-52963, 333-87197, 333-93759 and 333-94915)
on Form S-3 of Celgene Corporation of our report dated January 27, 2000, except
as to note 14, which is as of February 16, 2000, relating to the consolidated
balance sheets of Celgene Corporation and subsidiary as of December 31, 1998 and
1999, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999, and the related schedule, which report appears
in the December 31, 1999 Annual Report on Form 10-K of Celgene Corporation.
KPMG LLP
Short Hills, New Jersey
March 30, 2000
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