<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Amendment No. 2)
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-19119
CEPHALON, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2484489
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
145 BRANDYWINE PARKWAY, 19380
WEST CHESTER, PENNSYLVANIA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (610) 344-0200
Securities registered pursuant to Section 12(b) of the Act:
Name of each
exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports 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 [_].
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 the 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]
The aggregate market value of the voting stock held by non-affiliates of
the registrant is approximately $201,828,095. Such aggregate market value was
computed by reference to the closing price of the Common Stock as reported on
the Nasdaq National Market on February 19, 1999. For purposes of making this
calculation only, the registrant has defined affiliates as including all
directors and beneficial owners of more than ten percent of the Common Stock of
the Company.
The number of shares of the registrant's Common Stock outstanding as of
February 19, 1999 was 28,820,542.
The purpose of Amendment No. 2 is to refile Exhibits 4.3(a), 4.3(b),
4.3(c), and 4.3(d). Portions of Exhibit 4.3(b) have been omitted and have been
filed separately with the Securities and Exchange Commission pursuant to an
application for confidential treatment filed with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities Act of 1934, as
amended.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The Information required by this item was previously filed.
SCHEDULES
All schedules are omitted because they are not applicable or are not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
Reports on Form 8-K
During the fiscal quarter ended December 31, 1998, the Company filed a
Current Report on Form 8-K on December 28, 1998 announcing approval from the
U.S. Food and Drug Administration to market PROVIGIL(R) (modafinil) Tablets for
the treatment of excessive daytime sleepiness associated with narcolepsy.
EXHIBITS
The following is a list of exhibits filed as part of this annual report on
Form 10-K. Where so indicated by footnote, exhibits which were previously filed
are incorporated by reference. For exhibits incorporated by reference, the
location of the exhibit in the previous filing is indicated in parenthesis.
<TABLE>
<CAPTION>
EXHIBIT
NO.
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<S> <C>
3.1 Restated Certificate of Incorporation, as amended. (Exhibit 3.1)(19)
3.2 Bylaws of the Registrant, as amended. (Exhibit 3.1)(19)
4.1 Specimen copy of stock certificate for shares of Common Stock of the Registrant (Exhibit
4.1)(10).
4.2 Amended and Restated Rights Agreement, dated as of January 1, 1999, between Cephalon, Inc. and
StockTrans, Inc. as Rights Agent (Exhibit 1) (22).
*4.3(a) Form of Note Purchase Agreement dated as of February 24, 1999 by and
between Cephalon and Investor.
*4.3(b) Form of Revenue Sharing Senior Secured Note due 2002 dated March
1, 1999. (21)
*4.3(c) Form of Class A Warrant.
*4.3(d) Form of Class B Warrant.
**4.3(e) Security Agreement dated March 1, 1999 between Cephalon, Inc. and Delta Opportunity Fund,
Ltd., as collateral agent.
**4.3(f) Patent and Trademark Agreement dated March 1,1999 between Cephalon, Inc. and Delta
Opportunity Fund, Ltd., as collateral agent.
</TABLE>
2
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<TABLE>
<CAPTION>
EXHIBIT
NO.
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<S> <C>
10.1 Letter agreement dated March 22, 1995, between Cephalon, Inc. and the Salk Institute for
Biotechnology Industrial Associates, Inc. (Exhibit 99.1)(15).
10.2 Deliberately omitted.
10.3 Stock Purchase Agreement dated July 28, 1995, between Cephalon, Inc. and Kyowa Hakko
Kogyo Co., Ltd. (Exhibit 99.3)(16).
10.4(a) License Agreement, dated May 15, 1992, between Cephalon, Inc. and Kyowa Hakko Kogyo Co.,
Ltd. (Exhibit 10.6)(4)(20).
10.4(b) Letter agreement dated March 6, 1995 amending License Agreement between Cephalon, Inc. and
Kyowa Hakko Kogyo Co., Ltd. (Exhibit 10.4(6))(14)(20).
10.5(a) Supply Agreement, dated January 20, 1993, between Cephalon, Inc. and Laboratoire L. Lafon
(Exhibit 10.1)(7)(20).
10.5(b) License Agreement, dated January 20, 1993, between Cephalon, Inc. and Laboratoire L. Lafon
(Exhibit 10.2)(7)(20).
10.5(c) Trademark Agreement, dated January 20, 1993, between Cephalon, Inc. and Genelco S.A.
(Exhibit 10.3)(7)(20).
10.5(d) Amendment to License Agreement and Supply Agreement, dated July 21, 1993, between
Cephalon, Inc. and Laboratoire L. Lafon (Exhibit 10.1)(10)(11).
10.5(e) Amendment to Trademark Agreement, dated July 21, 1993, between Cephalon, Inc. and
Genelco S.A. (Exhibit 10.2)(11)(20).
10.5(f) Amendment No. 3 to License Agreement dated June 8, 1995, between Cephalon, Inc. and
Laboratoire L. Lafon (Exhibit 99.2)(15).
10.5(g) Amendment No. 4 to License Agreement and Supply Agreement dated August 23, 1995,
between Cephalon, Inc. and Laboratoire L. Lafon (Exhibit 10.5(g))(17)(20).
**10.5(h) Amendment No. 5 to License Agreement and Supply Agreement dated January 21, 1998 between
Cephalon, Inc. and Laboratoire L. Lafon. (21)
**10.5(i) Amendment No. 6 to License Agreement and Supply Agreement dated February 2, 1998 between
Cephalon, Inc. and Laboratoire L. Lafon. (21)
**10.5(j) Amendment No. 3 to Trademark Agreement dated January 21, 1998 between Cephalon, Inc. and Genelco
S.A. (21)
**10.5(k) Amendment No. 4 to Trademark Agreement dated February 9, 1998 between Cephalon, Inc. and Genelco
S.A. (21)
+10.6(a) Cephalon, Inc. Amended and Restated 1987 Stock Option Plan (Exhibit 10.7)(4).
+10.6(b) Cephalon, Inc. Equity Compensation Plan (Exhibit 10.6(b))(17).
+10.6(c) Cephalon, Inc. Non-Qualified Deferred Compensation Plan (Exhibit 10.6(c))(10).
10.7 Form of Note Purchase Agreement, dated as of January 15, 1997, between Cephalon, Inc. and
the several purchasers of Cephalon's Senior Convertible Notes, without exhibits (10.1)(18).
10.8(a) Amended and Restated Agreement of Limited Partnership, dated as of June 22, 1992, by and
among Cephalon Development Corporation, as general partner, and each of the limited partners
of Cephalon Clinical Partners, L.P. (Exhibit 10.1)(6).
10.8(b) Amended and Restated Product Development Agreement, dated as of August 11, 1992, by and
between the Registrant and Cephalon Clinical Partners, L.P. (Exhibit 10.2)(6)(20).
10.8(c) Purchase Agreement, dated as of August 11, 1992, by and between the Registrant and each of
the limited partners of Cephalon Clinical Partners, L.P. (Exhibit 10.3)(6)(20).
10.8(d) Form of Series A Warrant to purchasers of Units including a limited partnership interest in
Cephalon Clinical Partners, L.P. (Exhibit 10.4)(6).
</TABLE>
3
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<TABLE>
<CAPTION>
EXHIBIT
No.
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<S> <C>
10.8(e) Form of Series B Warrant to purchasers of Units including a limited partnership interest in
Cephalon Clinical Partners, L.P. (Exhibit 10.5)(6).
10.8(f) Incentive Warrant to purchase 115,050 shares of Common Stock of the Registrant issued to
PaineWebber Incorporated (Exhibit 10.6)(6).
10.8(g) Fund Warrant to purchase 19,950 shares of Common Stock of the Registrant issued to
PaineWebber R&D Partners III, L.P. (Exhibit 10.7)(6).
10.8(h) Pledge Agreement, dated as of August 11, 1992, by and between Cephalon Clinical Partners, L.P.
and the Registrant (Exhibit 10.8)(6).
10.8(i) Promissory Note, dated as of August 11, 1992, issued by Cephalon Clinical Partners, L.P. to the
Registrant (Exhibit 10.9)(6).
10.8(j) Form of Promissory Note, issued by each of the limited partners of Cephalon Clinical Partners,
L.P. to Cephalon Clinical Partners, L.P. (Exhibit 10.10)(6).
10.9 Supply, Distribution and License Agreement, dated as of July 27, 1993, by and between Kyowa
Hakko Kogyo Co., Ltd. and Cephalon, Inc. (Exhibit 10.3)(11)(20).
10.10(a) Agreement between Cephalon, Inc. and Chiron Corporation dated as of January 7, 1994
(Exhibit 10.1)(12)(20).
10.10(b) Letter agreement dated January 13, 1995 amending Agreement between Cephalon, Inc. and
Chiron Corporation (Exhibit 10.12(b))(14)(20).
10.10(c) Letter agreement dated May 23, 1995 amending Agreement between Cephalon, Inc. and Chiron
Corporation (Exhibit 10.12(c))(17)(20).
10.11(a) Agreement between Cephalon, Inc. and TAP Holdings Inc. (formerly TAP Pharmaceuticals
Inc.) dated as of May 17, 1994 (Exhibit 99.2)(13)(20).
10.11(b) Amendment dated June 28, 1996 amending Agreement between Cephalon, Inc. and TAP
Holdings Inc. (Exhibit 10.13(b))(19)(21)
**10.12 Toll Manufacturing and Packaging Agreement dated February 24, 1998 between Cephalon, Inc. and
Circa Pharmaceuticals, Inc. (21)
**21 Subsidiaries of Cephalon, Inc.
**23.1 Consent of Arthur Andersen LLP.
**24 Power of Attorney (included on the signature page to this Form 10-K Report).
**27 Financial Data Schedule
</TABLE>
* Filed herewith.
** Previously filed
+ Compensation plans and arrangements for executives and others.
(1 ) Filed as an Exhibit to the Registration Statement on Form S-1 filed on
March 15, 1991.
(2) Filed as an Exhibit to Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-1 (Registration No. 33-39413) filed on April 19, 1991.
(3) Filed as an Exhibit to Pre-Effective Amendment No. 2 to the Registration
Statement on Form S-1 (Registration No. 33-39413) filed on April 22, 1991.
(4) Filed as an Exhibit to the Transition Report on Form 10-K for transition
period from January 1, 1991 to December 31, 1991, as amended by Amendment
No. 1 filed on September 4, 1992 on Form 8.
(5) Filed as an Exhibit to the Company's Current Report on Form 8-K filed on
December 31, 1992.
(6) Filed as an Exhibit to the Registration Statement on Form S-3 (Registration
No. 33-56816) filed on January 7, 1993.
(7) Filed as an Exhibit to the Registration Statement on Form S-3 (Registration
No. 33-58006) filed on February 8, 1993.
(8) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992.
4
<PAGE>
(9) Filed as an Exhibit to the Company's Current Report on Form 8-K dated June
8, 1993.
(10) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993.
(11) Filed as an Exhibit to the Registration Statement on Form S-3 (Registration
No. 33-73896) filed on January 10, 1994.
(12) Filed as an Exhibit to the Company's Current Report on Form 8-K dated
January 10, 1994.
(13) Filed as an Exhibit to the Company's Current Report on Form 8-K dated May
17, 1994.
(14) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
(15) Filed as an Exhibit to the Registration Statement on Amendment No. 1 to
Form S-3 (Registration No. 33-93964) filed on June 30, 1995.
(16) Filed as an Exhibit to the Registration Statement on Amendment No. 2 to
Form S-3 (Registration No. 33-93964) filed on July 31, 1995.
(17) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
(18) Filed as an Exhibit to the Registration Statement on Form S-3 (Registration
No. 333-20321) filed on January 24, 1997.
(19) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
(20) Portions of the Exhibit have been omitted and have been filed separately
pursuant to an application for confidential treatment granted by the
Securities and Exchange Commission.
(21) Portions of the Exhibit have been omitted and have been filed separately
pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended.
(22) Filed as an Exhibit to the Company's Form 8-A/A (12G) filed on January 20,
1999.
5
<PAGE>
SIGNATURES
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.
Date: July 19, 1999 Cephalon, Inc.
By: /s/ Frank Baldino, Jr., Ph.D.
---------------------------------------
Frank Baldino, Jr., Ph.D.
President and Chief Executive Officer
<PAGE>
Exhibit Index
The Exhibits that have been filed herewith this Form 10-K/A are summarized
as follows:
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
4.3(a) Form of Note Purchase Agreement dated as of February
24, 1999 by and between Cephalon and Investor.
*4.3(b) Form of Revenue Sharing Senior Secured Note due 2002
dated March 1, 1999.
4.3(c) Form of Class A Warrant
4.3(d) Form of Class B Warrant
*Portions of this Exhibit have been omitted and have
been filed separately with the Securities and Exchange
Commission pursuant to an application for confidential
treatment filed with the Securities and Exchange
Commission pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended
</TABLE>
<PAGE>
EXHIBIT 4.3a
NOTE PURCHASE AGREEMENTS DATED FEBRUARY 24, 1999 BETWEEN
CEPHALON, INC. AND THE FOLLOWING INVESTORS
<TABLE>
<CAPTION>
Investors
- ---------
<S> <C>
Delta Opportunity Fund, Ltd.
Delta Opportunity Fund (Institutional), LLC
DLJ Capital Corp.
DLJ ESC II, L.P.
The Kaufmann Fund, Inc.
Sprout Capital VIII, L.P.
Sprout Growth II, L.P.
Sprout Venture Capital, L.P.
</TABLE>
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NOTE PURCHASE AGREEMENT
================================================================================
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================================================================================
================================================================================
DATED AS OF FEBRUARY 24, 1999
================================================================================
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BY AND BETWEEN
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CEPHALON, INC.
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AND
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[NAME OF INVESTOR]
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<PAGE>
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DIAZ & ALTSCHUL CAPITAL, LLC
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<PAGE>
CEPHALON, INC.
NOTE PURCHASE AGREEMENT
11% REVENUE SHARING SENIOR SECURED NOTES DUE 2002
AND
COMMON STOCK PURCHASE WARRANTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. DEFINITIONS
1
2. PURCHASE AND SALE; PURCHASE PRICE 6
(a) Purchase 6
(b) Form of Payment 7
(c) Closing 7
3. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF
THE BUYER
(a) Purchase for Investment 7
(b) Accredited Investor 7
(c) Reoffers and Resales 7
(d) Company Reliance 7
(e) Information Provided 8
(f) Absence of Approvals 8
(g) Note Purchase Agreement 8
</TABLE>
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<PAGE>
(h) Buyer Status 8
4. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF
THE COMPANY 8
(a) Organization and Authority 8
(b) Qualifications 9
(c) Capitalization 9
(d) Concerning the Shares and the Common Stock 10
(e) Corporate Authorization 10
(f) Non-contravention 10
(g) Approvals, Filings, Etc 11
(h) Information Provided 11
(i) Conduct of Business 11
(j) SEC Filings 11
(k) Absence of Certain Proceedings 12
(l) Financial Statements; Liabilities 12
(m) Material Losses 12
(n) Absence of Certain Changes 12
(o) Intellectual Property 12
(p) Internal Accounting Controls 13
(q) Compliance with Law 13
(r) Properties 13
-5-
<PAGE>
(s) Labor Relations 13
(t) Insurance 13
(u) Tax Matters 13
(v) Investment Company 14
(w) Absence of Brokers, Finders, Etc. 14
(x) No Solicitation 14
(y) ERISA Compliance 14
(z) Concerning the Collateral 14
5. CERTAIN COVENANTS 14
(a) Transfer Restrictions 14
(b) Restrictive Legends 14
(c) Nasdaq Listing; Reporting Status 16
(d) Form D 16
(e) State Securities Laws 16
(f) Limitation on Certain Actions 16
(g) Security Agreement; Financing Statements, Etc. 16
(h) Use of Proceeds 17
(i) Best Efforts 17
(j) Debt Obligation 17
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL 17
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<PAGE>
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE 17
8. REGISTRATION RIGHTS 18
(a) Mandatory Registration 18
(b) Obligations of the Company 19
(c) Obligations of the Buyer and other Investors 22
(d) Rule 144 24
9. INDEMNIFICATION AND CONTRIBUTION 24
(a) Indemnification 24
(b) Contribution 25
(c) Other Rights 26
10. MISCELLANEOUS 26
(a) Governing Law 26
(b) Headings 26
(c) Severability 26
(d) Notices 26
(e) Counterparts 26
(f) Entire Agreement; Benefit 26
(g) Waiver 27
(h) Amendment 27
(i) Further Assurances 27
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<PAGE>
(j) Assignment of Certain Rights and Obligations 27
(k) Expenses 27
(l) Termination 28
(m) Survival 28
(n) Public Statements, Press Releases, Etc. 28
(o) Construction 29
SCHEDULES
- ---------
Schedule 4(a) Certain Equity Investments
Schedule 4(c) Certain Antidilution Adjustments
Schedule 4(r) Certain Mortgages, Liens, Security Interests, Encumbrances, Etc.
ANNEXES
- -------
ANNEX I Form of 11% Revenue Sharing Senior Secured Note due 2002
ANNEX II Form of Common Stock Purchase Warrant, Class A
ANNEX III Form of Common Stock Purchase Warrant, Class B
ANNEX IV Form of Security Agreement
ANNEX V Form of Patent and Trademark Security Agreement
ANNEX VI Form of Opinion of Morgan, Lewis & Bockius, LLP to Be Delivered
on the Closing Date ANNEX VII Form of Opinion of Law Offices of
Brian W Pusch to Be Delivered on the Closing Date
ANNEX VIII Form of Instruction to the Company's Transfer Agent ANNEX IX
Form of Opinion of Morgan, Lewis & Bockius, LLP to Be Delivered
in Connection with Effectiveness of each Registration Statement
ANNEX X Form of Opinion of the Company's General Counsel to Be
Delivered in Connection with Effectiveness of each Registration
Statement
ANNEX XI Form of Investor Questionnaire
-8-
<PAGE>
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT, dated as of February 24, 1999
(this "Agreement"), by and between CEPHALON, INC., a Delaware corporation (the
"Company"), with headquarters located at 145 Brandywine Parkway, West Chester,
Pennsylvania 19380, and [NAME OF BUYER], a ____________________ (the "Buyer").
W I T N E S S E T H:
WHEREAS, the Buyer wishes to purchase from the Company and the
Company wishes to sell to the Buyer, upon the terms and subject to the
conditions of this Agreement, a promissory note of the Company having the
principal amount set forth on the signature page of this Agreement and in
connection with which the Company shall issue to the Buyer warrants to purchase
shares of Common Stock (such capitalized term and all other capitalized terms
used in this Agreement having the meanings provided in Section 1);
WHEREAS, on or before the Closing Date the Company and the
Collateral Agent shall execute and deliver, one to the other, a Security
Agreement, in the form referred to herein, which provides, among other things,
for the grant to the Collateral Agent for the ratable benefit of the holders
from time to time of the Note and the Other Notes of a first priority security
interest in certain collateral, upon the terms and with the effect as provided
therein; and
WHEREAS, on or before the Closing Date, the Company and the
Collateral Agent shall execute and deliver, one to the other, a Patent and
Trademark Security Agreement, in the form referred to herein, which provides,
among other things, for the grant to the Collateral Agent for the ratable
benefit of the holders from time to time of the Note and the Other Notes of a
first priority perfected security interest in certain collateral upon the terms
and with the effect as provided therein;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. DEFINITIONS.
(a) As used in this Agreement, the terms "Agreement", "Buyer"
and "Company" shall have the respective meanings assigned to such terms in the
introductory paragraph of this Agreement.
(b) All the agreements or instruments herein defined shall
mean such agreements or instruments as the same may from time to time be
supplemented or amended or the terms thereof waived or modified to the extent
permitted by, and in accordance with, the terms
-9-
<PAGE>
thereof and of this Agreement.
(c) The following terms shall have the following meanings
(such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Affiliate" means, with respect to any Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with the subject Person.
For purposes of this definition, "control" (including, with correlative meaning,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"Blackout Period" means the period of up to 15 consecutive
Trading Days after the date the Company notifies the Investors that they are
required, pursuant to Section 8(c)(4), to suspend offers and sales of
Registrable Securities pursuant to a Registration Statement as a result of an
event or circumstance described in Section 8(b)(5)(A) relating to or affecting
such Registration Statement, during which period, by reason of Section
8(b)(5)(B), the Company is not required to amend such Registration Statement or
supplement the related Prospectus.
"Business Day" means any day other than a Saturday, Sunday or
a day on which commercial banks in The City of New York are authorized or
required by law or executive order to remain closed.
"Claims" means any losses, claims, damages, liabilities or
expenses (joint or several), incurred by a Person to or in respect of any other
Person who is not a party to this Agreement.
"Class A Warrants" means Common Stock Purchase Warrants, Class
A in the form attached hereto as ANNEX II initially entitling the holder to
purchase the number of shares of Common Stock (and related Preferred Share
Purchase Rights) determined in accordance with Section 2(a).
"Class B Warrants" means Common Stock Purchase Warrants, Class
B in the form attached hereto as ANNEX III initially entitling the holder to
purchase the number of shares of Common Stock (and related Preferred Share
Purchase Rights) determined in accordance with Section 2(a).
"Closing Date" means 10:00 a.m., New York City time, on
February 26, 1999 or such other mutually agreed to time.
"Code" means the Internal Revenue Code of 1986, as amended,
and the regulations
-10-
<PAGE>
thereunder and published interpretations thereof.
"Collateral" shall have the meanings provided in any of the
Security Agreement and the Patent and Trademark Security Agreement.
"Collateral Agent" means Delta Opportunity Fund, Ltd., as
collateral agent pursuant to the Security Agreement and the Patent and Trademark
Security Agreement, and from time to time its duly appointed and acting
successor or successors.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the regulations thereunder and published interpretations
thereof.
"Event of Default" shall have the meaning provided in the
Note.
"Indemnified Party" means the Company, each of its directors,
each of its officers who signs the Registration Statement, each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any Person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act.
"Indemnified Person" means the Buyer and each other Investor
who owns or holds any Securities and each Investor who sells Registrable
Securities in the manner permitted under this Agreement, the directors, if any,
of the Buyer and any such Investor, the officers, if any, of the Buyer and any
such Investor, each Person, if any, who controls the Buyer or any such Investor
within the meaning of the 1933 Act or the 1934 Act, any underwriter (as defined
in the 1933 Act) acting on behalf of an Investor who participates in the
offering of Registrable Securities of such Investor in accordance with the plan
of distribution contained in the Prospectus, the directors, if any, of such
underwriter and the officers, if any, of such underwriter, and each Person, if
any, who controls any such underwriter within the meaning of the 1933 Act or the
1934 Act.
"Inspector" means any attorney, accountant or other agent
retained by an Investor for the purposes provided in Section 8(b)(9).
"Interest Shares" means the shares of Common Stock and the
related Preferred Share Purchase Rights issuable in payment of interest on the
Note.
"Investor" means the Buyer and any transferee or assignee who
agrees to become bound by the provisions of Sections 5(a), 5(b), 8, 9, and 10 of
this Agreement.
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<PAGE>
"Lafon" means Laboratoire L. Lafon, a French corporation.
"Lafon Agreements" means (1) the License Agreement, dated
January 20, 1993, by and between Lafon and the Company, as amended, (2) the
Trademark Agreement, dated January 20, 1993, by and between Genelco S.A. and the
Company, as amended, and (3) the Supply Agreement, dated January 20, 1993,
between the Company and Lafon, as amended.
"Margin Stock" shall have the meaning provided in Regulation U
of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221).
"Nasdaq" means the Nasdaq National Market.
"NASD" means the National Association of Securities Dealers,
Inc.
"1997 10-K" means the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997.
"1934 Act" means the Securities Exchange Act of 1934, as
amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Non-Responsive Investor" means an Investor who does not
provide the Requested Information to the Company at least one Business Day prior
to the filing of the Purchase Share Registration Statement.
"Note" means the 11% Revenue Sharing Senior Secured Note due
2002 of the Company in the form attached hereto as ANNEX I.
"Optional Redemption Price" shall have the meaning to be
provided or provided in the Note.
"Other Note Purchase Agreements" means the several Note
Purchase Agreements relating to the Other Notes.
"Other Notes" shall have the meaning to be provided or
provided in the Note.
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement by and between the Company and the Collateral
Agent, in the form attached hereto as ANNEX V.
"Payment Share Registration Statement" means a registration
statement on Form
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S-3 (or the comparable form at the time of filing with the SEC) of the Company
under the 1933 Act relating to the Payment Shares and which names the Investors
as selling stockholders.
"Payment Shares" means the shares of Common Stock and the
related Preferred Share Purchase Rights issuable in partial payment of principal
or the Optional Redemption Price of the Note.
"Person" means any natural person, corporation, partnership,
limited liability company, trust, incorporated organization, unincorporated
association or similar entity or any government, governmental agency or
political subdivision.
"Placement Agent" means Diaz & Altschul Capital, LLC.
"Preferred Share Purchase Rights" means the Preferred Share
Purchase Rights issued or issuable pursuant to the Rights Agreement (or any
similar rights issued by the Company with respect to the Common Stock after the
date of this Agreement).
"Products" means all pharmaceutical compositions containing
modafinil or any compound based on or derived therefrom as an active ingredient,
whether alone or in combination with any other substance, which are developed,
marketed or sold by the Company or any Subsidiary or Affiliate of the Company,
including, without limitation, that pharmaceutical composition marketed by the
Company on the Closing Date under the name Provigil(R).
"Prospectus" means the prospectus forming part of the
Registration Statement at the time the Registration Statement is declared
effective and any amendment or supplement thereto (including any information or
documents incorporated therein by reference).
"PTO" means the United States Patent and Trademark Office.
"Purchase Price" means the purchase price for the Note set
forth on the signature page of this Agreement.
"Questionnaire" means the Prospective Purchaser Questionnaire
completed by the Buyer.
"Record" means all pertinent financial and other records,
pertinent corporate documents and properties of the Company subject to
inspection for the purposes provided in Section 8(b)(9).
"register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415, and the
declaration or ordering of effectiveness of such Registration Statement by the
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SEC.
"Registrable Securities" means the Shares and any stock or
other securities into which or for which the Common Stock may hereafter be
changed, converted or exchanged by the Company or its successor, as the case may
be, and any other securities issued to holders of such Common Stock (or such
shares into which or for which such Shares are so changed, converted or
exchanged) upon any reclassification, share combination, share subdivision,
share dividend, merger, consolidation or similar transaction or event.
"Registration Period" means:
(1) with respect to the Warrant Share Registration
Statement, the period from the SEC Effective Date for the Warrant Share
Registration Statement to the earlier of (A) the date which is two
years after the end of the Exercise Period (as defined in the Warrants)
(or, if (x) the Warrants shall have been exercised in full for shares
of Common Stock or (y) the Warrants shall no longer remain outstanding,
such date after which each Investor may sell all of its Registrable
Securities relating to the Warrants or that are Interest Shares without
registration under the 1933 Act pursuant to Rule 144, free of any
limitation on the volume of such securities which may be sold in any
period) and (B) the date on which the Investors no longer own any
Registrable Securities relating to the Warrants or that are Interest
Shares; and
(2) with respect to the Payment Share Registration
Statement, the period from the SEC Effective Date for the Payment Share
Registration Statement to the earlier of (A) the date which is two
years after the Payment Shares are issued and (B) the date on which the
Investors no longer own any Registrable Securities that are Payment
Shares or derive from Payment Shares.
"Registration Statement" means the Payment Share Registration
Statement or the Warrant Share Registration Statement, or either of them.
"Regulation D" means Regulation D under the 1933 Act.
"Repurchase Event" shall have the meaning provided in the
Note.
"Required Information" means, with respect to each Investor,
all information regarding such Investor, the Registrable Securities held by such
Investor or which such Investor has the right to acquire and the intended method
of disposition of the Registrable Securities held by such Investor or which such
Investor has the right to acquire as shall be required by the 1933 Act to effect
the registration of the resale by such Investor of such Registrable Securities.
"Rights Agreement" means the Rights Agreement, dated as of
January 1, 1999, by
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and between the Company and Stocktrans, Inc., as Rights Agent.
"Rule 415" means Rule 415 under the 1933 Act or any successor
rule providing for offering securities on a delayed or continuous basis.
"Rule 144" means Rule 144 promulgated under the 1933 Act or
any other similar rule or regulation of the SEC that may at any time provide a
"safe harbor" exemption from registration under the 1933 Act so as to permit a
holder to sell securities of the Company to the public without registration
under the 1933 Act.
"SEC" means the Securities and Exchange Commission.
"SEC Effective Date" means with respect to any Registration
Statement the date such Registration Statement is declared effective by the SEC.
"SEC Filing Date" means with respect to any Registration
Statement the date such Registration Statement is first filed with the SEC
pursuant to Section 8.
"SEC Reports" means (1) the 1997 10-K, (2) the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders, (3) the
Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998, and (4) the Company's Current Reports on
Form 8-K, dated September 15, 1998 and December 28, 1998, in each case as filed
with the SEC and including the information and documents (other than exhibits)
incorporated therein by reference.
"Securities" means, collectively, the Note, the Shares and the
Warrants.
"Security Agreement" means the Security Agreement by and
between the Company and the Collateral Agent, in the form attached hereto as
ANNEX IV.
"September 10-Q" means the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998.
"Shares" means the Payment Shares, the Interest Shares and the
Warrant Shares.
"Subsidiary" means any corporation or other entity of which a
majority of the capital stock or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions are at the time directly or indirectly owned by the
Company.
"Territory" means the United States, its territories and
possessions.
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"Trading Day" means at any time a day on which any of a
national securities exchange, Nasdaq or such other securities market as at such
time constitutes the principal securities market for the Common Stock is open
for general trading of securities.
"Trading Price" shall have the meaning provided in the Note.
"Transaction Documents" means, collectively, this Agreement,
the Securities, the Security Agreement, the Patent and Trademark Security
Agreement and the other agreements, instruments and documents contemplated
hereby and thereby.
"Transfer Agent" means Stocktrans, Inc., as transfer agent and
registrar for the Common Stock, or its successor.
"Violation" means
(i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or 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,
(ii) any untrue statement or alleged untrue statement of a
material fact contained in any Prospectus (as amended or supplemented, if the
Company files any amendment thereof or supplement thereto with the SEC) or the
omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading,
(iii) any violation or alleged violation by the Company of the
1933 Act, the 1934 Act, any state securities law or any rule or regulation under
the 1933 Act, the 1934 Act or any state securities law, or
(iv) any breach or alleged breach by any Person other than
the Buyer of any representation, warranty, covenant, agreement or other term of
any of the Transaction Documents.
"Warrants" means the Class A Warrants and the Class B
Warrants.
"Warrant Share Registration Statement" means a registration
statement on Form S-3 of the Company under the 1933 Act relating to the Warrant
Shares which names the Investors as selling stockholders.
"Warrant Shares" means the shares of Common Stock and the
related Preferred Share Purchase Rights issuable upon exercise of the Warrants.
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<PAGE>
2. PURCHASE AND SALE; PURCHASE PRICE.
(A) PURCHASE. Upon the terms and subject to the conditions of
this Agreement, the Buyer hereby agrees to purchase from the Company, and the
Company hereby agrees to sell to the Buyer, on the Closing Date, the Note in the
principal amount set forth on the signature page of this Agreement and having
the terms and conditions as set forth in the form of the Note attached hereto as
ANNEX I for the Purchase Price. In connection with the purchase of the Note by
the Buyer, the Company shall issue to the Buyer at the closing on the Closing
Date (x) Class A Warrants initially entitling the holder to purchase 48 shares
of Common Stock for each $1,000 principal amount of the Note and (y) Class B
Warrants initially entitling the holder to purchase 16 shares of Common Stock
for each $1,000 principal amount of the Note.
(B) FORM OF PAYMENT. Payment by the Buyer of the Purchase
Price to the Company on the Closing Date shall be made by wire transfer of funds
to:
First Union National Bank
5th & Market Streets
Philadelphia, Pennsylvania 19101
ABA# 031000503
For credit to account# 200200254913
For credit to the account of Cephalon, Inc.
(C) CLOSING. The issuance and sale of the Note and the
issuance of the Warrants shall occur on the Closing Date at the Law Offices of
Brian W Pusch, Penthouse Suite, 29 West 57th Street, New York, New York. At the
closing, upon the terms and subject to the conditions of this Agreement, the
Company shall issue and deliver to the Buyer the Note and the Warrants against
payment by the Buyer to the Company of an amount equal to the Purchase Price,
and the Buyer shall pay to the Company an amount equal to the Purchase Price
against delivery of the Note and the Warrants to the Buyer.
3. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE
BUYER.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
(A) PURCHASE FOR INVESTMENT. The Buyer is purchasing the Note
and acquiring the Warrants for its own account for investment and not with a
view towards the public sale or distribution thereof within the meaning of the
1933 Act; and the Buyer will acquire any Shares issued to the Buyer prior to the
SEC Effective Date of a Registration Statement covering the resale of such
Shares by the Buyer for its own account for investment and not with a view
towards the
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<PAGE>
public sale or distribution thereof within the meaning of the 1933 Act prior to
the SEC Effective Date;
(B) ACCREDITED INVESTOR. The Buyer is an "accredited
investor" as that term is defined in Rule 501 of Regulation D under the 1933 Act
by reason of Rule 501(a)(3) thereof;
(C) REOFFERS AND RESALES. The Buyer will not, directly or
indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit
any offers to buy, purchase or otherwise acquire or take a pledge of) any of the
Securities unless registered under the 1933 Act, pursuant to an exemption from
registration under the 1933 Act or in a transaction not requiring registration
under the 1933 Act;
(D) COMPANY RELIANCE. The Buyer understands that (1) the Note
is being offered and sold and the Warrants are being issued to the Buyer, (2)
the Shares are being offered to the Buyer, (3) the Interest Shares, if any, will
be issued to the Buyer, (4) the Payment Shares, if any, will be issued to the
Buyer, and (5) upon exercise of the Warrants, the Warrant Shares will be sold to
the Buyer, in each such case in reliance on one or more exemptions from the
registration requirements of the 1933 Act, including, without limitation,
Regulation D, and exemptions from state securities laws and that the Company is
relying upon the truth and accuracy of, and the Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Buyer set forth herein and in the Questionnaire, a true and accurate copy of
which has been delivered by the Buyer to the Company, in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire or
receive an offer to acquire the Securities; and the information with respect to
the Buyer set forth in the Questionnaire is accurate and complete in all
material respects;
(E) INFORMATION PROVIDED. The Buyer and its advisors, if any,
have requested, received and considered all information relating to the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and information relating to the offer and
sale of the Note and the offer of the Interest Shares and the Payment Shares
deemed relevant by them (assuming the accuracy and completeness of the SEC
Reports and of the Company's responses to the Buyer's requests); the Buyer and
its advisors, if any, have been afforded the opportunity to ask questions of the
Company concerning the terms of the offering of the Securities and the business,
properties, operations, condition (financial or other), results of operations
and prospects of the Company and its Subsidiaries and have received satisfactory
answers to any such inquiries; without limiting the generality of the foregoing,
the Buyer has had the opportunity to obtain and to review the SEC Reports; in
connection with its decision to purchase the Note and to acquire the Warrants,
the Buyer has relied solely upon the SEC Reports, the representations,
warranties, covenants and agreements of the Company set forth in this Agreement
and to be contained in the other Transaction Documents, as well as any
investigation of the Company completed by the Buyer or its advisors; the Buyer
understands that its investment in the Securities involves a high degree of
risk; and the Buyer understands that the offering of the Note is being made to
the Buyer as part of an offering without any minimum or maximum amount of the
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<PAGE>
offering (subject, however, to the right of the Company at any time prior to
execution and delivery of this Agreement by the Company, in its sole discretion,
to accept or reject an offer by the Buyer to purchase the Note and to acquire
the Warrants);
(F) ABSENCE OF APPROVALS. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities;
(G) NOTE PURCHASE AGREEMENT. The Buyer has all requisite power
and authority, corporate or otherwise, to execute, deliver and perform its
obligations under this Agreement and the other agreements executed by the Buyer
in connection herewith and to consummate the transactions contemplated hereby
and thereby; and this Agreement has been duly and validly authorized, duly
executed and delivered by the Buyer and, assuming due execution and delivery by
the Company, is a valid and binding agreement of the Buyer enforceable in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and general principles of equity, regardless of
whether enforcement is considered in a proceeding in equity or at law; and
(H) BUYER STATUS. The Buyer is not a "broker" or "dealer" as
those terms are defined in the 1934 Act which is required to be registered with
the SEC pursuant to Section 15 of the 1934 Act.
4. REPRESENTATIONS, WARRANTIES, COVENANTS, ETC. OF THE
COMPANY.
The Company represents and warrants to, and covenants and
agrees with, the Buyer as follows:
(A) ORGANIZATION AND AUTHORITY. The Company and each of the
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, and (i) each
of the Company and the Subsidiaries has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as described in the SEC Reports and as currently conducted, and (ii) the Company
has all requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement and the other Transaction Documents to be
executed and delivered by the Company in connection herewith, and to consummate
the transactions contemplated hereby and thereby; and the Company does not have
any equity investment in any other Person other than (x) the Subsidiaries listed
in Exhibit 21 to the 1997 10-K, (y) as set forth on SCHEDULE 4(A) and (z)
Subsidiaries which do not, individually or in the aggregate, have any material
revenue, assets or liabilities.
(B) QUALIFICATIONS. The Company and each of the Subsidiaries
are duly
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<PAGE>
qualified to do business as foreign corporations and are in good standing in all
jurisdictions where such qualification is necessary and where failure so to
qualify could have a material adverse effect on the business, properties,
operations, condition (financial or other), results of operations or prospects
of the Company and the Subsidiaries, taken as a whole.
(C) CAPITALIZATION. (1) The authorized capital stock of the
Company consists of (A) 100,000,000 shares of Common Stock, of which 28,820,542
shares were outstanding at the close of business on February 19, 1999 and (B)
5,000,000 shares of Preferred Stock, $.01 par value, of which 1,000,000 shares
have been designated Series A Junior Participating Preferred Stock, and none of
which is outstanding; from February 19, 1999 to the Closing Date there will be
(x) no material increase in the number of shares of Common Stock outstanding
(except for shares issued upon exercise of options and warrants outstanding on
the date hereof or options or similar rights granted subsequent to the date of
this Agreement pursuant to the Company's stock option plans in effect on the
date of this Agreement) and (y) no issuance of securities convertible into,
exchangeable for, or otherwise entitling the holder to acquire, shares of Common
Stock (except for securities issued pursuant to the Other Note Purchase
Agreements and Preferred Share Purchase Rights issued in connection with shares
Common Stock issued in accordance with the immediately preceding clause (x)).
The 1997 10-K discloses as of December 31, 1997 all outstanding options or
warrants for the purchase of, or rights to purchase or subscribe for, or
securities convertible into, exchangeable for, or otherwise entitling the holder
to acquire, Common Stock or other capital stock of the Company, or any contracts
or commitments to issue or sell Common Stock or other capital stock of the
Company or any such options, warrants, rights or other securities; and from such
date to the date hereof there has been, and to the Closing Date there will be,
no material change in the amount or terms of any of the foregoing except for the
grant or exercise of options to purchase shares of Common Stock pursuant to the
Company's stock option plans in effect on the date of this Agreement.
(2) The Company has duly reserved from its authorized and
unissued shares of Common Stock the full number of shares required for (A) all
options, warrants, convertible securities, exchangeable securities, and other
rights to acquire shares of Common Stock which are outstanding and (B) all
shares of Common Stock and options and other rights to acquire shares of Common
Stock which may be issued or granted under the stock option and similar plans
which have been adopted by the Company or any Subsidiary; and, immediately
following the Closing Date, after giving effect to any antidilution or similar
adjustment arising by reason of issuance of the Note, the Other Notes, the
Warrants and the warrants issuable to the purchasers of the Other Notes, the
total number of shares of Common Stock reserved and required to be reserved from
the authorized and unissued shares of Common Stock for purposes of all such
options, warrants, convertible securities, other rights, and stock option and
similar plans (excluding the Note, the Other Notes, the Warrants and the
warrants issuable to the purchasers of the Other Notes) will be 7,844,603. Each
outstanding class or series of securities of the Company for which any such
antidilution adjustment will occur is identified on SCHEDULE 4(C) attached
hereto, together with the amount of such antidilution adjustment for each such
class or series. The o utstanding shares of Common Stock of the Company and
outstanding options, warrants, rights, and other securities
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<PAGE>
entitling the holders to purchase or otherwise acquire Common Stock have been
duly and validly authorized and issued. None of the outstanding shares of Common
Stock or options, warrants, rights, or other such securities has been issued in
violation of the preemptive rights of any securityholder of the Company. The
offers and sales of the outstanding shares of Common Stock of the Company and
options, warrants, rights, and other securities were at all relevant times
either registered under the 1933 Act and applicable state securities laws or
exempt from such requirements. No holder of any of the Company's securities has
any rights, "demand," "piggy-back" or otherwise, to have such securities
registered by reason of the intention to file, filing or effectiveness of the
Registration Statement.
(D) CONCERNING THE SHARES AND THE COMMON STOCK. The Shares
have been duly authorized and the Payment Shares, when issued in payment of a
portion of the Company's obligation to repay principal of the Note or the
Optional Redemption Price, the Interest Shares, when issued in payment of
interest on the Note, and the Warrant Shares, when issued upon exercise of the
Warrants, will be duly and validly issued, fully paid and non-assessable and
will not subject the holder thereof to personal liability by reason of being
such holder. There are no preemptive or similar rights of any stockholder of the
Company or any other Person to acquire any of the Shares or the Warrants. The
Company has duly reserved 1,920,000 shares of Common Stock as the Warrant Shares
and for issuance upon exercise of the warrants issuable to the purchasers of the
Other Notes, and such shares shall remain so reserved, and the Company shall
from time to time reserve such additional shares of Common Stock as shall be
required to be reserved pursuant to the Warrants, so long as the Warrants are
outstanding. The Common Stock is listed for trading on Nasdaq and (1) the
Company and the Common Stock meet the criteria for continued listing and trading
on Nasdaq; (2) the Company has not been notified since January 1, 1996 by the
NASD or the Nasdaq Stock Market of any failure or potential failure to meet the
criteria for continued listing and trading on Nasdaq and (3) no suspension of
trading in the Common Stock is in effect. The Company knows of no reason that
the Shares will be ineligible for listing on Nasdaq.
(E) CORPORATE AUTHORIZATION. This Agreement and the other
Transaction Documents to which the Company is or will be a party have been duly
and validly authorized by the Company; this Agreement has been duly executed and
delivered by the Company and, assuming due execution and delivery by the Buyer,
this Agreement is, and the Note, and the Warrants will be, when executed and
delivered by the Company, valid and binding obligations of the Company
enforceable in accordance with their respective terms, except as the
enforceability hereof or thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting creditors' rights generally and general principles of
equity, regardless of whether enforcement is considered in a proceeding in
equity or at law.
(F) NON-CONTRAVENTION. The execution and delivery of the
Transaction Documents by the Company and the consummation by the Company of the
issuance of the Securities as contemplated by this Agreement and consummation by
the Company of the other
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<PAGE>
transactions contemplated by the Transaction Documents do not and will not, with
or without the giving of notice or the lapse of time, or both, (i) result in any
violation of any term or provision of the certificate of incorporation or bylaws
of the Company or any Subsidiary, (ii) conflict with or result in a breach by
the Company or any Subsidiary of any of the terms or provisions of, or
constitute a default under, or result in the modification of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
(other than pursuant to the Security Agreement and the Patent and Trademark
Security Agreement) upon any of the properties or assets of the Company or any
Subsidiary pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any of their respective properties or
assets are bound or affected, in any such case which (x) relates to or affects
the Collateral or (y) would be reasonably likely to have a material adverse
effect on the business, properties, operations, condition (financial or other),
results of operations or prospects of the Company and the Subsidiaries, taken as
a whole, or the validity or enforceability of, or the ability of the Company to
perform its obligations under, the Transaction Documents, (iii) conflict with or
result in a breach by the Company or any Subsidiary of the terms or provisions
of, or constitute a default under, or result in the modification of, or entitle
any party other than the Company to terminate, or require any consent or
approval of any such party with respect to, any of the Lafon Agreements, (iv)
violate or contravene any applicable law, rule or regulation or any applicable
decree, judgment or order of any court, United States federal or state
regulatory body, administrative agency or other governmental body having
jurisdiction over the Company or any Subsidiary or any of their respective
properties or assets, in any such case which (x) relates to or affects the
Collateral or (y) would be reasonably likely to have a material adverse effect
on the business, properties, operations, condition (financial or other), results
of operations or prospects of the Company and the Subsidiaries, taken as a
whole, or the validity or enforceability of, or the ability of the Company to
perform its obligations under, the Transaction Documents, or (v) have any
material adverse effect on any permit, certification, registration, approval,
consent, license or franchise necessary for the Company or any Subsidiary to own
or lease and operate any of its properties and to conduct any of its business or
the ability of the Company or any Subsidiary to make use thereof.
(G) APPROVALS, FILINGS, ETC. No authorization, approval or
consent of, or filing with, any court, governmental body, regulatory agency,
self-regulatory organization, or stock exchange or market or the stockholders of
the Company is required to be obtained or made by the Company or any Subsidiary
for (x) the execution, delivery and performance by the Company of the
Transaction Documents, (y) the issuance and sale of the Securities as
contemplated by this Agreement and the terms of the Note and the Warrants and
(z) the performance by the Company of its obligations under the Transaction
Documents, other than (1) listing of the Shares on Nasdaq, (2) registration of
the resale of the Shares under the 1933 Act as contemplated by Section 8, (3) as
may be required under applicable state securities or "blue sky" laws, (4) filing
of one or more Forms D with respect to the Securities as required under
Regulation D, (5) filing by the Company of financing statements under the
provisions of applicable state Uniform Commercial Codes, and (6) filing of the
Patent and Trademark Security Agreement with the PTO.
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(H) INFORMATION PROVIDED. The SEC Reports, the Transaction Documents
and the instruments delivered by the Company to the Buyer in connection with the
closing on the Closing Date do not and will not on the date of execution and
delivery of this Agreement, the date of delivery thereof to the Buyer and on the
Closing Date contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading, it being
understood that for purposes of this Section 4(h), any statement contained in
such information shall be deemed to be modified or superseded for purposes of
this Section 4(h) to the extent that a statement in any document included in
such information which was prepared and furnished to the Buyer on a later date
or filed with the SEC on a later date modifies or replaces such statement,
whether or not such later prepared or filed statement so states.
(I) CONDUCT OF BUSINESS. Except as set forth in the SEC Reports,
since September 30, 1998, neither the Company nor any Subsidiary has (i)
incurred any material obligation or liability (absolute or contingent) other
than in the ordinary course of business; (ii) canceled, without payment in full,
any material notes, loans or other obligations receivable or other debts or
claims held by it other than in the ordinary course of business; (iii) sold,
assigned, transferred, abandoned, mortgaged, pledged or subjected to lien any of
its material properties, tangible or intangible, or rights under any material
contract, permit, license, franchise or other agreement; (iv) conducted its
business in a manner materially different from its business as conducted on such
date; (v) declared, made or paid or set aside for payment any cash or non-cash
distribution on any shares of its capital stock; or (vi) consummated, or entered
into any agreement with respect to, any transaction or event which would
constitute a Repurchase Event. Except as disclosed in the SEC Reports, the
Company and each Subsidiary owns, possesses or has obtained all governmental,
administrative and third party licenses, permits, certificates, registrations,
approvals, consents and other authorizations necessary to own or lease (as the
case may be) and operate its properties, whether tangible or intangible, and to
conduct its business or operations as currently conducted, except such licenses,
permits, certificates, registrations, approvals, consents and authorizations the
failure of which to obtain would not have a material adverse effect on the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole.
(J) SEC FILINGS. The Company has timely filed all reports required to
be filed under the 1934 Act and any other material reports or documents required
to be filed with the SEC since January 1, 1997. All of such reports and
documents complied, when filed, in all material respects, with all applicable
requirements of the 1933 Act and the 1934 Act. The Company meets the
requirements for the use of Form S-3 for the registration of the resale of the
Shares by the Buyer and any other Investor. The Company has not filed any
reports with the SEC under the 1934 Act since December 31, 1997 other than the
SEC Reports.
(K) ABSENCE OF CERTAIN PROCEEDINGS. Except as disclosed in the SEC
Reports, there is no action, suit, proceeding, inquiry or investigation before
or by any court, public board or body or governmental agency pending or, to the
knowledge of the Company or any Subsidiary,
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threatened against or affecting the Company or any Subsidiary, in any such case
wherein an unfavorable decision, ruling or finding is reasonably likely and
would reasonably be expected to have a material adverse effect on the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company and the Subsidiaries, taken as a whole, or the
transactions contemplated by the Transaction Documents or which could adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, the Transaction Documents; the Company
does not have pending before the SEC any request for confidential treatment of
information and, to the best of the Company's knowledge, no such request will be
made by the Company prior to the SEC Effective Date for the Warrant Share
Registration Statement; and to the best of the Company's knowledge there is not
pending or contemplated any, and there has been no, investigation by the SEC
involving the Company or any current or former director or officer of the
Company.
(L) FINANCIAL STATEMENTS; LIABILITIES. The financial statements
included in the September 10-Q present fairly the financial position, results of
operations and cash flows of the Company and the Subsidiaries, at the dates and
for the periods covered thereby, have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis throughout the
periods covered thereby and on a basis consistent with the audited financial
statements appearing in the 1997 Form 10-K, and include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position, results of operations and cash flows of the Company and
the Subsidiaries at the dates and for the periods covered thereby. Except as and
to the extent disclosed, reflected or reserved against in the financial
statements of the Company and the notes thereto included in the SEC Reports,
neither the Company nor any Subsidiary has any liability, debt or obligation,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due which, individually or in the aggregate, are material to the Company and the
Subsidiaries, taken as a whole. Subsequent to September 30, 1998, neither the
Company nor any Subsidiary has incurred any liability, debt or obligation of any
nature whatsoever which, individually or in the aggregate are material to the
Company and the Subsidiaries, taken as a whole, other than those incurred in the
ordinary course of their respective businesses.
(M) MATERIAL LOSSES. Since September 30, 1998, neither the Company
nor any Subsidiary has sustained any loss or interference with its business or
properties from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or court or governmental
action, order or decree, which loss or interference could be material to the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole.
(N) ABSENCE OF CERTAIN CHANGES. Since September 30, 1998, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole,
except as disclosed in the SEC Reports and except for operating losses incurred
since such date at a rate consistent with the rate thereof during the nine
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months ended September 30, 1998.
(O) INTELLECTUAL PROPERTY. Except as disclosed in the SEC Reports,
each of the Company and each Subsidiary owns, or possesses adequate rights to
use, all patents, patent rights, inventions, trade secrets, know-how,
proprietary techniques, including processes and substances, trademarks, service
marks, trade names and copyrights described or referred to in the SEC Reports or
owned or used by it or which are necessary for the conduct of its business as it
is presently conducted or proposed to be conducted, except for where the failure
to own or possess adequate rights to use such patents, patent rights,
inventions, trade secrets, service marks, trade names and copyrights would not
have a material adverse effect on (x) the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company and the Subsidiaries, taken as a whole, or (y) the Company's ability to
manufacture, market and sell the Products. Except as disclosed in the SEC
Reports, neither the Company nor any Subsidiary has received any notice of
infringement of or conflict with asserted rights of others with respect to, any
patents, patent rights, inventions, trade secrets, know-how, proprietary
techniques, including processes and substances, trademarks, service marks, trade
names or copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could have a material adverse effect on
the business, properties, operations, condition (financial or other), results of
operations or prospects of the Company and the Subsidiaries, taken as a whole.
(P) INTERNAL ACCOUNTING CONTROLS. The Company maintains a system of
internal accounting controls for the Company and the Subsidiaries which meets
the requirements of Section 13(b)(2) of the 1934 Act in all material respects.
(Q) COMPLIANCE WITH LAW. Neither the Company nor any Subsidiary is in
violation of or has any liability under any statute, law, rule, regulation,
ordinance, decision or order of any governmental agency or body or any court,
domestic or foreign, including, without limitation, those relating to the use,
operation, handling, transportation, disposal or release of hazardous or toxic
substances or wastes or relating to the protection or restoration of the
environment or human exposure to hazardous or toxic substances or wastes, except
where such violation or liability would not individually or in the aggregate
have a material adverse effect on the business, properties, operations,
condition (financial or other), results of operations or prospects of the
Company and the Subsidiaries, taken as a whole; and neither the Company nor any
Subsidiary is aware of any pending investigation which would reasonably be
expected to lead to such a claim.
(R) PROPERTIES. Each of the Company and the Subsidiaries has good
title to all property, real and personal (tangible and intangible), and other
assets owned by it, free and clear of all security interests, charges,
mortgages, liens or other encumbrances, except such as are described in the SEC
Reports or such as do not materially interfere with the use of such property
made, or proposed to be made, by the Company or any Subsidiary. The leases,
licenses or other contracts or instruments under which the Company and each
Subsidiary leases, holds or is entitled to use any property, real or personal,
which individually or in the aggregate are material to the Company and the
Subsidiaries, taken as a whole, are valid, subsisting and enforceable with only
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such exceptions as do not materially interfere with the use of such property
made, or proposed to be made, by the Company or such Subsidiary or have expired
or terminated in accordance with their terms or have been superseded by other
classes, contracts or agreements. Neither the Company nor any Subsidiary has
received notice of any material violation of any applicable law, ordinance,
regulation, order or requirement relating to its owned or leased properties.
Neither the Company nor any Subsidiary has any mortgage, lien, pledge, security
interest or other charge or encumbrance on any of its assets or properties
except as listed in SCHEDULE 4(R) attached hereto.
(S) LABOR RELATIONS. No material labor problem exists or, to the
knowledge of the Company or any Subsidiary, is imminent with respect to any of
the employees of the Company or any Subsidiary.
(T) INSURANCE. The Company and the Subsidiaries maintain insurance
against loss or damage by fire or other casualty and such other insurance,
including but not limited to, product liability insurance, in such amounts and
covering such risks as the Company believes are commercially reasonable.
(U) TAX MATTERS. Each of the Company and the Subsidiaries has filed
all federal, state and local income and franchise tax returns required to be
filed and has paid all material taxes shown by such returns to be due, and no
tax deficiency has been determined adversely to the Company or any Subsidiary
which has had (nor does the Company or any Subsidiary have any knowledge of any
tax deficiency which, if determined adversely to the Company or any Subsidiary,
might have) a material adverse effect on the business, properties, operations,
condition (financial or other), results of operations, or prospects of the
Company and the Subsidiaries, taken as a whole.
(V) INVESTMENT COMPANY. Neither the Company nor any Subsidiary is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amended, and the rules and regulations of the SEC
thereunder.
(W) ABSENCE OF BROKERS, FINDERS, ETC. No broker, finder or similar
Person other than the Placement Agent is entitled to any commission, fee or
other compensation by reason of action taken by or on behalf of the Company in
connection with the transactions contemplated by this Agreement, and the Company
shall pay, and indemnify and hold harmless the Buyer from, any claim made
against the Buyer by any Person for any such commission, fee or other
compensation.
(X) NO SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its knowledge, any other
Person acting on behalf of the Company, in respect of the Securities or in
connection with the offer and sale of the Securities. Neither the Company nor,
to its knowledge, any Person acting on behalf of the Company has, either
directly or indirectly, sold or offered for sale to any Person any of the
Securities (other than
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the Placement Agent) or, within the six months prior to the date hereof, any
other similar security of the Company except as contemplated by this Agreement
and the Other Note Purchase Agreements; and neither the Company nor any Person
authorized to act on its behalf will sell or offer for sale any promissory
notes, warrants, shares of Common Stock or other securities to, or solicit any
offers to buy any such security from, any Person so as thereby to cause the
issuance or sale of any of the Securities to be in violation of any of the
provisions of Section 5 of the 1933 Act.
(Y) ERISA COMPLIANCE. Each of the Company and the Subsidiaries is in
compliance in all material respects with all presently applicable provisions of
ERISA; no "reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which the Company or any Subsidiary
would have any liability; neither the Company nor any Subsidiary has incurred or
expects to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Code; and each "pension plan" for which the Company or any
Subsidiary would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would cause the loss
of such qualification.
(Z) CONCERNING THE COLLATERAL. Upon execution and delivery of the
Security Agreement and the Patent and Trademark Security Agreement by the
Company and the Collateral Agent and completion of the filings referred to in
Schedule I to ANNEX VI attached hereto, the Collateral Agent will have a
perfected first priority security interest and will have all of the rights
currently held by the Company to manufacture, market, use and sell the Products
in the Territory, and to obtain supplies of modafinil, including, without
limitation, requisite rights under the Company's licenses, patents, patent
applications, manufacturing and supply agreements and requisite governmental
authorizations, approvals, permits and licenses.
5. CERTAIN COVENANTS.
(A) TRANSFER RESTRICTIONS. The Buyer acknowledges and agrees that (1)
the Note and the Warrants have not been and are not being registered under the
provisions of the 1933 Act or any state securities laws and, except as provided
in Section 8, the Shares have not been and are not being registered under the
1933 Act or any state securities laws, and that the Note and the Warrants may
not be transferred unless the Buyer shall have delivered to the Company an
opinion of counsel, reasonably satisfactory in form, scope and substance to the
Company, to the effect that the Note or the Warrants to be transferred may be
transferred without such registration; (2) no sale, assignment or other transfer
of the Note or the Warrants or any interest therein may be made except in
accordance with the terms hereof and thereof; (3) the Shares may not be resold
by the Buyer unless the resale has been registered under the 1933 Act or is made
pursuant to an applicable exemption from such registration and the Company shall
have received the opinion of counsel provided for in the final sentence of this
Section 5(a); (4) any sale of Shares under a Registration Statement shall be
made only in compliance with the terms of this
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Section 5(a) and Section 8 (including, without limitation, Section 8(c)(5)); (5)
any sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if the exemption provided by
Rule 144 is not available, any resale of the Securities under circumstances in
which the seller, or the Person through whom the sale is made, may be deemed to
be an underwriter, as that term is used in the 1933 Act, may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (6) the Company is under no obligation to register the
Securities (other than registration of the resale of the Shares in accordance
with Section 8) under the 1933 Act or, except as provided in Section 5(d) and
Section 8, to comply with the terms and conditions of any exemption thereunder.
The Buyer may not transfer the Shares in a transaction which does not constitute
a transfer thereof pursuant to the applicable Registration Statement in
accordance with the plan of distribution set forth therein or in any supplement
to the related Prospectus unless the Buyer shall have delivered to the Company
an opinion of counsel, reasonably satisfactory in form, scope and substance to
the Company, that such Shares may be so transferred without registration under
the 1933 Act.
(B) RESTRICTIVE LEGENDS. (1) The Buyer acknowledges and agrees that
the Note shall bear a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of the Note):
This Note has not been registered under the Securities Act of 1933, as
amended (the "1933 Act"), or any state securities laws. The issuance to the
holder of this Note of the shares of Common Stock issuable in payment of a
portion of this Note and in payment of interest on this Note are not
covered by a registration statement under the 1933 Act or registration
under state securities laws. This Note has been acquired, and such shares
must be acquired, for investment only and may not be sold, transferred or
assigned in the absence of registration of the resale thereof under the
1933 Act or an opinion of counsel reasonably satisfactory in form, scope
and substance to the Company that such registration is not required.
(2) The Buyer further acknowledges and agrees that the Warrants shall
bear a restrictive legend in substantially the following form (and a stop-
transfer order may be placed against transfer of the Warrants):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"). The
securities have been acquired for investment and may not be resold,
transferred or assigned in the absence of an effective registration
statement for the securities under the 1933 Act or an opinion of counsel
that registration is not required under the 1933 Act.
(3) The Buyer further acknowledges and agrees that until such time as
the Warrant Shares have been registered for resale under the 1933 Act as
contemplated by Section 8, the certificates for the Shares, may bear a
restrictive legend in substantially the following form
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(and a stop-transfer order may be placed against transfer of the certificates
for the Shares):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"). The
securities have been acquired for investment and may not be resold,
transferred or assigned in the absence of an effective registration
statement for the securities under the 1933 Act or an opinion of counsel
that registration is not required under the 1933 Act.
(4) Once the Registration Statement required to be filed by the
Company pursuant to Section 8 relating to the Warrant Shares has been declared
effective, thereafter (1) upon request of the Buyer the Company will substitute
certificates without restrictive legend for certificates for any Warrant Shares
issued prior to the SEC Effective Date which bear such restrictive legend and
remove any stop-transfer restriction relating thereto promptly, but in no event
later than three days after surrender of such certificates by the Buyer and (2)
the Company shall not place any restrictive legend on certificates for any
Warrant Shares issued upon exercise of the Warrants or impose any stop-transfer
restriction thereon.
(C) NASDAQ LISTING; REPORTING STATUS. Prior to the Closing Date, the
Company will file with Nasdaq an application or other document required by
Nasdaq for the listing of the Warrant Shares with Nasdaq and shall provide
evidence of such filing to the Buyer. So long as the Buyer beneficially owns any
portion of the Note or the Warrants or any Shares, the Company will use its best
efforts to maintain the listing of the Common Stock on Nasdaq or a registered
national securities exchange. The Company shall use its best efforts to obtain
the listing, subject to official notice of issuance, of the Warrant Shares on
the Nasdaq prior to the Closing Date. During the Registration Period, the
Company shall timely file all reports required to be filed with the SEC pursuant
to Section 13 or 15(d) of the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would permit such termination.
(D) FORM D. The Company agrees to file one or more Forms D with
respect to the Securities as required under Regulation D to claim the exemption
provided by Rule 506 of Regulation D and to provide a copy thereof to the Buyer
promptly after such filing.
(E) STATE SECURITIES LAWS. On or before the Closing Date, the Company
shall take such action as shall be necessary to qualify, or to obtain an
exemption for, the Note for sale to the Buyer pursuant to this Agreement, the
Warrants for issuance to the Buyer pursuant to this Agreement and the Warrant
Shares for sale upon exercise of the Warrants under such of the securities laws
of jurisdictions in the United States as shall be applicable to the sale of the
Note to the Buyer pursuant to this Agreement and issuance of the Warrant Shares
upon exercise of the Warrants. Notwithstanding the foregoing obligations of the
Company in this Section 5(e), the Company shall not be required (1) to qualify
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 5(e), (2) to subject itself to general taxation in
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any such jurisdiction, (3) to file a general consent to service of process in
any such jurisdiction, (4) to provide any undertakings that cause more than
nominal expense or burden to the Company or (5) to make any change in its
charter or by-laws which the Company determines to be contrary to the best
interests of the Company and its stockholders. The Company shall furnish the
Buyer with copies of all filings, applications, orders and grants or
confirmations of exemptions relating to such securities laws on or before the
Closing Date.
(F) LIMITATION ON CERTAIN ACTIONS. From the date of execution and
delivery of this Agreement by the parties hereto to the date of issuance of the
Note, the Company (1) shall comply with Article III of the Note as if the Note
were outstanding, (2) shall not take any action which, if the Note were
outstanding, (A) would constitute an Event of Default or, with the giving of
notice or the passage of time or both, would constitute an Event of Default or
(B) would constitute a Repurchase Event or, with the giving of notice or the
passage of time or both, would constitute a Repurchase Event.
(G) SECURITY AGREEMENT; FINANCING STATEMENTS, ETC. The Company agrees
to execute and deliver to the Collateral Agent on or before the Closing Date the
Security Agreement in the form attached hereto as ANNEX IV and the Patent and
Trademark Security Agreement in the form attached hereto as ANNEX V. The Company
shall prepare and on or before the Closing Date file (x) with the appropriate
officials, Uniform Commercial Code financing statements on Form UCC-1 relating
to the Collateral in which the Company is granting a security interest to the
Collateral Agent for the benefit of the holder of the Note pursuant to the
Security Agreement, and (y) with the PTO copies of the Patent and Trademark
Security Agreement. Prior to the Closing Date, the Company shall provide to the
Buyer evidence of such filings and customary search reports of the relevant
Uniform Commercial Code filing offices and the PTO.
(H) USE OF PROCEEDS. The Company represents and agrees that: (1) it
does not own or have any present intention of acquiring any "margin stock" as
defined in Regulation U (12 CFR Part 221) of the Board of Governors of the
Federal Reserve System ("margin stock"); (2) the proceeds of sale of the Note
will be used for general working capital purposes and in the operation of the
Company's business; (3) none of such proceeds will be used, directly or
indirectly (A) to make any loan to or investment in any other Person or (B) for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any margin stock or for the purpose of maintaining, reducing or
retiring any indebtedness which was originally incurred to purchase or carry any
stock that is currently a margin stock or for any other purpose which might
constitute the transactions contemplated by this Agreement a "purpose credit"
within the meaning of such Regulation U; and (4) neither the Company nor any
agent acting on its behalf has taken or will take any action which might cause
this Agreement or the transactions contemplated hereby to violate Regulation T,
Regulation U or any other regulation of the Board of Governors of the Federal
Reserve System or to violate the 1934 Act, in each case as in effect now or as
the same may hereafter be in effect.
(I) BEST EFFORTS. Each of the parties shall use its best efforts
timely to satisfy each of the conditions to the other party's obligations to
sell and purchase the Note set forth in
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Section 6 or 7, as the case may be, of this Agreement on or before the Closing
Date.
(J) DEBT OBLIGATION. So long as any portion of the Note is
outstanding, the Company shall cause its books and records to reflect the Note
as a debt of the Company in its unpaid principal amount, shall cause its
financial statements to reflect the Note as a debt of the Company in such amount
as shall be the greatest amount permitted in accordance with generally accepted
accounting principles and, whenever appropriate, as a valid senior, secured debt
obligation of the Company for money borrowed.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the Note
and issue the Warrants to the Buyer pursuant to this Agreement is conditioned
upon satisfaction of the following conditions precedent on or before the Closing
Date (any or all of which may be waived by the Company in its sole discretion):
(a) On the Closing Date, no legal action, suit or proceeding shall be
pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement; and
(b) The representations and warranties of the Buyer contained in this
Agreement and in the Questionnaire shall have been true and correct on the date
of this Agreement and on the Closing Date as if made on the Closing Date and on
or before the Closing Date the Buyer shall have performed all covenants and
agreements of the Buyer required to be performed by the Buyer on or before the
Closing Date.
7. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase the
Note and acquire the Warrants is conditioned upon satisfaction of the following
conditions precedent on or before the Closing Date (any or all of which may be
waived by the Buyer in its sole discretion):
(a) The Collateral Agent shall have executed and delivered to the
Company the Security Agreement and the Patent and Trademark Security Agreement
and copies thereof duly executed and delivered by the Company, shall have been
furnished to the Buyer;
(b) On the Closing Date, no legal action, suit or proceeding shall be
pending or threatened which seeks to restrain or prohibit the transactions
contemplated by this Agreement;
(c) The representations and warranties of the Company contained in
this Agreement shall have been true and correct on the date of this Agreement
and, except for the approvals and filings referred to in clauses (3) (to the
extent action is required by applicable law
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to be taken on or prior to the Closing Date), (5) and (6) of Section 4(g), which
shall have been obtained or made, shall be true and correct on the Closing Date
as if made on and as of the Closing Date, the representations and warranties of
the Company contained in the Transaction Documents other than this Agreement
shall have been true and correct on the Closing Date as if made on and as of the
Closing Date, and on or before the Closing Date the Company shall have performed
all covenants and agreements of the Company contained herein or in any of the
other Transaction Documents required to be performed by the Company on or before
the Closing Date;
(d) No event which, if the Note were outstanding, (1) would
constitute an Event of Default or which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default shall have
occurred and be continuing or (2) would constitute a Repurchase Event or which,
with the giving of notice or the passage of time, or both, would constitute a
Repurchase Event shall have occurred and be continuing;
(e) The Company shall have delivered to the Buyer a certificate,
dated the Closing Date, duly executed by its Chief Executive Officer or Chief
Financial Officer to the effect set forth in subparagraphs (b), (c), and (d) of
this Section 7;
(f) The Company shall have delivered to the Buyer a certificate,
dated the Closing Date, of the Secretary of the Company certifying (1) the
Certificate of Incorporation and By-Laws of the Company as in effect on the
Closing Date, (2) all resolutions of the Board of Directors (and committees
thereof) of the Company relating to this Agreement and the Transaction Documents
and the transactions contemplated hereby and thereby and (3) such other matters
as reasonably requested by the Buyer;
(g) On the Closing Date, the Buyer shall have received an opinion of
Morgan, Lewis & Bockius, LLP, counsel for the Company, dated the Closing Date,
addressed to the Buyer, in form, scope and substance reasonably satisfactory to
the Buyer, substantially in the form of ANNEX VI attached hereto;
(h) On the Closing Date, the Buyer shall have received an opinion of
the Law Offices of Brian W Pusch, dated the Closing Date, addressed to the Buyer
substantially in the form of ANNEX VII attached hereto; and
(i) On the Closing Date, (i) trading in securities on the New York
Stock Exchange, Inc., the American Stock Exchange, Inc. or Nasdaq shall not have
been suspended or materially limited and (ii) a general moratorium on commercial
banking activities in the State of New York or the Commonwealth of Pennsylvania
shall not have been declared by either federal or state authorities.
8. REGISTRATION RIGHTS.
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(A) MANDATORY REGISTRATION. (1) The Company shall prepare and as
expeditiously as possible, but in no event later than the date which is 45 days
after the Closing Date, file with the SEC the Warrant Share Registration
Statement covering as Registrable Securities the resale by the Buyer of a number
of shares of Common Stock equal to (A) the Warrant Shares issuable to the Buyer
and (B) such additional number of shares of Common Stock as the Company shall in
its discretion determine to register in connection with the issuance of the
Interest Shares.
(2) If, in accordance with the terms of the Note, the Company elects
to issue Payment Shares in partial payment of the principal amount of the Note
or in partial payment of the Optional Redemption Price and any Investor who
holds the Note, or any portion thereof, consents to such election, then the
Company shall prepare, and on or prior to the date which is 15 days after the
Company so elects, file with the SEC a Payment Share Registration Statement
covering the resale by each Investor who so consents to such election of a
number of shares of Common Stock equal to the number of Payment Shares to be
issued to such Investor in connection therewith.
(3) From the date the Company files a Payment Share Registration
Statement with the SEC to the SEC Effective Date for such Payment Share
Registration Statement and, if during any time subsequent to the SEC Effective
Date for any Registration Statement, any Registration Statement for any reason
is not available for use by any Investor for the resale of any Registrable
Securities when such Registration Statement is required to be so available for
use, the Company shall not file any other registration statement or any
amendment thereto with the SEC under the 1933 Act or request the acceleration of
the effectiveness of any other registration statement previously filed with the
SEC, other than (A) any registration statement on Form S-8 and (B) any
registration statement or amendment which the Company is required to file or as
to which the Company is required to request acceleration pursuant to any
obligation in effect on the date of execution and delivery of this Agreement.
(B) OBLIGATIONS OF THE COMPANY. In connection with the registration
of the Registrable Securities, the Company shall:
(1) use its best efforts to cause each Registration Statement
referred to in Section 8(a) to become effective as promptly as possible after
the date it is required to be filed with the SEC, and keep such Registration
Statement effective pursuant to Rule 415 at all times during the Registration
Period. The Company shall submit to the SEC, within three Business Days after
the Company learns that no review of a particular Registration Statement will be
made by the staff of the SEC or that the staff of the SEC has no further
comments on such Registration Statement, as the case may be, a request for
acceleration of effectiveness of such Registration Statement to a time and date
not later than 48 hours after the submission of such request. The Company shall
notify the Investors of the effectiveness of each Registration Statement on the
SEC Effective Date for such Registration Statement. The Company represents and
warrants to the Investors that (a) each Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein), at the
time it is first filed with the SEC, at the time it is ordered effective by the
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SEC and at all times during which it is required to be effective hereunder (and
each such amendment and supplement at the time it is filed with the SEC and at
all times during which it is available for use in connection with the offer and
sale of the Registrable Securities) shall not contain any 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 (b) each Prospectus,
at the time the related Registration Statement is declared effective by the SEC
and at all times that such Prospectus is required by this Agreement to be
available for use by any Investor, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading;
(2) prepare and file with the SEC such amendments (including post-
effective amendments) and supplements to each Registration Statement and
Prospectus as may be necessary to keep such Registration Statement effective,
and such Prospectus current, at all times during the Registration Period (other
than during any Blackout Period during which the provisions of Section
8(b)(5)(B) are applicable), and, during the Registration Period, comply with the
provisions of the 1933 Act applicable to the Company in order to permit the
disposition by the Investors of all Registrable Securities covered by such
Registration Statement;
(3) furnish to Delta Opportunity Fund, Ltd., as representative for
Investors whose Registrable Securities are included in any Registration
Statement, and a single firm of counsel selected by all such Investors (1)
promptly after the same is prepared and publicly distributed, filed with the SEC
or received by the Company, five copies of such Registration Statement and any
amendment thereto, each related Prospectus and each amendment or supplement
thereto, (2) one copy of each letter written by or on behalf of the Company to
the SEC or the staff of the SEC and each item of correspondence from the SEC or
the staff of the SEC relating to such Registration Statement (other than any
portion of any such letter or item which contains information for which the
Company has sought confidential treatment), each of which the Company hereby
determines to be confidential information and which each Investor hereby agrees
to keep confidential as a confidential Record in accordance with Section
8(b)(9), and (3) such number of copies of each Prospectus and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(4) subject to Section 8(b)(5), use its best efforts (i) to register
and qualify the Registrable Securities covered by each Registration Statement
under the securities or blue sky laws of such jurisdictions as any Investor who
holds any Registrable Securities reasonably requests, (ii) to prepare and to
file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times during the
Registration Period and (iii) to take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale by the Investors in
such jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto (I) to do business in any
jurisdiction where
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it would not otherwise be required to qualify but for this Section 8(b)(4), (II)
to subject itself to general taxation in any such jurisdiction, (III) to file a
general consent to service of process in any such jurisdiction, (IV) to provide
any undertakings that cause more than nominal expense or burden to the Company
or (V) to make any change in its charter or by-laws which the Company determines
to be contrary to the best interests of the Company and its stockholders;
(5) (A) as promptly as practicable after becoming aware of such
event or circumstance, notify each Investor of the occurrence of any event or
circumstance of which the Company has knowledge (x) as a result of which the
Prospectus relating to any Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading or (y)
which requires the Company to amend or supplement any Registration Statement due
to the receipt from an Investor or any other selling stockholder named in the
related Prospectus of new or additional information about such Investor or
selling stockholder or its intended plan of distribution of its Registrable
Securities or other securities covered by such Registration Statement, and use
its best efforts promptly to prepare a supplement or amendment to such
Registration Statement and the related Prospectus to correct such untrue
statement or omission or to add any new or additional information, and deliver a
number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request;
(B) notwithstanding Section 8(b)(5)(A) above, if at any time the
Company notifies the Investors as contemplated by Section 8(b)(5)(A) the Company
also notifies the Investors that the event giving rise to such notice relates to
a development involving the Company which occurred subsequent to the later of
(x) the SEC Effective Date for the particular Registration Statement and (y) the
latest date prior to such notice on which the Company has amended or
supplemented such Registration Statement, then the Company shall not be required
to use best efforts to make such amendment during a Blackout Period; provided,
however, that in any period of 365 consecutive days the Company shall not be
entitled to avail itself of its rights under this Section 8(b)(5)(B) with
respect to more than (i) two Blackout Periods; and provided further, however,
that no Blackout Period may commence sooner than 90 days after the end of
another Blackout Period; and provided, further, however, that if the Company
issues Payment Shares to any Investor, no portion of any Blackout Period shall
occur during the period of 30 days commencing on the date such Payment Shares
are required by the terms of the Note to be delivered by the Company to such
Investor.
(6) as promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being offered or sold of
the issuance by the SEC of any stop order or other suspension of effectiveness
of the Registration Statement relating thereto at the earliest possible time;
(7) permit the Investors who hold Registrable Securities being
included in a particular Registration Statement (or their designee) and a single
firm of counsel designated as
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selling stockholders' counsel by the Investors who hold a majority in interest
of the Registrable Securities being offered for sale in such Registration
Statement (and identified in writing to the Company by such Investors prior to
the Closing Date, subject to change by notice to the Company from Investors who
hold a majority in interest of the Registrable Securities being offered for
sale) at such Investors' sole expense to review and have a reasonable
opportunity to comment on such Registration Statement and all amendments and
supplements thereto at least two Business Days (or such shorter period as may
reasonably be specified by the Company) prior to their filing with the SEC;
provided, however, that the Investors shall coordinate the exercise of their
rights under this Section 8(b)(7) through Delta Opportunity Fund, Ltd.
(8) make generally available to its security holders as soon as
practical, but not later than 90 days after the close of the period covered
thereby, an earning statement (in form complying with the provisions of Rule 158
under the 1933 Act) covering a 12-month period beginning not later than the
first day of the Company's fiscal quarter next following the effective date of
each Registration Statement;
(9) make available for inspection by any Investor and any Inspector
retained by any such Investor, at such Investor's sole expense, all Records as
shall be reasonably necessary to enable such Investor to exercise its due
diligence responsibility and cause the Company's and the Subsidiaries' officers,
directors and employees to supply all information which such Investor or such
Inspector may reasonably request for purposes of such due diligence; provided,
however, that such Investor shall hold in confidence and shall not make any
disclosure of any Record or other information which the Company determines in
good faith to be confidential, and of which determination such Investor is so
notified, unless (i) the disclosure of such Record is necessary to avoid or
correct a misstatement or omission in any Registration Statement and a
reasonable time prior to such disclosure the Investor shall have informed the
Company of the need to so correct such misstatement or omission and the Company
shall have failed to correct such misstatement or omission, (ii) the release of
such Record is ordered pursuant to a subpoena or other order from a court or
government body of competent jurisdiction or (iii) the information in such
Record has been made generally available to the public other than by disclosure
in violation of this or any other agreement. The Company shall not be required
to disclose any confidential information in such Records to any Inspector until
and unless such Inspector shall have entered into a confidentiality agreement
with the Company with respect thereto, substantially in the form of this Section
8(b)(9), which agreement shall permit such Inspector to disclose Records to the
Investor who has retained such Inspector. Each Investor agrees that it shall,
upon learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at the Company's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, the Records deemed confidential. The Company shall hold in confidence
and shall not make any disclosure of information concerning an Investor provided
to the Company pursuant to this Agreement unless (i) the disclosure of such
information is necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is
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ordered pursuant to a subpoena or other order from a court or governmental body
of competent jurisdiction, or (iv) such information has been made generally
available to the public other than by disclosure in violation of this or any
other agreement. The Company agrees that it shall, upon learning that disclosure
of such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Investor and allow such Investor, at such Investor's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information;
(10) use its best efforts to cause all the Registrable Securities
covered by the Registration Statement as of each SEC Effective Date to be listed
on Nasdaq (in the case of the Payment Shares, prior to the issuance thereof) or
such other principal securities market on which securities of the same class or
series issued by the Company are then listed or traded;
(11) provide a transfer agent and registrar, which may be a single
entity, for the Registrable Securities at all times;
(12) cooperate with the Investors who hold Registrable Securities
being offered to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legends) representing Registrable Securities to be
offered pursuant to the applicable Registration Statement and enable such
certificates to be in such denominations or amounts as the Investors may
reasonably request and registered in such names as the Investors may request;
and, not later than the applicable SEC Effective Date, the Company shall (i) in
the case of the Warrant Share Registration Statement, deliver to the Transfer
Agent (with copies to the Investors whose Registrable Securities are included in
such Registration Statement) an instruction substantially in the form attached
hereto as ANNEX VIII and (ii) cause legal counsel selected by the Company to
deliver to the Investors whose Registrable Securities are included in such
Registration Statement and to the Transfer Agent opinions of counsel, in the
forms attached hereto as ANNEX IX and ANNEX X;
(13) during the Registration Period, the Company shall not bid for or
purchase any Common Stock or any right to purchase Common Stock or attempt to
induce any Person to purchase any such security or right if such bid, purchase
or attempt would in any way limit the right of the Investors to sell Registrable
Securities by reason of the limitations set forth in Regulation M under the 1934
Act; and
(14) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investors of the Registrable Securities pursuant
to the Registration Statement relating thereto.
(C) OBLIGATIONS OF THE BUYER AND OTHER INVESTORS. In connection with
the registration of the Registrable Securities, the Investors shall have the
following obligations:
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(1) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company the Required Information and shall execute such documents
in connection with such registration as the Company may reasonably request.
Prior to the execution and delivery of this Agreement, the Buyer shall complete
and deliver to the Company an Investor Questionnaire in the form attached hereto
as ANNEX XI, which shall be deemed to provide all Required Information for
purposes of the preparation and filing of the Warrant Share Registration
Statement. At least ten Business Days prior to the first anticipated filing date
of a Payment Share Registration Statement, the Company shall notify each
Investor of the Required Information for inclusion of such Investor's
Registrable Securities in such Registration Statement. If at least four Business
Days prior to the SEC Filing Date for such Payment Share Registration Statement
the Company has not received the Required Information from an Investor, the
Company shall so notify such Investor at least three Business Days prior to the
SEC Filing Date for such Payment Share Registration Statement and if at least
one Business Day prior to the SEC Filing Date for such Payment Share
Registration Statement the Company still has not received the Required
Information from such Investor, then the Company may file such Registration
Statement without including Registrable Securities of such Non-Responsive
Investor; provided, however, that nothing herein shall constitute a waiver of
the requirements of Section 1.4 of the Note;
(2) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing hereunder
of the Registration Statement relating thereto, unless such Investor has
notified the Company in writing of such Investor's election to exclude all of
such Investor's Registrable Securities from such Registration Statement;
(3) Each Investor agrees that it will not effect any
disposition of the Registrable Securities except as contemplated in the
Registration Statement relating thereto or as otherwise is in compliance with
the registration requirements of applicable securities laws and that it will
promptly notify the Company of any material changes in the information set forth
in any Registration Statement regarding such Investor or its plan of
distribution; and each Investor agrees (a) to notify the Company in writing in
the event that such Investor enters into any material agreement with a broker or
a dealer for the sale of the Registrable Securities through a block trade,
special offering, exchange distribution or a purchase by a broker or dealer and
(b) in connection with such agreement, to provide to the Company in writing the
information necessary to prepare any supplemental prospectus pursuant to Rule
424(c) under the 1933 Act which is required with respect to such transaction;
(4) Each Investor acknowledges that there may occasionally be
times as specified in Section 8(b)(5) or 8(b)(6) when the Company must suspend
the use of the Prospectus until such time as an amendment to a particular
Registration Statement has been filed by the Company and declared effective by
the SEC, the Company has prepared a supplement to the Prospectus relating to
such Registration Statement or the Company has filed an appropriate report
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with the SEC pursuant to the 1934 Act. Each Investor hereby covenants that it
will not sell any Registrable Securities pursuant to the Prospectus relating
thereto during the period commencing at the time at which the Company gives such
Investor notice of the suspension of the use of such Prospectus in accordance
with Section 8(b)(5) or 8(b)(6) and ending at the time the Company gives such
Investor notice that such Investor may thereafter effect sales pursuant to such
Prospectus, or until the Company delivers to such Investor an amended or
supplemented Prospectus; and
(5) In connection with any sale of Registrable Securities
which is made by an Investor pursuant to the Registration Statement relating
thereto (A) if such sale is made through such Investor's broker, such Investor
shall instruct such broker to deliver the applicable Prospectus to the purchaser
(or the broker therefor) in connection with such sale and shall supply copies of
such Prospectus to such broker; (B) if such sale is made in a transaction
directly with a purchaser and not through the facilities of any securities
exchange or market, such Investor shall deliver, or cause to be delivered, the
applicable Prospectus to such purchaser; and (C) if such sale is made by any
means other than those described in the immediately preceding clauses (A) and
(B), such Investor shall otherwise use its reasonable best efforts to comply
with the prospectus delivery requirements of the 1933 Act applicable to such
sale.
(D) RULE 144. With a view to making available to the Investors
the benefits of Rule 144, the Company agrees:
(1) so long as any Investor owns Registrable Securities,
promptly upon request, to furnish to such Investor such information as may be
necessary and otherwise reasonably to cooperate with such Investor to permit
such Investor to sell Registrable Securities pursuant to Rule 144 without
registration; and
(2) if at any time the Company is not required to file reports
with the SEC pursuant to Sections 13 or 15(d) of the 1934 Act, to use its best
efforts to, upon the request of an Investor, to make publicly available other
information so long as is necessary to permit publication by brokers and dealers
of quotations for the Common Stock and sales of the Registrable Securities in
accordance with Rule 15c2-11 under the 1934 Act.
9. INDEMNIFICATION AND CONTRIBUTION.
(A) INDEMNIFICATION. (1) To the extent not prohibited by
applicable law, the Company will indemnify and hold harmless each Indemnified
Person against any Claims to which any of them may become subject under the 1933
Act, the 1934 Act or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any Violation or any of the transactions contemplated by this
Agreement. Subject to the restrictions set forth in Section 9(a)(3) with respect
to the number of legal counsel, the Company shall reimburse the Investors and
each such controlling Person, promptly as such expenses are incurred and are due
and payable, for any documented reasonable legal fees or
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other documented and reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 9(a)(1) shall not apply to: (I) a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
relating to an Indemnified Person furnished in writing to the Company by such
Indemnified Person or an underwriter for such Indemnified Person expressly for
use in connection with the preparation of any Registration Statement or any such
amendment thereof or supplement thereto; (II) any Claim arising out of or based
on any statement or omission in any Prospectus, which statement or omission was
corrected in any subsequent Prospectus that was delivered to the Indemnified
Person prior to the pertinent sale or sales of Registrable Securities by such
Indemnified Person; and (III) amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors.
(2) In connection with each Registration Statement, each
Investor agrees to indemnify and hold harmless, to the same extent and in the
same manner set forth in Section 9(a)(1), each Indemnified Party against any
Claim to which any of them may become subject, under the 1933 Act, the 1934 Act
or otherwise, insofar as such Claim arises out of or is based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement or any amendment thereof or supplement thereto; and
such Investor will reimburse any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 9(a)(2) shall
not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of such Investor; provided, further,
however, that the Investor shall be liable under this Section 9(a)(2) for only
that amount of all Claims in the aggregate as does not exceed the amount by
which the proceeds to such Investor as a result of the sale of Registrable
Securities pursuant to such Registration Statement exceeds the amount paid by
such Investor for such Registrable Securities. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such Indemnified Party and shall survive the transfer of the Registrable
Securities by the Investors. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 9(a)(2) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in such preliminary prospectus was corrected on a timely basis in the related
Prospectus, as then amended or supplemented.
(3) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 9(a) of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 9(a), deliver to the indemnifying party a
notice of the commencement thereof and the indemnifying party shall have the
right to participate in, and,
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to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel reasonably satisfactory to the Indemnified Person or the
Indemnified Party, as the case may be; provided, however, that an Indemnified
Person or Indemnified Party shall have the right to retain its own counsel with
the fees and expenses to be paid by the indemnifying party, if, in the
reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding, in which case the
indemnifying party shall not be responsible for more than one such separate
counsel, and one local counsel in each jurisdiction in which an Action is
pending, for all Indemnified Persons or Indemnified Parties, as the case may be.
The failure to deliver notice to the indemnifying party within a reasonable time
of the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 9(a), except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. The indemnification required by this Section
9(a) shall be made by periodic payments of the amount thereof during the course
of the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
(B) CONTRIBUTION. To the extent any indemnification by an
indemnifying party as set forth in Section 9(a) above is applicable by its terms
but is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 9(a) to the fullest extent permitted by law. In determining
the amount of contribution to which the respective parties are entitled, there
shall be considered the relative fault of each party, the parties' relative
knowledge of and access to information concerning the matter with respect to
which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances; provided, however, that (a) no contribution shall be made
under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in Section 9(a), (b) no
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any other Person
who was not guilty of such fraudulent misrepresentation and (c) the aggregate
contribution by any seller of Registrable Securities shall be limited to the
amount by which the proceeds received by such seller from the sale of such
Registrable Securities exceeds the amount paid by such Investor for such
Registrable Securities.
(C) OTHER RIGHTS. The indemnification and contribution
provided in this Section shall be in addition to any other rights and remedies
available at law or in equity.
10. MISCELLANEOUS.
(A) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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(B) HEADINGS. The headings, captions and footers of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement.
(C) SEVERABILITY. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
(D) NOTICES. Any notices required or permitted to be given
under the terms of this Agreement shall be in writing and shall be sent by mail,
personal delivery, telephone line facsimile transmission or courier and shall be
effective five days after being placed in the mail, if mailed, or upon receipt,
if delivered personally, by telephone line facsimile transmission or by courier,
in each case addressed to a party at such party's address (or telephone line
facsimile transmission number) shown in the introductory paragraph or on the
signature page of this Agreement or such other address (or telephone line
facsimile transmission number) as a party shall have provided by notice to the
other party in accordance with this provision. In the case of any notice to the
Company, such notice shall be addressed to the Company at its address shown in
the introductory paragraph of this Agreement, Attention: Vice President, Chief
Financial Officer (telephone line facsimile number (610) 344-7563), and a copy
shall also be given to: Morgan, Lewis & Bockius, LLP, 2000 One Logan Square,
Philadelphia, Pennsylvania 19103, Attention: David R. King, Esq. (telephone line
facsimile transmission number (215) 963-5299), and in the case of any notice to
the Buyer, a copy shall be given to: Law Offices of Brian W Pusch, Penthouse
Suite, 29 West 57th Street, New York, New York 10019 (telephone line facsimile
transmission number (212) 980-7055), in each case with a copy to: Diaz &
Altschul Capital, LLC, 745 Fifth Avenue, Suite 3001, New York, New York 10022
(telephone line facsimile transmission number (212) 751-5757).
(E) COUNTERPARTS. This Agreement may be executed in
counterparts and by the parties hereto on separate counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument. A telephone line facsimile transmission of this
Agreement bearing a signature on behalf of a party hereto shall be legal and
binding on such party. Although this Agreement is dated as of the date first set
forth above, the actual date of execution and delivery of this Agreement by each
party is the date set forth below such party's signature on the signature page
hereof. Any reference in this Agreement or in any of the documents executed and
delivered by the parties hereto in connection herewith to (1) the date of
execution and delivery of this Agreement by the Buyer shall be deemed a
reference to the date set forth below the Buyer's signature on the signature
page hereof, (2) the date of execution and delivery of this Agreement by the
Company shall be deemed a reference to the date set forth below the Company's
signature on the signature page hereof and (3) the date of execution and
delivery of this Agreement, or the date of execution and delivery of this
Agreement by the Buyer and the Company, shall be deemed a reference to the later
of the dates set forth below the signatures of the parties on the signature page
hereof.
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(F) ENTIRE AGREEMENT; BENEFIT. This Agreement, including the
Annexes, constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof. There are no restrictions, promises,
warranties, or undertakings, other than those set forth or referred to herein.
This Agreement, including the Annexes, supersedes all prior agreements and
understandings, whether written or oral, between the parties hereto with respect
to the subject matter hereof. This Agreement and the terms and provisions hereof
are for the sole benefit of only the Company, the Buyer and their respective
successors and permitted assigns.
(G) WAIVER. Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in exercising such
right or remedy, or any course of dealing between the parties, shall not operate
as a waiver thereof or an amendment hereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or exercise of any other right or power.
(H) AMENDMENT. (1) No amendment, modification, waiver,
discharge or termination of any provision of this Agreement on or prior to the
Closing Date nor consent to any departure by the Buyer or the Company therefrom
on or prior to the Closing Date shall in any event be effective unless the same
shall be in writing and signed by the party to be charged with enforcement, and
in any such case shall be effective only in the specific instance and for the
purpose for which given.
(2) No amendment, modification, waiver, discharge or
termination of any provision of this Agreement after the Closing Date nor
consent to any departure by the Company therefrom after the Closing Date shall
in any event be effective unless the same shall be in writing and signed (x) by
the Company if the Company is to be charged with enforcement or (y) by the
Majority Holders, if the Buyer is to be charged with enforcement, and in any
such case shall be effective only in the specific instance and for the purpose
for which given.
(3) No course of dealing between the parties hereto shall
operate as an amendment of this Agreement.
(I) FURTHER ASSURANCES. Each party to this Agreement will
perform any and all acts and execute any and all documents as may be necessary
and proper under the circumstances in order to accomplish the intents and
purposes of this Agreement and to carry out its provisions.
(J) ASSIGNMENT OF CERTAIN RIGHTS AND OBLIGATIONS. The rights
of an Investor under Sections 5, 8, 9, and 10 of this Agreement shall be
automatically assigned by such Investor to any transferee of all or any portion
of such Investor's Registrable Securities (or all or any portion of the Note or
the Warrants) only if: (1) such Investor agrees in writing with such transferee
to
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assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (2) the Company is, within a
reasonable time after such transfer, furnished with notice of (A) the name and
address of such transferee and (B) the securities with respect to which such
rights and obligations are being transferred, (3) immediately following such
transfer or assignment the further disposition of Registrable Securities by the
transferee or assignee is restricted under the 1933 Act and applicable state
securities laws, and (4) at or before the time the Company received the notice
contemplated by clause (2) of this sentence the transferee agrees in writing
with the Company to be bound by all of the provisions contained in Sections
5(a), 5(b), 8, 9, and 10 hereof. Upon any such transfer, the Company shall be
obligated to such transferee to perform all of its covenants under Sections 5,
8, 9, and 10 of this Agreement as if such transferee were the Buyer. In
connection with any such transfer the Company shall, at its sole cost and
expense, promptly after such transfer take such actions as shall be reasonably
acceptable to the transferring Investor and such transferee to assure that each
Registration Statement and related Prospectus for which the transferring
Investor is a selling stockholder are available for use by such transferee for
sales of the Registrable Securities in respect of which such rights and
obligations have been so transferred. Transfer of the Note shall be limited as
provided therein and transfer of the Warrants shall be limited as provided
therein.
(K) EXPENSES. If the closing under this Agreement shall have
occurred, all reasonable expenses incurred in connection with registrations,
filings or qualifications pursuant to Sections 5(d), 5(e), 5(g) and 8 of this
Agreement shall be paid by the Company, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees and
the fees and disbursements of counsel for the Company and the Investors but
excluding (a) fees and expenses of investment bankers retained by any Investor
and (b) brokerage commissions incurred by any Investor. The Company shall pay on
demand all expenses incurred by the Buyer after the Closing Date, including
reasonable attorneys' fees and expenses, as a consequence of, or in connection
with (1) the negotiation, preparation or execution of any amendment,
modification or waiver of any of the Transaction Documents, (2) any default or
breach of any of the Company's obligations set forth in any of the Transaction
Documents, and (3) the enforcement or restructuring of any right of, including
the collection of any payments due, the Buyer under any of the Transaction
Documents, including any action or proceeding relating to such enforcement or
any order, injunction or other process seeking to restrain the Company from
paying any amount due the Buyer. Except as otherwise provided in this Section
10(k), each of the Company and the Buyer shall bear its own expenses in
connection with this Agreement and the transactions contemplated hereby. Nothing
herein shall limit the rights of the Placement Agent under its Engagement
Agreement with the Company.
(L) TERMINATION. (1) The Buyer shall have the right to
terminate this Agreement by giving notice to the Company at any time at or prior
to the Closing Date if:
(A) the Company shall have failed, refused, or been unable at
or prior to the date of such termination of this Agreement to perform
any of its obligations hereunder required to be performed prior to the
time of such termination;
-44-
<PAGE>
(B) any condition to the Buyer's obligations hereunder is not
fulfilled at or prior to the time such condition is required to be
satisfied; or
(C) the closing shall not have occurred on a Closing Date on
or before March 15, 1999, other than solely by reason of a breach of
this Agreement by the Buyer.
Any such termination shall be effective upon the giving of notice thereof by the
Buyer. Upon such termination, the Buyer shall have no further obligation to the
Company hereunder and the Company shall remain liable for any breach of this
Agreement or the other documents contemplated hereby which occurred on or prior
to the date of such termination.
(2) The Company shall have the right to terminate this
Agreement by giving notice to the Buyer at any time at or prior to the Closing
Date if the closing shall not have occurred on a Closing Date on or before March
15, 1999, other than solely by reason of a breach of this Agreement by the
Company, so long as the Company is not in breach of this Agreement at the time
it gives such notice. Any such termination shall be effective upon the giving of
notice thereof by the Company. Upon such termination, neither the Company nor
the Buyer shall have any further obligation to one another hereunder.
(M) SURVIVAL. The respective representations, warranties,
covenants and agreements of the Company and the Buyer contained in this
Agreement and the documents delivered in connection with this Agreement shall
survive the execution and delivery of this Agreement and the closing hereunder
and delivery of and payment for the Note and issuance of the Warrants, and shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Buyer or any Person controlling or acting on behalf
of the Buyer or by the Company or any Person controlling or acting on behalf of
the Company for a period ending on the later of (x) the date which is six years
after the Closing Date and (y) the date which is two years after the Company
shall have paid in full all amounts due from the Company under the Transaction
Documents and performed in full all of its obligations under the Transaction
Documents.
(N) PUBLIC STATEMENTS, PRESS RELEASES, ETC. The Company and
the Buyer shall have the right to approve before issuance any press releases or
any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure
(other than in the Company's periodic and other reports filed with the SEC under
the 1934 Act) with respect to such transactions as is required by applicable law
or applicable requirements of any stock market on which securities of the
Company are listed for trading (although the Buyer shall be consulted by the
Company in connection with any such press release or other public disclosure
prior to its release and shall be provided with a copy thereof).
(O) CONSTRUCTION. The language used in this Agreement will be
deemed to be
-45-
<PAGE>
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-46-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers or other
representatives thereunto duly authorized on the respective dates set forth
below their signatures hereto.
Principal Amount: $
Purchase Price: $
CEPHALON, INC.
By: ___________________________________
Name:
Title:
Date:
[NAME OF BUYER]
By: ___________________________________
Name:
Title:
Date:
Address:
Facsimile No.:
-47-
<PAGE>
SCHEDULE 4(A)
-------------
CERTAIN EQUITY INVESTMENTS
--------------------------
The Company has a $500,000 investment in the Series B
Preferred Stock of Eukarion, Inc., a Delaware corporation.
4(a)-49
<PAGE>
SCHEDULE 4(C)
-------------
CERTAIN ANTIDILUTION ADJUSTMENTS
--------------------------------
None
4(c)-50
<PAGE>
SCHEDULE 4(R)
-------------
MORTGAGES, LIENS, SECURITY
INTERESTS, ENCUMBRANCES, ETC.
-----------------------------
1. The $10,000,000 Sunnyday Loan from the Commonwealth of
Pennsylvania and the $2,000,000 Pennsylvania Industrial Development Authority
loan created a lien on all buildings and equipment of Cephalon, Inc. located in
Pennsylvania. In addition, Variable Annuity Life Insurance Company holds a first
mortgage on all of the buildings located in Pennsylvania.
2. GE Capital holds liens for various leased equipment of
Cephalon, Inc.
3. Additionally, Siemens Rolm holds liens for various leased
equipment of Cephalon, Inc.
4. Additionally, a Letter of Credit was issued by First Union
in the face amount of $2,000,000 to secure the obligations under the $2,000,000
Pennsylvania Industrial Development Authority loan. The reimbursement of the
obligations under the Letter is secured by treasury securities of First Union.
4(r)-51
<PAGE>
EXHIBIT 4.3(B)*
AMOUNT OF 11% REVENUE SHARING SENIOR SECURED NOTES DUE 2002
<TABLE>
<CAPTION>
Registered Holder Amount of Note
- ----------------- --------------
<S> <C>
Delta Opportunity Fund, Ltd. $7,250,000
Delta Opportunity (Institutional), LLC $2,750,000
DLJ Capital Corp. $44,342
DLJ ESC II, L.P. $446,701
The Kaufmann Fund, Inc. $10,000,000
Sprout Capital VIII, L.P. $5,114,415
Sprout Growth II, L.P. $4,087,677
Sprout Venture Capital, L.P. $306,865
</TABLE>
ANNEX I
TO
NOTE PURCHASE
AGREEMENT
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"). THE ISSUANCE TO THE HOLDER OF THE SHARES OF COMMON STOCK
ISSUABLE IN PARTIAL PAYMENT OF PRINCIPAL OR THE REDEMPTION PRICE OF THIS NOTE
AND IN PAYMENT OF INTEREST ON THIS NOTE ARE NOT COVERED BY A REGISTRATION
STATEMENT UNDER THE 1933 ACT. PURSUANT TO THE NOTE PURCHASE AGREEMENT, THIS
NOTE HAS BEEN ACQUIRED, AND SUCH SHARES MUST BE ACQUIRED, FOR INVESTMENT ONLY
AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF REGISTRATION OF
THE RESALE THEREOF UNDER THE 1933 ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY IN FORM, SCOPE AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED.
CEPHALON, INC.
11% REVENUE SHARING SENIOR SECURED NOTE DUE 2002
No. ____ $________
New York, New York
March 1, 1999
FOR VALUE RECEIVED, CEPHALON, INC., a Delaware corporation
(hereinafter called the "Company"), hereby promises to pay to [NAME], [ADDRESS],
or registered assigns (the "Holder"), or order, the sum of ______________
Dollars ($________________), on the Maturity Date, and to pay interest on the
unpaid principal balance hereof at the Applicable Rate from the date hereof,
until the same becomes due and payable, whether at maturity or upon acceleration
or by repurchase in accordance with the terms hereof or otherwise. Any amount,
including, without limitation, principal of or interest on this Note or the
Optional Redemption Price, the Repurchase Price or the Registration Repurchase
Price, that is payable under this Note that is not paid when due shall bear
interest at the Default Rate from the due date thereof until the same is paid
("Default Interest"). Regular interest shall be payable in arrears on each
Interest Payment Date, commencing on June 1, 1999, on the principal amount
outstanding on such date. Regular interest on this Note shall be computed on
the basis of a 360-day year of 12 30-day months and actual days elapsed. No
regular interest shall be payable on an Interest Payment Date on any portion of
the principal amount of this Note which shall have been redeemed prior to such
Interest Payment Date so long as the Company shall have complied in full with
its obligations with respect to such redemption.
All payments of principal of and premium, if any, interest, and other
amounts on this Note shall be made in lawful money of the United States of
America, or, at the option of the
* Certain portions of this exhibit have been omitted based upon a request
for confidential treatment that has been filed with the Commission. The
omitted portions have been filed separately with the Commission.
-1-
<PAGE>
Company and subject to the provisions of this Note, interest payable on the
Interest Payment Dates may be paid in whole or in part in fully paid and
nonassessable shares of Common Stock or, in accordance with Section 1.4, the
Company is entitled under certain circumstances to pay a portion of the
principal of this Note in shares of Common Stock. All cash payments shall be
made by wire transfer of immediately available funds to such account as the
Holder may from time to time designate by written notice in accordance with the
provisions of this Note. Whenever any amount expressed to be due by the terms of
this Note is due on any day which is not a Business Day, the same shall instead
be due on the next succeeding day which is a Business Day and, in the case of
any Interest Payment Date which is not the date on which this Note is paid in
full, the extension of the due date thereof shall not be taken into account for
purposes of determining the amount of interest due on such date. Certain
capitalized terms used in this Note are defined in Article VIII.
The obligations of the Company under this Note shall rank in right of
payment on a parity with all other unsubordinated obligations of the Company for
indebtedness for borrowed money or the purchase price of property. This Note is
issued pursuant to the Note Purchase Agreement and the Holder of this Note and
this Note are subject to the terms and entitled to the benefits of the Note
Purchase Agreement. This Note is entitled to the benefits of the Security
Agreement and the Patent and Trademark Security Agreement.
The following terms shall apply to this Note:
ARTICLE I
CERTAIN PAYMENTS IN COMMON STOCK;
OPTIONAL REDEMPTION
1.1 ISSUANCE OF COMMON STOCK IN LIEU OF CASH INTEREST. (a) If the
-------------------------------------------------
Company exercises its option to make a payment of interest on this Note wholly
or partly in Common Stock (herein sometimes called the "Share Interest Payment
Option"), the issuance of Interest Payment Shares upon such exercise of the
Share Interest Payment Option shall have been authorized by the Board of
Directors of the Company.
(b) The Company shall not be permitted to exercise the Share Interest
Payment Option with respect to any payment of interest on this Note if:
(i) the number of shares of Common Stock authorized, unissued and
unreserved for all purposes, or held in the Company's treasury, is
insufficient to pay the portion of such interest to be paid in Common
Stock;
(ii) the issuance or delivery of Interest Payment Shares or the public
resale of such Interest Payment Shares by the Holder would require
registration or filing with or
-2-
<PAGE>
approval of any governmental authority under any law or regulation, and
such registration, filing or approval has not been effected or obtained or
is not in effect or on such Interest Payment Date or the date the Company
delivers the Interest Payment Shares to the Holder the Interest Share
Registration Statement is unavailable for use by the Holder for the resale
of the Interest Payment Shares;
(iii) the outstanding shares of Common Stock are neither (A) listed or
admitted for trading on a national securities exchange nor (B) quoted on
Nasdaq; or the Interest Payment Shares shall not at the time of issuance
have been authorized for listing, upon official notice of issuance, on the
principal securities exchange on which the Common Stock is then listed and
traded;
(iv) the Interest Share Price for the Interest Payment Shares is less
than the par value of the Common Stock; or
(v) an Event of Default has occurred and is continuing on the date
the Company makes such election or on the applicable Interest Payment Date.
(c) The Company may exercise its right to elect the Share Interest
Payment Option with respect to any Interest Payment Date only by giving notice
of such election to the Holder not less than 24 or more than 28 Trading Days
prior to such Interest Payment Date, which notice shall state the percentage of
the interest payable on such Interest Payment Date which is to be paid in
Interest Payment Shares. The Company shall have the right to elect the Share
Interest Payment Option with respect to this Note only if the Company also
elects the similar option which it has with respect to the Other Notes for the
interest due thereon on the date which is such Interest Payment Date and in each
such case pro rata among this Note and the Other Notes, based on the amounts of
interest due on such date hereon and thereon. If the Company elects the Share
Interest Payment Option with respect to a particular Interest Payment Date, the
Company shall issue to the Holder in respect of such Interest Payment Date the
aggregate number of whole shares of Common Stock determined by dividing the per
share Interest Share Price of the Common Stock on the applicable Interest
Payment Date into an amount equal to 102% of the total amount of lawful money of
the United States of America which the Holder would receive if the aggregate
amount of interest on this Note which is being paid in Common Stock were being
paid in such lawful money. If the Company elects the Share Interest Payment
Option with respect to an Interest Payment Date, the Interest Payment Shares for
such Interest Payment Date shall become issuable on such Interest Payment Date
and the Company shall deliver, or cause to be delivered, the appropriate number
of shares of Common Stock to the Holder within three Trading Days after the
applicable Interest Payment Date. If in any case the Company shall fail to
deliver or cause to be delivered such number of shares of Common Stock to the
Holder within such period of three Trading Days, then in addition to any other
liabilities the Company may have hereunder and under applicable law (1) the
Company shall pay or reimburse the Holder on demand for all out-of-pocket
expenses, including, without limitation, reasonable fees and expenses of legal
counsel, incurred by the Holder as a result of such failure, (2) if as a result
of such failure the Holder shall suffer any direct damages or liabilities from
such
-3-
<PAGE>
failure (including, without limitation, margin interest and the cost of covering
a purchase (whether by the Holder or the Holder's securities broker) or
borrowing of shares of Common Stock by the Holder for purposes of settling any
trade involving a sale of shares of Common Stock made by the Holder during the
period beginning on the date the Company notified the Holder of the Company's
election of the Share Interest Payment Option and ending on the date the Company
delivers or causes to be delivered to the Holder the shares of Common Stock
issuable in respect thereof), then the Company shall upon demand of the Holder
pay to the Holder an amount equal to the actual direct, out-of-pocket damages
and liabilities suffered by the Holder by reason thereof which the Holder
documents to the reasonable satisfaction of the Company, and (3) the Holder may
by written notice (which may be given by mail, courier, personal service or
telephone line facsimile transmission) or oral notice (promptly confirmed in
writing), given at any time prior to delivery to the Holder of the shares of
Common Stock issuable in connection with such exercise of the Share Interest
Payment Option, require payment in cash of the interest in respect of which the
Company exercised the Share Interest Payment Option, in which case the amount of
such interest shall be immediately due and payable, with Default Interest
thereon from the applicable Interest Payment Date until paid in full and the
Company shall not be obligated or entitled to issue such Interest Payment Shares
in respect of such Interest Payment Date. Notwithstanding the foregoing the
Company shall not be liable to the Holder under clause (2) of the immediately
preceding sentence to the extent the failure of the Company to deliver or to
cause to be delivered such shares of Common Stock results from fire, flood,
storm, earthquake, shipwreck, strike, war, acts of terrorism, crash involving
facilities of a common carrier, acts of God, or any similar event outside the
control of the Company (it being understood that the action or failure to act of
the Transfer Agent shall not be deemed an event outside the control of the
Company except to the extent resulting from fire, flood, storm, earthquake,
shipwreck, strike, war, acts of terrorism, crash involving facilities of a
common carrier, acts of God, the bankruptcy, liquidation or reorganization of
the Transfer Agent under any bankruptcy, insolvency or other similar law or any
similar event outside the control of the Transfer Agent). The Holder shall
notify the Company in writing (or by telephone conversation, confirmed in
writing) as promptly as practicable following the third Trading Day after such
Interest Payment Date if the Holder becomes aware that shares of Common Stock so
issuable have not been received as provided herein. If the Company shall have
exercised the Share Interest Payment Option with respect to a particular
Interest Payment Date and either (1) the Company shall notify the Holder on or
after such Interest Payment Date that the Interest Payment Shares might not be
delivered within three Trading Days after such Interest Payment Date or (2) the
Holder learns after the date which is three Trading Days after such Interest
Payment Date that the Holder has not received such Interest Payment Shares,
then, without releasing the Company of its obligations with respect thereto,
from and after the next succeeding Trading Day the Holder shall make reasonable
efforts not to sell shares of Common Stock in anticipation of receipt of such
Interest Payment Shares in a manner which is likely to increase materially the
liability of the Company under clause (2) of the second preceding sentence. No
fractional shares of Common Stock shall be issued in payment of interest on this
Note. In lieu thereof, the Company may, at its option, issue a number of shares
of Common Stock which reflects a rounding up to the next whole number or may pay
lawful money of the United States of America in lieu of issuance of such
fractional share.
-4-
<PAGE>
(d) If the Company elects the Share Interest Payment Option with
respect to a payment of interest on this Note with respect to a particular
Interest Payment Date, the Company shall deliver to the Holder, on or prior to
the date on which Interest Payment Shares for such payment of interest on this
Note are to be received by the Holder, a Company Certificate setting forth (i)
the total amount of the cash interest payment to which the Holder is entitled,
(ii) the portion of such interest payment being made in Interest Payment Shares
and the amount which is 102% thereof, (iii) the number of Interest Payment
Shares allocable to such payment, as calculated pursuant to this Section 1.1,
(iv) any rounding adjustment to such number or any payment necessary to be made
pursuant to Section 1.1(c), (v) a brief statement of the facts requiring such
adjustment, and (vi) a brief statement that none of the conditions set forth in
Section 1.1(b) has occurred and is existing and that all of the requirements of
this Section 1.1 have been met. The Interest Payment Shares shall be duly
issued in the name of the Holder or its nominee. Such Company Certificate shall
be conclusive evidence of the correctness of the calculation of the number of
Interest Payment Shares allocable to the payments to which such Company
Certificate relates and of any adjustments to such number made pursuant to this
Section 1.1 in the absence of manifest error. On or before the pertinent
payment date, the Company shall issue, or cause the transfer agent for the
Common Stock to prepare and issue, the Interest Payment Shares in the name of
the Holder or its nominee before being so delivered by the Company on the
payment date.
(e) The Interest Payment Shares, when issued pursuant to and in
compliance with this Section 1.1, shall be, and for all purposes shall be deemed
to be, validly issued, fully paid and nonassessable shares of Common Stock; the
issuance and delivery thereof is in all respects hereby authorized; and the
issuance thereof, together with lawful money of the United States of America, if
any, paid in lieu of fractional shares of Common Stock, will be, and for all
purposes shall be deemed to be, in full discharge and satisfaction of the
Company's obligation to pay the interest on this Note to which such Interest
Payment Shares relate.
1.2 OPTIONAL REDEMPTION. (a) At any time during the Optional
-------------------
Redemption Period, the Company shall have the right to redeem at any one time
all or from time to time any part of the outstanding principal amount of this
Note at the Optional Redemption Price pursuant to this Section 1.2 on any
Optional Redemption Date, so long as (x) on the date an Optional Redemption
Notice is given and at all times to and including the applicable Optional
Redemption Date, no Event of Default and no event which, with notice or passage
of time, or both, would become an Event of Default has occurred and is
continuing (unless the requirements of this clause (x) will be satisfied
immediately after the applicable Optional Redemption Date and the Company shall
furnish to the Holder Company Certificates to such effect on the date the
applicable Optional Redemption Notice is given to the Holder and on the
applicable Optional Redemption Date), (y) on the date an Optional Redemption
Notice is given and at all times to and including the applicable Optional
Redemption Date no Repurchase Event or Registration Repurchase Event has
occurred with respect to which the Holder has the right to exercise repurchase
rights pursuant to Sections 5.1 and 5.2 or Section 5.3 or with respect to which
the Holder has exercised such repurchase rights and the Repurchase Price or the
Registration Repurchase Price, as the case may be, has not been paid to the
Holder and no event which, with notice or passage of time, or both, would become
a
-5-
<PAGE>
Repurchase Event has occurred and is continuing, and (z) on the date an Optional
Redemption Notice is given, the Company has funds available to pay the Optional
Redemption Price. In order to exercise its right of redemption under this
Section 1.2, the Company shall give an Optional Redemption Notice to the Holder
not less than 20 days or more than 30 days prior to the Optional Redemption Date
stating that: (1) the Company is exercising its right to redeem a specified
portion of this Note in accordance with this Section 1.2, (2) the principal
amount of this Note to be redeemed, (3) the Optional Redemption Price and (4)
the Optional Redemption Date. On the applicable Optional Redemption Date (or
such later date as the Holder surrenders this Note to the Company) the Company
shall pay to or upon the order of the Holder, by wire transfer of immediately
available funds to such account as shall be specified for such purpose by the
Holder at least one Business Day prior to the Optional Redemption Date, an
amount equal to the Optional Redemption Price of the portion (which may be all)
of this Note to be redeemed.
(b) The Company shall not be entitled to give an Optional Redemption
Notice or to redeem any portion of this Note with respect to which the Company
has given the Holder notice pursuant to Section 1.4 that the Company is
exercising the Share Principal Payment Option and to which exercise the Holder
has consented.
(c) Any redemption of this Note pursuant to this Section 1.2 shall be
made at the same time as a redemption by the Company of a pro rata portion
(based on the outstanding principal amounts) of the Other Notes and in each such
case the aggregate principal amount of this Note and the Other Notes to be so
redeemed shall be at least $5,000,000.00 or such lesser aggregate principal
amount of this Note and the Other Notes as shall remain outstanding at the time
an Optional Redemption Notice is given. The Company shall not redeem any of the
Other Notes pursuant to the provisions thereof similar to this Section 1.2 or
repurchase or otherwise acquire any of the Other Notes (other than a mandatory
redemption pursuant to provisions of the Other Notes comparable to Article V)
unless the Company offers simultaneously to redeem, repurchase or otherwise
acquire a pro rata portion (based on outstanding principal amount) of this Note
for cash at the same unit price as the Other Note or Other Notes.
1.3 NO PREPAYMENT. Except as specifically provided in Sections 1.2
-------------
and 6.2, this Note may not be prepaid, redeemed or repurchased at the option of
the Company prior to the Maturity Date. The Company shall not repurchase or
otherwise acquire any of the Other Notes unless the Company offers
simultaneously to redeem, repurchase or otherwise acquire a pro rata portion of
this Note for cash at the same price per unit of outstanding principal amount as
the Other Note or Other Notes. Nothing in this Section 1.3 shall limit the
Company's rights under Article VII.
1.4 ISSUANCE OF COMMON STOCK IN LIEU OF CASH PAYMENT OF PRINCIPAL OR
----------------------------------------------------------------
REDEMPTION PREMIUM. (a) The Company shall have the right to elect to pay (1) a
- ------------------
portion of the principal amount of this Note on the Maturity Date or (2) a
portion of the Optional Redemption Price payable upon a redemption of this Note
in accordance with Section 1.2, in either such case in shares of Common Stock,
if the Holder consents to such election (herein sometimes called the "Share
Principal Payment Option"). If the Company elects the Share Principal Payment
Option, the
-6-
<PAGE>
issuance of Principal Payment Shares upon the exercise of the Share Principal
Payment Option shall have been authorized by the Board of Directors of the
Company. Such election, once made, shall be irrevocable.
(b) The Company shall not be entitled to exercise the Share
Principal Payment Option with respect to payment of a portion of this principal
Note if:
(i) the number of shares of Common Stock authorized, unissued, and
unreserved for all purposes, or held in the Company's treasury, is
insufficient to pay the portion of such principal to be paid in Common
Stock;
(ii) the issuance or delivery of Principal Payment Shares or the
public resale of such Principal Payment Shares by the Holder would require
registration or filing with or approval of any governmental authority under
any law or regulation, and such registration, filing or approval has not
been effected or obtained or is not in effect or on the Maturity Date the
Payment Share Registration Statement is unavailable for use by the Holder
for the resale of the Principal Payment Shares;
(iii) the outstanding shares of Common Stock are neither (A) listed
or admitted to trading on a national securities exchange nor (B) quoted on
Nasdaq; or the Principal Payment Shares shall not at the time of issuance
have been authorized for listing, upon official notice of issuance, on the
principal securities exchange on which the Common Stock is then listed and
traded;
(iv) the Payment Share Price for the Principal Payment Shares is less
than the par value of the Common Stock; or
(v) an Event of Default has occurred and is continuing on the date
the Company makes such election or on the Maturity Date.
(c) The Company may exercise its right to elect the Share Principal
Payment Option only by giving notice of such election to the Holder at least 100
Trading Days prior to the Maturity Date or the applicable Optional Redemption
Date, as the case may be. The Company shall have the right to elect the Share
Principal Payment Option with respect to a portion of the principal amount of
this Note that is due on the Maturity Date that is equal to not more than 50
percent of the original principal amount of this Note (or, if less than 50
percent of the original principal amount of this Note is outstanding, up to the
outstanding principal amount of this Note). The Company shall have the right to
elect the Share Principal Payment Option with respect to a portion of the
Optional Redemption Price equal to not more than 20 percent of the principal
amount of this Note to be redeemed on any Optional Redemption Date. In each
such case, the Company shall have the right to elect the Share Principal Payment
Option with respect to this Note only if:
-7-
<PAGE>
(i) the Company also elects the similar option which it has with
respect to the Other Notes for the principal thereof due on the date which
is the Maturity Date or a portion of the redemption price thereof which is
payable on the applicable Optional Redemption Date, as the case may be, and
in each such case pro rata among this Note and the Other Notes, based on
the outstanding principal amounts hereof and thereof; and
(ii) the Holder in its sole discretion consents to such election with
respect to this Note by notice to the Company within ten Trading Days after
the Company makes such election.
If the Company elects the Share Principal Payment Option and the Holder so
consents, the Company shall issue and deliver, or cause to be delivered to the
Holder on or before the Maturity Date or the applicable Optional Redemption
Date, as the case may be, the aggregate number of whole shares of Common Stock
determined by dividing the per share Payment Share Price on the Maturity Date or
the applicable Optional Redemption Date, as the case may be, into an amount
equal to 105% of the total amount of lawful money of the United States of
America which the Holder would receive if the aggregate amount of principal of
this Note or the portion of the Optional Redemption Price of this Note, as the
case may be, which is being paid in Common Stock were being paid in such lawful
money. If the Company shall fail to deliver or cause to be delivered such
number of shares of Common Stock to the Holder on or prior to the Maturity Date,
or the applicable Optional Redemption Date, as the case may be, then in addition
to any other liabilities the Company may have hereunder and under applicable law
(1) the Company shall pay or reimburse the Holder on demand for all out-of-
pocket expenses, including, without limitation, reasonable fees and expenses of
legal counsel, incurred by the Holder as a result of such failure, (2) if as a
result of such failure the Holder shall suffer any direct damages or liabilities
from such failure (including, without limitation, margin interest and the cost
of covering a purchase (whether by the Holder or the Holder's securities broker)
or borrowing of shares of Common Stock by the Holder for purposes of settling
any trade involving a sale of shares of Common Stock made by the Holder during
the period beginning on the date the Company notified the Holder of the
Company's election of the Share Principal Payment Option and ending on the
Maturity Date or the applicable Optional Redemption Date, as the case may be),
then the Company shall upon demand of the Holder pay to the Holder an amount
equal to the actual direct, out-of-pocket damages and liabilities suffered by
the Holder by reason thereof which the Holder documents to the reasonable
satisfaction of the Company, and (3) the Holder may by written notice (which may
be given by mail, courier, personal service or telephone line facsimile
transmission) or oral notice (promptly confirmed in writing), given at any time
prior to delivery to the Holder of the shares of Common Stock issuable in
connection with such exercise of the Share Principal Payment Option, require
payment in cash of the portion of the principal amount of this Note in respect
of which the Company exercised the Share Principal Payment Option, in which case
the amount of such principal shall be immediately due and payable, with Default
Interest thereon from the Maturity Date or the applicable Optional Redemption
Date, as the case may be, until paid in full and the Company shall not be
obligated or entitled to issue such Principal Payment Shares in respect of such
payment of principal or the Optional Redemption Date, as the case may be.
Notwithstanding the foregoing the Company shall not be liable to the
-8-
<PAGE>
Holder under clause (2) of the immediately preceding sentence to the extent the
failure of the Company to deliver or to cause to be delivered such shares of
Common Stock results from fire, flood, storm, earthquake, shipwreck, strike,
war, acts of terrorism, crash involving facilities of a common carrier, acts of
God, or any similar event outside the control of the Company (it being
understood that the action or failure to act of the Transfer Agent shall not be
deemed an event outside the control of the Company except to the extent
resulting from fire, flood, storm, earthquake, shipwreck, strike, war, acts of
terrorism, crash involving facilities of a common carrier, acts of God, the
bankruptcy, liquidation or reorganization of the Transfer Agent under any
bankruptcy, insolvency or other similar law or any similar event outside the
control of the Transfer Agent). The Holder shall notify the Company in writing
(or by telephone conversation, confirmed in writing) as promptly as practicable
following the Maturity Date or the applicable Optional Redemption Date, as the
case may be, if the Holder becomes aware that shares of Common Stock so issuable
have not been received as provided herein. If the Company shall have exercised
the Share Principal Payment Option with respect to a particular payment and
either (1) the Company shall notify the Holder that such Principal Payment
Shares might not be delivered when due or (2) the Holder learns after the date
on which such Principal Payment Shares are due to be delivered to such Holder
that the Holder has not received such Principal Payment Shares, then, without
releasing the Company of its obligations with respect thereto (x) from and after
the next succeeding Trading Day the Holder shall make reasonable efforts not to
sell shares of Common Stock in anticipation of receipt of such Principal Payment
Shares is a manner which is likely to increase materially the liability of the
Company under clause (2) of the second preceding sentence and (y) if the Company
so requests, the Holder will advise the Company of the Holder's open trading
position in the Common Stock with respect to which the Holder expects receipt of
such Principal Payment Shares and will take such action as may be directed by
the Company to close such open trading position (subject to prevailing market
conditions) so long as the Company pays in advance, or makes provision for such
payment which is satisfactory to the Holder in its sole discretion, of all
amounts required by the Holder to assure that the Holder will not suffer any
economic or trading loss by reason of taking such action. No fractional shares
of Common Stock shall be issued in payment of principal or any portion of the
Optional Redemption Price of this Note. In lieu thereof, the Company may, at its
option, issue a number of shares of Common Stock which reflects a rounding up to
the next whole number or may pay lawful money of the United States of America in
lieu of issuance of such fractional share.
(d) (1) If the Company shall be entitled to issue Principal Payment
Shares on the Maturity Date, the Company shall deliver to the Holder, on or
prior to the Maturity Date:
(A) a Company Certificate setting forth (i) the total amount of
principal to which the Holder is entitled, (ii) the portion of the
principal of this Note being paid in Principal Payment Shares and the
amount which is 105% thereof, (iii) the number of Principal Payment Shares
allocable to the payment of such amount, as calculated pursuant to this
Section 1.4, (iv) any rounding adjustment to such number or any payment
necessary to be made pursuant to Section 1.1(c), (v) a brief statement of
the facts requiring such adjustment, and (vi) a brief statement that none
of the conditions set forth in Section 1.4(b) has occurred and is existing
and that all of the requirements of this Section 1.4 have been met; and
-9-
<PAGE>
(B) an opinion of counsel selected by the Company and reasonably
acceptable to the Majority Holders to the effect set forth in EXHIBIT B.
(2) If the Company shall be entitled to issue Principal Payment
Shares in partial payment of the Optional Redemption Price, the Company shall
deliver to the Holder, on or prior to the applicable Optional Redemption Date:
(A) a Company Certificate setting forth (i) the total amount of
principal being redeemed on such Optional Redemption Date, (ii) the portion
of the premium on such principal amount of this Note being paid in
Principal Payment Shares and the amount which is 105% thereof, (iii) the
number of Principal Payment Shares allocable to the payment of such amount,
as calculated pursuant to this Section 1.4, (iv) any rounding adjustment to
such number or any payment necessary to be made pursuant to Section 1.1(c),
(v) a brief statement of the facts requiring such adjustment, and (vi) a
brief statement that none of the conditions set forth in Section 1.4(b) has
occurred and is existing and that all of the requirements of this Section
1.4 have been met; and
(B) an opinion of counsel selected by the Company and reasonably
acceptable to the Majority Holders to the effect set forth in EXHIBIT B.
(3) The Principal Payment Shares shall be duly issued in the name of
the Holder or its nominee. Such Company Certificate shall be conclusive
evidence of the correctness of the calculation of the number of Principal
Payment Shares and of any adjustments to such number made pursuant to this
Section 1.4 in the absence of manifest error. On or before the Maturity Date or
the applicable Optional Redemption Date, as the case may be, the Company shall
issue, or cause the Transfer Agent for the Common Stock to prepare and issue,
the Principal Payment Shares in the name of the Holder or its nominee before
being so delivered by the Company on the Maturity Date or the applicable
Optional Redemption Date, as the case may be.
(f) The Principal Payment Shares, when issued pursuant to and in
compliance with this Section 1.4, shall be, and for all purposes shall be deemed
to be, validly issued, fully paid and nonassessable shares of Common Stock; the
issuance and delivery thereof is in all respects hereby authorized; and the
issuance thereof, together with lawful money of the United States of America, if
any, paid in lieu of fractional shares of Common Stock, will be, and for all
purposes shall be deemed to be, in full discharge and satisfaction of the
Company's obligation to pay the portion of the principal amount of this Note to
which such Principal Payment Shares relate or the portion of the Optional
Redemption Price of this Note to which such Principal Payment Shares relate, as
the case may be.
(g) Notwithstanding any other provision hereof, if the Aggregate
Share Payment Amount exceeds the Share Payment Threshold, then the Holder shall
have the right, exercisable
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by notice given to the Company on or before the Business Day immediately
preceding the Maturity Date, to receive payment in cash rather than Principal
Payment Shares on the Maturity Date of all or any portion of the Holder's pro
rata (based on the portion of the principal amount of this Note and the Other
Notes which the Company has elected to pay in shares of Common Stock and as to
which the holders have consented) portion of such excess.
ARTICLE II
ADDITIONAL INTEREST
2.1 RIGHT TO ADDITIONAL INTEREST. In addition to all other amounts
----------------------------
provided in this Note and the Other Notes to be paid by the Company, the Holder
and the registered holders of the Other Notes shall be entitled to payments
based on a portion of the Net Revenues of the Products and the Competitive
Products in the Territory during the Payment Period. The amount of such
payments based on a portion of such Net Revenues of the Products and the
Competitive Products during any Determination Period shall be the product
obtained by multiplying (x) an amount equal to the Net Revenues from the
Products and the Competitive Products in the Territory during such Determination
Period times (y) the Payment Percentage in effect during such Determination
Period, with each change therein during such Determination Period being given
effect (such product, the "Noteholder Payment Amount"). Based on the U.S.
federal income tax laws in effect on the Issuance Date, the Company intends to
treat the Noteholder Payment Amounts as additional interest on this Note for
U.S. federal income tax purposes. The Company shall remain obligated to make
payments to the Holder pursuant to this Article II notwithstanding the payment
or redemption of all or any portion of this Note.
2.2 CALCULATION OF NET REVENUES. The Company shall maintain in
---------------------------
reasonable and adequate detail records of all components of and adjustments made
in determining Net Revenues of the Products and the Competitive Products in the
Territory during each Determination Period. Within 45 days after the end of
each Determination Period, the Company shall (a) furnish to the Holder a Company
Certificate setting forth (x) in reasonable detail for each Product or
Competitive Product for which there were sales in the Territory during such
Determination Period the amounts of (1) gross sales (excluding sales to
Affiliates), (2) prompt payment and other discounts, (3) transportation and
related insurance charges, (4) returns, bad debt and other allowances, (5) taxes
deducted from gross sales in determining Net Revenues, (6) distributors',
consignees' and wholesalers' fees and commissions, and (7) Net Revenues, in each
such case of the preceding clauses (1) through (7) for such Determination
Period, (y) the percentage and the amount, in currency of the United States of
America, of such Net Revenues to be paid to the Holder and the holders of the
Other Notes pursuant to Article II hereof and thereof, identifying each such
Person, and (z) a statement that the information set forth in such Company
Certificate is true and correct and (b) pay to the Holder an amount equal to the
portion of the Noteholder Payment Amount for such Determination Period to which
the Holder is entitled.
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<PAGE>
2.3 ALLOCATION OF NOTEHOLDER PAYMENT AMOUNT. The Noteholder Payment
---------------------------------------
Amount for any Determination Period shall be allocated among the Persons
(including the Holder) who were registered holders of this Note and the Other
Notes at any time during such Determination Period pro rata based on the
principal amounts held by each and the portion of such Determination Period
during which such registered holders held this Note and the Other Notes.
2.4 RECORDS, INSPECTION, ETC. The Holder shall have the right,
------------------------
exercisable from time to time, to examine, or to have its representatives
examine, the relevant books of account and records of the Company, its
Subsidiaries and their respective Affiliates upon reasonable prior notice and
during normal business hours, to confirm the accuracy of the statements and
information provided to the Holder pursuant to this Article II and the amounts
of the payments required to be made by the Company to the Holder pursuant to
this Article II. The Holder shall have the right from time to time to retain a
firm of independent public accountants to examine the books of account and
records of the Company and its Subsidiaries for any one or more Determination
Periods for purposes of confirming the accuracy of such statements, information
and amounts. The cost of such accountants shall be paid by the Holder unless
(i) the amount of the Noteholder Payment Amount as determined by such
accountants for any Determination Period was more than $25,000 greater than the
amount thereof set forth in the Company Certificate furnished to the Holder for
such Determination Period pursuant to Section 2.2 or (ii) the Company shall have
failed to furnish a Company Certificate for such Determination Period to the
Holder pursuant to Section 2.2 on or before the due date for such Company
Certificate. The Company shall not be obligated to maintain the books and
records referred to in this section for more than three years after the end of
the Payment Period.
2.5 CERTAIN TRANSFERS OF PRODUCT OR PRODUCT RIGHTS. The Company
----------------------------------------------
shall not sell, assign, transfer or convey (including, without limitation, by
means of a license) any Product or Competitive Product as an entirety or
substantially as an entirety (except to the extent unrelated to sales and
marketing of the Products and Competitive Products in the Territory), or any of
its rights relating to any Product or Competitive Product in the Territory
unless (1) such transfer is expressly made subject to the lien, security
interest and other rights of the Holder and the holders of the Other Notes under
the Transaction Documents, (2) such transferee shall execute and deliver such
documents and instruments as shall be reasonably satisfactory to the Majority
Holders to give effect to the preceding clause (1), and (3) such transferee
shall by written instrument reasonably satisfactory to the Majority Holders
expressly assume, jointly and severally with the Company, all obligations for
the due and punctual payment and performance of all of the Company's obligations
under this Article II and under the Security Agreement and Patent and Trademark
Security Agreement; provided, however, that the provisions of this clause (3)
only shall be inapplicable to any license or sublicense by the Company of its
rights with respect to a Product or Competitive Product with respect to the
Territory to a Person in connection with a co-marketing arrangement between the
Company and such Person, so long as all revenues from sales of such Product or
Competitive Product by such Person are included in the computation of Net
Revenues for purposes of determining the Noteholder Payment Amount, whether or
not such revenues are received by the
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Company or reflected in the Company's books, records or financial statements.
2.6 NO REDEMPTION. The obligations of the Company under this Article
-------------
II shall not be extinguished or eliminated by any redemption of this Note
pursuant to Section 1.2, any acceleration or payment of this Note upon the
occurrence of an Event of Default, any exercise by the Holder of repurchase
rights under Article V or any prepayment of this Note in accordance with Section
6.2.
ARTICLE III
CERTAIN COVENANTS
So long as the Company shall have any obligation under this Note,
unless otherwise consented to in advance by the Majority Holders:
3.1 LIMITATIONS ON CERTAIN INDEBTEDNESS. The Company will not
-----------------------------------
itself, and will not permit any Subsidiary to, create, assume, incur or in any
manner become liable in respect of, including, without limitation, by reason of
any business combination transaction (all of which are referred to herein as
"incurring"), any Indebtedness other than Permitted Indebtedness.
3.2 MAINTENANCE OF CASH, CASH EQUIVALENT AND ELIGIBLE INVESTMENT
------------------------------------------------------------
BALANCES. The Company shall maintain Cash, Cash Equivalent and Eligible
- --------
Investment Balances during the following periods at least equal to the amounts
set forth below:
Period Amount
------ ------
Issuance Date through December 31,1999
$40 million
January 1, 2000 and thereafter
30 million
The Company's Cash, Cash Equivalent and Eligible Investment Balances shall be
determined as of the end of each calendar quarter. Within fifteen days after
the end of each calendar quarter, the Company shall furnish to the Holder a
Company Certificate setting forth the amount of the Company's Cash, Cash
Equivalent and Eligible Investment Balances as of the end of such calendar
quarter. If at the end of any calendar quarter the Company shall have less than
the required amount of Cash, Cash Equivalents and Eligible Investment Balances,
then the Company shall not be deemed to be in violation of this Section 3.2
unless such insufficiency exists on the date which is 30 days after the end of
such calendar quarter, so long as during such 30-day period the Company is
making bona fide efforts to cure such insufficiency.
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<PAGE>
3.3 PAYMENT OF OBLIGATIONS. The Company will pay and discharge, and
----------------------
will cause each Significant Subsidiary to pay and discharge, all their
respective material obligations and liabilities, including, without limitation,
tax liabilities, except where the same may be contested in good faith by
appropriate proceedings.
3.4 MAINTENANCE OF PROPERTY; INSURANCE. (a) The Company will keep,
----------------------------------
and will cause each Significant Subsidiary to keep, all property useful and
necessary in its business in good working order and condition, ordinary wear and
tear excepted.
(b) The Company will maintain, and will cause each Significant
Subsidiary to maintain, with financially sound and responsible insurance
companies, insurance, including, without limitation, products liability
insurance relating to the Product, in at least such amounts and against such
risks as is reasonably adequate for the conduct of their respective businesses
and the value of their respective properties.
3.5 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Company
------------------------------------------------
will continue, and will cause each Significant Subsidiary to continue, to engage
in business of the same general type as now conducted by the Company, and will
preserve, renew and keep in full force and effect, and will cause each
Significant Subsidiary to preserve, renew and keep in full force and effect
their respective corporate existence and their respective rights, privileges and
franchises necessary or desirable in the normal conduct of business and except
for any Subsidiary which is not involved in the manufacture, sale or marketing
in the Territory of Products or Competitive Products and which the Board of
Directors determines it is no longer in the Company's interest to own or operate
and, if being sold, is being sold for a fair consideration.
3.6 COMPLIANCE WITH LAWS. The Company will comply, and will cause
--------------------
each Significant Subsidiary to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, decisions, orders and
requirements of governmental authorities and courts (including, without
limitation, environmental laws) except (i) where compliance therewith is
contested in good faith by appropriate proceedings or (ii) where non-compliance
therewith could not reasonably be expected to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company and the Subsidiaries, taken as a whole.
3.7 INVESTMENT COMPANY ACT. The Company will not be or become an
----------------------
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
3.8 LIMITATIONS ON ASSET SALES, LIQUIDATIONS, ETC.; CERTAIN MATTERS.
---------------------------------------------------------------
The Company shall not
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<PAGE>
(a) sell, convey or otherwise dispose of all or substantially all of
the assets of the Company as an entirety or substantially as an entirety in a
single transaction or in a series of related transactions; or
(b) liquidate, dissolve or otherwise wind up the affairs of the
Company.
3.9 LIMITATIONS ON LIENS. The Company will not itself, and will not
--------------------
permit any Subsidiary to, create, assume or suffer to exist any mortgage, lien,
pledge, security interest or other charge or encumbrance (including, without
limitation, the lien or retained security title of a conditional vendor), all of
which are referred to below as "liens", upon all or any part of its property of
any character, whether owned at the date hereof or thereafter acquired, except:
(a) liens upon any property of any Subsidiary or Subsidiaries as
security for indebtedness owing to the Company;
(b) purchase money liens upon any property acquired by the Company or
any Subsidiary, or liens existing on such property at the time of acquisition;
provided that (i) no such lien shall extend to or cover any other property of
the Company or any Subsidiary, (ii) the principal amount of indebtedness secured
by each such lien on any such property shall not exceed the cost (including such
principal amount of the indebtedness secured thereby) to the Company or the
Subsidiary of the property subject thereto, and (iii) the aggregate principal
amount of all indebtedness of the Company and all Subsidiaries secured by all
liens described in this subsection (b) and any extensions, renewals or
replacements thereof, at any one time outstanding, shall not exceed $10 million
for the Company and the Subsidiaries; and the extending, renewing or replacing
of any lien permitted by this subsection (b) or of the indebtedness secured
thereby; provided, however, that in any such case the lien by which any lien is
extended, renewed or replaced shall not extend to or cover any other property of
the Company or any Subsidiary and the principal amount of such indebtedness
extended, renewed or replaced shall not be increased;
(c) liens securing this Note and the Other Notes ratably;
(d) liens for taxes or assessments or governmental charges or levies
on its property if such taxes or assessments or charges or levies shall not at
the time be due and payable or if the amount, applicability, or validity of any
such tax, assessment, charge or levy shall currently be contested in good faith
by appropriate proceedings or necessary preliminary steps are being taken to
contest, compromise or settle the amount thereof or to determine the
applicability or validity thereof and if the Company or such Subsidiary, as the
case may be, shall have set aside on its books reserves (segregated to the
extent required by sound accounting practice) deemed by it adequate with respect
thereto; deposits or pledges to secure payment of worker's compensation,
unemployment insurance, old age pensions or other social security; deposits or
pledges to secure performance of bids, tenders, contracts (other than contracts
for the payment of money borrowed or credit extended), leases, public or
statutory obligations, surety or appeal bonds, or other deposits
-15-
<PAGE>
or pledges for purposes of like general nature in the ordinary course of
business; mechanics', carriers', workers', repairmen's or other like liens
arising in the ordinary course of business securing obligations which are not
overdue for a period of 60 days, or which are in good faith being contested or
litigated, or deposits to obtain the release of such liens; liens created by or
resulting from any litigation or legal proceedings or proceedings being
contested in good faith by appropriate proceedings, provided any execution
levied thereon shall be stayed; leases made, or existing on property acquired,
in the ordinary course of business; landlords' liens under leases to which the
Company or any Subsidiary is a party; and zoning restrictions, easements,
licenses or restrictions on the use of real property or minor irregularities in
title thereto; provided that all such liens described in this subsection (d) do
not, in the aggregate, materially impair the use of such property in the
operations of the business of the Company or any Subsidiary or the value of such
property for the purpose of such business; and
(e) liens existing on the Issuance Date and listed in Schedule 4(r)
to the Note Purchase Agreement.
3.10 PRODUCTS AND COMPETITIVE PRODUCTS MARKETING. Until the end of
-------------------------------------------
the Payment Period, the Company shall use all commercially reasonable efforts to
market the Products and the Competitive Products in the Territory directly or
through reliable third parties.
3.11 MANUFACTURE AND SALE OF THE PRODUCTS AND THE COMPETITIVE
--------------------------------------------------------
PRODUCTS. Until the end of the Payment Period, the Company shall use all
commercially reasonable efforts (a) to manufacture the Products and the
Competitive Products in accordance with GMP in sufficient quantities to meet the
demand therefor, either directly or through third party manufacturing and supply
arrangements, and (b) to sell the Products and the Competitive Products in the
Territory.
3.12 CERTAIN OBLIGATIONS. (a) The Company shall not amend, modify or
-------------------
waive any provision of any of the Lafon Agreements as they relate to the
Territory in a manner which would adversely affect the Collateral Agent's lien
on and Security Interest in the Collateral.
(b) The Company shall perform and comply in all material respects
with the Lafon Agreements; and shall perform and comply in all material respects
with any other agreement relating to any of the Products or the Competitive
Products, the failure to comply with which could have a material adverse effect
on the Net Revenues from the Products and the Competitive Products or adversely
affect the Collateral Agent's lien on and security interest in the Collateral.
3.13 NOTICE OF DEFAULTS. The Company shall notify the Holder
------------------
promptly, but in any event not later than five days after the Company becomes
aware of the fact, of any failure by the Company to comply with this Article
III.
3.14 CERTAIN EVENTS OF DEFAULT. If an Event of Default specified in
-------------------------
clause (c), (e), or (f) of Section 4.1 shall occur and be continuing, then, at
the request of the Majority Holders, the
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<PAGE>
Company shall use all commercially reasonable efforts (a) to sell, license or
otherwise dispose of the Products and the Competitive Products and the Company's
interests therein as they relate to the Territory, subject to the terms and
requirements of the Security Agreement and the Patent and Trademark Security
Agreement, for a cash consideration at least equal to the fair market value
thereof or (b) to complete one or more financing transactions to provide cash to
the Company to enable it to repay or redeem this Note and the Other Notes in
accordance with their terms on the earliest date on which the Company is
permitted to do so and, if such Event of Default involves a violation by the
Company of Section 3.2, to cure such violation.
ARTICLE IV
EVENTS OF DEFAULT
4.1 If any of the following events of default (each, an "Event of
Default") shall occur:
(A) FAILURE TO PAY PRINCIPAL, INTEREST, ETC. The Company fails (1) to
---------------------------------------
pay the principal, the Optional Redemption Price, the Repurchase Price or
the Registration Repurchase Price hereof when due, whether at maturity,
upon acceleration or otherwise, as applicable, (2) to pay or perform the
obligations of the Company under Article II (other than Section 2.4) or (3)
to pay any installment of interest hereon when due and, in the case of this
clause (3) of this Section 4.1(a) only, such failure continues for a period
of five Business Days after the due date thereof; or
(B) BREACH OF CERTAIN COVENANTS. The Company fails to comply with
---------------------------
Section 3.1, 3.10, 3.11, 3.12, 3.13, or 3.14; or
(C) BREACH OF OTHER COVENANTS. The Company fails to comply with
-------------------------
Section 3.2 or fails to comply in any material respect with any other
provision of Article III of this Note (other than Section 3.1, 3.10, 3.11,
3.12, 3.13, or 3.14) or breaches any other material covenant or other
material term or condition of this Note or any of the other Transaction
Documents (other than as specifically provided in clauses (a), (b), (i),
and (j) of this Section 4.1), and such breach continues for a period of
five days after written notice thereof to the Company from the Holder; or
(D) BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
----------------------------------------
warranty of the Company made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Transaction Documents) shall be false
or misleading in any material respect when made; or
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<PAGE>
(E) CERTAIN VOLUNTARY PROCEEDINGS. The Company or any Subsidiary
-----------------------------
shall commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or shall make a general assignment for the benefit of
creditors, or shall fail generally to pay its debts as they become due or
shall admit in writing its inability generally to pay its debts as they
become due; or
(F) CERTAIN INVOLUNTARY PROCEEDINGS. An involuntary case or other
-------------------------------
proceeding shall be commenced against the Company or any Subsidiary seeking
liquidation, reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 consecutive days; or
(G) JUDGMENTS. Any court of competent jurisdiction shall enter one or
---------
more final judgments against the Company or any Subsidiary or any of their
respective properties or other assets in an aggregate amount in excess of
the Judgment Default Threshold, which is not vacated, bonded, stayed,
discharged, satisfied or waived for a period of 30 consecutive days; or
(H) DEFAULT UNDER OTHER AGREEMENTS. (a) The Company or any Subsidiary
------------------------------
shall (i) default in any payment with respect to any Indebtedness for
borrowed money (other than this Note) which Indebtedness has an outstanding
principal amount in excess of the Cross-Default Threshold, beyond the
period of grace, if any, provided in the instrument or agreement under
which such Indebtedness was created or (ii) default in the observance or
performance of any agreement, covenant or condition relating to any such
Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is to cause,
or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, any such Indebtedness
to become due prior to its stated maturity and such default or event shall
continue beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created (after giving effect to
any consent or waiver obtained and then in effect thereunder); or (b) any
Indebtedness of the Company or any Subsidiary which has an outstanding
principal amount in excess of the Cross-Default Threshold shall, in
accordance with its terms, be declared to be due and payable, or required
to be prepaid other than by a regularly scheduled or required payment prior
to the stated maturity thereof; or
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<PAGE>
(I) SECURITY AGREEMENT AND PATENT AND TRADEMARK SECURITY AGREEMENT,
---------------------------------------------------------------
ETC. The occurrence of any "Event of Default" as defined in the Security
---
Agreement or the Patent and Trademark Security Agreement;
(J) CESSATION OF MANUFACTURE, SALES OR MARKETING. None of the Company
--------------------------------------------
or any of its Affiliates shall (directly or through reliable third parties)
be manufacturing, selling or marketing the Products in the Territory;
then,
(1) upon the occurrence and during the continuation of any Event of
Default specified in clause (a), (b), (d), (i), or (j) of this Section 4.1,
at the option of the Holder, and upon the occurrence of any Event of
Default specified in clause (e) or (f) of this Section 4.1: (X) the
Company shall, pay to the Holder an amount equal to the outstanding
principal amount of this Note plus accrued and unpaid interest on such
principal amount to the date of payment plus accrued and unpaid Default
Interest, if any, thereon at the rate provided in this Note to the date of
payment, (V) all other amounts payable hereunder or under any of the other
Transaction Documents shall immediately become due and payable, all without
demand, presentment or notice, all of which hereby are expressly waived,
together with all costs, including, without limitation, reasonable legal
fees and expenses, of collection, (Y) the Collateral Agent shall be
entitled to exercise all rights and remedies under the Security Agreement
and the Patent and Trademark Security Agreement, and (Z) the Holder shall
be entitled to exercise all other rights and remedies available at law or
in equity; and
(2) upon the occurrence and during the continuation of any Event of
Default specified in clause (c), (g) or (h) of this Section 4.1: (A) if
any Event of Default continues during the period of 365 consecutive days
following the occurrence of such Event of Default, then thereafter so long
as any Event of Default is continuing (i) at the option of the Holder the
Company shall pay to the Holder an amount equal to the outstanding
principal amount of this Note plus accrued and unpaid interest on such
principal amount to the date of payment plus accrued and unpaid Default
Interest, if any, thereon at the rate provided in this Note to the date of
payment, (ii) all other amounts payable hereunder shall immediately become
due and payable, all without demand, presentment or notice, all of which
hereby are expressly waived, together with all costs, including, without
limitation, reasonable legal fees and expenses, of collection and (and) the
Collateral Agent shall be entitled to exercise all rights and remedies
under the Security Agreement, the Patent and Trademark Security Agreement,
and (B) the Holder shall be entitled to exercise all rights and remedies
available at law or in equity other than those set forth in the immediately
preceding clause (A).
ARTICLE V
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REPURCHASE UPON A REPURCHASE EVENT
OR REGISTRATION REPURCHASE EVENT
5.1 REPURCHASE RIGHT UPON REPURCHASE EVENT. If a Repurchase Event
--------------------------------------
occurs, in addition to any other right of the Holder, the Holder shall have the
right, at the Holder's option, to require the Company to repurchase all of this
Note, or any portion hereof on the repurchase date that is five Business Days
after the date of the Holder Notice delivered with respect to such Repurchase
Event. The Holder shall have the right to require the Company to repurchase all
or any such portion of this Note if a Repurchase Event occurs at any time while
any portion of the principal amount of this Note is outstanding at a price equal
to the Repurchase Price.
5.2 NOTICES; METHOD OF EXERCISING REPURCHASE RIGHTS, ETC. (a) On or
----------------------------------------------------
before the fifth Business Day after the occurrence of a Repurchase Event, the
Company shall give to the Holder a Company Notice of the occurrence of the
Repurchase Event and of the repurchase right set forth herein arising as a
result thereof. Such Company Notice shall set forth:
(i) the date by which the repurchase right must be exercised, and
(ii) a description of the procedure (set forth in this Section 5.2)
which the Holder must follow to exercise the repurchase right.
No failure of the Company to give a Company Notice or defect therein shall limit
the Holder's right to exercise the repurchase right or affect the validity of
the proceedings for the repurchase of this Note or portion hereof.
(b) To exercise the repurchase right, the Holder shall deliver to the
Company on or before the 30th day after a Company Notice (or if no such Company
Notice has been given, within 40 days after the Holder first learns of the
Repurchase Event) (i) a Holder Notice setting forth the name of the Holder and
the principal amount of this Note to be repurchased, and (ii) this Note, duly
endorsed for transfer to the Company of the portion of the outstanding principal
amount of this Note to be repurchased. A Holder Notice may be revoked by the
Holder at any time prior to the time the Company pays the applicable Repurchase
Price to the Holder.
(c) If the Holder shall have given a Holder Notice, then on the date
which is five Business Days after the date such Holder Notice is given (or such
later date as the Holder surrenders this Note) the Company shall make payment in
immediately available funds of the applicable Repurchase Price to such account
as specified by the Holder in writing to the Company at least one Business Day
prior to the applicable repurchase date.
5.3 REPURCHASE RIGHT UPON REGISTRATION REPURCHASE EVENT. If a
---------------------------------------------------
Registration Repurchase Event occurs, in addition to any other right of the
Holder, the Holder shall have the right, at the Holder's option, to require the
Company to repurchase all of this Note, or from time to
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time any portion hereof, by making payment of the Registration Repurchase Price
to the Holder in immediately available funds to such account as specified by the
Holder by notice to the Company at least one Business Day prior to the
applicable repurchase date, on the repurchase date that is five Business Days
after the date a Holder Registration Repurchase Notice is given by the Holder
(or such later date as the Holder surrenders this Note to the Company). The
Holder shall exercise its right to require repurchase pursuant to this Section
5.3 by giving a Holder Registration Repurchase Notice as follows: (i) if the
Registration Repurchase Event occurs by reason of the Company's failure to
timely file the Registration Statement with the SEC, at any time prior to the
earlier of (x) the date which is 31 days after such event and (y) the date the
Company files the Registration Statement with the SEC or (ii) if the
Registration Repurchase Event occurs by reason of the non-occurrence of the SEC
Effective Date within 90 days after the Issuance Date, at any time prior to the
SEC Effective Date. If the Holder shall have given a Holder Registration
Repurchase Notice, the Company shall repurchase this Note or the portion of this
Note as stated in such Holder Registration Repurchase Notice at a purchase price
equal to the Registration Repurchase Price. A Holder Registration Repurchase
Notice may be revoked by the Holder at any time prior to the time the Company
pays the applicable Registration Repurchase Price.
5.4 OTHER. A Holder Notice or a Holder Registration Repurchase
-----
Notice given by the Holder shall be deemed for all purposes to be in proper form
unless the Company notifies the Holder within three Business Days after such
Holder Notice or Holder Registration Repurchase Notice has been given (which
notice shall specify all defects in such Holder Notice or Holder Registration
Repurchase Notice), and any Holder Notice or Holder Registration Repurchase
Notice containing any such defect shall nonetheless be effective on the date
given if the Holder promptly undertakes to correct all such defects. No such
claim of defect shall limit or delay performance of the Company's obligation to
repurchase any portion of this Note, the repurchase of which is not in dispute.
ARTICLE VI
EXTENSION OF MATURITY DATE
6.1 RIGHT TO EXTEND MATURITY DATE. The Company shall have the right,
-----------------------------
exercisable by notice given to the Holder on a date not earlier than 90 or later
than 30 days prior to the Original Maturity Date, which notice shall refer to
this Section 6.1, to extend the Maturity Date to the Extended Maturity Date so
long as the following conditions precedent are satisfied on the date the Company
gives such notice to the Holder:
(a) no Event of Default and no event which, with notice or passage of
time, or both, would become an Event of Default, shall have occurred and be
continuing;
(b) no Repurchase Event or Registration Repurchase Event shall have
occurred
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with respect to which the Holder has the right to exercise repurchase
rights under Sections 5.1 and 5.2 or Section 5.3 or with respect to which
the Holder has exercised such repurchase rights and the Repurchase Price or
the Registration Repurchase Price, as the case may be, has not been paid to
the Holder and no event which, with notice or passage of time, or both,
would become a Repurchase Event shall have occurred and be continuing;
(c) Net Revenues from the Products and the Competitive Products in
the Territory during the then most recent full calendar quarter preceding
the date on which the Company gives such notice to the Holder shall have
been at least 75% of the Target Revenues for the Products and the
Competitive Products in the Territory for such calendar quarter;
(d) the Company's Cash, Cash Equivalent and Eligible Investment
Balances shall be greater than the sum of (1) an amount equal to 125% of
the aggregate outstanding principal amount of this Note and the Other Notes
at the close of business on the Business Day prior to the date on which the
Company gives such notice to the Holder plus (2) an amount equal to 400% of
the cash used in operations by the Company and the Subsidiaries during the
then most recently completed fiscal quarter, as shown in the Company's
consolidated statement of cash flows, prepared in accordance with Generally
Accepted Accounting Principles on a basis consistent with the Company's
then most recently prepared audited annual financial statements;
(e) the Company shall be operating under a current business plan
approved by the Company's Board of Directors which shows that from the date
such notice is given to the Holder to the Extended Maturity Date the
Company's Cash, Cash Equivalent and Eligible Investment Balances will not
be less than 125% of the aggregate outstanding principal amount of this
Note and the Other Notes on the date such notice is given to the Holder;
(f) the Company shall have given notice to the holders of all of the
Other Notes to extend the maturity date thereof to the Extended Maturity
Date; and
(g) the Company shall have furnished to the Holder a Company
Certificate setting forth in reasonable detail confirmation of the
satisfaction of the conditions in the preceding clauses (a) through (f).
6.2 ALTERNATIVE RIGHT TO EXTEND MATURITY DATE. If the Company is
-----------------------------------------
unable to satisfy any one or more of the requirements of clause (c), (d) or (e)
of Section 6.1, the Company shall have the right, exercisable by notice given to
the Holder not earlier than 90 or later than 30 days prior to the Original
Maturity Date, which notice shall refer to this Section 6.2, to extend the
Maturity Date to the Extended Maturity Date so long as (x) the conditions
precedent specified in clauses (a) (other than an Event of Default solely by
reason of the Company's violation of Section 3.2), (b) and (f) of Section 6.1
are satisfied on the date the Company gives such notice to the Holder
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and (y) Net Revenues of the Product and the portion of the Net Revenues of the
Competitive Products included in the determination of the Noteholder Payment
Amount in the Territory during the then most recent full fiscal quarter
preceding the date on which the Company gives such notice to the Holder shall
have been at least $3,750,000. If the Company gives such notice, then from and
after the Original Maturity Date (1) the Applicable Rate shall be increased from
11% per annum to 14% per annum, (2) the Default Rate shall be increased from 21%
per annum to 26% per annum and (3) the Payment Percentage shall be increased to
25 percent and, so long as no Event of Default has occurred and is continuing,
the portion of the Noteholder Payment Amount paid to the Holder for any period
during which such higher Payment Percentage shall be in effect which is in
excess of the portion of the Noteholder Payment Amount which would have been
paid to the Holder if the Payment Percentage during such period were 9.0 percent
shall be paid to and applied by the Holder to the outstanding principal amount
of this Note.
ARTICLE VII
SATISFACTION AND DISCHARGE OF CERTAIN PROVISIONS
7.1. DISCHARGE OF CERTAIN PROVISIONS. If
-------------------------------
(i) the Company shall have deposited with the Collateral Agent, in
trust, funds or Government Obligations, the principal of and interest on
which when due will, together with any funds set aside at the same time and
without the necessity for investment or reinvestment of such funds or for
further investment or reinvestment of the principal amount of or interest
on such Government Obligations, provide funds sufficient to pay at maturity
or upon redemption all of this Note and the Other Notes, including
principal and interest due or to become due to the Maturity Date or earlier
redemption;
(ii) in the case of this Note and the Other Notes which the Company
may elect to redeem pursuant to Section 1.2 and the comparable provisions
of the Other Notes, in whole or in part, prior to their maturity, all
action other than the giving of notice of redemption necessary to redeem
such of this Note and the Other Notes as of the specified redemption date
or dates for this Note and such Other Notes shall have been taken and
arrangements reasonably satisfactory to the Majority Holders shall have
been made for the giving of notice of such redemption;
(iii) notice of such deposit shall have been given to the Holder and
the Holders of the Other Notes as to which such deposit is applicable,
within ten days after the date of such deposit;
(iv) no Event of Default or event which with notice or passage of
time, or both, would become an Event of Default under Section 4.1(e) or
4.1(f) has occurred and is
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continuing; and
(v) no Event of Default or event which with notice or passage of
time, or both would become an Event of Default (other than as specifically
provided in the immediately preceding clause (iv)) has occurred and is
continuing (unless the requirements of this clause (v) will be satisfied
immediately after the 92-day period hereinbelow specified and the Company
shall furnish to the Holder Company Certificates to such effect on the date
of such deposit and on such 92nd day);
and the Company shall also pay or cause to be paid all other sums payable
hereunder by the Company, then on the date which is 92 days after the date of
such deposit by the Company with the Collateral Agent, so long as during such
92-day period no Event of Default or event which with notice or passage of time,
or both, would become an Event of Default under Section 4.1(e) or 4.1(f) has
occurred (x) this Note shall cease to be of further effect (except as provided
herein), (y) the Company shall be entitled to release of Collateral (other than
the funds and Government Obligations so deposited and any interest or income
thereon or any proceeds thereof) as provided in the Pledge Agreement and (z) the
Holder, on demand of the Company accompanied by a Company Certificate and an
opinion of counsel and at the cost and expense of the Company, shall execute
proper instruments acknowledging the satisfaction and discharge of this Note to
the extent set forth herein.
So long as this Note shall remain outstanding after such discharge,
this Note shall continue in effect following the discharge provided for above
solely with respect to rights of registration of transfer, exchange or
replacement of outstanding Notes, rights to receive payment of the principal
hereof and interest hereon in accordance with the terms of this Note from such
deposited funds or the proceeds of or interest on such deposited Government
Obligations, the rights under Article II and the rights under Sections 3.10 and
3.11; provided, however, that, following such discharge, no claim for payment of
principal of or interest on this Note shall be made against the Company. Upon
such discharge, any Event of Default which occurred prior to such discharge
solely by reason of one or more provisions of this Note with which the Company
thereafter is no longer obligated to comply, then such Event of Default shall no
longer exist.
7.2. DEPOSITED MONEYS AND GOVERNMENT OBLIGATIONS TO BE HELD IN
---------------------------------------------------------
ACCORDANCE WITH SECURITY AGREEMENT. All funds and Government Obligations
- ----------------------------------
deposited with the Collateral Agent pursuant to Section 7.1 shall be held in
trust and subject to and in accordance with the terms of the Security Agreement
and such funds and interest on such Government Obligations shall be applied by
it to the payment of the Notes in accordance with the Security Agreement.
7.3. REINSTATEMENT. If (i) the Collateral Agent is unable to apply
-------------
any funds in accordance with Section 7.2 and the Security Agreement by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application and (ii) the Majority
Holders so specify by this notice to the Company, the Company's obligations
under this Note shall be revived and reinstated as though no deposit had
occurred pursuant to Section 7.1
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until such time as the Collateral Agent is permitted to apply all such funds in
accordance with Section 7.2 and the Security Agreement.
ARTICLE VIII
DEFINITIONS
8.1 CERTAIN DEFINED TERMS. (a) All the agreements or instruments
---------------------
herein defined shall mean such agreements or instruments as the same may from
time to time be supplemented or amended or the terms thereof waived or modified
to the extent permitted by, and in accordance with, the terms thereof and of
this Note.
(b) The following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Aggregate Share Payment Amount" means the sum of (1) the principal
amount of this Note as to which the Company has elected the Share Principal
Payment Option and to which the Holder has consented plus (2) the aggregate
principal amount of the Other Notes as to which the Company has elected to make
payment in shares of Common Stock pursuant to provisions comparable to Section
1.4 and to which the respective holders of the Other Notes have consented in
accordance with the terms of the Other Notes.
"Applicable Rate" means 11 percent per annum except that, if the
Company exercises its right to extend the Original Maturity Date to the Extended
Maturity Date pursuant to Section 6.2, then from and after the Original Maturity
Date such rate shall be increased to 14 percent per annum (or in either such
case such lesser rate as shall be the highest rate permitted by applicable law).
"Assignment Agreement" shall have the meaning provided in the Note
Purchase Agreement.
"Business Day" means any day other than a Saturday, Sunday or a day on
which commercial banks in The City of New York are authorized or required by law
or executive order to remain closed.
"Cash, Cash Equivalent and Eligible Investment Balances" of any Person
on any date shall be determined from such Person's books maintained in
accordance with Generally Accepted Accounting Principles, and means, without
duplication, the sum of (1) the cash accrued by such Person and its subsidiaries
on a consolidated basis on such date and available for use by such Person and
its subsidiaries on such date, (2) all assets which would, on a consolidated
balance sheet of such Person and its subsidiaries prepared as of such date in
accordance with
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Generally Accepted Accounting Principles, be classified as cash equivalents and
(3) all Eligible Marketable Securities which are assets which would, on a
consolidated balance sheet of such Person and its subsidiaries prepared as of
such date in accordance with Generally Accepted Accounting Principles, be
classified as marketable securities.
"Collateral Agent" means Delta Opportunity Fund, Ltd., as collateral
agent under the Security Agreement and the Patent and Trademark Security
Agreement, or its successors.
"Common Stock" means the Common Stock, par value $.01 per share, or
any shares of capital stock of the Company into which such shares shall be
changed or reclassified after the Issuance Date.
"Company" shall have the meaning provided in the first paragraph of
this Note.
"Company Certificate" means a certificate of the Company signed by an
Officer.
"Company Notice" means a Company Notice in the form attached hereto as
EXHIBIT C.
"Competitive Product" means a product, method or system, other than
the Product, that (x) has received regulatory approval for use, or has received
regulatory approval for any substantially similar use, in a human therapeutic
indication as any Product, or (y) is so used for human therapeutic indication of
excessive sleep disorder or excessive daytime sleep disorder but shall not
include any product, method or system that an Affiliate of the Company was
testing in preclinical or clinical trials or for which regulatory approval was
received, prior to becoming an Affiliate of the Company.
"Cross-Default Threshold" means as of any date an amount equal to the
greater of
(1) an amount equal to the product obtained by multiplying (a) the
amount, if any, by which the Company's Cash, Cash Equivalent and Eligible
Investment Balances on such date exceed the aggregate outstanding principal
amount of this Note and the Other Notes on such date times (b) 50 percent;
and
(2) $1,000,000 for any single Indebtedness of the type referred to in
Section 4.7 and $2,000,000 in the aggregate for the Company and the
Subsidiaries for all Indebtedness referred to in Section 4.1(h).
"Default Interest" shall have the meaning provided in the first
paragraph of this Note.
"Default Rate" means 21 percent per annum except that, if the Company
exercises its right to extend the Original Maturity Date to the Extended
Maturity Date pursuant to Section 6.2,
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then from and after the Original Maturity Date such rate shall be increased to
26 percent per annum (or in either case such lesser rate equal to the highest
rate permitted by applicable law).
"Determination Period" means each calendar quarter, except that the
first Determination Period shall begin on the Issuance Date and end on March 31,
1999 and the final Determination Period shall end on the last day of the Payment
Period.
"Eligible Bank" means a corporation organized or existing under the
laws of the United States or any other state, having combined capital and
surplus of at least $100 million and subject to supervision by federal or state
authority and which has a branch located in New York, New York.
"Eligible Marketable Securities" of the Company as of any date means
marketable securities which would be reflected on a consolidated balance sheet
of the Company and its subsidiaries prepared as of such date in accordance with
Generally Accepted Accounting Principles and which are debt obligations within
the Company's investment policies set forth on Exhibit M to the Company's Senior
Convertible Notes due April 7, 1998.
"Event of Default" shall have the meaning provided in Section 4.1.
"Extended Maturity Date" means March 1, 2003.
"Fundamental Change" means
(a) Any consolidation or merger of the Company or any Subsidiary with
or into another entity (other than a merger or consolidation of a
Subsidiary into the Company or a wholly-owned Subsidiary) where the
stockholders of the Company immediately prior to such transaction do not
collectively own at least 51% of the outstanding voting securities of the
surviving corporation of such consolidation or merger immediately following
such transaction; or the sale of all or substantially all of the assets of
the Company and the Subsidiaries in a safe transaction or a series of
related transactions; or
(b) The occurrence of any transaction or event in connection with
which all or substantially all the Common Stock shall be exchanged for,
converted into, acquired for or constitute the right to receive
consideration (whether by means of an exchange offer, liquidation, tender
offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock which is (or will, upon consummation of or immediately following such
transaction or event, will be) listed on a national securities exchange or
approved for quotation on Nasdaq or any similar United States system of
automated dissemination of transaction reporting of securities prices; or
(c) The acquisition by a Person or entity or group of Persons or
entities acting
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in concert as a partnership, limited partnership, syndicate or group, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, of beneficial ownership of securities of
the Company representing 50% or more of the combined voting power of the
outstanding voting securities of the Company ordinarily (and apart from
rights accruing in special circumstances) having the right to vote in the
election of directors.
"Generally Accepted Accounting Principles" for any Person means the
generally accepted accounting principles and practices applied by such Person
from time to time in the preparation of its audited financial statements.
"GMP" means the Good Manufacturing Practices established from time to
time by the United States Food and Drug Administration.
"Government Obligations" means direct obligations of, or obligations
the timely payment of the principal of and the interest on which are
unconditionally guaranteed by, the United States of America and which are not,
by their terms, callable.
"Holder" shall have the meaning provided in the first paragraph of
this Note.
"Holder Notice" means a Holder Notice in the form attached hereto as
EXHIBIT D.
"Holder Registration Repurchase Notice" means a Holder Registration
Repurchase Notice in the form attached hereto as EXHIBIT E.
"Indebtedness" as used in reference to any Person means all
indebtedness of such Person for borrowed money, the deferred purchase price of
property, goods and services and obligations under leases which are required to
be capitalized in accordance with Generally Accepted Accounting Principles and
shall include all such indebtedness guaranteed in any manner by such Person or
in effect guaranteed by such Person through a contingent agreement to purchase
and all indebtedness for the payment or purchase of which such Person has
contingently agreed to advance or supply funds and all indebtedness secured by
mortgage or other lien upon property owned by such Person, although such Person
has not assumed or become liable for the payment of such indebtedness, and, for
all purposes hereof, such indebtedness shall be treated as though it has been
assumed by such Person.
"Interest Payment Dates" means each March 1, June 1, September 1 and
December 1 and the Maturity Date.
"Interest Payment Shares" means the shares of Common Stock and the
related Preferred Share Purchase Rights issuable in payment of interest on this
Note in accordance with Section 1.1.
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"Interest Share Price" for any Interest Payment Date means the
arithmetic average of the Market Price of the Common Stock for all of the
Trading Days during the 20 consecutive Trading Days beginning on the third
Trading Day following the date on which the Company notifies the Holder in
accordance with Section 1.1(c) of the exercise of its election of the Interest
Share Payment Option with respect to such Interest Payment Date.
"Interest Share Registration Statement" means the registration
statement filed by the Company with the SEC under the 1933 Act pursuant to
Section 8 (a) (1) of the Note Purchase Agreement.
"Issuance Date" means March 1, 1999.
"Judgment Default Threshold" means as of any date of determination an
amount equal to the greater of
(1) an amount equal to the product obtained by multiplying (a) the
amount, if any, by which the Company's Cash, Cash Equivalent and Eligible
Investment Balances on such date exceed the aggregate outstanding principal
amount of this Note and the Other Notes on such date times (b) 50 percent;
and
(2) $1,000,000.
"Lafon" means Laboratoire L. Lafon, a French corporation.
"Lafon Agreements" means (1) the License Agreement, dated January 20,
1993, by and between Lafon and the Company, as amended, (2) the Trademark
Agreement, dated January 20, 1993, by and between Genelco S.A. and the Company,
as amended, and (3) the Supply Agreement, dated January 20, 1993, between the
Company and Lafon, as amended.
"Majority Holders" means at any time such of the holders of this Note
and the Other Notes which hold Notes and Other Notes which, based on the
outstanding principal amounts thereof, represent a majority of the aggregate
outstanding principal amount of this Note and the Other Notes.
"Market Price" of any security on any date shall mean the closing bid
price of such security on such date on Nasdaq or such other securities exchange
or other market on which such security is listed for trading on such date which
constitutes the principal securities market for such security, as reported by
Bloomberg, L.P.
"Maturity Date" means at any time the Original Maturity Date or the
Extended Maturity Date, as in effect at such time.
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"Nasdaq" means the Nasdaq National Market.
"Nasdaq SmallCap" means the Nasdaq SmallCap Market.
"Net Revenues" means, with respect to sales for any period and with
respect to any item, the amount thereof accrued by the Company for financial
reporting purposes, determined under the Generally Accepted Accounting
Principles used in the preparation of the Company's then most recently published
audited financial statements, from sales of Products or Competitive Products (as
and to the extent applicable) by the Company, any Affiliate of the Company or
any licensee or sublicensee of the Company or any Affiliate of the Company, but
excluding sales to any Affiliate, licensee or sublicensee of the Company or any
Affiliate of the Company; provided, however, that if for any period the
aggregate Net Revenues for the Products and the Competitive Products (before
application of this proviso) would exceed the Target Revenues for such period,
then in determining Net Revenues for such period there shall be excluded the
portion thereof, if any, arising from Competitive Products equal to the lesser
of (x) the amount thereof for such period arising from Competitive Products and
(y) the portion of the aggregate Net Revenues for the Products and the
Competitive Products for such period (before application of this proviso) which
shall be in excess of the Target Revenues for such period. In determining such
amount, the amounts received from such sales shall be reduced by related prompt
payment and other trade discounts, transportation and related insurance charges,
returns, bad debt and other allowances, taxes (except income and franchise
taxes) and distributors', consignees' and wholesalers' fees and commissions.
The terms "licensee" and "sublicensee" shall mean any Person licensed or
sublicensed by the Company or any Affiliate of the Company, including, without
limitation, pursuant to any marketing, co-marketing or co-detailing agreement
(or similar arrangement that is the functional equivalent of a license), but
excluding customary distribution, wholesaling and consignment arrangements. For
the purposes of this definition, distribution, wholesaling or consignment
arrangements shall be limited to arrangements where the distributor, wholesaler
or consignee is not obligated, in addition to selling a Product or Competitive
Product, to undertake any significant promotional or similar marketing efforts
directed at a Product or Competitive Product. In computing the portion of Net
Revenues from Products which contain modafinil or any compound based on or
derived therefrom as an active ingredient in combination with any other
substance as an active ingredient which substance is also sold by the Company or
any of its Affiliates not in combination with modafinil or any such compound
based or derived therefrom, the portion of Net Revenues from such combination
product included in Net Revenues for any period shall be a portion of the total
Net Revenues for such combination product for such period which portion shall be
determined as the product obtained by multiplying (x) an amount equal to the Net
Revenues for such period from sales of such combination product times (y) a
fraction (i) the numerator of which shall be the unit price at which the Company
or an Affiliate sells products containing modafinil or such compound based on or
derived therefrom and (ii) the denominator of which shall be the sum of (A) the
amount referred to in the immediately preceding clause (i) plus (B) the unit
price at which the Company or an Affiliate sells the products containing such
other substance; provided, however, that in no event shall such combination
product be sold at a unit price less than the amount referred to in the
immediately preceding clause (i). In calculating Net Revenues, any particular
unit of a
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Product or Competitive Product shall be taken into account only once.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1933 Act" means the Securities Act of 1933, as amended.
"Note" means this instrument as originally executed, or if later
amended or supplemented in accordance with its terms, then as so amended or
supplemented.
"Noteholder Payment Amount" shall have the meaning provided in Section
2.1.
"Note Purchase Agreement" means the Note Purchase Agreement, dated as
of February 24, 1999, by and between the Company and the original Holder of this
Note.
"Officer" means the Chairman of the Board, the Chief Executive
Officer, the President or the Chief Financial Officer of the Company.
"Optional Redemption Date" means each Business Day on which this Note
is to be redeemed in whole or in part pursuant to Section 1.2.
"Optional Redemption Notice" means an Optional Redemption Notice in
the form attached hereto as EXHIBIT A.
"Optional Redemption Period" means the period which commences on March
1, 2001 and ends on the Original Maturity Date.
"Optional Redemption Price" means an amount in cash equal to the sum
of (1) 120% of the outstanding principal amount of this Note specified in an
Optional Redemption Notice as being redeemed by the Company plus (2) accrued and
unpaid interest on such principal amount to the applicable Optional Redemption
Date plus (3) accrued and unpaid Default Interest, if any, on the amount
referred to in the immediately preceding clause (2) at the rate provided in this
Note to the Optional Redemption Date.
"Original Maturity Date" means March 1, 2002.
"Other Note Purchase Agreements" means the several Note Purchase
Agreements, dated as of February 24, 1999, by and between the Company and the
respective original holders of the Other Notes.
"Other Notes" means the several 11% Senior Secured Notes due 2002
issued by the Company pursuant to the Other Note Purchase Agreements.
-31-
<PAGE>
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement, dated as of March 1, 1999, by and between the
Company and the Collateral Agent.
"Payment Percentage" means six percent; provided, however, that if an
Event of Default shall have occurred, then the Payment Percentage shall be
increased to 25 percent during the period from the date of such Event of Default
until the earlier of (x) the date no Event of Default is continuing and (y) the
date the Company pays the redemption price in full for a redemption of this Note
and the Other Notes pursuant to Section 1.2 and the comparable provisions of the
Other Notes; provided further, however, that if the Company extends the Original
Maturity Date to the Extended Maturity Date pursuant to Section 6.2, then the
Payment Percentage shall be increased as provided in Section 6.2; and provided
further, however, that, unless a Fundamental Change shall have occurred, if the
Company redeems all or any portion of this Note pursuant to Section 1.2 and the
Other Notes pursuant to the comparable provisions thereof, then the Payment
Percentage (as in effect immediately prior to such redemption) which shall be
applicable during the last 12 months of the Payment Period shall be reduced for
each such redemption by an amount determined as
RPP = PP x PR x D
-- ---
PO 365
where
RPP = amount of reduction in the Payment Percentage (as in effect
immediately prior to such redemption) by reason of such
redemption
PP = Payment Percentage which would be in effect without regard to
any reduction thereof at any time pursuant to this formula.
PR = the aggregate principal amount of this Note and the Other
Notes redeemed in such redemption
PO = the original aggregate principal amount of this Note and the
Other Notes
D = the number of calendar days during the period commencing on
and including the date the Company pays the full redemption
price of this Note and the Other Notes which is in connection
with such redemption and ending on and excluding the date
which is the third anniversary of the Issuance Date
"Payment Period" means the period which commences on the Issuance
Date and ends on the fifth anniversary of the Issuance Date; provided, however,
that if in accordance with Article VI the Company elects to extend the Maturity
Date to the Extended Maturity Date, effective
-32-
<PAGE>
on the date the Company gives notice of such extension to the Holder and the
holders of the Other Notes, the Payment Period shall be extended by one year
from the date the Payment Period would have ended as in effect immediately prior
to such extension of the Maturity Date.
"Payment Share Price" means the arithmetic average of the Market Price
of the Common Stock for all of the Trading Days during the 90 consecutive
Trading Days ending on (and including) the Trading Day which is three Trading
Days prior to the Maturity Date or the applicable Optional Redemption Date, as
the case may be.
"Payment Share Registration Statement" means the Registration
Statement required to be filed by the Company with the SEC pursuant to Section
8(a)(2) of the Note Purchase Agreement if the Company elects to make the Share
Principal Payment Option and the Holder consents to such election.
"Permitted Indebtedness" means
(1) Indebtedness outstanding on the Issuance Date; and
(2) Indebtedness incurred after the Issuance Date which is unsecured
and on a parity with or subordinated to this Note and the Other Notes.
"Person" means any natural person, corporation, partnership, limited
liability company, trust, incorporated organization, unincorporated association
or similar entity or any government, governmental agency or political
subdivision.
"Preferred Share Purchase Rights" means the Preferred Share Purchase
Rights issued or issuable pursuant to the Rights Agreement (or any similar
rights issued by the Company with respect to the Common Stock after the date of
this Agreement).
"Principal Payment Shares" means the shares of Common Stock and the
related Preferred Share Purchase Rights issuable in payment of a portion of the
principal amount of the Note in accordance with Section 1.4.
"Products" means all pharmaceutical compositions containing modafinil
or any compound based on or derived therefrom as an active ingredient, whether
alone or in combination with any other substance, which are developed, marketed
or sold by the Company or any Subsidiary or Affiliate of the Company, including,
without limitation, that pharmaceutical composition marketed by the Company on
the Issuance Date under the name Provigil(R).
"Registration Repurchase Event" means the occurrence of either of the
following events:
-33-
<PAGE>
(a) the Company fails to file the Registration Statement within the
45-day period provided in Section 8(a)(1) of the Note Purchase Agreement;
or
(b) the SEC Effective Date shall not have occurred on or before the
date which is 90 days after the Issuance Date.
"Registration Repurchase Price" means an amount in cash equal to the
sum of (1) 100% of the principal amount of this Note to be repurchased, plus (2)
accrued and unpaid interest on such principal amount to the date of such
repurchase, plus (3) accrued and unpaid Default Interest, if any, thereon at the
rate provided in this Note to the date of repurchase in accordance with Article
V.
"Registration Statement" means the Registration Statement required to
be filed by the Company with the SEC pursuant to Section 8(a)(1) of the Note
Purchase Agreement.
"Repurchase Event" means the occurrence of any one or more of the
following events:
(a) Any Fundamental Change; or
(b) The occurrence of any Event of Default specified in Article IV of
this Note; provided, however, that in the case of only an Event of Default
specified in clause (c), (g) or (h) of Section 4.1, such Event of Default
shall become a Repurchase Event only on and after the date which is 365
days after the occurrence of such Event of Default if any Event of Default
is continuing at such time.
"Repurchase Price" means with respect to any repurchase pursuant to
Sections 5.1 and 5.2 an amount in cash equal to the sum of (1) 101% of the
outstanding principal amount of this Note plus (2) accrued and unpaid interest
on such principal amount to the date of such repurchase plus (3) accrued and
unpaid Default Interest, if any, thereon at the rate provided in this Note to
the date of such repurchase.
"Rights Agreement" means the Amended and Restated Rights Agreement,
dated as of January 1, 1999, by and between the Company and Stocktrans, Inc., as
Rights Agent.
"SEC" means the Securities and Exchange Commission.
"SEC Effective Date" means the date the Registration Statement is
first declared effective by the SEC.
"Security Agreement" means the Security Agreement, dated as of March
1, 1999, by and between the Company and the Collateral Agent.
-34-
<PAGE>
"Share Interest Payment Option" shall have the meaning provided in
Section 1.1(a).
"Share Payment Threshold" means the product obtained by multiplying
(x) the volume-weighted average Trading Price (as reported by Bloomberg, L.P. in
its AQR function, or if such source or function ceases to be available, a
comparable source and function selected by the Majority Holders and acceptable
to the Company in its reasonable judgment) for all of the Trading Days during
the 90 consecutive Trading Days ending on (and including) the Trading Day that
is three Trading Days prior to the Maturity Date, times (y) the aggregate number
of shares of Common Stock traded during such 90 consecutive Trading Days, as
reported by Bloomberg, L.P. (or if such source ceases to be available, a
comparable source selected by the Majority Holders and acceptable to the Company
in its reasonable judgment), times (z) 0.05.
"Share Principal Payment Option" shall have the meaning provided in
Section 1.4(a).
"Significant Subsidiary" shall have the meaning provided in Regulation
S-X of the SEC, except that a Subsidiary shall not be a Significant Subsidiary
only if such Subsidiary, when consolidated for financial reporting purposes with
all other Subsidiaries which are not Significant Subsidiaries, would not
constitute a Significant Subsidiary.
"Subsidiary" means any corporation or other entity of which a majority
of the capital stock or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other Persons performing
similar functions are at the time directly or indirectly owned by the Company.
"Target Revenues" means for any period the amount set forth for such
period in EXHIBIT F attached hereto.
"Territory" means the United States, its territories and possessions.
"Trading Day" means a day on which either the national securities
exchange or Nasdaq which then constitutes the principal securities market for
the Common Stock is open for general trading of securities.
"Trading Price" for any trade of the Common Stock on any date means
the lowest sale price (regular way) for one share of Common Stock on such date
in such trade, on the first applicable among the following: (a) the national
securities exchange on which the Common Stock is listed which constitutes the
principal securities market for the Common Stock, (b) Nasdaq, (c) the Nasdaq
SmallCap Market or (d) such other market as at the time constitutes the
principal trading market for the Common Stock, in any such case as reported by
Bloomberg, L.P. (subject to equitable adjustment from time to time on terms
reasonably acceptable to the Majority Holders for (i) stock splits, (ii) stock
dividends, (iii) combinations, (iv) capital reorganizations, (v) issuance to all
-35-
<PAGE>
holders of Common Stock of rights or warrants to purchase Common Stock at a
price per share less than the Trading Price which would otherwise be applicable,
(vi) the distribution by the Company to all holders of Common Stock of evidences
of indebtedness of the Company or cash (other than regular quarterly cash
dividends), (vii) Tender Offers by the Company or any subsidiary of the Company
or other repurchases of Common Stock in one or more transactions which,
individually or in the aggregate, result in the purchase of more than 10% of the
Common Stock outstanding and (viii) similar events, in each such case relating
to the Common Stock and which occur on or after the Issuance Date).
"Transaction Documents" means this Note, the Note Purchase Agreement,
the Security Agreement, the Patent and Trademark Security Agreement, and the
Warrants.
"Transfer Agent" means Stocktrans, Inc., or its successor as transfer
agent and registrar for the Common Stock.
"Warrants" means Common Stock Purchase Warrants of the Company issued
to the original Holder of this Note pursuant to the Note Purchase Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 FAILURE OR INDULGENCY NOT WAIVER. No failure or delay on the
--------------------------------
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privileges. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
9.2 NOTICES. Except as otherwise specifically provided herein, any
-------
notice herein required or permitted to be given shall be in writing and may be
personally served, sent by telephone line facsimile transmission or delivered by
courier or sent by United States mail and shall be deemed to have been given
upon receipt if personally served, sent by telephone line facsimile transmission
or sent by courier or three days after being deposited in the facilities of the
United States Postal Service, certified, with postage pre-paid and properly
addressed, if sent by mail. For the purposes hereof, the address and facsimile
line transmission number of the Holder shall be as furnished by the Holder for
such purpose and shown on the records of the Company; and the address of the
Company shall be 145 Brandywine Parkway, West Chester, Pennsylvania 19380,
Attention: Chief Financial Officer (telephone line facsimile transmission
number (610) 344-7563). The Holder or the Company may change its address for
notice by service of written notice to the other as herein provided.
-36-
<PAGE>
9.3 AMENDMENT, WAIVER, ETC. Neither this Note or any Other Note nor
----------------------
any terms hereof or thereof may be changed, waived, discharged or terminated
unless such change, waiver, discharge or termination is in writing signed by the
Company and the Majority Holders, provided that no such change, waiver,
discharge or termination shall, without the consent of the Holder and the
holders of the Other Notes affected thereby (i) extend the scheduled final
maturity of this Note or any Other Note, or reduce the rate or extend the time
of payment of interest (other than as a result of waiving the applicability of
any post-default increase in interest rates) hereon or thereon or reduce the
principal amount hereof or thereof or the Optional Redemption Price, the
Repurchase Price or the Registration Repurchase Price, (ii) release the
collateral or reduce the amount of collateral required to be deposited or
maintained by the Company pursuant to the Security Agreement or the Patent and
Trademark Security Agreement, except as expressly provided in the respective
agreement, (iii) amend, modify or waive any provision of Article II, (iv) amend,
modify or waive any provision of this Section 9.3, (v) reduce any percentage
specified in, or otherwise modify, the definition of Majority Holders or (vi)
except as provided in this Note, change the method of calculating the Payment
Share Price, the Interest Share Price or the Optional Redemption Price in a
manner adverse to the Holder.
9.4 ASSIGNABILITY. This Note shall be binding upon the Company and
-------------
its successors, and shall inure to the benefit of and be binding upon the Holder
and its successors and permitted assigns. The Company may not assign its rights
or obligations under this Note.
9.5 CERTAIN EXPENSES. The Company shall pay on demand all expenses
----------------
incurred by the Holder, including reasonable attorneys' fees and expenses, as a
consequence of, or in connection with (x) any amendment or waiver of this Note
or any other Transaction Document, (y) any default or breach of any of the
Company's obligations set forth in the Transaction Documents and (z) the
enforcement or restructuring of any right of, including the collection of any
payments due, the Holder under the Transaction Documents, including any action
or proceeding relating to such enforcement or any order, injunction or other
process seeking to restrain the Company from paying any amount due the Holder.
9.6 GOVERNING LAW. This Note shall be governed by the internal laws
-------------
of the State of New York, without regard to the principles of conflict of laws.
9.7 TRANSFER OF NOTE AND NOTEHOLDER PAYMENT AMOUNT. This Note has
----------------------------------------------
not been and is not being registered under the provisions of the 1933 Act or any
state securities laws and this Note may not be transferred unless the Holder
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that
this Note may be sold or transferred without registration under the 1933 Act.
Prior to any such transfer, such transferee shall have represented in writing to
the Company that such transferee has requested and received from the Company all
information relating to the business, properties, operations, condition
(financial or other), results of operations or prospects of the Company and the
Subsidiaries deemed relevant by such transferee; that such transferee has been
afforded the opportunity to ask questions of the Company concerning the
foregoing and has had the opportunity
-37-
<PAGE>
to obtain and review the reports and other information concerning the Company
which at the time of such transfer have been filed by the Company with the SEC
pursuant to the 1934 Act. If such transfer is intended to assign the rights and
obligations under 5(a), 5(b), 8, 9 and 10 of the Note Purchase Agreement, such
transfer shall otherwise be made in compliance with Article V of the Note
Purchase Agreement. The Holder may not transfer a portion of this Note to any
Person if such transfer would result in an increase in the aggregate number of
registered holders of this Note and the Other Notes of more than one such holder
without the prior written consent of the Company, which consent will not be
unreasonably withheld. Any instrument issued upon any such transfer of a portion
of this Note which results in such increase of one holder shall bear a legend
that the holder thereof shall not be entitled to transfer such instrument in a
manner which would further increase the aggregate number of registered holders
of this Note and the Other Notes without the prior written consent of the
Company, which consent shall not be unreasonably withheld. The Holder shall have
the right to transfer all or any part of its rights under Article II of this
Note separate from its rights under the other provisions of this Note only with
the prior written consent of the Company, which consent will not be unreasonably
withheld.
9.8 ENFORCEABLE OBLIGATION. The Company represents and warrants that
-----------------------
at the time of the original issuance of this Note it received the full purchase
price payable pursuant to the Note Purchase Agreement in an amount at least
equal to the original principal amount of this Note, and that this Note is an
enforceable obligation of the Company which is not subject to any offset,
reduction, counterclaim or disallowance of any sort.
9.9 NOTE REGISTER; REPLACEMENT OF NOTES. The Company shall maintain
-----------------------------------
a register showing the names, addresses and telephone line facsimile numbers of
the Holder and the registered holders of the Other Notes. The Company shall
also maintain a facility for the registration of transfers of this Note and the
Other Notes and at which this Note and the Other Notes may be surrendered for
split up into instruments of smaller denominations or for combination into
instruments of larger denominations. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Note and (a) in the case of loss, theft or
destruction, of indemnity from the Holder reasonably satisfactory in form to the
Company (and without the requirement to post any bond or other security) or (b)
in the case of mutilation, upon surrender and cancellation of this Note, the
Company will execute and deliver to the Holder a new Note of like tenor without
charge to the Holder.
9.10 PAYMENT OF NOTE ON REDEMPTION OR REPURCHASE; DEPOSIT OF
-------------------------------------------------------
REDEMPTION PRICE OR REPURCHASE PRICE, ETC. (a) If this Note or any portion of
- -----------------------------------------
this Note is to be redeemed as provided in Section 1.2 or repurchased as
provided in Sections 5.1 and 5.2 or Section 5.3 and any notice required in
connection therewith shall have been given as provided therein and the Company
shall have otherwise complied with the requirements of this Note with respect
thereto, then this Note or the portion of this Note to be so redeemed or
repurchased and with respect to which any such notice has been given shall
become due and payable on the date stated in such notice at the applicable
Optional Redemption Price, Repurchase Price or Registration Repurchase Price.
On and after the Optional Redemption Date or repurchase date so stated in such
notice, provided that the
-38-
<PAGE>
Company shall have deposited with an Eligible Bank on or prior to such Optional
Redemption Date or repurchase date, an amount sufficient to pay the applicable
Optional Redemption Price, Repurchase Price or Registration Repurchase Price,
interest on this Note or the portion of this Note to be so redeemed or
repurchased shall cease to accrue, and this Note or such portion hereof shall be
deemed not to be outstanding and shall not be entitled to any benefit with
respect to principal of or interest on the portion to be so redeemed or
repurchased except to receive payment of the applicable Optional Redemption
Price, Repurchase Price or Registration Repurchase Price. On presentation and
surrender of this Note or such portion hereof, this Note or the specified
portion hereof shall be paid and redeemed or repurchased at the applicable
Optional Redemption Price, Repurchase Price or Registration Repurchase Price. If
a portion of this Note is to be redeemed or repurchased, upon surrender of this
Note to the Company in accordance with the terms hereof, the Company shall
execute and deliver to the Holder without service charge, a new Note or Notes,
having the same date hereof and containing identical terms and conditions, in
such denomination or denominations as requested by the Holder in aggregate
principal amount equal to, and in exchange for, the unredeemed or unrepurchased
portion of the principal amount of this Note so surrendered.
(b) Upon the payment in full of all amounts payable by the Company
under this Note and the Other Notes (other than amounts payable pursuant to
Article II hereof and thereof which are not yet due) or the deposit thereof as
provided in Section 9.10(a) and the like provisions of the Other Notes,
thereafter the obligations of the Company under this Note shall be as set forth
in Article II, Sections 3.10, 3.11, this Article IX, and, in the case of such
deposit, to pay the Optional Redemption Price, Repurchase Price or Registration
Repurchase Price, as the case may be, from the funds so deposited. Upon such
payment or deposit, any Event of Default which occurred prior to such payment or
deposit by reason of one or more provisions of this Note with which the Company
thereafter is no longer obligated to comply, then such Event of Default shall no
longer exist.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-39-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed in
its name by its duly authorized officer as of the day and in the year first
above written.
CEPHALON, INC.
By:
Name:
Title:
-40-
<PAGE>
EXHIBIT A
---------
OPTIONAL REDEMPTION NOTICE
(SECTION 1.2 OF 11% REVENUE SHARING SENIOR SECURED NOTE DUE 2002)
TO: ___________________________
(Name of Holder)
(1) Pursuant to the terms of the 11% Revenue Sharing Senior Secured
Note due 2002 (the "Note"), Cephalon, Inc., a Delaware corporation (the
"Company"), hereby notifies the above-named Holder that the Company is
exercising its right to redeem the Note in accordance with Section 1.2 of the
Note as set forth below:
(i) The principal amount of the Note to be redeemed is
$_____________.
(ii) The Optional Redemption Price is $_______________.
(iii) The Optional Redemption Date is ______________.
(2) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Note.
Date _________________________ CEPHALON, INC.
By:
Title:
A-41
<PAGE>
EXHIBIT B
---------
FORM OF OPINION OF COUNSEL TO BE
DELIVERED IN CONNECTION WITH ISSUANCE
OF PRINCIPAL PAYMENT SHARES
[Letterhead of Counsel]
_______________, 200_____
To The Holders Listed on Schedule A hereto
Re: Cephalon, Inc.
--------------
Ladies and Gentlemen:
We have acted as counsel to Cephalon, Inc., a Delaware corporation (the
"Company"), in connection with the issuance by the Company of
____________________________ Principal Payment Shares in accordance with the
terms of the Company's 11% Revenue Sharing Senior Secured Notes due 2002 in the
original aggregate principal amount of $30,000,000 (the "Notes"), which Notes
were issued pursuant to the several Note Purchase Agreements, dated as of
February __, 1999 (the "Note Purchase Agreements"), by and between the Company
and the Buyers parties thereto (the "Buyers"). All capitalized terms used
herein without definition are used herein with the respective meanings ascribed
to them in the Notes or, if not defined in the Notes, in the Note Purchase
Agreements. This opinion is being delivered to you pursuant to Section
1.4(d)[(1)(B) OR (2)(B)] of the Notes. In connection with this opinion letter,
we have relied upon the representations and warranties of the Company set forth
in the Note Purchase Agreements and the Notes (the "Principal Documents").
As to various questions of fact material to our opinion, we have also relied
upon certificates of officers and representatives of the Company and upon
certificates of public officials. We have made no independent review or
investigation of any nature as to such representations and warranties, the
matters set forth in the certificates or the assumptions set forth below upon
which we are relying, and no inference of any knowledge on the part of this Firm
as to these legal or factual matters should be drawn from our representation of
the Company in connection with the Principal Documents or otherwise.
We have also assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with originals of all
documents submitted to us as copies. We have also assumed that the Principal
Documents have each been duly authorized,
B-42
<PAGE>
executed and delivered by all parties thereto other than the Company and that
all such other parties have full power, authority and legal right to execute,
deliver and perform their obligations under the Principal Documents, and that
such Principal Documents are valid, binding and enforceable in accordance with
their respective terms against such other parties.
Based on the foregoing, and subject to the qualifications and limitations set
forth below, we are of the opinion that the Principal Payment Shares are duly
authorized and will be, upon issuance and delivery in accordance with the terms
of the Notes, validly issued, fully paid and nonassessable. Upon issuance, each
Principal Payment Share will have attached thereto a Preferred Share Purchase
Right pursuant to the terms of the Company's Rights Plan if and as then in
effect. We express no opinion as to the validity of the Rights Plan or the
Preferred Share Purchase Rights. None of the Principal Payment Shares are
subject to preemptive rights pursuant to the Certificate of Incorporation or the
Delaware General Corporation Law (the "DGCL") or, to our knowledge, other
similar rights of the stockholders of the Company.
The foregoing opinions and comments are subject to the following additional
qualifications:
(a) Wherever we have stated herein that we have assumed a matter, it
is intended to indicate that we have assumed such matter without making any
independent legal or factual review or investigation of any nature to determine
the accuracy of such assumption, and without expressing any opinion or
conclusion of any kind concerning the matter, and no inference as to our
knowledge of any legal or factual matters bearing on the accuracy of any such
assumption should be drawn from the fact of our current or prior representation
of the Company.
(b) We express no opinion with respect to the laws of any jurisdiction
other than the federal laws of the United States of America, the laws of the
Commonwealth of Pennsylvania and the State of New York and the DGCL. We express
no opinion with respect to any federal or state laws relating to tax and
antitrust matters. We express no opinion as to compliance with applicable anti-
fraud statutes, rules or regulations of any applicable jurisdiction governing
the issuance of securities.
(c) The opinions expressed above are subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
(including without limitation preference rules) affecting the rights of
creditors generally and to general principles of equity (regardless of whether
considered in a proceeding in equity or at law).
(d) [IF OPINION GIVEN PURSUANT TO SECTION 1.4(D)(2)(B) OF NOTE: For
purposes of this opinion, we have assumed that the formulas contained in the
Notes to calculate the Optional Redemption Price represent stipulated damages
that are not plainly disproportionate to the possible loss to the holders of the
Notes and, therefore, are not "penalties" as a matter of law. We express no
opinion as to whether the issuance of the Principal Payment Shares may be
determined to be interest payable with respect to the Notes, or as to the effect
of any laws of any
B-43
<PAGE>
jurisdiction restricting the interest that may be charged upon debt obligations,
and our opinion set forth above assumes that such laws do not adversely affect
any determination that the Principal Payment Shares are fully paid and non-
assessable.]
(e) The foregoing opinion and comments are as of the date hereof, and
we assume no obligation to update or supplement them to reflect any facts or
circumstances which may hereafter come to our attention or any changes in laws
which may hereafter occur.
This opinion letter is solely for the benefit of the Holders for use in
connection with the transactions contemplated by the Notes and may not be relied
upon by any other person or for any other purpose without our express written
consent.
Very truly yours,
B-44
<PAGE>
Schedule A
Holders of Notes
----------------
B-45
<PAGE>
EXHIBIT C
---------
COMPANY NOTICE
(SECTION 5.2(A) OF 11% REVENUE SHARING SENIOR SECURED NOTE DUE 2002)
TO: ___________________________
(Name of Holder)
(1) A Repurchase Event described in the 11% Revenue Sharing Senior
Secured Note due 2002 (the "Note") of Cephalon, Inc., a Delaware corporation
(the "Company"), occurred on ____________________, ______. As a result of such
Repurchase Event, the Holder is entitled to exercise its repurchase rights
pursuant to Section 5.2 of the Note.
(2) The Holder's repurchase right must be exercised on or before
______________, _______.
(3) At or before the date set forth in the preceding paragraph (2),
the Holder must:
(a) deliver to the Company a Holder Notice, in the form attached
as EXHIBIT D to the Note; and
(b) the Note, duly endorsed for transfer to the Company of the
portion of the principal amount to be repurchased.
(4) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Note.
Date _________________________ CEPHALON, INC.
By:
Title:
C-46
<PAGE>
EXHIBIT D
---------
HOLDER NOTICE
(SECTION 5.2(B) OF 11% REVENUE SHARING SENIOR SECURED NOTE DUE 2002)
TO: CEPHALON, INC.
(1) Pursuant to the terms of the 11% Revenue Sharing Senior Secured
Note due 2002 (the "Note"), the undersigned Holder hereby elects to exercise its
right to require repurchase by the Company pursuant to Sections 5.2(a) and
5.2(b) of $_________________________ of the Note, equal to the sum of
$____________________ principal amount of the Note, $____________________ of
accrued and unpaid interest on such principal amount and $____________________
of Default Interest on such interest at the Repurchase Price provided in the
Note.
(2) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Note.
Date: NAME OF HOLDER:
By
Signature of Registered Holder
(Must be signed exactly as name
appears in the Note.)
D-47
<PAGE>
EXHIBIT E
---------
HOLDER REGISTRATION REPURCHASE NOTICE
(SECTION 5.3 OF 11% REVENUE SHARING SENIOR SECURED NOTE DUE 2002)
TO: CEPHALON, INC.
(1) Pursuant to the terms of the 11% Revenue Sharing Senior Secured
Note due 2002 (the "Note"), the undersigned Holder hereby elects to exercise its
right to require repurchase by the Company pursuant to Section 5.3 of
$____________________ of the Note, equal to the sum of $____________________
principal amount of the Note, $____________________ of accrued and unpaid
interest on such principal amount and $____________________ of Default Interest
on such interest at the Registration Repurchase Price provided in the Note.
(2) Capitalized terms used herein and not otherwise defined herein
have the respective meanings provided in the Note.
Date: NAME OF HOLDER:
By _________________________________
Signature of Registered Holder
(Must be signed exactly as name
appears in the Note.)
E-48
<PAGE>
EXHIBIT F
---------
TARGET REVENUES
Period 3 Months 12 Months
Ended Ended Ended
----- ----------- -----------
[
] *
* THE CONFIDENTIAL MATERIAL CONTAINED HEREIN HAS BEEN OMITTTED AND FILED
SEPARATELY WITH THE COMMISSION
F-49
<PAGE>
EXHIBIT 4.3(C)
HOLDERS OF SERIES A WARRANTS DATED MARCH 1, 1999
<TABLE>
<CAPTION>
Registered Holder Number of Shares of
- ----------------- Common Stock
------------
<S> <C>
Delta Opportunity Fund, Ltd. 348,000
Delta Opportunity Fund (Institutional), LLC 32,000
DLJ Capital Corp. 2,128
DLJ ESC II, L.P. 21,442
The Kaufmann Fund, Inc. 480,000
Sprout Capital VIII, L.P. 245,492
Sprout Growth II, L.P. 196,208
Sprout Venture Capital, L.P. 14,730
</TABLE>
ANNEX II
TO
NOTE PURCHASE
AGREEMENT
NEITHER THIS WARRANT NOR ISSUANCE OF THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF TO THE HOLDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS
WARRANT NOR SUCH SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES
ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE
RULES AND REGULATIONS THEREUNDER.
THIS WARRANT MAY NOT BE TRANSFERRED, DIVIDED, COMBINED OR EXCHANGED, EXCEPT AS
DESCRIBED IN SECTION 5 HEREIN.
CEPHALON, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
--------------------------------------------------
Name of Registered Holder: _________________________
No. ____ ___________ Shares of Common Stock
For good and valuable consideration the receipt of which is hereby
acknowledged, Cephalon, Inc., a Delaware corporation (the "Company"), hereby
grants the rights herein specified and certifies that ____________________ (the
"Initial Holder") (or any registered assignee of the Initial Holder) (each of
the Initial Holder and any such registered assignee being hereinafter referred
to as the "Holder"), is entitled, subject to the conditions and upon the terms
of this Warrant, to purchase from the Company, at any time or from time to time
during the Exercise Period (as defined in Section 1 hereof), the number of
shares of Common Stock (as defined in Section 1 hereof) set forth above at the
Exercise Price (as defined in Section 1 hereof). The number of shares of Common
Stock to be received upon the exercise of this Warrant and the Exercise Price
are subject to adjustment from time to time as hereinafter set forth.
Section 1. Certain Definitions. Terms defined in the preceding paragraph
-------------------
and elsewhere in this Warrant have the respective meanings provided for therein.
The following additional terms, as used herein, have the following respective
meanings:
-1-
<PAGE>
"Act" means the Securities Act of 1933, as amended.
"Applicable Portion" means the lesser of (x) the unexercised portion of
this Warrant that is outstanding on the applicable date of redemption pursuant
to Section 9 and (y) the portion of this Warrant which entitles the Holder to
purchase a number of shares of Common Stock (or other securities deliverable
hereunder) equal to twenty-five percent (25%) of the aggregate number of Warrant
Shares subject to this Warrant, determined without regard to any prior exercise
hereof; provided, however, that if in connection with a redemption of this
-------- -------
Warrant the Average Market Price shall be greater than two hundred fifty percent
(250%) of the Exercise Price as in effect during the period of twenty (20)
consecutive Trading Days during which the Average Market Price is determined,
then the Applicable Portion determined pursuant to this clause (y) shall be the
portion of this Warrant which entitles the Holder to purchase a number of shares
of Common Stock (or other securities deliverable hereunder) equal to fifty
percent (50%) of the aggregate number of Warrant Shares subject to this Warrant,
determined without regard to any prior exercise hereof less the portion, if any,
of this Warrant which has previously been called for redemption in accordance
with Section 9.
"Average Market Price" means the arithmetic average of the Closing Price
during any period of twenty (20) consecutive Trading Days during the ninety-day
period which commences on the date which is 1,000 days after the Issuance Date
and ends on and includes the date which is 1,089 days after the Issuance Date.
"Class A Warrants" means this Warrant and the Other Warrants of like tenor
issued by the Company in connection with the issuance of the Notes.
"Class B Warrants" means the Class B Common Stock Purchase Warrants issued
by the Company in connection with the issuance of the Notes.
"Closing Price" means on any date the last reported sale price (regular
way), or if there are no sales of Common Stock on such date, the closing bid
price, per share of the Common Stock on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or traded on any such exchange, on the Nasdaq National Market, or if not
listed or traded on any such exchange or system, the average of the bid and
asked price per share on the Nasdaq Stock Market in each such case, as reported
by such exchange or market or, if such quotations are not available, the fair
market value as reasonably determined by the Board of Directors of the Company
or any committee of such Board.
"Common Stock" means the Company's Common Stock, $.01 par value, and the
related Preferred Share Purchase Rights as authorized on the date hereof, and
any other securities into which or for which the Common Stock or such Preferred
Share Purchase Rights may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise or any
similar rights distributed by the Company to the holders of the Common Stock.
"Early Redemption Option" means the right of the Company to redeem the
Notes Pursuant to Section 1.2 thereof.
-2-
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Period" means the period beginning on the date hereof, and ending
on March 1, 2004.
"Exercise Price" means $10.08 subject to change or adjustment pursuant to
Section 8 hereof.
"Issuance Date" means March 1, 1999.
"Nasdaq" means the Nasdaq Stock Market.
"Nasdaq National Market" means the Nasdaq National Market of Nasdaq.
"Notes" means the 11% Revenue Sharing Senior Secured Notes of the Company.
"Other Securities" means any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
Holder of this Warrant at any time shall be entitled to receive, or shall have
received, on the exercise of this Warrant, in lieu of or in addition to the
Warrant Shares, or which at any time shall be issuable or shall have been issued
in exchange for or in replacement of the Warrant Shares or Other Securities
pursuant to Section 8.
"Other Warrants" means the other Class A Warrants for the Purchase of
Shares of Common Stock issued by the Company in connection with the issuance of
the Notes.
"Permitted Transfer" means (a) any transfer, assignment or succession by
operation of law or pursuant to any court order issued by a court of competent
jurisdiction, (b) any transfer to an immediate family member, (c) any transfer
through probate or through intestate succession, (d) in the case of a transfer
by a corporation, partnership, or trust, any transfer to any person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the transferor, (e) any
distribution by a retirement plan to any participant in the plan (f) any
transfer or assignment by the Initial Holder to its employee, or (g) any
transfer or assignment to a person who is an "accredited investor," as defined
in Regulation D under the Securities Act.
"Redemption Date" has the meaning provided in Section 9(b).
"Redemption Price" has the meaning provided in Section 9(a).
"Redemption Target Price" means an amount equal to two hundred percent
(200%) of the Exercise Price as in effect during the period of twenty (20)
consecutive Trading Days during which the Average Market Price is determined.
-3-
<PAGE>
"Reorganization Event" means the occurrence of any one or more of the
following events:
(i) any consolidation, merger or similar transaction of the Company or
any Subsidiary with or into another entity (other than a merger or consolidation
or similar transaction of a Subsidiary into the Company or a wholly-owned
Subsidiary) where the stockholders of the Company immediately prior to such
transaction do not collectively own at least 51% of the outstanding voting
securities of the surviving corporation of such consolidation or merger
immediately following such transaction; or the sale of all or substantially all
of the assets of the Company and the Subsidiaries in a sale transaction or a
series of related transactions; or
(ii) the occurrence of any transaction or event in connection with which
all or substantially all the Common Stock shall be exchanged for, converted
into, acquired for or constitute the right to receive consideration (whether by
means of an exchange offer, liquidation, tender offer, consolidation, merger,
share exchange, combination, reclassification, recapitalization, or otherwise)
which is not all or substantially all common stock which is (or will, upon
consummation of or immediately following such transaction or event, be) listed
on a national securities exchange or approved for quotation on Nasdaq or any
similar United States system of automated dissemination of transaction reporting
of securities prices; or
(iii) the acquisition by a person or entity or group of persons or entities
acting in concert as a partnership, limited partnership, syndicate or group, as
a result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, of beneficial ownership of securities of the
Company representing 50% or more of the combined voting power of the outstanding
voting securities of the Company ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Exchange Act of 1934, as amended.
"Subsidiary" means any corporation or other entity of which a majority of
the capital stock or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Company.
"Trading Day" means a day on which either the national securities exchange
or the Nasdaq National Market which then constitutes the principal securities
market for the Common Stock (or other securities deliverable hereunder) is open
for general trading of securities.
"Warrant" means this Warrant and any Warrant or Warrants which may be
issued pursuant to Section 4 or 5 hereof in substitution or exchange for or upon
transfer of this Warrant, any Warrant which may be issued pursuant to Section 2
hereof upon partial exercise of this Warrant and any Warrant which may be issued
pursuant to Section 6 hereof upon the loss, theft, destruction or mutilation of
this Warrant.
-4-
<PAGE>
"Warrant Register" means the register maintained at the principal office of
the Company, or at the office of its agent, in which the name of the Holder of
this Warrant shall be registered.
"Warrant Shares" means the shares of Common Stock, as adjusted from time to
time in accordance with Section 8 hereof, deliverable upon exercise of this
Warrant.
Section 2. Exercise of Warrant. This Warrant may be exercised, in whole
-------------------
or in part, at any time or from time to time during the Exercise Period, by
presentation and surrender hereof to the Company at its principal office at the
address set forth on the signature page hereof (or at such other address of the
Company or any agent appointed by the Company to act hereunder as the Company or
such agent may hereafter designate in writing to the Holder), with the purchase
form attached hereto as ANNEX I (the "Purchase Form") duly executed and
accompanied by cash or a certified or official bank check drawn to the order of
"CEPHALON, INC." (or its successor in interest, if any) in the amount of the
Exercise Price, multiplied by the number of Warrant Shares specified in such
Purchase Form. If this Warrant should be exercised in part only, the Company or
its agent shall, upon surrender of this Warrant, execute and deliver a Warrant
evidencing the right of the Holder thereof to purchase the balance of the
Warrant Shares purchasable hereunder. Upon receipt by the Company during the
Exercise Period of this Warrant and such Purchase Form in proper form for
exercise, together with proper payment of the Exercise Price at its principal
office, or by its agent at its office, the Holder shall be deemed to be the
holder of record of the number of Warrant Shares specified in such Purchase
Form; provided, however, that if the date of such receipt by the Company or its
-------- -------
agent is a date on which the stock transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such Warrant
Shares on the next business day on which the stock transfer books of the Company
are open. The Company shall pay any and all documentary, stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of such Warrant
Shares. Any Warrant issued upon partial exercise of this Warrant pursuant to
this Section 2 shall be dated the date of this Warrant.
Section 3. Reservation of Shares. The Company agrees that at all times it
---------------------
will keep reserved solely for issuance and delivery pursuant to this Warrant the
number of shares of its Common Stock (or other securities) that are or would be
issuable from time to time upon exercise of this Warrant. All such shares shall
be duly authorized and, when issued upon such exercise, shall be validly issued,
fully paid and nonassessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free of all
preemptive rights. Before taking any action that would cause an adjustment
pursuant to Section 8 hereof reducing the Exercise Price below the then par
value (if any) of the Warrant Shares issuable upon exercise of this Warrant, the
Company will take any corporate action that may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares at the Exercise Price as so adjusted.
Section 4. Transfer in Compliance with Applicable Securities Laws.
------------------------------------------------------
(a) Neither this Warrant nor any of the Warrant Shares, nor any
interest in either, may be sold, assigned, pledged, hypothecated, encumbered or
in any other manner
-5-
<PAGE>
transferred or disposed of, in whole or in part, except in accordance with
Section 5 hereof and in compliance with applicable United States federal and
state securities laws and the terms and conditions hereof. Except as provided in
subsection (b) of this Section 4, each Warrant shall bear the following legend:
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED OR
REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT
NOR SUCH SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
SECURITIES ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
THE APPLICABLE RULES AND REGULATIONS THEREUNDER.
(b) If (i) the Warrant Shares have been registered under the
Act and registered or qualified under applicable state securities or Blue Sky
laws or (ii) the Holder has received an opinion of counsel reasonably
satisfactory to the Company that the Warrant Shares may be freely transferred
without registration under the Act or registration or qualification under
applicable state securities or Blue Sky laws, the Holder may require the Company
to issue, in substitution for a Warrant with the foregoing legend, a Warrant
with the following legend:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
SECURITIES ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
THE APPLICABLE RULES AND REGULATIONS THEREUNDER.
(c) The Holder may require the Company to issue a Warrant
without either of the foregoing legends in substitution for a Warrant bearing
one of such legends if either (i) this Warrant and the Warrant Shares issuable
upon the exercise hereof have been registered under the Act and registered or
qualified under applicable state securities laws or (ii) the Holder has received
an opinion of counsel reasonably satisfactory to the Company that this Warrant
and the Warrant Shares may be freely transferred without registration under the
Act or registration or qualification under applicable state securities laws. The
provisions of this Section 4 shall be binding on all subsequent holders of this
Warrant.
Section 5. Exchange, Transfer or Assignment of Warrant.
-------------------------------------------
(a) This Warrant may be, at the option of the Holder, upon
presentation and surrender hereof to the Company at its principal office or to
the Company's agent at its office, (i) exchanged for other Warrants of different
denominations, registered in the name of the Holder, entitling the Holder to
purchase in the aggregate the same number of Warrant Shares at the Exercise
Price or, (ii) if delivered together with a written notice signed by the Holder
specifying the
-6-
<PAGE>
denominations in which new Warrants are to be issued, divided or combined with
other Warrants registered in the name of the Holder that carry the same rights.
(b) If the Holder has received an opinion of counsel
satisfactory to the Company that this Warrant may be sold or transferred without
registration under the Act, as contemplated by Section 4 hereof, (x) this
Warrant may be transferred and assigned, subject to subparagraph (y) of this
Section 5(b), at the option of the Holder, upon surrender of this Warrant to the
Company at its principal office or to the Company's agent at its office, with
the warrant assignment form attached hereto as ANNEX II (the "Warrant Assignment
Form") duly executed and accompanied by funds sufficient to pay any transfer
tax, except that (y) no transfer or assignment of this Warrant may be made
unless (i) such transfer or assignment is a Permitted Transfer or (ii) the
Company consents in writing to such transfer or assignment, which consent may be
withheld in its absolute discretion. The Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees named in such
Warrant Assignment Form.
(c) Any transfer or exchange of this Warrant shall be without
charge to the Holder and any Warrant or Warrants issued pursuant to this Section
5 shall be dated the date hereof.
(d) The Holder shall not be entitled to transfer a portion of
this Warrant with respect to the purchase of a number of Warrant Shares that is
less than 10,000 without the prior written consent of the Company.
(e) In order to give effect to Section 9, if this Warrant shall
be exercised in part, then (1) any Warrant issued to the Holder to evidence the
unexercised portion of this Warrant shall bear a notation of the original number
of Warrant Shares subject to this Warrant and (2) in connection with any split-
up of this Warrant into two or more instruments, each such instrument shall bear
a notation of a portion of the original number of Warrant Shares subject to this
Warrant, determined by pro rata allocation thereto of the aggregate original
such amount based on the portion of the unexercised amount of this Warrant
(determined immediately prior to such split-up) evidenced by such instrument.
Section 6. Lost, Mutilated or Missing Warrant. Upon receipt by the
----------------------------------
Company or its agent of evidence satisfactory to it of the loss, theft or
destruction of this Warrant, and of satisfactory indemnification, and upon
surrender and cancellation of this Warrant if mutilated, the Company or its
agent shall execute and deliver a Warrant of like tenor and date in exchange for
this Warrant.
Section 7. Rights of the Holder. The Holder shall not, by virtue hereof,
--------------------
be entitled to any rights of a shareholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Warrant.
Section 8. Anti-dilution. (a) If the Company shall fix or have fixed a
-------------
record date at any time after the date hereof and before the expiration of the
Exercise Period for:
-7-
<PAGE>
(i) The declaration of a dividend or distribution on the
Common Stock (or other securities deliverable hereunder) payable in shares
of capital stock (whether shares of Common Stock or of capital stock of any
other class), (A) the subdivision of shares of the Common Stock into a
greater number of shares, (B) the combination of the Common Stock into a
smaller number of shares or (C) the issuance of any shares of its capital
stock by reclassification of the Common Stock in connection with a
consolidation or merger with a subsidiary of the Company in which the
Company is the continuing corporation, then, in any such event, upon
exercise of this Warrant the Holder shall be entitled to receive the
aggregate number and kind of shares which, if the Warrant had been
exercised immediately prior to such record date, the Holder would have been
entitled to receive by virtue of such dividend, distribution, subdivision,
combination or reclassification, and the Exercise Price shall be
appropriately adjusted. Such adjustment shall be made successively whenever
any event listed above shall occur.
(ii) Issuance at Less than Current Market Price. The issuance
------------------------------------------
of rights, options or warrants to all holders of Common Stock (or other
securities deliverable hereunder) entitling them to subscribe for or
purchase Common Stock (or other securities deliverable hereunder) at a
price per share or having a conversion or exercise price per share
(including the amount paid, if any, for such rights, options or warrants)
less than the Closing Price on such record date (excluding rights or
warrants that are not immediately exercisable and for which provision is
made for the Holder to receive comparable rights or warrants upon
exercise), then the number of Warrant Shares to be received hereunder after
such record date shall be determined by multiplying the number of shares
receivable hereunder immediately prior to such record date by a fraction,
the denominator of which shall be the number of shares of Common Stock (or
other securities deliverable hereunder) outstanding on such record date
plus the number of shares of Common Stock (or other securities deliverable
hereunder) that the aggregate offering price of the total number of shares
so offered for subscription or purchase would purchase at such Closing
Price, and the numerator of which shall be the number of shares of Common
Stock (or other securities deliverable hereunder) outstanding on such
record date plus the number of additional shares of Common Stock (or other
securities deliverable hereunder) offered for subscription or purchase, and
the Exercise Price shall be appropriately adjusted so that the aggregate
purchase price of the Warrant Shares to be received hereunder after such
record date is equal to the aggregate purchase price of the Warrant Shares
receivable hereunder immediately prior to such record date. Shares of
Common Stock owned by or held for the account of the Company or any
subsidiary of the Company on such record date shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall
become effective immediately after such record date. Such adjustment shall
be made successively whenever any such event shall occur. If such rights,
options or warrants are not so issued, the number of Warrant Shares
receivable hereunder shall again be adjusted to be the number that would
have been in effect had such record date not been fixed. On the expiration
of such rights, options or warrants the number of Warrant Shares receivable
hereunder shall be readjusted to be the number that would have obtained had
the adjustment made upon the issuance of such rights, options or warrants
been made upon the basis of the issuance of only the number of shares of
Common Stock (or other securities deliverable hereunder) actually issued
upon the exercise of such rights, options
-8-
<PAGE>
or warrants, provided, however, that if the Holder of this Warrant shall
-------- -------
have exercised this Warrant prior to any such readjustment, the number of
Warrant Shares that have been delivered or the number of Warrant Shares to
be delivered shall not be subject to any readjustment. In any case in which
this subsection (ii) shall require that an adjustment in the number of
shares receivable hereunder or the Exercise Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event issuing to the Holder of any Warrant exercised
after such record date the number of Warrant Shares, if any, issuable upon
such exercise over and above the number of Warrant Shares, if any, issuable
upon such exercise on the basis of the Exercise Price in effect prior to
such adjustment; provided, however, that the Company shall deliver to such
-------- -------
Holder a due bill or other appropriate instrument evidencing such Holder's
right to receive such additional Warrant Shares upon the occurrence of the
event requiring such adjustments.
(iii) Distribution of Subscription Rights, Warrants, Evidences
--------------------------------------------------------
of Indebtedness or Assets. The making of a distribution to all holders of
-------------------------
Common Stock (or other securities deliverable hereunder) (including any
such distribution to be made in connection with a consolidation or merger
in which the Company is to be the continuing corporation) of (A) any shares
of capital stock of the Company (other than Common Stock), (B) subscription
rights or warrants (excluding those for which adjustment is provided in
subsection 8(a)(ii) above and excluding those that are not immediately
exercisable and for which provision is made for the Holder to receive
comparable subscription rights or warrants upon exercise) or (C) evidences
of its indebtedness or assets (excluding (x) dividends paid in or
distributions of the Company's capital stock for which the number of
Warrant Shares receivable hereunder shall have been adjusted pursuant to
paragraph 8(a)(i) and (y) cash dividends or distributions payable out of
earnings or surplus not in excess of 10% of the average Closing Price for
the thirty trading days prior to the fifth day before the date of
declaration multiplied by the number of outstanding shares of Common Stock)
(any of the foregoing being hereinafter in this paragraph (iii) called the
"Securities"), then in each such case (unless the Company elects to reserve
shares or other units of such Securities for distribution to each Holder
upon exercise of this Warrant so that, in addition to the shares of Common
Stock (or other securities deliverable hereunder) to which each Holder is
entitled, each Holder will receive upon such exercise the amount and kind
of such Securities which such Holder would have received if the Holder had,
immediately prior to the record date for the distribution of the
Securities, exercised the Warrant) the number of Warrant Shares receivable
hereunder after such record date shall be determined by multiplying the
number of Warrant Shares receivable hereunder immediately prior to such
record date by a fraction, the denominator of which shall be the Closing
Price on the Trading Day immediately prior to the first Trading Day on
which the Common Stock (or other securities deliverable hereunder) trades
without the right to receive such Securities, less the fair market value
(as determined in the reasonable judgment of the Board of Directors of the
Company and described in a statement mailed to the Holder) of the portion
of the assets or evidences of indebtedness so to be distributed to a holder
of one share of the Common Stock or of such subscription rights or warrants
applicable to one share of the Common Stock, and the numerator of which
shall be the Closing Price of the Common Stock on such Trading Day; and the
Exercise Price shall be appropriately adjusted so that
-9-
<PAGE>
the aggregate purchase price of the Warrant Shares to be received hereunder
after such record date is equal to the aggregate purchase price of the
Warrant Shares receivable hereunder immediately prior to such record date.
Such adjustment shall become effective immediately after such record date
and shall be made successively whenever such a record date is fixed. If
such distribution is not so made, the number of Warrant Shares receivable
hereunder shall be readjusted to be the number that was in effect
immediately prior to such record date. In the event that the Holder
exercises this Warrant after an adjustment is made under this paragraph
(iii) and prior to a readjustment under this paragraph (iii), the number of
Warrant Shares that have been delivered or the number of Warrant Shares to
be delivered shall not be subject to any readjustment. In any case in which
this paragraph (iii) shall require that an adjustment in the number of
Warrant Shares receivable hereunder or the Exercise Price be made effective
as of a record date for a specified event, the Company may elect to defer
until the occurrence of such event issuing to the Holder of any Warrant
exercised after such record date the number of Warrant Shares, if any,
issuable upon such exercise over and above the number of Warrant Shares, if
any, issuable upon such exercise on the basis of the Exercise Price in
effect prior to such adjustment; provided, however, that the Company shall
-------- -------
deliver to such Holder a due bill or other appropriate instrument
evidencing such Holder's right to receive such additional Warrant Shares
upon the occurrence of the event requiring such adjustments.
(b) Reorganization Event. In case of any Reorganization Event the
--------------------
Company shall, as a condition precedent to the consummation of the transaction
constituting, or announced as, such Reorganization Event, cause effective
provisions to be made so that the Holder shall have the right immediately
thereafter, by exercising this Warrant, to receive the aggregate amount and kind
of shares of stock and other securities and property that were receivable upon
such Reorganization Event by a holder of the number of shares of Common Stock
that would have been received immediately prior to such Reorganization Event
upon exercise of this Warrant. Any such provision shall include provision for
adjustments in respect of such shares of stock and other securities and property
that shall be as nearly equivalent as may be practicable to the adjustments
provided for in Section 8(a). The foregoing provisions of this Section 8(b)
shall similarly apply to successive Reorganization Events.
(c) Fractional Shares. No fractional shares of Common Stock (or
-----------------
other securities deliverable hereunder) or scrip shall be issued to any Holder
in connection with the exercise of this Warrant. Instead of any fractional share
of Common Stock (or other securities deliverable hereunder) that would otherwise
be issuable to such Holder, the Company shall pay to such Holder a cash
adjustment in respect of such fractional interest in an amount equal to such
fractional interest multiplied by the Closing Price per share of Common Stock
(or other securities deliverable hereunder) on the date of such exercise.
(d) Carryover. Notwithstanding any other provision of this
---------
Section 8, no adjustment shall be made to the number of shares of Common Stock
(or other securities deliverable hereunder) to be delivered to each Holder (or
to the Exercise Price) if such adjustment would represent less than one percent
of the number of shares to be so delivered, but any such adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried forward,
shall amount to
-10-
<PAGE>
one percent or more of the number of shares to be so delivered.
(e) Notices of Certain Events. If at any time after the date
-------------------------
hereof and before the expiration of the Exercise Period:
(i) the Company authorizes the issuance to all holders of
its Common Stock of (A) rights or warrants to subscribe for or purchase shares
of its Common Stock or (B) any other subscription rights or warrants;
(ii) the Company authorizes the distribution to all holders
of its Common Stock of evidences of its indebtedness or assets (other than cash
dividends or distributions excluded from the operation of paragraph 8(a)(iii));
(iii) there shall be any capital reorganization of the
Company or reclassification of the Common Stock (other than a change in par
value of the Common Stock or an increase in the authorized capital stock of the
Company not involving the issuance of any shares thereof) or any consolidation
or merger to which the Company is a party (other than a consolidation or merger
with a subsidiary in which the Company is the continuing corporation and that
does not result in any reclassification or change in the Common Stock
outstanding) or a conveyance or transfer of all or substantially all of the
properties and assets of the Company:
(iv) there shall be any voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(v) there shall be any other event that would result in an
adjustment pursuant to this Section 8 in the Exercise Price or the number of
Warrant Shares that may be purchased upon the exercise hereof;
the Company will cause to be mailed to the Holder, at least twenty (20) days (or
ten (10) days in any case specified in the clauses (i) or (ii) above) before the
applicable record or effective date hereinafter specified, or as soon as
practicable after the occurrence of an event specified in clause (v) if such
event was beyond the control of the Company and the Company did not have
knowledge of such event at least ten (10) days before such date, a notice
stating (A) the date as of which the holders of Common Stock of record entitled
to receive any such rights, warrants or distributions is to be determined, or
(B) the date on which any such reorganization, reclassification, consolidation,
merger, conveyance, transfer, 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 will be entitled to exchange their shares of Common Stock
for securities or other property, if any, deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up.
(f) Failure to Give Notice. The failure to give the notice
----------------------
required by Section 8(e) hereof or any defect therein shall not affect the
legality or validity of any distribution right, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up or the vote upon
any such action.
-11-
<PAGE>
Section 9. Redemption of Warrant. (a) Provided that the Company has not
---------------------
previously elected to exercise its Early Redemption Option to retire all or any
part of the Notes, at any time on or after the date which is 1,000 days after
the Issuance Date, the Company shall have the right, but not the obligation, on
not less than forty-five (45) and not more than sixty (60) days prior notice, to
redeem the Applicable Portion of this Warrant, at a redemption price of $0.01
per share of Common Stock (or unit of other securities deliverable hereunder)
issuable upon exercise of the portion of this Warrant so redeemed (the
"Redemption Price"), if the Average Market Price of one share of Common Stock
(or unit of other securities deliverable hereunder) receivable upon exercise of
this Warrant shall exceed the Redemption Target Price. Any notice of redemption
shall be given within twenty (20) days after the last Trading Day in the period
of twenty (20) consecutive Trading Days which gave rise to the right of the
Company to redeem this Warrant. If this Warrant is called for redemption, the
Company shall simultaneously call for redemption a portion of the Other Warrants
in accordance with their terms that are similar to this Section 9.
(b) If the requirements set forth in Section 9(a) are met, and
the Company wishes to exercise its right so to redeem the Applicable Portion of
this Warrant, the Company shall give a notice of redemption to the Holder not
later than the 45th day prior to the date fixed for redemption (the "Redemption
Date").
(c) The notice of redemption shall specify (i) the portion of
this Warrant to be redeemed, (ii) the aggregate Redemption Price for the
Applicable Portion of this Warrant to be redeemed, (iii) the date fixed for
redemption, (iv) the place where this Warrant shall be delivered and the
Redemption Price paid, and (v) that the right to exercise the Applicable Portion
of this Warrant that is being redeemed shall terminate at 5:00 p.m., New York
City time, on the Trading Day immediately preceding the Redemption Date unless
otherwise agreed by the Company.
(d) If the Company shall have exercised its right to redeem
the Applicable Portion of this Warrant, any right to exercise such Applicable
Portion of this Warrant shall terminate at 5:00 p.m., New York City time, on the
Trading Day immediately preceding the Redemption Date unless otherwise agreed by
the Company. On and after the Redemption Date, unless otherwise agreed by the
Company, the Holder shall have no further rights with respect to the Applicable
Portion being so redeemed except to receive, upon surrender of this Warrant, the
Redemption Price.
(e) From and after the Redemption Date, the Company shall, at
the place specified in the notice of redemption, upon presentation and surrender
to the Company by or on behalf of the Holder, deliver or cause to be delivered
to or upon the written order of the Holder a sum in cash equal to the aggregate
Redemption Price of the Applicable Portion of this Warrant being so redeemed.
From and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem such Applicable Portion of this Warrant,
such Applicable Portion of this Warrant shall expire and become void and all
rights hereunder, except the right to receive payment of the Redemption Price,
shall cease.
(f) If the Company shall have exercised its right to redeem a
portion of
-12-
<PAGE>
this Note and, during any period of twenty (20) consecutive Trading Days during
which the Average Market Price may be determined pursuant to this Warrant, the
Average Market Price of one share of Common Stock (or unit of other securities
deliverable hereunder) receivable upon exercise of this Warrant shall exceed an
amount equal to two hundred fifty percent (250%) of the Exercise Price, then the
Company shall have the right to exercise its right of redemption on a second
occasion. Such redemption shall otherwise be made in accordance with this
Section 9.
Section 10. Officers' Certificate. Whenever the number of Warrant Shares
---------------------
that may be purchased on exercise of this Warrant or the Exercise Price is
adjusted as required by the provisions of Section 8 hereof, the Company will
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and at the office of its agent an officers' certificate showing
the adjusted number of Warrant Shares that may be purchased at the Exercise
Price on exercise of this Warrant and the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment and the manner of computing such adjustment. Each such officers'
certificate shall be signed by the President, Chief Financial Officer or
Treasurer of the Company and by the Secretary or an Assistant Secretary of the
Company. Each such officers' certificate shall be made available at all
reasonable times for inspection by the Holder. The Company shall, forthwith
after each such adjustment, cause such certificate to be mailed to the Holder.
Section 11. Availability of Information. In addition to the requirements
---------------------------
of Section 5(h), the Company shall comply with all applicable public information
reporting requirements of the SEC and applicable state securities laws to which
it may from time to time be subject. The Company will also cooperate with each
Holder of any Warrants and each holder of any Warrant Shares in supplying such
information concerning the Company as may be necessary for such Holder or holder
to complete and file any information reporting forms currently or hereafter
required by the SEC as a condition to the availability of an exemption from the
Act for the sales of any Warrants or Warrant Shares.
Section 12. Warrant Register. The Company will register this Warrant in
----------------
the Warrant Register in the name of the record holder to whom it has been
distributed or assigned in accordance with the terms hereof. The Company may
deem and treat the registered Holder of this Warrant as the absolute owner
hereof (notwithstanding any notation of ownership or other writing hereon made
by anyone) for the purpose of any exercise hereof or any distribution to the
Holder and for all other purposes, and the Company shall not be affected by any
notice to the contrary.
Section 13. Successors. All of the provisions of this Warrant by or for
----------
the benefit of the Company or the Holder shall bind and inure to the benefit of
their respective successors and assigns.
Section 14. Headings. The headings of sections of this Warrant have been
--------
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
Section 15. Amendments. This Warrant may be amended by the affirmative
----------
vote of
-13-
<PAGE>
Holders holding Warrants to purchase not less than two-thirds of the Warrant
Shares purchasable pursuant to all of the then outstanding Warrants; provided,
--------
that, except as expressly provided herein, this Warrant may not be amended,
without the consent of the Holder, to change (i) any price at which this Warrant
may be exercised, (ii) the period during which this Warrant may be exercised,
(iii) the number or type of securities to be issued upon the exercise hereof or
(iv) the provisions of this Section 15.
Section 16. Notices. Unless otherwise provided in this Warrant, any
-------
notice or other communication required or permitted to be made or given to any
party hereto pursuant to this Warrant shall be in writing and shall be deemed
made or given if delivered by hand, on the date of such delivery to such party,
or, if mailed, on the fifth day after the date of mailing, if sent to such party
by certified or registered mail, postage prepaid, addressed to it (in the case
of a Holder) at its address in the Warrant Register or (in the case of the
Company) at its address set forth below, or to such other address as is
designated by written notice, similarly given to each party hereto.
Section 17. Governing Law. This Warrant shall be deemed to be a contract
-------------
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State as applied to the contracts
made and to be performed in New York between New York residents.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-14-
<PAGE>
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
signed and attested by its duly authorized officer and to be dated as of
__________, 1999.
CEPHALON, INC.
By:
Name:
Title:
Address:
145 Brandywine Parkway
West Chester, Pennsylvania 19380
Attention: Senior Vice President and
Chief Financial Officer
-15-
<PAGE>
ANNEX I
TO WARRANT
PURCHASE FORM
-------------
TO CEPHALON, INC.:
The undersigned, ________________________, hereby irrevocably elects
to exercise the within Warrant to purchase ___________________________ shares of
Common Stock of Cephalon, Inc., a Delaware corporation, and hereby makes payment
of $_____________________ in payment of the exercise price thereof.
Dated: ____________________________
_____________________________
[SIGNED]
_____________________________
[STREET ADDRESS]
_____________________________
[CITY AND STATE]
I-16
<PAGE>
ANNEX II
TO WARRANT
WARRANT ASSIGNMENT FORM
-----------------------
TO CEPHALON, INC.:
FOR VALUE RECEIVED, the undersigned,
__________________________________________________, ("Assignor"), hereby sells,
assigns and transfers unto
Name: ________________________________________ ("Assignee")
(Please type or print in block letters.)
Address: _____________________________________
Social Security or Taxpayer I.D. No.: _______________________
Assignor's right to purchase up to _________________ shares of Common Stock of
Cephalon, Inc., a Delaware corporation, represented by this Warrant and does
hereby irrevocably constitute and appoint the Company and any of its officers,
secretary or assistant secretaries, as its officers, secretary or assistant
secretaries, as attorneys-in-fact to transfer the same on the books of the
Company, with full power of substitution in the premises.
Date: __________________________
Print Name:
II-17
<PAGE>
EXHIBIT 4.3(D)
HOLDERS OF SERIES B WARRANTS DATED MARCH 1, 1999
<TABLE>
<CAPTION>
Registered Holder Number of Shares of
- ----------------- Common Stock
------------
<S> <C>
Delta Opportunity Fund, Ltd. 116,000
Delta Opportunity Fund (Institutional), LLC 44,000
DLJ Capital Corp. 709
DLJ ESC II, L.P. 7,147
The Kaufmann Fund, Inc. 160,000
Sprout Capital VIII, L.P. 81,831
Sprout Growth II, L.P. 85,403
Sprout Venture Capital, L.P. 4,910
</TABLE>
ANNEX II
TO
NOTE PURCHASE
AGREEMENT
NEITHER THIS WARRANT NOR ISSUANCE OF THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF TO THE HOLDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS
WARRANT NOR SUCH SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES
ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE
RULES AND REGULATIONS THEREUNDER.
THIS WARRANT MAY NOT BE TRANSFERRED, DIVIDED, COMBINED OR EXCHANGED, EXCEPT AS
DESCRIBED IN SECTION 5 HEREIN.
CEPHALON, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
--------------------------------------------------
Name of Registered Holder: _________________________
No. ____ ___________ Shares of Common Stock
For good and valuable consideration the receipt of which is hereby
acknowledged, Cephalon, Inc., a Delaware corporation (the "Company"), hereby
grants the rights herein specified and certifies that ____________________ (the
"Initial Holder") (or any registered assignee of the Initial Holder) (each of
the Initial Holder and any such registered assignee being hereinafter referred
to as the "Holder"), is entitled, subject to the conditions and upon the terms
of this Warrant, to purchase from the Company, at any time or from time to time
during the Exercise Period (as defined in Section 1 hereof), the number of
shares of Common Stock (as defined in Section 1 hereof) set forth above at the
Exercise Price (as defined in Section 1 hereof). The number of shares of Common
Stock to be received upon the exercise of this Warrant and the Exercise Price
are subject to adjustment from time to time as hereinafter set forth.
Section 1. Certain Definitions. Terms defined in the preceding paragraph
-------------------
and elsewhere in this Warrant have the respective meanings provided for therein.
The following additional terms, as used herein, have the following respective
meanings:
-1-
ANNEX III
TO
NOTE PURCHASE
AGREEMENT
NEITHER THIS WARRANT NOR ISSUANCE OF THE SECURITIES ISSUABLE UPON THE EXERCISE
HEREOF TO THE HOLDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS
WARRANT NOR SUCH SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES
ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND THE APPLICABLE
RULES AND REGULATIONS THEREUNDER.
THIS WARRANT MAY NOT BE TRANSFERRED, DIVIDED, COMBINED OR EXCHANGED, EXCEPT AS
DESCRIBED IN SECTION 5 HEREIN.
CEPHALON, INC.
WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK
--------------------------------------------------
Name of Registered Holder: _________________________
No. ____ ___________ Shares of Common Stock
For good and valuable consideration the receipt of which is hereby
acknowledged, Cephalon, Inc., a Delaware corporation (the "Company"), hereby
grants the rights herein specified and certifies that ____________________ (the
"Initial Holder") (or any registered assignee of the Initial Holder) (each of
the Initial Holder and any such registered assignee being hereinafter referred
to as the "Holder"), is entitled, subject to the conditions and upon the terms
of this Warrant, to purchase from the Company, at any time or from time to time
during the Exercise Period (as defined in Section 1 hereof), the number of
shares of Common Stock (as defined in Section 1 hereof) set forth above at the
Exercise Price (as defined in Section 1 hereof). The number of shares of Common
Stock to be received upon the exercise of this Warrant and the Exercise Price
are subject to adjustment from time to time as hereinafter set forth.
Section 1. Certain Definitions. Terms defined in the preceding paragraph
-------------------
and elsewhere in this Warrant have the respective meanings provided for therein.
The following additional terms, as used herein, have the following respective
meanings:
-1-
<PAGE>
"Acceleration Date" means the earlier of the date on which a Reorganization
Event occurs or the date on which the Company shall agree to effect a
Reorganization Event, provided, that if approval of the stockholders of the
--------
Company is required in connection with such Reorganization Event, the
Acceleration Date means the date of such approval.
"Act" means the Securities Act of 1933, as amended.
"Applicable Portion" means the portion of this Warrant which entitles the
Holder to purchase a number of shares of Common Stock (or other securities
deliverable hereunder) equal to the product of (i) the aggregate number of
Warrant Shares subject to this Warrant immediately prior to such redemption
times (ii) the quotient of (a) the amount of Net Revenues for the period from
the Issuance Date to the third anniversary of the Issuance Date minus an amount
equal to fifty percent (50%) of the Target Revenues for such period, divided by
(b) an amount equal to fifty percent (50%) of the Target Revenues for the period
from the Issuance Date to the third anniversary of the Issuance Date; provided,
--------
however, that in no event shall such quotient be greater than one or less than
- -------
zero.
"Average Market Price" means the arithmetic average of the Closing Price
during any period of twenty (20) consecutive Trading Days during the ninety-day
period which commences on the date which is 1,000 days after the Issuance Date
and ends on and includes the date which is 1,089 days after the Issuance Date.
"Class A Warrants" means the Class A Common Stock Purchase Warrants issued
by the Company in connection with the issuance of the Notes.
"Class B Warrants" means this Warrant and the Other Warrants of like tenor
issued by the Company in connection with the issuance of the Notes.
"Closing Price" means on any date the last reported sale price (regular
way), or if there are no sales of Common Stock on such date, the closing bid
price, per share of the Common Stock on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or traded on any such exchange, on the Nasdaq National Market, or if not
listed or traded on any such exchange or system, the average of the bid and
asked price per share on the Nasdaq Stock Market in each such case, as reported
by such exchange or market or, if such quotations are not available, the fair
market value as reasonably determined by the Board of Directors of the Company
or any committee of such Board.
"Common Stock" means the Company's Common Stock, $.01 par value, and the
related Preferred Share Purchase Rights as authorized on the date hereof, and
any other securities into which or for which the Common Stock or such Preferred
Share Purchase Rights may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise or any
similar rights distributed by the Company to the holders of the Common Stock.
"Early Redemption Option" means the right of the Company to redeem the
Notes Pursuant to Section 1.2 thereof.
-2-
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Period" means the period beginning on March 1, 2002 (or such
earlier date determined in accordance with Section 8(b)(ii)) and ending on March
1, 2004.
"Exercise Price" means $10.08 subject to change or adjustment pursuant to
Section 8 hereof.
"Issuance Date" means March 1, 1999.
"Nasdaq" means the Nasdaq Stock Market.
"Nasdaq National Market" means the Nasdaq National Market of Nasdaq.
"Net Revenues" has the meaning provided in the Notes.
"Notes" means the 11% Revenue Sharing Senior Secured Notes of the Company.
"Other Securities" means any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
Holder of this Warrant at any time shall be entitled to receive, or shall have
received, on the exercise of this Warrant, in lieu of or in addition to the
Warrant Shares, or which at any time shall be issuable or shall have been issued
in exchange for or in replacement of the Warrant Shares or Other Securities
pursuant to Section 8.
"Other Warrants" means the other Class B Warrants for the Purchase of
Shares of Common Stock issued by the Company in connection with the issuance of
the Notes.
"Permitted Transfer" means (a) any transfer, assignment or succession by
operation of law or pursuant to any court order issued by a court of competent
jurisdiction, (b) any transfer to an immediate family member, (c) any transfer
through probate or through intestate succession, (d) in the case of a transfer
by a corporation, partnership, or trust, any transfer to any person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the transferor, (e) any
distribution by a retirement plan to any participant in the plan (f) any
transfer or assignment by the Initial Holder to its employee, or (g) any
transfer or assignment to a person who is an "accredited investor," as defined
in Regulation D under the Securities Act.
"Redemption Date" has the meaning provided in Section 9(b).
"Redemption Price" has the meaning provided in Section 9(a).
"Redemption Target Price" means an amount equal to two hundred percent
(200%) of the
-3-
<PAGE>
Exercise Price as in effect during the period of twenty (20) consecutive Trading
Days during which the Average Market Price is determined.
"Reorganization Event" means the occurrence of any one or more of the
following events:
(i) any consolidation, merger or similar transaction of the Company or
any Subsidiary with or into another entity (other than a merger or consolidation
or similar transaction of a Subsidiary into the Company or a wholly-owned
Subsidiary) where the stockholders of the Company immediately prior to such
transaction do not collectively own at least 51% of the outstanding voting
securities of the surviving corporation of such consolidation or merger
immediately following such transaction; or the sale of all or substantially all
of the assets of the Company and the Subsidiaries in a sale transaction or a
series of related transactions; or
(ii) the occurrence of any transaction or event in connection with which
all or substantially all the Common Stock shall be exchanged for, converted
into, acquired for or constitute the right to receive consideration (whether by
means of an exchange offer, liquidation, tender offer, consolidation, merger,
share exchange, combination, reclassification, recapitalization, or otherwise)
which is not all or substantially all common stock which is (or will, upon
consummation of or immediately following such transaction or event, be) listed
on a national securities exchange or approved for quotation on Nasdaq or any
similar United States system of automated dissemination of transaction reporting
of securities prices; or
(iii) the acquisition by a person or entity or group of persons or entities
acting in concert as a partnership, limited partnership, syndicate or group, as
a result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, of beneficial ownership of securities of the
Company representing 50% or more of the combined voting power of the outstanding
voting securities of the Company ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Exchange Act of 1934, as amended.
"Subsidiary" means any corporation or other entity of which a majority of
the capital stock or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Company.
"Target Revenues" has the meaning provided in the Notes.
"Trading Day" means a day on which either the national securities exchange
or the Nasdaq National Market which then constitutes the principal securities
market for the Common Stock (or other securities deliverable hereunder) is open
for general trading of securities.
"Warrant" means this Warrant and any Warrant or Warrants which may be
issued pursuant
-4-
<PAGE>
to Section 4 or 5 hereof in substitution or exchange for or upon transfer of
this Warrant, any Warrant which may be issued pursuant to Section 2 hereof upon
partial exercise of this Warrant and any Warrant which may be issued pursuant to
Section 6 hereof upon the loss, theft, destruction or mutilation of this
Warrant.
"Warrant Register" means the register maintained at the principal office of
the Company, or at the office of its agent, in which the name of the Holder of
this Warrant shall be registered.
"Warrant Shares" means the shares of Common Stock, as adjusted from time to
time in accordance with Section 8 hereof, deliverable upon exercise of this
Warrant.
Section 2. Exercise of Warrant. This Warrant may be exercised, in whole
-------------------
or in part, at any time or from time to time during the Exercise Period, by
presentation and surrender hereof to the Company at its principal office at the
address set forth on the signature page hereof (or at such other address of the
Company or any agent appointed by the Company to act hereunder as the Company or
such agent may hereafter designate in writing to the Holder), with the purchase
form attached hereto as ANNEX I (the "Purchase Form") duly executed and
accompanied by cash or a certified or official bank check drawn to the order of
"CEPHALON, INC." (or its successor in interest, if any) in the amount of the
Exercise Price, multiplied by the number of Warrant Shares specified in such
Purchase Form. If this Warrant should be exercised in part only, the Company or
its agent shall, upon surrender of this Warrant, execute and deliver a Warrant
evidencing the right of the Holder thereof to purchase the balance of the
Warrant Shares purchasable hereunder. Upon receipt by the Company during the
Exercise Period of this Warrant and such Purchase Form in proper form for
exercise, together with proper payment of the Exercise Price at its principal
office, or by its agent at its office, the Holder shall be deemed to be the
holder of record of the number of Warrant Shares specified in such Purchase
Form; provided, however, that if the date of such receipt by the Company or its
-------- -------
agent is a date on which the stock transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such Warrant
Shares on the next business day on which the stock transfer books of the Company
are open. The Company shall pay any and all documentary, stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of such Warrant
Shares. Any Warrant issued upon partial exercise of this Warrant pursuant to
this Section 2 shall be dated the date of this Warrant.
Section 3. Reservation of Shares. The Company agrees that at all times it
---------------------
will keep reserved solely for issuance and delivery pursuant to this Warrant the
number of shares of its Common Stock (or other securities) that are or would be
issuable from time to time upon exercise of this Warrant. All such shares shall
be duly authorized and, when issued upon such exercise, shall be validly issued,
fully paid and nonassessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free of all
preemptive rights. Before taking any action that would cause an adjustment
pursuant to Section 8 hereof reducing the Exercise Price below the then par
value (if any) of the Warrant Shares issuable upon exercise of this Warrant, the
Company will take any corporate action that may, in the opinion of its counsel,
be necessary in order that the Company may validly and legally issue fully paid
and nonassessable Warrant Shares at the Exercise Price as so adjusted.
-5-
<PAGE>
Section 4. Transfer in Compliance with Applicable Securities Laws.
------------------------------------------------------
(a) Neither this Warrant nor any of the Warrant Shares, nor any
interest in either, may be sold, assigned, pledged, hypothecated, encumbered or
in any other manner transferred or disposed of, in whole or in part, except in
accordance with Section 5 hereof and in compliance with applicable United States
federal and state securities laws and the terms and conditions hereof. Except
as provided in subsection (b) of this Section 4, each Warrant shall bear the
following legend:
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED OR
REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT
NOR SUCH SECURITIES MAY BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
SECURITIES ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
THE APPLICABLE RULES AND REGULATIONS THEREUNDER.
(b) If (i) the Warrant Shares have been registered under the
Act and registered or qualified under applicable state securities or Blue Sky
laws or (ii) the Holder has received an opinion of counsel reasonably
satisfactory to the Company that the Warrant Shares may be freely transferred
without registration under the Act or registration or qualification under
applicable state securities or Blue Sky laws, the Holder may require the Company
to issue, in substitution for a Warrant with the foregoing legend, a Warrant
with the following legend:
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
QUALIFIED OR REGISTERED UNDER STATE SECURITIES OR BLUE SKY LAWS. THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
SECURITIES ACT OF 1933, APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
THE APPLICABLE RULES AND REGULATIONS THEREUNDER.
(c) The Holder may require the Company to issue a Warrant
without either of the foregoing legends in substitution for a Warrant bearing
one of such legends if either (i) this Warrant and the Warrant Shares issuable
upon the exercise hereof have been registered under the Act and registered or
qualified under applicable state securities laws or (ii) the Holder has received
an opinion of counsel reasonably satisfactory to the Company that this Warrant
and the Warrant Shares may be freely transferred without registration under the
Act or registration or qualification under applicable state securities laws. The
provisions of this Section 4 shall be binding on all subsequent holders of this
Warrant.
Section 5. Exchange, Transfer or Assignment of Warrant.
-------------------------------------------
-6-
<PAGE>
(a) This Warrant may be, at the option of the Holder, upon
presentation and surrender hereof to the Company at its principal office or to
the Company's agent at its office, (i) exchanged for other Warrants of different
denominations, registered in the name of the Holder, entitling the Holder to
purchase in the aggregate the same number of Warrant Shares at the Exercise
Price or, (ii) if delivered together with a written notice signed by the Holder
specifying the denominations in which new Warrants are to be issued, divided or
combined with other Warrants registered in the name of the Holder that carry the
same rights.
(b) If the Holder has received an opinion of counsel
satisfactory to the Company that this Warrant may be sold or transferred without
registration under the Act, as contemplated by Section 4 hereof, (x) this
Warrant may be transferred and assigned, subject to subparagraph (y) of this
Section 5(b), at the option of the Holder, upon surrender of this Warrant to the
Company at its principal office or to the Company's agent at its office, with
the warrant assignment form attached hereto as ANNEX II (the "Warrant Assignment
Form") duly executed and accompanied by funds sufficient to pay any transfer
tax, except that (y) no transfer or assignment of this Warrant may be made
unless (i) such transfer or assignment is a Permitted Transfer or (ii) the
Company consents in writing to such transfer or assignment, which consent may be
withheld in its absolute discretion. The Company shall execute and deliver a new
Warrant or Warrants in the name of the assignee or assignees named in such
Warrant Assignment Form.
(c) Any transfer or exchange of this Warrant shall be without
charge to the Holder and any Warrant or Warrants issued pursuant to this Section
5 shall be dated the date hereof.
(d) The Holder shall not be entitled to transfer a portion of
this Warrant with respect to the purchase of a number of Warrant Shares that is
less than 10,000 without the prior written consent of the Company.
(e) In order to give effect to Section 9, if this Warrant shall
be exercised in part, then (1) any Warrant issued to the Holder to evidence the
unexercised portion of this Warrant shall bear a notation of the original number
of Warrant Shares subject to this Warrant and (2) in connection with any split-
up of this Warrant into two or more instruments, each such instrument shall bear
a notation of a portion of the original number of Warrant Shares subject to this
Warrant, determined by pro rata allocation thereto of the aggregate original
such amount based on the portion of the unexercised amount of this Warrant
(determined immediately prior to such split-up) evidenced by such instrument.
Section 6. Lost, Mutilated or Missing Warrant. Upon receipt by the
----------------------------------
Company or its agent of evidence satisfactory to it of the loss, theft or
destruction of this Warrant, and of satisfactory indemnification, and upon
surrender and cancellation of this Warrant if mutilated, the Company or its
agent shall execute and deliver a Warrant of like tenor and date in exchange for
this Warrant.
Section 7. Rights of the Holder. The Holder shall not, by virtue hereof,
--------------------
be entitled to any rights of a shareholder in the Company, either at law or in
equity, and the rights of the Holder
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<PAGE>
are limited to those expressed in this Warrant.
Section 8. Anti-dilution. (a) If the Company shall fix or have fixed a
-------------
record date at any time after the date hereof and before the expiration of the
Exercise Period for:
(i) The declaration of a dividend or distribution on the
Common Stock (or other securities deliverable hereunder) payable in shares
of capital stock (whether shares of Common Stock or of capital stock of any
other class), (A) the subdivision of shares of the Common Stock into a
greater number of shares, (B) the combination of the Common Stock into a
smaller number of shares or (C) the issuance of any shares of its capital
stock by reclassification of the Common Stock in connection with a
consolidation or merger with a subsidiary of the Company in which the
Company is the continuing corporation, then, in any such event, upon
exercise of this Warrant the Holder shall be entitled to receive the
aggregate number and kind of shares which, if the Warrant had been
exercised immediately prior to such record date, the Holder would have been
entitled to receive by virtue of such dividend, distribution, subdivision,
combination or reclassification, and the Exercise Price shall be
appropriately adjusted. Such adjustment shall be made successively whenever
any event listed above shall occur.
(ii) Issuance at Less than Current Market Price. The issuance
------------------------------------------
of rights, options or warrants to all holders of Common Stock (or other
securities deliverable hereunder) entitling them to subscribe for or
purchase Common Stock (or other securities deliverable hereunder) at a
price per share or having a conversion or exercise price per share
(including the amount paid, if any, for such rights, options or warrants)
less than the Closing Price on such record date (excluding rights or
warrants that are not immediately exercisable and for which provision is
made for the Holder to receive comparable rights or warrants upon
exercise), then the number of Warrant Shares to be received hereunder after
such record date shall be determined by multiplying the number of shares
receivable hereunder immediately prior to such record date by a fraction,
the denominator of which shall be the number of shares of Common Stock (or
other securities deliverable hereunder) outstanding on such record date
plus the number of shares of Common Stock (or other securities deliverable
hereunder) that the aggregate offering price of the total number of shares
so offered for subscription or purchase would purchase at such Closing
Price, and the numerator of which shall be the number of shares of Common
Stock (or other securities deliverable hereunder) outstanding on such
record date plus the number of additional shares of Common Stock (or other
securities deliverable hereunder) offered for subscription or purchase, and
the Exercise Price shall be appropriately adjusted so that the aggregate
purchase price of the Warrant Shares to be received hereunder after such
record date is equal to the aggregate purchase price of the Warrant Shares
receivable hereunder immediately prior to such record date. Shares of
Common Stock owned by or held for the account of the Company or any
subsidiary of the Company on such record date shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall
become effective immediately after such record date. Such adjustment shall
be made successively whenever any such event shall occur. If such rights,
options or warrants are not so issued, the number of Warrant Shares
receivable hereunder shall again be adjusted to be the number that would
have been in effect had such record date not been fixed. On
-8-
<PAGE>
the expiration of such rights, options or warrants the number of Warrant
Shares receivable hereunder shall be readjusted to be the number that would
have obtained had the adjustment made upon the issuance of such rights,
options or warrants been made upon the basis of the issuance of only the
number of shares of Common Stock (or other securities deliverable
hereunder) actually issued upon the exercise of such rights, options or
warrants, provided, however, that if the Holder of this Warrant shall have
-------- -------
exercised this Warrant prior to any such readjustment, the number of
Warrant Shares that have been delivered or the number of Warrant Shares to
be delivered shall not be subject to any readjustment. In any case in which
this subsection (ii) shall require that an adjustment in the number of
shares receivable hereunder or the Exercise Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event issuing to the Holder of any Warrant exercised
after such record date the number of Warrant Shares, if any, issuable upon
such exercise over and above the number of Warrant Shares, if any, issuable
upon such exercise on the basis of the Exercise Price in effect prior to
such adjustment; provided, however, that the Company shall deliver to such
-------- -------
Holder a due bill or other appropriate instrument evidencing such Holder's
right to receive such additional Warrant Shares upon the occurrence of the
event requiring such adjustments.
(iii) Distribution of Subscription Rights, Warrants,
----------------------------------------------
Evidences of Indebtedness or Assets. The making of a distribution to all
-----------------------------------
holders of Common Stock (or other securities deliverable hereunder)
(including any such distribution to be made in connection with a
consolidation or merger in which the Company is to be the continuing
corporation) of (A) any shares of capital stock of the Company (other than
Common Stock), (B) subscription rights or warrants (excluding those for
which adjustment is provided in subsection 8(a)(ii) above and excluding
those that are not immediately exercisable and for which provision is made
for the Holder to receive comparable subscription rights or warrants upon
exercise) or (C) evidences of its indebtedness or assets (excluding (x)
dividends paid in or distributions of the Company's capital stock for which
the number of Warrant Shares receivable hereunder shall have been adjusted
pursuant to paragraph 8(a)(i) and (y) cash dividends or distributions
payable out of earnings or surplus not in excess of 10% of the average
Closing Price for the thirty trading days prior to the fifth day before the
date of declaration multiplied by the number of outstanding shares of
Common Stock) (any of the foregoing being hereinafter in this paragraph
(iii) called the "Securities"), then in each such case (unless the Company
elects to reserve shares or other units of such Securities for distribution
to each Holder upon exercise of this Warrant so that, in addition to the
shares of Common Stock (or other securities deliverable hereunder) to which
each Holder is entitled, each Holder will receive upon such exercise the
amount and kind of such Securities which such Holder would have received if
the Holder had, immediately prior to the record date for the distribution
of the Securities, exercised the Warrant) the number of Warrant Shares
receivable hereunder after such record date shall be determined by
multiplying the number of Warrant Shares receivable hereunder immediately
prior to such record date by a fraction, the denominator of which shall be
the Closing Price on the Trading Day immediately prior to the first Trading
Day on which the Common Stock (or other securities deliverable hereunder)
trades without the right to receive such Securities, less the fair market
value (as determined in the reasonable judgment of the Board of
-9-
<PAGE>
Directors of the Company and described in a statement mailed to the Holder)
of the portion of the assets or evidences of indebtedness so to be
distributed to a holder of one share of the Common Stock or of such
subscription rights or warrants applicable to one share of the Common
Stock, and the numerator of which shall be the Closing Price of the Common
Stock on such Trading Day; and the Exercise Price shall be appropriately
adjusted so that the aggregate purchase price of the Warrant Shares to be
received hereunder after such record date is equal to the aggregate
purchase price of the Warrant Shares receivable hereunder immediately prior
to such record date. Such adjustment shall become effective immediately
after such record date and shall be made successively whenever such a
record date is fixed. If such distribution is not so made, the number of
Warrant Shares receivable hereunder shall be readjusted to be the number
that was in effect immediately prior to such record date. In the event that
the Holder exercises this Warrant after an adjustment is made under this
paragraph (iii) and prior to a readjustment under this paragraph (iii), the
number of Warrant Shares that have been delivered or the number of Warrant
Shares to be delivered shall not be subject to any readjustment. In any
case in which this paragraph (iii) shall require that an adjustment in the
number of Warrant Shares receivable hereunder or the Exercise Price be made
effective as of a record date for a specified event, the Company may elect
to defer until the occurrence of such event issuing to the Holder of any
Warrant exercised after such record date the number of Warrant Shares, if
any, issuable upon such exercise over and above the number of Warrant
Shares, if any, issuable upon such exercise on the basis of the Exercise
Price in effect prior to such adjustment; provided, however, that the
-------- -------
Company shall deliver to such Holder a due bill or other appropriate
instrument evidencing such Holder's right to receive such additional
Warrant Shares upon the occurrence of the event requiring such adjustments.
(b) Reorganization Event.
--------------------
(i) In case of any Reorganization Event the Company shall,
as a condition precedent to the consummation of the transaction constituting, or
announced as, such Reorganization Event, cause effective provisions to be made
so that the Holder shall have the right immediately thereafter, by exercising
this Warrant, to receive the aggregate amount and kind of shares of stock and
other securities and property that were receivable upon such Reorganization
Event by a holder of the number of shares of Common Stock that would have been
received immediately prior to such Reorganization Event upon exercise of this
Warrant. Any such provision shall include provision for adjustments in respect
of such shares of stock and other securities and property that shall be as
nearly equivalent as may be practicable to the adjustments provided for in
Section 8(a). The foregoing provisions of this Section 8(b) shall similarly
apply to successive Reorganization Events.
(ii) If a Reorganization Event occurs or the Company agrees
to effect a Reorganization Event, then the Exercise Period shall commence on the
applicable Acceleration Date. The Company shall, at least twenty (20) days
before the Acceleration Date relating to any Reorganization Event (or if such
Reorganization Event was beyond the control of the Company, and the Company did
not have knowledge twenty (20) days before such Acceleration Date, as soon as
practicable thereafter), cause to be mailed to the Holder a notice describing in
reasonable detail such Reorganization Event and informing the Holder of the date
that
-10-
<PAGE>
the Exercise Period will (or did) commence and that the Holder may exercise this
Warrant at any time during the Exercise Period.
(c) Fractional Shares. No fractional shares of Common Stock (or
-----------------
other securities deliverable hereunder) or scrip shall be issued to any Holder
in connection with the exercise of this Warrant. Instead of any fractional share
of Common Stock (or other securities deliverable hereunder) that would otherwise
be issuable to such Holder, the Company shall pay to such Holder a cash
adjustment in respect of such fractional interest in an amount equal to such
fractional interest multiplied by the Closing Price per share of Common Stock
(or other securities deliverable hereunder) on the date of such exercise.
(d) Carryover. Notwithstanding any other provision of this
---------
Section 8, no adjustment shall be made to the number of shares of Common Stock
(or other securities deliverable hereunder) to be delivered to each Holder (or
to the Exercise Price) if such adjustment would represent less than one percent
of the number of shares to be so delivered, but any such adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which, together with any adjustments so carried forward,
shall amount to one percent or more of the number of shares to be so delivered.
(e) Notices of Certain Events. If at any time after the date
-------------------------
hereof and before the expiration of the Exercise Period:
(i) the Company authorizes the issuance to all holders of
its Common Stock of (A) rights or warrants to subscribe for or purchase shares
of its Common Stock or (B) any other subscription rights or warrants;
(ii) the Company authorizes the distribution to all holders
of its Common Stock of evidences of its indebtedness or assets (other than cash
dividends or distributions excluded from the operation of paragraph 8(a)(iii));
(iii) there shall be any capital reorganization of the
Company or reclassification of the Common Stock (other than a change in par
value of the Common Stock or an increase in the authorized capital stock of the
Company not involving the issuance of any shares thereof) or any consolidation
or merger to which the Company is a party (other than a consolidation or merger
with a subsidiary in which the Company is the continuing corporation and that
does not result in any reclassification or change in the Common Stock
outstanding) or a conveyance or transfer of all or substantially all of the
properties and assets of the Company:
(iv) there shall be any voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(v) there shall be any other event that would result in an
adjustment pursuant to this Section 8 in the Exercise Price or the number of
Warrant Shares that may be purchased upon the exercise hereof;
-11-
<PAGE>
the Company will cause to be mailed to the Holder, at least twenty (20) days (or
ten (10) days in any case specified in the clauses (i) or (ii) above) before the
applicable record or effective date hereinafter specified, or as soon as
practicable after the occurrence of an event specified in clause (v) if such
event was beyond the control of the Company and the Company did not have
knowledge of such event at least ten (10) days before such date, a notice
stating (A) the date as of which the holders of Common Stock of record entitled
to receive any such rights, warrants or distributions is to be determined, or
(B) the date on which any such reorganization, reclassification, consolidation,
merger, conveyance, transfer, 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 will be entitled to exchange their shares of Common Stock
for securities or other property, if any, deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up.
(f) Failure to Give Notice. The failure to give the notice
----------------------
required by Section 8(e) hereof or any defect therein shall not affect the
legality or validity of any distribution right, warrant, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up or the vote upon
any such action.
Section 9. Redemption of Warrant. (a) On the date which is 45 days after
---------------------
the third anniversary of the Issuance Date, the Company shall have the right,
but not the obligation, on not less than forty-five (45) and not more than sixty
(60) days prior notice, to redeem the Applicable Portion, if any, of this
Warrant, at a redemption price of $0.01 per share of Common Stock (or unit of
other securities deliverable hereunder) issuable upon exercise of the portion of
this Warrant so redeemed (the "Redemption Price"). If this Warrant is called
for redemption, the Company shall simultaneously call for redemption a portion
of the Other Warrants in accordance with their terms that are similar to this
Section 9.
(b) If the Company wishes to exercise its right so to redeem
the Applicable Portion of this Warrant, the Company shall give a notice of
redemption to the Holder not later than the 45th day prior to the date fixed for
redemption (the "Redemption Date").
(c) The notice of redemption shall specify (i) the portion of
this Warrant to be redeemed, (ii) the aggregate Redemption Price for the
Applicable Portion of this Warrant to be redeemed, (iii) the date fixed for
redemption, (iv) the place where this Warrant shall be delivered and the
Redemption Price paid, and (v) that the right to exercise the Applicable Portion
of this Warrant that is being redeemed shall terminate at 5:00 p.m., New York
City time, on the Trading Day immediately preceding the Redemption Date unless
otherwise agreed by the Company.
(d) If the Company shall have exercised its right to redeem
the Applicable Portion of this Warrant, any right to exercise such Applicable
Portion of this Warrant shall terminate at 5:00 p.m., New York City time, on the
Trading Day immediately preceding the Redemption Date unless otherwise agreed by
the Company. On and after the Redemption Date, unless otherwise agreed by the
Company, the Holder shall have no further rights with respect to the Applicable
Portion being redeemed except to receive, upon surrender of this Warrant, the
Redemption Price.
-12-
<PAGE>
(e) From and after the Redemption Date, the Company shall,
at the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Holder, deliver or cause to be
delivered to or upon the written order of the Holder a sum in cash equal to the
aggregate Redemption Price of the Applicable Portion of this Warrant being so
redeemed. From and after the Redemption Date and upon the deposit or setting
aside by the Company of a sum sufficient to redeem the Applicable Portion of
this Warrant, the Applicable Portion of this Warrant shall expire and become
void and all rights hereunder, except the right to receive payment of the
Redemption Price, shall cease.
Section 10. Officers' Certificate. Whenever the number of Warrant
---------------------
Shares that may be purchased on exercise of this Warrant or the Exercise Price
is adjusted as required by the provisions of Section 8 hereof, the Company will
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and at the office of its agent an officers' certificate showing
the adjusted number of Warrant Shares that may be purchased at the Exercise
Price on exercise of this Warrant and the adjusted Exercise Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment and the manner of computing such adjustment. Each such officers'
certificate shall be signed by the President, Chief Financial Officer or
Treasurer of the Company and by the Secretary or an Assistant Secretary of the
Company. Each such officers' certificate shall be made available at all
reasonable times for inspection by the Holder. The Company shall, forthwith
after each such adjustment, cause such certificate to be mailed to the Holder.
Section 11. Availability of Information. In addition to the
---------------------------
requirements of Section 5(h), the Company shall comply with all applicable
public information reporting requirements of the SEC and applicable state
securities laws to which it may from time to time be subject. The Company will
also cooperate with each Holder of any Warrants and each holder of any Warrant
Shares in supplying such information concerning the Company as may be necessary
for such Holder or holder to complete and file any information reporting forms
currently or hereafter required by the SEC as a condition to the availability of
an exemption from the Act for the sales of any Warrants or Warrant Shares.
Section 12. Warrant Register. The Company will register this Warrant in
----------------
the Warrant Register in the name of the record holder to whom it has been
distributed or assigned in accordance with the terms hereof. The Company may
deem and treat the registered Holder of this Warrant as the absolute owner
hereof (notwithstanding any notation of ownership or other writing hereon made
by anyone) for the purpose of any exercise hereof or any distribution to the
Holder and for all other purposes, and the Company shall not be affected by any
notice to the contrary.
Section 13. Successors. All of the provisions of this Warrant by or for
----------
the benefit of the Company or the Holder shall bind and inure to the benefit of
their respective successors and assigns.
Section 14. Headings. The headings of sections of this Warrant have
--------
been inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
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<PAGE>
Section 15. Amendments. This Warrant may be amended by the affirmative
----------
vote of Holders holding Warrants to purchase not less than two-thirds of the
Warrant Shares purchasable pursuant to all of the then outstanding Warrants;
provided, that, except as expressly provided herein, this Warrant may not be
- --------
amended, without the consent of the Holder, to change (i) any price at which
this Warrant may be exercised, (ii) the period during which this Warrant may be
exercised, (iii) the number or type of securities to be issued upon the exercise
hereof or (iv) the provisions of this Section 15.
Section 16. Notices. Unless otherwise provided in this Warrant, any
-------
notice or other communication required or permitted to be made or given to any
party hereto pursuant to this Warrant shall be in writing and shall be deemed
made or given if delivered by hand, on the date of such delivery to such party,
or, if mailed, on the fifth day after the date of mailing, if sent to such party
by certified or registered mail, postage prepaid, addressed to it (in the case
of a Holder) at its address in the Warrant Register or (in the case of the
Company) at its address set forth below, or to such other address as is
designated by written notice, similarly given to each party hereto.
Section 17. Governing Law. This Warrant shall be deemed to be a
-------------
contract made under the laws of the State of New York and for all purposes shall
be construed in accordance with the laws of said State as applied to the
contracts made and to be performed in New York between New York residents.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-14-
<PAGE>
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
signed and attested by its duly authorized officer and to be dated as of
__________, 1999.
CEPHALON, INC.
By:
Name:
Title:
Address:
145 Brandywine Parkway
West Chester, Pennsylvania 19380
Attention: Senior Vice President and
Chief Financial Officer
-15-
<PAGE>
ANNEX I
TO WARRANT
PURCHASE FORM
-------------
TO CEPHALON, INC.:
The undersigned, ________________________, hereby irrevocably elects
to exercise the within Warrant to purchase ___________________________ shares of
Common Stock of Cephalon, Inc., a Delaware corporation, and hereby makes payment
of $_____________________ in payment of the exercise price thereof.
Dated: _________________
_____________________________
[SIGNED]
_____________________________
[STREET ADDRESS]
_____________________________
[CITY AND STATE]
I-16
<PAGE>
ANNEX II
TO WARRANT
WARRANT ASSIGNMENT FORM
-----------------------
TO CEPHALON, INC.:
FOR VALUE RECEIVED, the undersigned, ________________________________,
("Assignor"), hereby sells, assigns and transfers unto
Name: __________________________________________ ("Assignee")
(Please type or print in block letters.)
Address: ______________________________________
Social Security or Taxpayer I.D. No.: ___________________________
Assignor's right to purchase up to _________________ shares of Common Stock of
Cephalon, Inc., a Delaware corporation, represented by this Warrant and does
hereby irrevocably constitute and appoint the Company and any of its officers,
secretary or assistant secretaries, as its officers, secretary or assistant
secretaries, as attorneys-in-fact to transfer the same on the books of the
Company, with full power of substitution in the premises.
Date: __________________
Print Name:
II-17
