<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
MARK ONE
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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:0-20720
LIGAND PHARMACEUTICALS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0160744
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10275 SCIENCE CENTER DRIVE 92121-1117
SAN DIEGO, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (619) 535-7500
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of October 31, 1998 the registrant had 42,526,245 shares of Common
Stock outstanding.
<PAGE> 2
LIGAND PHARMACEUTICALS INCORPORATED
QUARTERLY REPORT
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C>
COVER PAGE.........................................................................................................1
TABLE OF CONTENTS..................................................................................................2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997..................................3
Consolidated Statements of Operations for the three and nine months ended September 30, 1998 and 1997......4
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997.................5
Notes to Consolidated Financial Statements..................................................................6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..............9
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.........................................*
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..................................................................................*
ITEM 2. Changes in Securities and Use of Proceeds..........................................................23
ITEM 3. Defaults upon Senior Securities....................................................................*
ITEM 4. Submission of Matters to a Vote of Security Holders................................................*
ITEM 5. Other Information..................................................................................23
ITEM 6. Exhibits and Reports on Form 8-K...................................................................24
SIGNATURE..........................................................................................................25
</TABLE>
* No information provided due to inapplicability of item.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,939 $ 62,252
Short-term investments 15,852 20,978
Inventory 1,533 65
Other current assets 3,628 799
--------- ---------
Total current assets 45,952 84,094
Restricted short-term investments 2,809 3,057
Property and equipment, net 30,387 14,853
Notes receivable from officers and employees 562 559
Acquired technology 37,317 --
Other assets 8,709 4,860
--------- ---------
$ 125,736 $ 107,423
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,547 $ 10,717
Accrued liabilities 5,792 5,609
Deferred revenue 4,311 2,616
Current portion of obligations under capital leases 3,056 2,753
--------- ---------
Total current liabilities 18,706 21,695
Long-term obligations under capital leases 8,593 8,501
Convertible note 2,500 6,250
Convertible subordinated debentures 38,634 36,628
Accrued acquisition obligation 50,000
Stockholders' equity:
Convertible preferred stock, $.001 par value; 5,000,000
shares authorized; none issued -- --
Common stock, $.001 par value; 80,000,000 shares
authorized; 42,526,245 shares and 38,504,459 shares issued
at September 30, 1998 and December 31, 1997, respectively 43 39
Paid-in capital 362,141 311,681
Adjustment for unrealized gains on available-for-sale securities 101 384
Accumulated deficit (354,971) (277,744)
--------- ---------
7,314 34,360
Less treasury stock, at cost (1,114 shares
at September 30, 1998 and December 31, 1997) (11) (11)
--------- ---------
Total stockholders' equity 7,303 34,349
--------- ---------
$ 125,736 $ 107,423
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Collaborative research and development:
Related parties $ -- $ 6,710 $ -- $ 18,923
Unrelated parties 3,844 3,363 13,117 10,652
Other 103 99 282 325
-------- -------- -------- --------
3,947 10,172 13,399 29,900
Costs and expenses:
Research and development 16,985 18,038 49,222 51,353
Selling, general and administrative 3,825 2,501 9,924 7,379
Write-off of acquired in-process technology 30,000 -- 30,000 --
-------- -------- -------- --------
Total operating expenses 50,810 20,539 89,146 58,732
-------- -------- -------- --------
Loss from operations (46,863) (10,367) (75,747) (28,832)
Interest income 521 798 2,406 2,800
Interest expense (1,933) (1,995) (5,886) (6,085)
Realized gain on investments 2,000 -- 2,000 --
-------- -------- -------- --------
Net loss $(46,275) $(11,564) $(77,227) $(32,117)
======== ======== ======== ========
Basic and diluted loss per share $ (1.15) $ (.35) $ (1.97) $ (.99)
======== ======== ======== ========
Shares used in computing net loss per share 40,333 32,800 39,256 32,484
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
LIGAND PHARMACEUTICALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1998 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(77,227) $(32,117)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 3,215 3,037
Amortization of notes receivable from officers and employees 144 185
Amortization of deferred compensation and consulting -- 322
Amortization of warrant subscription receivable -- 1,529
Accretion of debt discount 2,006 2,006
Gain on sale of property and equipment (24) (69)
Write off of acquired in-process technology 30,000 --
Change in operating assets and liabilities:
Other current assets (2,796) 696
Receivable from a related party -- (59)
Accounts payable and accrued liabilities (7,070) (674)
Deferred revenue 1,695 (1,242)
-------- --------
Net cash used in operating activities (50,057) (26,386)
INVESTING ACTIVITIES
Purchase of short-term investments (28,777) (18,584)
Proceeds from short-term investments 33,620 27,367
Increase in/payment of notes receivable from officers and employees (147) (204)
Increase in other assets (7,422) (3,668)
Decrease in other assets 3,577 89
Purchase of property and equipment (1,113) (3,727)
Seragen assets acquired (5,756) --
Proceeds from sale of property and equipment 24 32
-------- --------
Net cash provided by/(used in) investing activities (5,994) 1,305
-------- --------
FINANCING ACTIVITIES
Principal payments on obligations under capital leases (2,232) (2,366)
Net change in restricted short-term investment 249 471
Net proceeds from sale of common stock 20,721 5,583
-------- --------
Net cash provided by financing activities 18,738 3,688
-------- --------
Net decrease in cash and cash equivalents (37,312) (21,393)
Cash and cash equivalents at beginning of period 62,252 34,830
-------- --------
Cash and cash equivalents at end of period $ 24,939 $ 13,437
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,958 $ 5,142
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to obligations under capital leases $ 2,627 $ 2,676
Conversion of note to common stock $ 3,750 $ 6,250
Common stock issued to purchase Seragen $ 25,996 --
</TABLE>
See accompanying notes
5
<PAGE> 6
LIGAND PHARMACEUTICALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The consolidated financial statements of Ligand Pharmaceuticals Incorporated
(the "Company") for the three and nine months ended September 30, 1998 and 1997
are unaudited. These financial statements reflect all adjustments, consisting of
only normal recurring adjustments which, in the opinion of management, are
necessary to fairly present the consolidated financial position as of September
30, 1998 and the consolidated results of operations for the three and nine
months ended September 30, 1998 and 1997. The results of operations for the
periods ended September 30, 1998 are not necessarily indicative of the results
to be expected for the year ending December 31, 1998. For more complete
financial information, these financial statements, and the notes thereto, should
be read in conjunction with the audited consolidated financial statements for
the year ended December 31, 1997 included in the Ligand Pharmaceuticals
Incorporated Form 10-K filed with the Securities and Exchange Commission.
In June 1997, the Financial Accounting Standards Board issued SFAS 130,
Reporting Comprehensive Income, and SFAS 131, Segment Information. Both of these
standards are effective for fiscal years beginning after December 15, 1997. SFAS
130 requires that all components of comprehensive income, including net income,
be reported in the financial statements in the period in which they are
recognized. SFAS 130 requires the change in net unrealized gains (losses) on
available-for-sale securities to be included in comprehensive income. As
adjusted for this item, comprehensive net loss for the nine month periods ended
September 30, 1998 and 1997 is $(77.5) million and $(32.0) million,
respectively. SFAS 131 amends the requirements for a public enterprise to report
financial and descriptive information about its reportable operating segments.
The Company currently operates in one business and operating segment and does
not believe adoption of this standard will have a material impact on the
Company's financial statements as reported.
INVENTORIES
In August 1998, the Company acquired Seragen, Inc. ("Seragen") (See Note 3.) In
December 1997, Seragen submitted a Biologic License Application ("BLA") to the
U.S. Food and Drug Administration ("FDA") for ONTAK(TM) (DAB(389)IL-2,
Interleukin-2 Fusion Protein or denileukin diftitox). In June 1998 the FDA
issued a Complete Review Letter to Seragen in respect to its BLA. Seragen
responded to the issues set out in the Complete Review Letter in August 1998 and
is awaiting final FDA action. In preparation for the approval by the FDA, if
received, Seragen has manufactured commercial quantities of ONTAK(TM) and in
purchase accounting for the Merger the Company has capitalized approximately
$1.5 million of work-in-process inventory as of September 30, 1998. If the FDA
does not approve the BLA, and ONTAK(TM) is not approved for commercial sale, any
capitalized costs related to ONTAK(TM) will be expensed.
2. NET LOSS PER SHARE
Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding.
3. MERGER AGREEMENT
On August 12, 1998, a wholly owned subsidiary of the Company was merged into
Seragen, with Seragen as the surviving corporation (the "Merger"). In addition,
the Company had previously announced that it had signed a definitive asset
purchase agreement to acquire substantially all the assets of Marathon
Biopharmaceuticals, LLC, ("Marathon") which currently provides manufacturing
services to Seragen under a service agreement. Finally, in August 1998 Seragen
signed an agreement with the Company and Eli Lilly and Company ("Lilly") under
which Lilly assigned to the Company Lilly's rights and obligations under its
agreements with Seragen, including its sales and marketing rights to ONTAK(TM).
Under the terms of the merger agreement, Ligand paid merger consideration at
closing in the amount of $30.0 million, $4.0 million of which was in cash and
$26.0 million of which was in the form of approximately 1,858,515 shares of the
Company's Common Stock valued at $13.99 per share. The valuation of the
Company's Common Stock for this portion of the transaction is based on the
average closing share price for the five trading days prior to signing of the
definitive agreement in May 1998. From the upfront payment, Seragen's common
shareholders received at the time of closing
6
<PAGE> 7
approximately 0.036 of a share of the Company's Common Stock for every share of
Seragen common stock owned immediately prior to closing. The remainder of the
$30.0 million in merger consideration paid at closing was used to settle claims
of Seragen's creditors and obligees.
The merger agreement also calls for an additional $37.0 million payment in cash
and/or the Company's Common Stock, at the Company's option, to be paid six
months after the date of receipt of final FDA clearance to market ONTAK(TM). The
$37.0 million payment will not be made, however, if ONTAK(TM) is not cleared by
the FDA by August 12, 2000. From the $37.0 million, Seragen's common
shareholders will receive $0.23 in, at the Company's option, cash or equivalent
value of the Company's Common Stock (based on the average closing price for the
10 trading days immediately preceding the second closing), for every Seragen
common share owned prior to the Merger. The remainder of the $37 million payment
will be used to settle claims of Seragen's creditors and obligees.
Additionally, the Company's agreement with Lilly calls for up to $5.0 million,
payable in cash or the Company's Common Stock, at the Company's option, in
potential milestone payments to Lilly, if ONTAK(TM) is approved by the FDA, and
upon certain other events. Upon certain other events, Lilly could receive an
additional $5.0 million in milestone payments.
The agreement with Marathon, the organization which provides manufacturing
services to Seragen, provides for Ligand's acquisition of substantially all of
Marathon's assets for $5.0 million, with an additional $3.0 million to be paid
six months after FDA approval of ONTAK(TM). The Company may purchase the assets
of Marathon at any time before January 31, 1999. The purchase payments can be
paid in cash or the Company's Common Stock, at the Company's option.
The Merger was accounted for using the purchase method of accounting. The
purchase price, totaling $83.8 million, which includes liabilities assumed of
$2.0 million was allocated to the fair value of the assets acquired, including
an allocation to in-process technology which was written off, resulting in a
one-time non-cash charge to results of operations of approximately $30.0
million. As of September 30, 1998, subject to a valuation of tangible and
intangible assets in order to properly allocate the total purchase price to all
of the assets acquired and liabilities assumed in the Merger as required by
Accounting Principles Board Opinion No. 16, the Company recorded $50.0 million
for accrued contingent payments, $40.0 million related to the approval of
ONTAK(TM) and $10.0 million for payments to Marathon and Lilly, $15.0 million
for the value of Marathon property and equipment and has capitalized a value of
$37.3 million for the acquired technology related to ONTAK(TM), as Seragen had
received its Complete Review Letter from the FDA at the time of acquisition.
The following pro forma condensed statement of operations information has been
prepared to give effect to the merger as if such transaction had occurred at the
beginning of the periods presented. The historical results of operations have
been adjusted to reflect (i) elimination of the one-time charge to operations
for the purchase of acquired in-process technology: (ii) adjustment for
depreciation resulting from adjusting the basis of property and equipment to
fair value and amortization over 25 years, (iii) amortization of acquired
technology over 15 years, (iv) elimination of Seragen stock issuance costs
(1997) and compensation expense amortization (1998), (v) elimination of interest
income for Seragen and reduction of Ligand interest income resulting from use of
$6.0 million for the Merger at an annual interest rate of 5.5% and (vi)
Elimination of interest expense related to the amortization of Seragen's
Ajinomoto liability. The information presented is not necessarily indicative of
the results of future operations of the merged companies.
Pro Forma Results Of Operations
(Unaudited)
In thousands
<TABLE>
<CAPTION>
Year ended Nine Months ended
December 31, September 30,
1997 1998
--------- ---------
<S> <C> <C>
Revenues $ 56,413 $ 16,203
Net loss $(118,675) $ (56,236)
Weighted average shares outstanding 34,987 39,256
Loss per share $ (3.39) $ (1.43)
</TABLE>
7
<PAGE> 8
4. STRATEGIC ALLIANCE AND FINANCING
On September 29, 1998, the Company and Elan Corporation, plc ("Elan") signed a
binding letter of agreement. Elan purchased approximately $20.0 million of the
Company's Common Stock in two installments. On September 29, 1998, Elan
purchased 1,278,970 shares of the Company's Common Stock for $14.9 million
($11.65 per share). The second installment to purchase 437,768 shares for $5.1
million ($11.65 per share) occurred at the closing of the transaction on
November 9, 1998.
Elan purchased from the Company at the closing, $40.0 million in issue price of
Zero Coupon Convertible Senior Notes, due 2008 with an 8.0% per annum yield to
maturity (the "Notes"). Of these Notes $30.0 million are convertible into the
Company's Common Stock at $14.00 per share. The balance issued of $10.0 million
along with up to an additional $70.0 million of Notes which Elan may also
purchase will be convertible into the Company's Common Stock at a price which is
the average of the closing prices of the Company's Common Stock for the 20
trading days immediately prior to the issuance of a Note plus a premium;
however, in no event will the conversion price be less than $14.00 per share or
more than $20.00 per share. Interest will accrue during the term of the Notes,
and the Notes may be used to finance the final payments for the Seragen Merger
expected in 1999 as well as other acquisitions of complementary technologies,
subject to the consent of Elan.
Elan also agreed to exclusively license to the Company in the United States and
Canada its proprietary product Morphelan(TM). For the rights to Morphelan(TM),
the Company will pay Elan certain license fees at the closing of the
transaction, and milestone payments upon the occurrence of certain events up to
and including the approval of the New Drug Application ("NDA") in the United
States. Payment may be in cash or subject to certain conditions in the Company's
Common Stock or Notes. At closing, the Company paid Elan $5.0 million through
the issuance of 429,185 shares of the Company's Common Stock ($11.65 per share)
and $10.0 million from the issuance of Notes.
8
<PAGE> 9
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This quarterly report may contain predictions, estimates and other
forward-looking statements that involve a number of risks and uncertainties,
including those discussed below at "Risks and Uncertainties." While this outlook
represents management's current judgment on the future direction of the
business, such risks and uncertainties could cause actual results to differ
materially from any future performance suggested below. The Company undertakes
no obligation to release publicly the results of any revisions to these
forward-looking statements to reflect events or circumstances arising after the
date hereof.
OVERVIEW
Since January 1989, the Company has devoted substantially all of its resources
to its intracellular receptor ("IR") and Signal Transducers and Activators of
Transcription ("STATs") drug discovery and development programs. The Company has
been unprofitable since its inception and expects to incur substantial
additional operating losses due to continued requirements for research and
development, preclinical testing, clinical trials, regulatory activities,
establishment of manufacturing processes and sales and marketing capabilities
until the approval and commercialization of the Company's products generate
sufficient revenues, expected in 1999. The Company expects that losses will
fluctuate from quarter to quarter as a result of differences in the timing of
expenses incurred, the revenues earned from collaborative arrangements and
future product sales. Some of these fluctuations may be significant. As of
September 30, 1998, the Company's accumulated deficit was approximately $355.0
million.
On August 12, 1998, a wholly owned subsidiary of the Company was merged into
Seragen, with Seragen as the surviving corporation (the "Merger"). In addition,
the Company had previously announced that it had signed a definitive asset
purchase agreement to acquire substantially all the assets of Marathon
Biopharmaceuticals, LLC, ("Marathon") which currently provides manufacturing
services to Seragen under a service agreement. Finally, in August 1998 Seragen
signed an agreement with the Company and Eli Lilly and Company ("Lilly") under
which Lilly assigned to the Company Lilly's rights and obligations under its
agreements with Seragen, including its sales and marketing rights to ONTAK(TM).
Under the terms of the merger agreement, Ligand paid merger consideration at
closing in the amount of $30.0 million, $4.0 million of which was in cash and
$26.0 million of which was in the form of approximately 1,858,515 shares of the
Company's Common Stock valued at $13.99 per share. The valuation of the
Company's Common Stock for this portion of the transaction is based on the
average closing share price for the five trading days prior to signing of the
definitive agreement in May 1998. From the upfront payment, Seragen's common
shareholders received at the time of closing approximately 0.036 of a share of
the Company's Common Stock for every share of Seragen common stock owned
immediately prior to closing. The remainder of the $30.0 million in merger
consideration paid at closing was used to settle claims of Seragen's creditors
and obligees.
The merger agreement also calls for an additional $37.0 million payment in cash
and/or the Company's Common Stock, at the Company's option, to be paid six
months after the date of receipt of final FDA clearance to market ONTAK(TM). The
$37.0 million payment will not be made, however, if ONTAK(TM) is not cleared by
the FDA by August 12, 2000. From the $37.0 million, Seragen's common
shareholders will receive $0.23 in, at the Company's option, cash or equivalent
value of the Company's Common Stock (based on the average closing price for the
10 trading days immediately preceding the second closing), for every Seragen
common share owned prior to the Merger. The remainder of the $37 million payment
will be used to settle claims of Seragen's creditors and obligees.
Additionally, the Company's agreement with Lilly calls for up to $5.0 million,
payable in cash or the Company's Common Stock, at the Company's option, in
potential milestone payments to Lilly, if ONTAK(TM) is approved by the FDA, and
upon certain other events. Upon certain other events, Lilly could receive an
additional $5.0 million in milestone payments.
The agreement with Marathon, the organization which provides manufacturing
services to Seragen, provides for Ligand's acquisition of substantially all of
Marathon's assets for $5.0 million, with an additional $3.0 million to be paid
six months after FDA approval of ONTAK(TM). The Company may purchase the assets
of Marathon at any time before January 31, 1999. The purchase payments can be
paid in cash or the Company's Common Stock, at the Company's option.
9
<PAGE> 10
The Merger was accounted for using the purchase method of accounting. The
purchase price, totaling $83.8 million, which includes liabilities assumed of
$2.0 million was allocated to the fair value of the assets acquired, including
an allocation to in-process technology which was written off, resulting in a
one-time non-cash charge to results of operations of approximately $30.0
million. As of September 30, 1998, subject to a valuation of tangible and
intangible assets in order to properly allocate the total purchase price to all
of the assets acquired and liabilities assumed in the Merger as required by
Accounting Principles Board Opinion No. 16, the Company recorded $50.0 million
for accrued contingent payments, $40.0 million related to the approval of
ONTAK(TM) and $10.0 million for payments to Marathon and Lilly, $15.0 million
for the value of Marathon property and equipment and has capitalized a value of
$37.3 million for the acquired technology related to ONTAK(TM), as Seragen had
received its Complete Review Letter from the FDA at the time of acquisition.
On September 29, 1998, the Company and Elan Corporation, plc ("Elan") signed a
binding letter of agreement. Elan purchased approximately $20.0 million of the
Company's Common Stock in two installments. On September 29, 1998, Elan
purchased 1,278,970 shares of the Company's Common Stock for $14.9 million
($11.65 per share). The second installment to purchase 437,768 shares for $5.1
million ($11.65 per share) occurred at the closing of the transaction on
November 9, 1998.
Elan purchased from the Company at the closing, $40.0 million in issue price of
Zero Coupon Convertible Senior Notes, due 2008 with an 8.0% per annum yield to
maturity (the "Notes"). Of these Notes $30.0 million are convertible into the
Company's Common Stock at $14.00 per share. The balance issued of $10.0 million
along with up to an additional $70.0 million of Notes which Elan may also
purchase will be convertible into the Company's Common Stock at a price which is
the average of the closing prices of the Company's Common Stock for the 20
trading days immediately prior to the issuance of a Note plus a premium;
however, in no event will the conversion price be less than $14.00 per share or
more than $20.00 per share. Interest will accrue during the term of the Notes,
and the Notes may be used to finance the final payments for the Seragen Merger
expected in 1999 as well as other acquisitions of complementary technologies,
subject to the consent of Elan.
Elan also agreed to exclusively license to the Company in the United States and
Canada its proprietary product Morphelan(TM). For the rights to Morphelan(TM),
the Company will pay Elan certain license fees at the closing of the
transaction, and milestone payments upon the occurrence of certain events up to
and including the approval of the New Drug Application ("NDA") in the United
States. Payment may be in cash or subject to certain conditions in the Company's
Common Stock or Notes. At closing, the Company paid Elan $5.0 million through
the issuance of 429,185 shares of the Company's Common Stock ($11.65 per share)
and $10.0 million from the issuance of Notes.
In December 1994, the Company and Allergan, Inc. ("Allergan") formed Allergan
Ligand Retinoid Therapeutics, Inc. ("ALRT") to continue the research and
development activities previously conducted by the Allergan Ligand Joint Venture
(the "Joint Venture"). In June 1995, the Company and ALRT completed a public
offering of 3,250,000 units (the "Units") with aggregate proceeds of $32.5
million (the "ALRT Offering") and cash contributions by Allergan and the Company
of $50.0 million and $17.5 million, respectively, providing for net proceeds of
$94.3 million for retinoid product research and development. Each Unit consisted
of one share of ALRT's callable common stock ("Callable Common Stock") and two
warrants, each warrant entitling the holder to purchase one share of the Common
Stock of the Company. In September 1997, the Company and Allergan exercised
their respective options to purchase all of the Callable Common Stock (the
"Stock Purchase Option") and certain assets (the "Asset Purchase Option") of
ALRT. The Company's exercise of the Stock Purchase Option required the issuance
of 3,166,567 shares of the Company's Common Stock along with cash payments
totaling $25.0 million, to holders of the Callable Common Stock in November
1997. Allergen's exercise of the Asset Purchase Option required a cash payment
of $8.9 million to ALRT in November 1997, which was used by the Company to pay a
portion of the Stock Purchase Option. Prior to September 1997, cash received
from ALRT was recorded as contract revenue. As a result of the ALRT buyback,
research expenditures incurred related to ALRT activities are no longer
reimbursed, eliminating the ALRT contract revenue recognition. The buyback of
ALRT was accounted for using the purchase method of accounting. The excess of
the purchase price over the fair value of net assets acquired was allocated to
in-process technology and written off resulting in a one time non-cash charge to
results of operations of $65.0 million in 1997.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 ("1998"), as Compared with Three Months
Ended September 30, 1997 ("1997")
10
<PAGE> 11
The Company had revenues of $3.9 million for 1998 compared to revenues of $10.2
million for 1997. The decrease in revenues is primarily due to the buyback of
ALRT which resulted in reduced revenue of $6.7 million in 1998 compared to 1997,
completion of the Glaxo-Wellcome, plc ("Glaxo") and Sankyo Company Ltd.
("Sankyo") collaborations in 1997 resulting in reduced revenues in 1998 of
$432,000 and $667,000, respectively compared to 1997, completion of the American
Home Products Corporation ("AHP") collaboration in 1998 resulting in reduced
revenue of $917,000 compared to 1997, offset by increased revenues of $2.6
million in 1998 from a new research and development collaboration with Lilly
which began in November 1997. Revenues in 1998 were derived from the Company's
research and development agreements with (i) Lilly of $2.6 million, (ii)
SmithKline Beecham Corporation ("SmithKline Beecham") of $886,000, (iii) Abbott
Laboratories ("Abbott") of $300,000, (iv) AHP of $99,000, as well as from
product sales of in-licensed products by Ligand's Canadian subsidiary of
$103,000. Revenues for 1997 were derived from the Company's research and
development agreements with (i) ALRT of $6.7 million, (ii) AHP of $1.0 million,
(iii) SmithKline Beecham of $1.0 million, (iv) Sankyo of $667,000, (v) Glaxo of
$432,000, (vi) Abbott of $300,000, as well as from product sales of in-licensed
products by Ligand's Canadian subsidiary of $99,000.
For 1998, research and development expenses decreased to $17.0 million from
$18.0 million in 1997. The decrease in expenses was primarily due to initial
drug product validation costs incurred in 1997 and the closure of Glycomed's
Alameda facility and completion of the research portion of the Sankyo
collaboration in October 1997. Selling, general and administrative expenses
increased to $3.8 million in 1998 from $2.5 million in 1997. The increase was
primarily attributable to personnel additions and increased expenses in
preparation for commercialization activities. Interest income decreased to
$521,000 in 1998 from $798,000 in 1997 due to a decrease in cash as a result of
cash used to fund development and clinical programs and to support the growth in
commercialization activities. Interest expense was $2.0 million for 1998 and
1997. A realized gain of $2.0 million was due to the sale of equity securities
in 1998.
A one-time charge of $30.0 million was incurred in 1998 due to the Merger.
The Company has significant net operating loss carryforwards for federal and
state income taxes which are available subject to Internal Revenue Code Sections
382 and 383 carryforward limitations.
Nine Months Ended September 30, 1998 ("1998"), as Compared with Nine Months
Ended September 30, 1997 ("1997")
The Company had revenues of $13.4 million for 1998 compared to revenues of $29.9
million for 1997. The decrease in revenues is primarily due to the buyback of
ALRT which resulted in reduced revenue of $18.9 million in 1998 compared to
1997, completion of the Glaxo and Sankyo collaborations in 1997, resulting in
reduced revenues in 1998 of $1.3 million and $2.1 million, respectively compared
to 1997, completion of the AHP collaboration resulting in a revenue decrease of
$2.3 million in 1998 compared to 1997, offset by increased revenues of $7.5
million in 1998 from the new collaboration with Lilly which began in November
1997. Revenues in 1998 were derived from the Company's research and development
agreements with (i) Lilly of $7.5 million, (ii) SmithKline Beecham of $2.7
million, (iii) AHP of $1.3 million, (iv) Abbott of $900,000, product sales of
in-licensed products by Ligand's Canadian subsidiary of $282,000 and a one-time
license fee payment of $686,000. Revenues for 1997 were derived from the
Company's research and development agreements with (i) ALRT of $18.9 million,
(ii) AHP of $3.4 million, (iii) SmithKline Beecham of $2.5 million, (iv) Sankyo
of $2.1 million, (v) Abbott of $1.4 million, (vi) Glaxo of $1.3 million as well
as from product sales of in-licensed products by Ligand's Canadian subsidiary of
$325,000.
For 1998, research and development expenses decreased to $49.2 million in 1998
from $51.4 million in 1997. The decrease in expenses was primarily due to
initial drug product validation costs incurred in 1997 and the closure of
Glycomed's Alameda facility and completion of the research portion of the Sankyo
collaboration in October 1997, offset by increased expenses related to
completion of phase III trials and NDA preparation and submission for the
Company's lead product candidate. Selling, general and administrative expenses
increased to $9.9 million in 1998 from $7.4 million in 1997. The increase was
primarily attributable to personnel additions and increased expenses in
preparation for commercialization activities. Interest income decreased to $2.4
million in 1998 from $2.8 million in 1997. The decrease is due to the usage of
cash to fund development and clinical programs and support the growth in
commercialization activities. Interest expense decreased to $5.9 million in
1998, from $6.1 million in 1997 due to the conversion of convertible notes. A
realized gain of $2.0 million was due to the sale of equity securities in 1998.
A one-time charge of $30.0 million was incurred in 1998 due to the Merger.
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The Company has significant net operating loss carryforwards for federal and
state income taxes which are available subject to Internal Revenue Code Sections
382 and 383 carryforward limitations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations through private and public offerings of
its equity securities, collaborative research revenues, capital and operating
lease transactions, issuance of convertible notes, investment income and product
sales. From inception through September 30, 1998, the Company has raised cash
proceeds of $216.5 million from sales of equity securities: $78.2 million from
the Company's public offerings and an aggregate of $138.3 million from private
placements and the exercise of options and warrants.
As of September 30, 1998, the Company had acquired an aggregate of $43.3 million
in property, laboratory and office equipment (including Marathon) and $4.8
million in tenant leasehold improvements. Of these totals, $15.0 million was
recorded in the Seragen Merger and will be paid in cash or common stock, at the
Company's option, while substantially all of the balance has been funded through
capital lease and equipment note obligations. In addition, the Company leases
its office and laboratory facilities under operating leases. In July 1994, the
Company entered into a long-term lease related to the construction of a new
laboratory facility, which was completed and occupied in August 1995. In March
1997, the Company entered into a long-term lease, related to a second
build-to-suit facility and loaned the construction partnership $3.7 million at
an annual interest rate of 8.5% which will be paid back monthly over a 10-year
period. The second build-to-suit facility was completed and occupied in December
1997. In February 1997, the Company signed a master lease agreement to finance
future capital equipment up to $1.5 million, and in July 1997, the master lease
agreement was extended to December 1998 to include up to an additional $4.5
million. Each individual schedule under the extended master lease agreement will
be paid back monthly with interest over a five-year period. As of September 30,
1998, the company had $1.0 million available to finance future capital
equipment.
Working capital decreased to $27.2 million as of September 30, 1998, from $62.4
million at the end of 1997. The decrease in working capital resulted from a
decrease in cash payments in 1998 due to increases in clinical trials and
product development expenses and accruals in late 1997, increased selling
expenses, semi-annual interest payments due on convertible subordinated
debentures and convertible notes and the Merger obligations, offset by the $14.9
million equity investment by Elan in September 1998. For the same reasons, cash
and cash equivalents, short-term investments and restricted cash decreased to
$43.6 million at September 30, 1998 from $86.3 million at December 31, 1997. The
Company primarily invests its cash in United States government and investment
grade corporate debt securities.
In April 1998, SmithKline Beecham plc. and the Company initiated a new
collaboration to develop small molecule drugs for the treatment or prevention of
obesity. As part of the collaboration, SmithKline Beecham plc. purchased 274,423
shares of Ligand Common Stock for $5.0 million ($18.22 per share), a 20% premium
over a 15-day average of the daily closing price of the Company's Common Stock
prior to execution of the agreement. The premium has been deferred and will be
recognized as revenue over the two-year period in which services will be
provided under the collaborative agreement. SmithKline Beecham plc. also
purchased for $1.0 million a warrant to purchase 150,000 shares of Ligand Common
Stock at $20.00 per share. The warrant expires in five years, and Ligand may
require SmithKline Beecham plc. to exercise the warrant under certain
circumstances after three years. SmithKline Beecham plc. will also purchase
additional Ligand Common Stock at a 20% premium if a certain research milestone
is achieved and will make cash payments to Ligand if subsequent milestones are
met.
In June 1998, the Company converted $3.8 million of the convertible notes
outstanding to AHP into 374,625 shares of the Company's Common Stock at a $10.01
conversion price.
In August 1998, the Company paid merger consideration in the amount of $30.0
million, $4.0 million of which was cash and $26.0 million of which was in the
form of approximately 1,858,515 shares of the Company's Common Stock valued at
$13.99 per share under the terms of the Merger. The merger agreement also calls
for an additional $37.0 million payment in cash and/or Company Common Stock, at
the Company's option, to be paid six months after the date of receipt of final
FDA clearance to market ONTAK(TM). The $37.0 million payment will not be made,
however, if ONTAK(TM) is not cleared by the FDA by August 12, 2000.
On September 29, 1998, Elan purchased 1,278,970 shares of the Company's Common
Stock for $14.9 million ($11.65 per share), an additional 437,768 shares for
$5.1 million ($11.65 per share) was purchased by Elan upon closing of the
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transaction. Elan purchased from the Company, at the closing, $40.0 million in
issue price of Zero Coupon Convertible Senior Notes, due 2008 with an 8.0% per
annum yield to maturity. Elan may also purchase up to an additional $70.0
million of Notes which will be convertible into the Company's Common Stock at
$14.00 to $20.00 per share.
Upon the closing, Elan also licensed its proprietary product, Morphelan(TM) to
the Company in the U.S. and Canada. The Company agreed to pay certain upfront
license fees on the closing and milestones upon the occurrence of certain
events. Payments may be in cash or subject to certain conditions in the
Company's Common Stock or Notes.
The Company believes that its available cash, cash equivalents, marketable
securities and existing sources of funding will be adequate to satisfy its
anticipated capital requirements through 1999. The Company's future capital
requirements will depend on many factors, including the pace of scientific
progress in research and development programs, the magnitude of these programs,
the scope and results of preclinical testing and clinical trials, the time and
costs involved in obtaining regulatory approvals, the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims,
competing technological and market developments, the ability to establish
additional collaborations, changes in the existing collaborations, the cost of
manufacturing scale-up and the effectiveness of the Company's commercialization
activities.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. The impact of the Year 2000 issue may affect other systems that
utilize imbedded computer chip technology, including, but not limited to,
building controls, security systems or laboratory equipment. It may also impact
the ability to obtain products or services if the provider encounters and fails
to resolve "Year 2000" related problems.
The Company has established an active program to identify and resolve Year 2000
related issues. This program includes the review and assessment of information
technology and non-information technology systems, as well as third parties with
which the Company has a material relationship. This program consists of four
phases: inventory, risk assessment, problem validation, and problem resolution.
The inventory phase identified potential risks posed to the company. They
include, but are not limited to, computer software, computer hardware,
telecommunications systems, laboratory equipment, facilities systems (security,
environment control, alarm), service providers (contract research organizations,
consultants, product distribution), and other third parties. The risk assessment
phase categorized and prioritized each risk by potential impact to the
organization. The problem validation phase tests each potential risk, according
to priority, to determine if an action risk exists. In the case of critical
third parties this step will include a review of their Year 2000 plans and
activities. The problem resolution phase will, for each validated risk,
determine the method/strategy for alleviating the risk. It may include anything
from replacement of hardware or software to process modification to selection of
alternative vendors. This step also includes the development of contingency
plans. The Company initiated this program earlier in the year and is currently
working on the problem validation phase. It is expected that this phase will be
completed by the end of 1998 at which time contingency plans will be determined
and that the problem resolution phase will be completed by the end of the third
quarter in 1999.
To date, certain of the Company's internal information technology and
non-information technology systems have been identified as not being Year 2000
compliant. In addition, the Company utilizes critical third-party service
providers, for which full assessment of their Year 2000 compliance has not yet
been completed. This assessment is taking place as part of the current problem
validation phase. The Company is actively correcting problems as they are
identified. These corrections include the replacement of hardware and software
systems, the identification of alternative service providers, and the creation
of contingency plans. Current estimated cost of identified problems is
approximately $100,000 for hardware and software upgrades or modifications. In
addition it is estimated that approximately $400,000 of internal personnel costs
will be required to complete the remaining phases of the project. The Company
does not believe that the cost of these actions will have a material adverse
affect on the Company's business. It is expected that any problems identified in
the remaining phases of the project will be able to be resolved as part of
normal operating expenses.
A failure of the Company's internal computer systems or of third-party equipment
or software used by the Company, or of systems maintained by the Company's
suppliers, to be Year 2000 compliant may have a material adverse effect on the
Company's business. In addition, adverse changes in the purchasing patterns of
the Company's potential customers as a
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result of Year 2000 issues affecting such customers may have a material adverse
effect on the Company's business. These expenditures by potential customers may
result in reduced funds available to purchase the Company's products, which
could have a material adverse effect on the Company's business.
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RISKS AND UNCERTAINTIES
In addition to the other business information contained herein, the following
are among the factors that should also be considered carefully in evaluating
Ligand, its wholly-owned subsidiaries, Glycomed Inc., Seragen, Inc., Ligand
Pharmaceuticals (Canada) Incorporated and Allergan Ligand Retinoid Therapeutics,
Inc. ("Ligand" or the "Company") and its business.
Uncertainty of Product Development and Commercialization and Related Technology.
Ligand was founded in 1987 and has not generated any revenues from the sale of
products developed by Ligand or its collaborative partners. To achieve
profitable operations, the Company, alone or with others, must successfully
develop, clinically test, market and sell its products. Any products resulting
from the Company's or its collaborative partners' product development efforts
are not expected to be available for sale until the end of the year, if at all.
No assurance can be given that required regulatory approvals from the FDA or
equivalent foreign authorities for their intended indications or any other
indication with respect to ONTAK(TM), Panretin gel (alitretinoin) 0.1%,
Morphelan(TM), or any other potential products will be obtained in a timely
manner or at all. If any such approvals are not obtained, it could have a
material adverse effect on the Company's business.
The development of new pharmaceutical products is highly uncertain and subject
to a number of significant risks. Potential products that appear to be promising
at early stages of development may not reach the market for a number of reasons.
Such reasons include the possibilities that potential products are found during
preclinical testing or clinical trials to be ineffective or to cause harmful
side effects, that they fail to receive necessary regulatory approvals, are
difficult or uneconomical to manufacture on a large scale, fail to achieve
market acceptance or are precluded from commercialization by proprietary rights
of third parties. To date, Ligand's resources have been substantially dedicated
to the research and development of potential pharmaceutical products based upon
its expertise in IR and STATs technologies, while Seragen has concentrated its
efforts on potential pharmaceutical products based on its fusion protein
technology. Even though certain pharmaceutical products act through IRs, some
aspects of the Company's IR technologies have not been used to produce marketed
products. In addition, the Company is not aware of any drugs that have been
developed and successfully commercialized that interact directly with STATs.
Much remains to be learned about the location and function of IRs and STATs. The
Company expects that its potential products, ONTAK(TM) for cutaneous T-cell
lymphoma CTCL and Panretin gel for AIDS-related Kaposi's Sarcoma ("KS") will not
be available for commercial sale until the end of the year, if at all. Potential
products tested in preclinical trials may not be successful in human clinical
trials. Products currently in, or which in the future advance to, various phases
of human clinical trials may not prove to be efficacious, or unintended or
unacceptably high levels of toxic side effects may occur. Most of the Company's
potential products will require extensive additional development, including
preclinical testing and clinical trials, as well as regulatory approvals, prior
to commercialization. A number of factors may prevent successful
commercialization, including a failure of the Company's product development
efforts, failure to obtain required regulatory approvals from the FDA or
equivalent foreign authorities for any indication, failure to produce any
products, if introduced, in commercial quantities at reasonable costs or failure
to successfully market such products. Further, the Company has no sales and only
limited marketing capabilities outside Canada, and even if the Company's
products in internal development are approved for marketing, the Company may not
be able to develop such capabilities or successfully market such products.
Uncertainties Related to Regulatory Review of ONTAK(TM) and Panretin Gel. In
December 1997, Seragen submitted a Biologic License Application ("BLA") to the
FDA requesting clearance to market its lead molecule, ONTAK(TM), for the
treatment of patients with advanced CTCL who have received previous treatment
with other agents. In May 1998, Ligand announced the submission of a New Drug
Application ("NDA") to the FDA for Panretin gel (altitretinoin) 0.1% for the
treatment of AIDS-related KS and was granted priority review by the FDA in July,
1998. Panretin gel will be reviewed by the Oncologic Drug Advisory Committee
("ODAC") on November 16, 1998.
On June 2, 1998, Ligand and Seragen announced that ODAC had voted favorably on
questions put to it by the FDA regarding the efficacy of, and the acceptability
of the incidence and severity of toxicity associated with, ONTAK(TM) for the
treatment of patients with recurrent or persistent CTCL. ODAC also recommended
that treating physicians should decide the appropriate doses within a prescribed
dose range. ODAC's votes, although not binding, will be considered by the FDA in
its review of the BLA.
On June 9, 1998, the FDA issued a Complete Review Letter to Seragen in respect
to its BLA. The Center for Biologics Evaluation and Research ("CBER"), the
division of the FDA responsible for reviewing Seragen's application, no longer
issues so-called "approvable" or "non-approvable" letters at the conclusion of
their formal review of license applications
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when the action is not an approval. Instead, the CBER issues letters signifying
that a complete review of all information and data submitted has been carried
out. Per the CBER's January 22, 1998 correspondence to applicants, a complete
review letter "summarizes all of the deficiencies and describes actions
necessary to place the application in a condition for approval."
The Complete Review Letter fulfills the FDA's commitment under the Prescription
Drug User Fee Act to a six-month review of the BLA, which was designated for
priority review. Upon the issuance of the Complete Review Letter, the review
clock was suspended with respect to the BLA and will not be reactivated until
all deficiencies have been addressed by Seragen.
The Complete Review Letter identified certain deficiencies in the BLA related to
safety, efficacy, manufacturing and product characterization. Seragen believes
it addressed and responded to the issues set out in the Complete Review Letter
and is awaiting final FDA action.
The short-term future financial results of the Company and the price of the
Company's Common Stock will be highly dependent on the timely receipt of
regulatory approvals required to market these products in the United States and
other jurisdictions and the subsequent successful commercial introduction of
such products. Any failure to obtain required regulatory approvals on a timely
basis could have a material adverse effect on the Company and a significant
impact on the trading price of the Company's Common Stock. Generally, only a
small percentage of new pharmaceutical products are approved for sale. Moreover,
if regulatory approval of a product is granted, the approval may limit the
indicated uses for which the product may be marketed. Such regulatory approvals
may be conditioned upon the performance of additional clinical trials or other
requirements established by the regulatory authorities. Even if regulatory
approval is obtained, a marketed product and its manufacturer are subject to
continual review. Discovery of previously unknown problems with a product or
manufacturer may result in restrictions on the use of the product or its
manufacturer, including withdrawal of the product from market. Also, prior to
marketing, the Company will be required to finalize labeling requirements and
satisfy the regulatory authorities that all manufacturing facilities meet
regulatory requirements.
History of Operating Losses; Accumulated Deficit; Future Capital Needs;
Uncertainty of Additional Funding. Ligand has experienced significant operating
losses since its inception in 1987. As of September 30, 1998, Ligand had an
accumulated deficit of approximately $355.0 million. To date, substantially all
of Ligand's revenues have consisted of amounts received under collaborative
arrangements. The Company expects to incur additional losses due to continued
requirements for research and development, preclinical testing, clinical trials,
regulatory activities, establishment of manufacturing processes and sales and
marketing capabilities.
The discovery, development and commercialization of products will require the
commitment of substantial resources to conduct research, preclinical testing and
clinical trials, to establish pilot scale and commercial scale manufacturing
processes and facilities, and to establish and develop quality control,
regulatory, marketing, sales and administrative capabilities. The future capital
requirements of the Company will depend on many factors, including the pace of
scientific progress in its research and development programs, the magnitude of
these programs, the scope and results of preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in preparing, filing, prosecuting, maintaining and enforcing patent
claims, competing technological and market developments, the ability to
establish additional collaborations, changes in existing collaborations, the
cost of manufacturing scale-up and the effectiveness of the Company's
commercialization activities. To date, Ligand has not generated any revenue from
the sales of products developed by Ligand or its collaborative partners. Ligand
may not be able to, independently or through its collaborations, successfully
develop, manufacture or market any products or ever achieve or sustain revenues
or profitability from the commercialization of such products. Moreover, even if
profitability is achieved, the level of that profitability cannot be accurately
predicted. Ligand expects that operating results will fluctuate from quarter to
quarter as a result of differences in the timing of expenses incurred and the
revenues received from collaborative arrangements and other sources. Some of
these fluctuations may be significant. The Company believes that its available
cash, cash equivalents, marketable securities and existing sources of funding
will be adequate to satisfy its anticipated capital requirements through 1999.
Glycomed's outstanding indebtedness includes $50.0 million principal amount of
7 1/2% Convertible Subordinated Debentures Due 2003 (the "Debentures"). Glycomed
may not have the funds necessary to pay the interest on and the principal of the
Debentures or, if not, that it will be able to refinance the Debentures when
due. If Glycomed does not have such funds, it will be forced to refinance the
Debentures and may not be successful in doing so. In November 1998,
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Ligand issued $40.0 million in issue price of Notes to Elan. Failure to make
payments when due under the Debentures would trigger an event of default under
the Notes.
The Company has incurred negative cash flow from operations since inception and
does not expect to generate positive cash flow to fund its operations for at
least the next year. As a result, additional equity or debt financings may be
required in the near future to fund the Company's operations. Additional equity
or debt financings may not be available on acceptable terms, if at all. In
addition, such financings, if consummated, may not be adequate to meet the
Company's capital requirements. Any additional equity or convertible debt
financings could result in substantial dilution to Ligand's stockholders. For
instance, the Notes are convertible into Common Stock at the option of Elan. If
adequate funds are not available, the Company may be required to delay, reduce
the scope of or eliminate one or more of their drug development programs or
attempt to continue development by entering into arrangements with collaborative
partners or others that may require the Company to relinquish some or all of its
rights to certain technologies or drug candidates that the Company would not
otherwise relinquish. Any inability of the Company to obtain additional
financing or of the Company or Glycomed to service its obligations under
outstanding indebtedness could have a material adverse effect on the Company's
business.
Uncertainties Related to Clinical Trials. Before obtaining required regulatory
approvals for the commercial sale of each product under development, the Company
and its collaborators must demonstrate through preclinical studies and clinical
trials that such product is safe and efficacious for use. The results of
preclinical studies and initial clinical trials are not necessarily predictive
of results that will be obtained from large-scale clinical trials. Clinical
trials of any product under development may not demonstrate the safety and
efficacy of a product to the satisfaction of the regulatory authorities, or at
all, or may not result in a marketable product. The safety and efficacy of a
therapeutic product under development by the Company must be supported by
extensive data from clinical trials. A number of companies have suffered
significant setbacks in advanced clinical trials, despite promising results in
earlier trials. The failure to demonstrate adequately the safety and efficacy of
a therapeutic drug under development would delay or prevent regulatory approval
of the product and could have a material adverse effect on the Company's
business. In addition, the FDA may require additional clinical trials, which
could result in increased costs and significant development delays.
The rate of completion of clinical trials of the Company's potential products is
dependent upon, among other factors, obtaining adequate clinical supplies and
the rate of patient accrual. Patient accrual is a function of many factors,
including the size of the patient population, the proximity of patients to
clinical sites and the eligibility criteria for the trial. Delays in planned
patient enrollment in clinical trials may result in increased costs, program
delays or both, which could have a material adverse effect on the Company's
business. In addition, some of the Company's current collaborative partners have
certain rights to control the planning and execution of product development and
clinical programs. These may impede the Company's ability to conduct such
programs in accordance with the schedules and in the manner currently
contemplated by the Company for such programs. There can be no assurance that,
if clinical trials are completed, the Company or its collaborative partners will
submit an NDA or BLA with respect to any potential products or that any such
application will be reviewed and approved by the FDA in a timely manner, if at
all.
Reliance on Collaborative Relationships. The Company's strategy for the
development, clinical testing, manufacturing and commercialization of certain of
its potential products includes entering into collaborations with corporate
partners, licensors, licensees and others. To date, Ligand has entered into drug
discovery and development collaborations with Lilly, SmithKline Beecham, AHP,
Abbott, Sankyo, Glaxo, Allergan and Pfizer Inc. These collaborations provide
Ligand with funding and research and development resources for potential
products for the treatment or control of metabolic diseases, hematopoiesis,
women's health disorders, inflammation, cardiovascular disease, cancer and skin
disease, and osteoporosis, respectively. The Company's collaborative agreements
allow its collaborative partners significant discretion in electing to pursue or
not to pursue any development program. The Company's collaborations may not
continue and may not be successful. In addition, Ligand's collaborators may not
pursue alternative technologies either on their own or in collaboration with
others as a means of developing drugs competitive with the types of drugs
currently being developed in collaboration with Ligand, and any such action may
result in the withdrawal of support and increased competition for the Company's
programs. In addition, if products are approved for marketing under these
programs, any revenues to Ligand from these products will be dependent on the
manufacturing, marketing and sales efforts of its collaborators, which generally
retain commercialization rights under the collaborative agreements. Ligand's
current collaborators also generally have the right to terminate their
respective collaborations under certain circumstances. If any of the Company's
collaborative partners were to breach or terminate its agreements with the
Company or otherwise fail to conduct its collaborative activities successfully,
the development of the Company's products under such agreements would be delayed
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or terminated. The delay or termination of any of the collaborations could have
a material adverse effect on the Company's business.
There can be no assurance that disputes will not arise in the future with
Ligand's collaborators, including with respect to the ownership of rights to any
technology developed. For example, the Company was involved in litigation with
Pfizer, which was settled in April 1996, with respect to Ligand's rights to
receive milestones and royalties based on the development and commercialization
of droloxifene. These and other possible disagreements between collaborators and
the Company could lead to delays in the achievement of milestones or receipt of
milestone payments or research revenue, to delays or interruptions in, or
termination of, collaborative research, development and commercialization of
certain potential products, or could require or result in litigation or
arbitration, which could be time consuming and expensive and could have a
material adverse effect on the Company's business.
Uncertainty of Patent Protection; Dependence on Proprietary Technology. The
patent positions of pharmaceutical and biopharmaceutical firms, including
Ligand, are uncertain and involve complex legal and technical questions for
which important legal principles are largely unresolved. In addition, the
coverage sought in a patent application can be significantly reduced before or
after a patent is issued. This uncertain situation is also affected by revisions
to the United States patent law adopted in recent years to give effect to
international accords to which the United States has become a party. The extent
to which such changes in law will affect the operations of Ligand cannot be
ascertained. In addition, there is currently pending before Congress legislation
providing for other changes to the patent law which may adversely affect
pharmaceutical and biopharmaceutical firms. If such pending legislation is
adopted, the extent to which such changes would affect the operations of the
Company cannot be ascertained.
Ligand's success will depend in part on its ability to obtain patent protection
for its technology both in the United States and other countries. A number of
pharmaceutical and biotechnology companies and research and academic
institutions have developed technologies, filed patent applications or received
patents on various technologies that may be related to Ligand's business. Some
of these patent applications, patents or technologies may conflict with Ligand's
technologies or patent applications. Any such conflict could limit the scope of
the patents, if any, that Ligand may be able to obtain or result in the denial
of Ligand's patent applications. In addition, if patents that cover Ligand's
activities are issued to other companies, Ligand may not able to obtain licenses
to such patents at a reasonable cost, if at all, or be able to develop or obtain
alternative technology. The Company has from time to time had, continues to have
and may have in the future discussions with its current and potential
collaborators regarding the scope and validity of the Company's patent and other
proprietary rights to its technologies, including the Company's co-transfection
assay. If a collaborator or other party were successful in having substantial
patent rights of the Company determined to be invalid, it could adversely affect
the ability of the Company to retain existing collaborations beyond their
expiration or could where contractually permitted, encourage their termination.
Such a determination could also adversely affect the Company's ability to enter
into new collaborations. If any disputes should arise in the future with respect
to the rights in any technology developed with a collaborator or with respect to
other matters involving the collaboration, there could be delays in the
achievement of milestones or receipt of milestone payments or research revenues,
or interruptions or termination of collaborative research, development and
commercialization of certain potential products, and litigation or arbitration
could result. Any of the foregoing matters could be time consuming and expensive
and could have a material adverse effect on the Company.
Ligand owns or has exclusive rights to more than 130 currently pending patent
applications in the United States relating to Ligand's technology, as well as
foreign counterparts of certain of these applications in many countries. Patents
may not be issued from any of these applications or, if patents do issue,
sufficient claims to protect Ligand's technology may not be allowed. In
addition, Ligand is the owner or exclusive licensee of rights covered by
approximately 290 worldwide patents issued or allowed to it or to The Salk
Institute of Biological Studies ("The Salk Institute"), Baylor College of
Medicine ("Baylor") and other licensors. Further, patents issued to Ligand or to
licensors of Ligand's technology may be challenged, invalidated, circumvented or
rendered unenforceable based on, among other things, subsequently discovered
prior art, lack of entitlement to the priority of an earlier, related
application, or failure to comply with the written description, best mode,
enablement or other applicable requirements. In addition, rights granted under
any such patents may not provide significant proprietary protection or
commercial advantage to Ligand. The invalidation, circumvention or
unenforceability of any of Ligand's patent protection could have a material
adverse effect on the Company' business.
The commercial success of Ligand will also depend in part on Ligand's not
infringing patents issued to competitors and not breaching technology licenses
that cover technology used in Ligand's products. It is uncertain whether any
third-party patents will require Ligand to develop alternative technology or to
alter its products or processes, obtain licenses or cease
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certain activities. If any such licenses are required, there can be no assurance
that Ligand will be able to obtain such licenses on commercially favorable
terms, if at all. Failure by Ligand to obtain a license to any technology that
it may require to commercialize its products could have a material adverse
effect on Ligand's business. Litigation, which could result in substantial cost
to Ligand, may also be necessary to enforce any patents issued or licensed to
Ligand or to determine the scope and validity of third-party proprietary rights.
There can be no assurance that Ligand's patents or those of its licensors, if
issued, would be held valid by a court or that a competitor's technology or
product would be found to infringe such patents. If any of its competitors have
filed patent applications in the United States which claim technology also
invented by Ligand, Ligand may be required to participate in interference
proceedings declared by the U.S. Patent and Trademark Office ("PTO") in order to
determine priority of invention and, thus, the right to a patent for the
technology, which could result in substantial cost to Ligand to determine its
rights.
Ligand has learned that a United States patent has been issued to, and foreign
counterparts have been filed by, Hoffman LaRoche ("Roche") that include claims
to a formulation of 9-cis-Retinoic acid (Panretin) and use of that compound to
treat epithelial cancers. Ligand had previously filed an application which has
an earlier filing date than the Roche patent and which has claims that the
Company believes are broader than but overlap in part with claims under the
Roche patent. Ligand is currently investigating the scope and validity of this
patent to determine its impact upon the Panretin capsules and gel products. The
PTO has informed Ligand that the overlapping claims are patentable to Ligand and
initiated an interference proceeding to determine whether Ligand or Roche is
entitled to a patent by having been first to invent the common subject matter.
The Company cannot be assured of a favorable outcome in the interference
proceeding because of factors not known at this time upon which the outcome may
depend. In addition, the interference proceeding may delay the decision of the
PTO regarding the Company's application with claims covering the Panretin
capsules and gel products. While the Company believes that the Roche patent does
not cover the use of Panretin capsules and gel to treat leukemias such as APL
and sarcomas such as KS, or the treatment of skin diseases such as psoriasis, if
the Company does not prevail in the interference proceeding, the Roche patent
might block the Company's use of Panretin capsules and gel in certain cancers,
and the Company may not be able to obtain patent protection for the Panretin
capsules and gel products.
Ligand also relies upon trade secrets, know-how, continuing technological
innovations and licensing opportunities to develop and maintain its competitive
position. There can be no assurance that others will not independently develop
substantially equivalent proprietary information or otherwise gain access to or
disclose such information regarding Ligand. It is Ligand's policy to require its
employees, certain contractors, consultants, members of its Scientific Advisory
Board and parties to collaborative agreements to execute confidentiality
agreements upon the commencement of employment or consulting relationships or a
collaboration with Ligand. These agreements may be breached by the other parties
to the agreements, or they may not provide meaningful protection of Ligand's
trade secrets or adequate remedies in the event of unauthorized use or
disclosure of such information. As a result of these and other factors Ligand's
trade secrets may become known or be independently discovered by its
competitors.
Lack of Manufacturing Capability; Reliance on Third-Party Manufacturers. Ligand
currently has no manufacturing facilities and, accordingly, relies on third
parties including Marathon and its collaborative partners, for clinical or
commercial production of any compounds under consideration as products. Ligand
is currently constructing and validating a cGMP pilot manufacturing capability
in order to produce sufficient quantities of products for preclinical testing
and initial clinical trials. If Ligand is unable to develop or contract on
acceptable terms for manufacturing services, Ligand's ability to conduct
preclinical testing and human clinical trials will be adversely affected,
resulting in the delay of submission of products for regulatory approval and
delay of initiation of new development programs, which in turn could materially
impair Ligand's competitive position. Although drugs acting through IRs and
STATs have been manufactured on a commercial scale by other companies, there can
be no assurance that Ligand will be able to manufacture its products on a
commercial scale or that such products can be manufactured by Ligand or any
other party on behalf of Ligand at costs or in quantities to make commercially
viable products.
Under a Service Agreement which expires January 31, 1999, Seragen depends on
Marathon's ability to provide certain services relating to product research,
development, manufacturing, clinical trials, quality control and quality
assurance. The Marathon employees providing such services are comprised
primarily of former employees of Seragen. In addition, neither Seragen nor
Marathon, have ever engaged in large-scale manufacturing.
Limited Sales and Marketing Capability. The creation of infrastructure to
commercialize pharmaceutical products is a difficult, expensive and
time-consuming process. Ligand currently has no sales and only limited marketing
capability outside Canada. In Canada, Ligand has been appointed as the sole
distributor of two oncology products, Proleukin, which
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<PAGE> 20
was developed by Cetus Oncology Corporation and PHOTOFRIN, which was developed
by QLT PhotoTherapeutics, Inc. To market any of its products directly, the
Company will need to develop a marketing and sales force with technical
expertise and distribution capability or contract with other pharmaceutical
and/or health care companies with distribution systems and direct sales forces.
The Company may not be able to establish direct or indirect sales and
distribution capabilities or may not be successful in gaining market acceptance
for proprietary products or for other products. To the extent the Company enters
into co-promotion or other licensing arrangements, any revenues received by the
Company will be dependent on the efforts of third parties, and there can be no
assurance that any such efforts will be successful.
Substantial Competition; Risk of Technological Obsolescence. Some of the drugs
which Ligand is developing will compete with existing therapies. In addition, a
number of companies are pursuing the development of novel pharmaceuticals which
target the same diseases that Ligand is targeting as well as IR-related and
STAT-related approaches to drug discovery and development. Many of Ligand's
existing or potential competitors, particularly large pharmaceutical companies,
have substantially greater financial, technical and human resources than Ligand
and may be better equipped to develop, manufacture and market products. In
addition, many of these companies have extensive experience in preclinical
testing and human clinical trials, obtaining FDA and other regulatory approvals
and manufacturing and marketing pharmaceutical products. Academic institutions,
governmental agencies and other public and private research organizations are
conducting research to develop technologies and products that may compete with
those under development by the Company. These institutions are becoming
increasingly aware of the commercial value of their findings and are becoming
more active in seeking patent protection and licensing arrangements to collect
royalties for the use of technology that they have developed. These institutions
also may market competitive commercial products on their own or through joint
ventures and will compete with the Company in recruiting highly qualified
scientific personnel. Any of these companies, academic institutions, government
agencies or research organizations may develop and introduce products and
processes competitive with or superior to those of Ligand. The development by
others of new treatment methods for those indications for which Ligand is
developing products could render Ligand's products noncompetitive or obsolete.
Ligand's products under development target a broad range of markets. Ligand's
competition will be determined in part by the potential indications for which
Ligand's products are developed and ultimately approved by regulatory
authorities. For certain of Ligand's potential products, an important factor in
competition may be the timing of market introduction of Ligand's or competitors'
products. Accordingly, the relative speed at which Ligand or its existing or
future corporate partners can develop products, complete the clinical trials and
regulatory approval processes, and supply commercial quantities of the products
to the market is expected to be an important competitive factor. Ligand expects
that competition among products approved for sale will be based, among other
things, on product efficacy, safety, reliability, availability, price and patent
position.
Ligand's competitive position also depends upon its ability to attract and
retain qualified personnel, obtain patent protection or otherwise develop
proprietary products or processes, and secure sufficient capital resources.
Extensive Government Regulation; No Assurance of Regulatory Approval. The
manufacturing and marketing of Ligand's products and its ongoing research and
development activities are subject to and regulation for safety and efficacy by
numerous governmental authorities in the United States and other countries.
Prior to marketing, any drug developed by the Company must undergo rigorous
preclinical and clinical testing and an extensive regulatory approval process
mandated by the FDA and equivalent foreign authorities. These processes can take
a number of years and require the expenditure of substantial resources.
The time required for completing such testing and obtaining such approvals is
uncertain, and there is no assurance that any such approval will be obtained.
The Company or its collaborative partners may decide to replace a compound in
testing with a modified or optimized compound, thus extending the test period.
In addition, delays or rejections may be encountered based upon changes in FDA
policy during the period of product development and FDA review of each submitted
new drug application or product license application. Similar delays may also be
encountered in other countries. There can be no assurance that even after such
time and expenditures, regulatory approval will be obtained for any products
developed by the Company. Moreover, prior to receiving FDA or equivalent foreign
authority approval to market its products, the Company may be required to
demonstrate that its products represent improved forms of treatment over
existing therapies. If regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which the product may
be marketed. Further, even if such regulatory approval is obtained, a marketed
product, its manufacturer and its manufacturing facilities are subject to
continual review and periodic inspections, and subsequent
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<PAGE> 21
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the product from the market.
Dependence on Third-Party Reimbursement and Health Care Reform. Ligand's
commercial success will be heavily dependent upon the availability of
reimbursement for the use of any products developed by the Company or its
collaborative partners. There can be no assurance that Medicare and third-party
payors will authorize or otherwise budget reimbursement for the prescription of
any of Ligand's potential products. Additionally, third-party payors, including
Medicare, are increasingly challenging the prices charged for medical products
and services and may require additional cost-benefit analysis data from the
Company in order to demonstrate the cost-effectiveness of its products. There
can be no assurance that the Company will be able to provide such data in order
to gain market acceptance of its products with respect to pricing and
reimbursement.
In the United States, the Company expects that there will continue to be a
number of federal and state proposals to implement government control of pricing
and profitability of prescription pharmaceuticals. In addition, increasing
emphasis on managed health care will continue to put pressure on such pricing.
Cost control initiatives could decrease the price that the Company or any of its
collaborative partners or other licensees receives for any drugs it or they may
discover or develop in the future and, by preventing the recovery of development
costs, which could be substantial, and an appropriate profit margin, could have
a material adverse effect on the Company. Further, to the extent that cost
control initiatives have a material adverse effect on the Company's
collaborative partners, the Company's ability to commercialize its products and
to realize royalties may be adversely affected. Furthermore, federal and state
regulations govern or influence the reimbursement to health care providers of
fees and capital equipment costs in connection with medical treatment of certain
patients. If any actions are taken by federal and/or state governments, such
actions could adversely affect the prospects for sales of the Company's
products. There can be no assurance that action taken by federal and/or state
governments, if any, with regard to health care reform will not have a material
adverse effect on the Company.
Product Liability and Insurance Risks. Ligand's business exposes it to potential
product liability risks which are inherent in the testing, manufacturing and
marketing of human therapeutic products. Certain of the compounds the Company is
investigating could be injurious to humans. For example, retinoids as a class
are known to contain compounds which can cause birth defects. Ligand currently
has limited product liability insurance; however, there can be no assurance that
Ligand will be able to maintain such insurance on acceptable terms or that such
insurance will provide adequate coverage against potential liabilities. The
Company expects to procure additional insurance when its products progress to a
later stage of development and if any rights to later-stage products are
in-licensed in the future. To the extent that product liability insurance, if
available, does not cover potential claims, the Company will be required to
self-insure the risks associated with such claims. A successful product
liability claim or series of claims brought against the Company could have a
material adverse effect on the Company's business.
Dependence on Key Employees. Ligand is highly dependent on the principal members
of its scientific and management staff, the loss of whose services might impede
the achievement of development objectives. Furthermore, Ligand is currently
experiencing a period of rapid growth which requires the hiring of significant
numbers of scientific, management and operational personnel. Accordingly,
recruiting and retaining qualified management, operations and scientific
personnel to perform research and development work in the future will also be
critical to Ligand's success. Although Ligand believes it will be successful in
attracting and retaining skilled and experienced management, operational and
scientific personnel, there can be no assurance that Ligand will be able to
attract and retain such personnel on acceptable terms given the competition
among numerous pharmaceutical and biotechnology companies, universities and
other research institutions for such personnel.
Use of Hazardous Materials. Ligand's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. For example, retinoids as a class are known to contain compounds
which can cause birth defects. Although the Company believes that its current
safety procedures for handling and disposing of such materials, chemicals and
compounds comply with the standards prescribed by state and federal regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of any accident, the Company could be held
liable for any damages that result and any such liability could be significant.
The Company may incur substantial costs to comply with environmental
regulations. Any such event could have a material adverse effect on the
Company's business.
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Volatility of Stock Price. The market prices and trading volumes for securities
of emerging companies, like Ligand, have historically been highly volatile and
have experienced significant fluctuations unrelated to the operating performance
of such companies. Future announcements concerning the Company or its
competitors may have a significant impact on the market price of the Common
Stock. Such announcements might include the results of research, development
testing, technological innovations, new commercial products, government
regulation, receipt of regulatory approvals by competitors, failure to receive
regulatory approvals by Ligand, developments concerning proprietary rights,
litigation or public concern as to the safety of the products.
Absence of Cash Dividends. No cash dividends have been paid on the Company's
Common Stock to date, and Ligand does not anticipate paying cash dividends in
the foreseeable future.
Effect of Shareholder Rights Plan and Certain Anti-Takeover Provisions. In
September 1996, the Company's Board of Directors adopted a preferred shares
rights plan (the "Shareholder Rights Plan") which provides for a dividend
distribution of one preferred share purchase right (a "Right") on each
outstanding share of the Company's Common Stock. Each Right entitles
stockholders to buy 1/1000th of a share of Ligand Series A Participating
Preferred Stock at an exercise price of $100, subject to adjustment. The Rights
will become exercisable following the tenth day after a person or group
announces acquisition of 20% or more of the Company's Common Stock, or announces
commencement of a tender offer, the consummation of which would result in
ownership by the person or group of 20% or more of the Company's Common Stock.
The Company will be entitled to redeem the Rights at $0.01 per Right at any time
on or before the earlier of the tenth day following acquisition by a person or
group of 20% or more of the Company's Common Stock and September 13, 2006. In
connection with the Elan transactions, the Company amended the Shareholder
Rights Plan to exclude Elan's ownership of Ligand securities, in certain
circumstances, from the operation of the plan.
Ligand's Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") includes a provision that requires the approval of the holders
of 66 2/3% of Ligand's voting stock as a condition to a merger or certain other
business transactions with, or proposed by, a holder of 15% or more of Ligand's
voting stock, except in cases where certain directors approve the transaction or
certain minimum price criteria and other procedural requirements are met (the
"Fair Price Provision"). The Certificate of Incorporation also requires that any
action required or permitted to be taken by stockholders of Ligand must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing. In addition, special meetings of the
stockholders of Ligand may be called only by the Board of Directors, the
Chairman of the Board or the President of Ligand or by any person or persons
holding shares representing at least 10% of the outstanding Common Stock of the
Company. The Shareholder Rights Plan, the Fair Price Provision and other charter
provisions may discourage certain types of transactions involving an actual or
potential change in control of Ligand, including transactions in which the
stockholders might otherwise receive a premium for their shares over then
current market prices, and may limit the ability of the stockholders to approve
transactions that they may deem to be in their best interests. In addition, the
Board of Directors has the authority to fix the rights and preferences of and
issue shares of preferred stock, which may have the effect of delaying or
preventing a change in control of Ligand without action by the stockholders.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 9, 1998 (the "Closing"), the Company completed the issuance and sale
of an aggregate of 2,145,923 shares of the Company's Common Stock (the "Shares")
to an affiliate of Elan, a non-U.S. entity (the "Investor"). The Shares were
issued pursuant to a stock purchase agreement at $11.65 per Share. 1,716,738 of
the Shares, representing an aggregate consideration of $20.0 million, were paid
by the Investor in cash. The remaining 429,185 Shares, representing an aggregate
consideration of $5.0 million, were issued by the Company for payment of certain
licensing fees. There were no underwriting discounts or commissions. On the
Closing, the Investor also purchased from the Company $40.0 million in issue
price of Zero Coupon Convertible Senior Notes, due 2008 with an 8.0% per annum
yield to maturity (the "Notes"), pursuant to a securities purchase agreement. Of
these Notes, $30.0 million are convertible into the Company's Common Stock at
$14.00 per share and the balance of $10 million are convertible into the
Company's Common Stock at a price which is the average of the closing prices of
the Company's Common Stock for the 20 trading days immediately prior to the
issuance of the Notes, plus a premium; however, in no event will the conversion
price be less than $14.00 per share or more than $20.00 per share. The Company
received $30.0 million in cash under the Notes. The remaining $10.0 million in
Notes were issued by the Company for payment of certain licensing fees. There
were no underwriting discounts or commissions.
The offers and sales of the Shares and the Notes to the Investor were made
pursuant to a claim of exemption under Regulation S promulgated by the
Securities and Exchange Commission. The sales of the Shares and the Notes to the
Investor were made in "Offshore Transactions" (as defined in Regulation S) and
no "Directed Selling Efforts" (as defined in Regulation S) were made by the
Company or any of its affiliates. The Investor represented and warranted among
other things, that it was not a "U.S. Persons" (as defined in Regulation S), and
that it was purchasing the Shares and the Notes for investment only and not with
a view to distribution. Appropriate legends in compliance with Regulation S were
affixed to the certificates for the Shares and the Notes. In addition, the
Company did not use any general advertisement or solicitation in connection with
the offer or sale of the Shares or the Notes to the Investor.
ITEM 5. OTHER INFORMATION
The information set forth in Item 2, Part II is hereby incorporated by
reference.
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ITEM 6. (A) EXHIBITS
Exhibit 3.1(1) Amended and Restated Certificate of Incorporation of the
Company (filed as Exhibit 3.2).
Exhibit 3.2(1) Bylaws of the Company, as amended (filed as Exhibit 3.3).
Exhibit 3.3(2) Certificate of Designation of Rights, Preferences and
Privileges of Series A Participating Preferred Stock of Ligand
Pharmaceuticals Incorporated (Exhibit 3.1).
Exhibit 10.1 Secured Promissory Note, dated March 7, 1997, in the face
amount of $3,650,000, payable to the Company by Nexus Equity
VI LLC.
Exhibit 10.2 Amended memorandum of Lease effective March 7, 1997, between
the Company and Nexus Equity VI LLC.
Exhibit 10.3 First Amendment to Lease, dated March 7, 1997, between the
Company and Nexus Equity VI LLC.
Exhibit 10.4 First Amendment to secured Promissory Note, dated March 7,
1997, payable to the Nexus Equity VI LLC.
Exhibit 10.5* Letter of Agreement dated September 28, 1998 among the
Company, Elan Corporation, plc and Elan International
Services, Ltd.
Exhibit 10.6* Stock Purchase Agreement dated September 30, 1998 between the
Company and Elan International Services, Ltd.
Exhibit 10.7 Tenth Addendum to Registration Rights Agreement dated
September 30, 1998 between the Company and Elan International
Services Ltd.
Exhibit 27.1 Financial Data Schedule
(1) These exhibit was previously filed as part of, and are hereby incorporated
by reference to the numbered exhibit filed with, the Registration Statement on
Form S-4 (No. 33-90160) filed on March 9, 1995, as amended.
(2) This exhibit was previously filed as part of, and is hereby incorporated
by reference to the numbered exhibit filed with, the Registration Statement on
Form S-1/S-3 (No. 33-87598 and 33-87600) filed on December 20, 1994, as amended.
* Certain confidential portions of these Exhibits were omitted by means of
marking such portions with an asterisk (the "Mark"). These Exhibits have been
filed separately with the Secretary of the Commission without the Mark pursuant
to the Company's Application Requesting Confidential Treatment under Rule 24b-2
of the Securities Exchange Act of 1934.
ITEM 6. (B) REPORTS ON FORMS 8-K
The Company filed a Report on Form 8-K on August 25, 1998
relating to the Seragen Merger transaction.
The Company filed a Report on Form 8-K/A on September 25, 1998
relating to the Seragen Merger transaction.
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LIGAND PHARMACEUTICALS INCORPORATED
September 30, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ligand Pharmaceuticals Incorporated
Date: November 16, 1998 By /s/ PAUL V. MAIER
-------------------------------
Paul V. Maier
Senior Vice President and Chief
Financial Officer
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<PAGE> 1
EXHIBIT 10.1
SECURED PROMISSORY NOTE
$3,650,000.00 + Additional Advances San Diego, California
March 7, 1997
FOR VALUE RECEIVED, Nexus Equity VI LLC, a California limited liability
company ("Borrower") promises to pay, in lawful money of the United States of
America, to the order of LIGAND PHARMACEUTICALS INCORPORATED, a Delaware
corporation ("Lender"), at 9393 Towne Centre Drive, San Diego, California 92121,
or at such other place as Lender may designate in writing from time to time, the
principal sum of Three Million Six Hundred Fifty Thousand Dollars
($3,650,000.00) or so much thereof as shall be from time to time disbursed
hereunder, plus such additional advances as may be made pursuant to the terms of
the Loan Agreement (as defined below),of principal with interest on the
disbursed but unpaid principal balance payable at the rate and in the manner
provided below (the "Loan"). This Secured Promissory Note (this "Note") is the
promissory note referred to in the Construction Loan Agreement of even date
herewith between Lender and Borrower (the "Loan Agreement") and is subject to
the terms of the Loan Agreement and is entitled to the benefits of the security
interests and collateral described therein. Initially capitalized terms used in
this Note without definition have the meanings given them in the Loan Agreement.
1. Interest. Interest shall accrue on the disbursed but unpaid principal
balances hereof from the date of disbursement until paid at the rate of eight
and one-half percent (8.5%) per annum. Interest for a portion of any month shall
be calculated on the basis of the actual number of days in the period for which
the calculation is being made.
2. Repayment. Interest accrued on outstanding principal hereunder from
the date hereof through and including the Term Commencement Date (as defined
below) shall be added to principal on the Term Commencement Date, at which time,
the total outstanding principal, with interest thereon calculated pursuant to
Section 1 above, shall be amortized over a ten (10) year period and principal
and interest shall be payable in equal monthly installments beginning on the
Term Commencement Date and thereafter on the first day of each succeeding
calendar month and continuing until the Maturity Date (defined below) at which
time the entire unpaid principal balance hereunder, together with all accrued
but unpaid interest thereon, and all other sums owing under the other Loan
Documents, shall be due and payable in full. The Term Commencement Date is the
date defined in the Lease as the Term Commencement Date. The Maturity Date is
the date which is the tenth (10th) anniversary of the Term Commencement Date.
Each payment shall be credited first to the payment of any late charges or costs
due hereunder, then to the payment of any interest then due and the remainder
shall be credited to principal.
3. Adjustment to Repayment. Lender and Borrower acknowledge that the
monthly installments of Basic Annual Rent (as defined in the Lease) to be paid
by Lender (the "Monthly Rent"), as tenant, to Borrower, as landlord, under the
Lease during an initial period of approximately one (1) year (the "Shortfall
Period") following the Term Commencement Date will not, in all likelihood, be
enough to fund Borrower's monthly payment obligation with respect to (i) the
<PAGE> 2
Permanent Loan, (ii) the Loan, and (iii) the fees Borrower is obligated to pay
to Nexus Properties, Inc., a California corporation, pursuant to Section 8.3 of
Borrower's Operating Agreement (the "Nexus Fees"). Therefore, notwithstanding
the provisions of Section 2 above, Lender and Borrower agree that the minimum
monthly payment due hereunder for each month during the Shortfall Period, shall
be the lesser of (i) the regularly scheduled payment of principal and interest
as calculated pursuant to Section 2 above (the "Scheduled Monthly Installment"),
or (ii) the balance of the Monthly Rent less (a) that month's regularly
scheduled installment under the Permanent Loan and (b) that month's regularly
scheduled payment of the Nexus Fees. After such the Shortfall Period, Borrower
shall be obligated to pay the Scheduled Monthly Installment each month during
the balance of the scheduled term of this Note (subject to reamortization as
provided herein). After the Shortfall Period, Lender shall have the right, at
its election, to reamortize the total outstanding principal hereunder, with
accrued but unpaid interest thereon calculated pursuant to Section 1 above, over
the remainder of the scheduled term of this Note and Borrower shall repay the
indebtedness evidenced by this Note pursuant to such reamortization. The
provisions of this Section 3 are not intended as a waiver by Lender of repayment
of any principal disbursed hereunder, any interest thereon or any other sums
which may be due hereunder or under the terms of the other Loan Documents. The
adjusted repayment schedule for principal and interest hereunder during the
Shortfall Period the first year of the term of this Note commencing on the Term
Commencement Date shall not affect Borrower's obligations to timely pay any
other costs or expenses in full which may be due pursuant to the terms of this
Note or the other Loan Documents.
4. Prepayment. Borrower shall not prepay outstanding principal or other
sums due under this Note at any time prior to the full reconveyance of the Tokai
Deed of Trust unless Borrower has received Lender's prior written approval of
such prepayment. Such approval may be given or withheld by Lender in Lender's
sole and absolute discretion. If such approval is given, it shall apply only to
the specific prepayment identified in Lender's written approval. After the full
reconveyance of the Tokai Deed of Trust, the outstanding principal balance of
this Note may be prepaid in whole or in part by Borrower, without premium or
penalty. Lender shall not be obligated to reamortize the repayment schedule for
this Note pursuant to any prepayment unless Lender, in its sole and absolute
discretion, elects to do so.
5. Security. This Note is secured by the following:
5.1 That certain Construction Deed of Trust, Assignment of Rents
and Leases, Security Agreement and Fixture Filing executed by Borrower and
naming Lender as beneficiary, delivered by Borrower concurrently herewith the
("Deed of Trust") which, as of the date hereof, shall be second in priority to
the Tokai Deed of Trust;
5.2 Financing Statement(s) covering the chattels, fixtures,
equipment and general intangibles installed or used in connection with the
Project; and
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<PAGE> 3
5.3 That certain Assignment of Contracts, Licenses, Permits,
Agreements, Warranties, Plans and Specifications executed by Borrower in favor
of Lender, delivered by Borrower concurrently herewith (the "Assignment").
6. Default.
6.1 Events of Default. The occurrence of any one or more of the
following shall be an event of default under this Note ("Event of Default"):
6.1.1 Borrower's failure to make any payment promptly
when due of principal and/or interest, or any other sums due under any one or
more of (a) the Loan Agreement, (b) this Note, (c) the Deed of Trust, (d) the
Assignment, (e) the other Loan Documents, or (f) any other document or
instrument executed by Borrower securing payment of, or otherwise in any way in
connection with, this Note;
6.1.2 The failure of Borrower to perform any of its
obligations or to make any payments promptly when due of principal, interest, or
other sums due under any one or more of the Tokai Loan Documents or any loan
documents executed by Borrower in connection with the Tokai Loan and/or the
Permanent Loan or any other documents or instruments executed by Borrower with,
or in favor of, any other construction lender for any loan obtained by Borrower
in connection with the Project (collectively, with all of the documents and
instruments referenced in Section 6.1.1 above, the "Documents");
6.1.3 An event of default under any one or more of the
Documents;
6.1.4 An event of default by Borrower under the Lease; or
6.1.5 An event of default under any guaranty executed in
connection with this Note or the Loan; any such guaranty ceases to be in full
force and effect; or any guarantor of any such guaranty asserts that any such
guaranty is not in full force and effect.
6.2 Remedies. Upon an Event of Default, then in addition to any
other rights or remedies available to Lender, Lender may, at its option, declare
the entire outstanding principal balance hereunder and accrued but unpaid
interest hereunder, and all other amounts and/or payments due hereunder, and/or
under the other Loan Documents, immediately due and payable notwithstanding any
stated maturity date therefor and such amounts shall then be immediately due and
payable. If an Event of Default occurs, and Lender elects to accelerate the
Loan, or in the event that this Note is not paid in full on the Maturity Date,
interest thereafter on the unpaid principal balance, accrued interest and costs
incurred shall be payable at the rate set forth in Section 1 above plus five
percent (5%) per annum. If an Event of Default occurs, Lender may also pursue
any other rights or remedies provided hereunder, in any of the other Loan
Documents or conferred upon Lender at law or in equity. Borrower agrees that
acceptance by Lender of any performance which does not
3
<PAGE> 4
strictly comply with the terms of this Note shall not be deemed to be a waiver
of any of Lender's rights hereunder.
6.3 Late Payment. Borrower recognizes that any default in making
any payments when due herein will result in Lender incurring additional expense
in servicing the Loan not contemplated hereunder, the exact amount of which will
be extremely difficult to ascertain. Such expense will include, but not be
limited to, processing and accounting charges, in addition to the loss to Lender
of the use of money due, and in frustration to Lender in meeting its other
commitments. Borrower agrees that if for any reason it fails to make any
payments required herein, including the amount due at the Maturity Date, within
fifteen (15) days after the due date, Lender shall be entitled to damages for
the detriment caused thereby, the extent of which damages are extremely
difficult and impractical to ascertain. Borrower therefor agrees that a sum
equal to five percent (5%) of such delinquent payment is a reasonable estimate
of such damages and Borrower agrees to pay such sum upon demand by Lender.
Acceptance of such late charge by Lender shall in no event constitute a waiver
of Borrower's default with respect to such overdue amount nor prevent the Lender
from exercising any of the other rights and remedies granted hereunder. The
acceptance by Lender of any payment under this Note after the date that such
payment is due shall not constitute a waiver of the right to require prompt
payment when due of any succeeding payments or to declare a default as herein
provided for any failure to so pay. Acceptance by Lender of the payment of a
portion of any installment at any time that such installment is due and payable
in its entirety shall neither cure nor excuse the default caused by failure to
pay the whole of such installment and shall not constitute a waiver of Lender's
right to require full payment when due of all future or succeeding installments.
7. Restrictions on Transfer or Encumbrance; Acceleration. The Deed of
Trust provides in part:
"Neither the Trust Estate nor any part thereof or interest therein shall
be encumbered, sold (including sale by contract or installment sale),
conveyed, or otherwise transferred either by Trustor or by operation of
law, without Beneficiary's prior written consent, nor without
Beneficiary's prior written consent shall there be any change in the
ownership of any stock in a corporate Trustor, in the ownership of any
general partnership interest in any general or limited partnership
Trustor, in the ownership of any membership interest in a limited
liability company or in the ownership of any beneficial interests in any
other Trustor which is not a natural person or persons. Any such action
without Beneficiary's prior written consent shall constitute an event of
default hereunder and shall be deemed to increase the risk to
Beneficiary, and Beneficiary may, at its option, declare all sums
secured hereby immediately due and payable notwithstanding any stated
maturity date therefor or may, in its sole and absolute discretion,
consent to such change in title, occupancy or ownership."
8. Collection Expenses. Borrower shall reimburse Lender on demand for
all reasonable and necessary attorneys' fees and other costs and expenses
incurred in collecting or enforcing this
4
<PAGE> 5
Note and protecting or realizing on any collateral, together with interest at
the default rate provided in Section 6.2 above. Without limitation, such fees
and costs shall include attorneys' and other fees, costs and expenses incurred
with or without suit and in any appeal, any proceedings, bankruptcy action,
state receivership, and any post-judgment collection proceedings.
9. Waivers. Borrower waives diligence, presentment and demand for
payment, notice of dishonor, protest and notice of protest.
10. Governing Law. This Note shall be construed, enforced and otherwise
governed by the laws of the internal State of California.
11. Binding Effect. This Note shall bind the successors and assigns of
Borrower and all endorsers hereto and shall inure to the benefit of Lender, and
Lender's successors and assigns. This Note may not be modified except by written
agreement signed by both Lender and Borrower.
12. Notices. Any notice to Borrower under this Note shall be to
Borrower's address in the Loan Agreement and shall be deemed received as set
forth therein.
13. Maximum Interest Rate. In no event shall the interest rate on this
Note be higher than the maximum rate permitted by applicable law, if any. All
agreements between Borrower and Lender herein are expressly limited so that in
no event whatsoever, whether by reason of advancement of the proceeds hereof,
acceleration of maturity of the unpaid principal balance hereof, or otherwise,
shall the amount paid or agreed to be paid to Lender for the use, forbearance or
detention of the money to be advanced hereunder exceed the highest lawful rate
permissible under the applicable usury law. If, from any circumstances
whatsoever, fulfillment of any provision hereof or any other agreement relating
to this Note, shall involve transcending the limit of validity prescribed by law
which a court of competent jurisdiction may deem applicable thereto, then ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity, and if from any circumstance, Lender shall ever receive as interest an
amount in excess of such maximum interest rate, if any, such amount shall be
refunded to Borrower. This provision shall control every other provision of all
agreements between Borrower and Lender.
14. Severability. The invalidity of any one or more covenants, phrases,
clauses, sentences or paragraphs of this Note shall not affect the remaining
portions of this Note or any part thereof, and the same shall be construed as if
such invalid covenants, phrases, clauses, sentences or paragraphs, if any had
not been inserted herein.
15. Time of Essence. Time is of the essence herein.
16. Guaranty. Borrower's payment obligations under this Note are
unconditionally guaranteed by each of Michael J. Reidy, R. Darrell Gary and
Nexus Properties, Inc., a California corporation.
5
<PAGE> 6
17. Authority. Each person signing this document on behalf of Borrower
warrants that such person is duly authorized to sign and deliver this Note on
behalf of Borrower and that this Note is binding on Borrower in accordance with
its terms.
BORROWER:
NEXUS EQUITY VI LLC, a California
limited liability company
By: Nexus Properties, Inc., a California
corporation
Its: Manager
By: /s/ Michael J. Reidy
------------------------------------
Michael J. Reidy
Chief Executive Officer
6
<PAGE> 1
EXHIBIT 10.2
RECORDING REQUESTED BY: )
)
Nexus Properties, Inc. )
)
WHEN RECORDED, RETURN TO: )
)
Nexus Properties, Inc. )
4350 La Jolla Village Dr., Suite 930 )
San Diego, CA 992122 )
)
- --------------------------------------------------------------------------------
APN 340-180-05
AMENDED MEMORANDUM OF LEASE
This AMENDED MEMORANDUM OF LEASE ("Memorandum") is effective as of
March 7, 1997, by and between NEXUS EQUITY VI LLC, a California limited
liability company ("Landlord"), and LIGAND PHARMACEUTICALS, INC., a Delaware
corporation ("Tenant").
NOW, THEREFORE, the parties hereto agree as follows:
1. Lease of Premises. Pursuant to that certain Lease of even date
herewith ("Lease"), Landlord hereby leases to Tenant for a term of seventeen
(17) years, commencing on January 1, 1998, the Term Commencement Date as
defined in the Lease, on the terms and conditions set forth in the Lease, all
of which are made a part of this Amended Memorandum as though fully set forth
herein, those certain premises located on and including real property ("Real
Property") located in the City of San Diego, County of San Diego, State of
California, more particularly described as follows:
Parcel 2 of Parcel Map 17826, in the City of San Diego,
County of San Diego, State of California, according to Map
thereof, filed in the Office of the County Recorder of
San Diego County, February 18, 1997
2. Right of First Refusal to Purchase Premises. Pursuant to the Lease,
Landlord hereby grants to Tenant the right to acquire ("Right of First
Refusal") the Real Property, which may be exercised prior to the expiration or
earlier termination of the term of the Lease on the terms and conditions set
forth therein.
-1-
<PAGE> 2
3. Purpose of This Memorandum. This Amended Memorandum is executed for
the purpose of being recorded, in order to give notice of the Lease and Right of
First Refusal. This Amended Memorandum is not a complete summary of the terms
and conditions of the Lease, and is subject to, and shall not be used to
interpret or modify, the Lease or Right of First Refusal.
The parties hereto have entered into this Amended Memorandum of Lease as of
the date first written above.
This Amended Memorandum amends in its entirety that certain Memorandum of
Lease of even date recorded with the Office of the Recorder of San Diego County,
California, on March 11, 1997, as Document No. 1997-0105347.
LANDLORD:
NEXUS EQUITY VI LLC
A California Limited Liability Company
By Nexus Properties, Inc.
Its Manager
By: /s/ MICHAEL J. REIDY
-------------------------
Michael J. Reidy
Chief Executive Officer
TENANT:
LIGAND PHARMACEUTICALS, INC.
A Delaware corporation
By: /s/ PAUL V. MAIER
-------------------------
Paul V. Maier
Senior Vice President and Chief Financial Officer
-2-
<PAGE> 3
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On April 9, 1998, before me, the undersigned Notary Public in and for said
County and State, personally appeared
Paul V. Maier
- ----------------------------
[X] personally known to me
or
[ ]
the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
Witness my hand and official seal.
/s/ [SIG]
--------------------------
Signature of Notary.
[NOTARY PUBLIC SEAL]
STATE OF CALIFORNIA )
) ss.
COUNTY OF SAN DIEGO )
On April 9, 1998, before me, the undersigned Notary Public in and for said
County and State, personally appeared
Michael J. Reidy
- -----------------------
[X] personally known to me
or
[ ]
the person whose name is subscribed to the within instrument and acknowledged
to me that he executed the same in his authorized capacity, and that by his
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
Witness my hand and official seal.
/s/ [SIG]
-------------------------
Signature of Notary
[NOTARY PUBLIC SEAL]
-3-
<PAGE> 1
EXHIBIT 10.3
FIRST AMENDMENT TO LEASE
NEXUS VI/LIGAND PHARMACEUTICALS, INC.
THAT CERTAIN LEASE ("Lease") made as of March 7, 1997, by and between
NEXUS EQUITY VI LLC, a California limited liability company ("Landlord"), and
LIGAND PHARMACEUTICALS, INC., a Delaware corporation ("Tenant"), for the real
property described below, is hereby amended as follows:
1. Section 2.1.4 of the Lease is amended to read as follows:
(a) Term Commencement Date: January 1, 1998
(b) Term Expiration Date: Seventeen (17) years from the Term
Commencement Date
2. Article 40 of the Lease is deleted in its entirety.
The Premises which are the subject of the Lease consist of (i) that certain
real property legally described as Parcel 2 of Parcel Map 17826, in the City of
San Diego, County of San Diego, State of California, according to Map thereof,
filed in the Office of the County Recorder of San Diego County, February 18,
1997, (ii) the entirety of the building constructed on the real property, and
(iii) all landscaping, drainage, irrigation, lighting, parking facilities,
walkways, driveways and other improvements and appurtenances related thereto,
including, but not limited to, ingress and egress to the public right-of-way.
All terms with an initial capital letter herein shall have the same
meaning as is given to them in the Lease.
In all other respects, the Lease shall remain in full force and effect as
originally written.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Lease effective March 7, 1997.
LANDLORD:
NEXUS EQUITY VI LLC
A California Limited Liability Company
By Nexus Properties, Inc.
Its Manager
By: /s/ MICHAEL J. REIDY
----------------------------------
Michael J. Reidy
Chief Executive Officer
TENANT:
LIGAND PHARMACEUTICALS, INC.
A Delaware corporation
By: /s/ PAUL V. MAIER
----------------------------------
Paul V. Maier
Senior Vice President and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.4
FIRST AMENDMENT
TO
SECURED PROMISSORY NOTE
THAT CERTAIN SECURED PROMISSORY NOTE dated March 7, 1997, in the original
principal amount of $3,650,000, payable by NEXUS EQUITY VI LLC, a California
limited liability company ("Borrower"), to LIGAND PHARMACEUTICALS INCORPORATED,
a Delaware corporation ("Lender"), is amended as follows:
Paragraph 1 is deleted, and the following is substituted in its place:
"1. Interest. Interest shall accrue on the disbursed but unpaid
principal balances hereof from the Term Commencement Date of the Lease, as
defined in the following Paragraph 2 of this Secured Promissory Note, until
paid at the rate of eight and one-half percent (8.5%) per annum. Interest
for a portion of any month shall be calculated on the basis of the actual
number of days in the period for which the calculation is being made."
Paragraph 2 is deleted, and the following is substituted in its place:
"2. Repayment. At the Term Commencement Date (as defined below), the
total outstanding principal, with interest thereon calculated pursuant to
Section 1 above, shall be amortized over a ten (10) year period and
principal and interest shall be payable in equal monthly installments
beginning on the first day of the month following the Term Commencement
Date and thereafter on the first day of each succeeding calendar month and
continuing until the Maturity Date (defined below) at which time the entire
unpaid principal balance hereunder, together with all accrued but unpaid
interest thereon, and all other sums owing under the other Loan Documents,
shall be due and payable in full. The Term Commencement Date is the date
defined in the Lease as the Term Commencement Date. The Maturity Date is
the date which is the tenth (10th) anniversary of the Term Commencement
Date. Each payment shall be credited first to the payment of any late
charges or costs due hereunder, then to the payment of any interest then
due and the remainder shall be credited to principal."
- 1 -
<PAGE> 2
In all other respects, the Secured Promissory Note shall remain in full force
and affect.
Executed effective March 7, 1997.
BORROWER
NEXUS EQUITY VI LLC
A California Limited Liability Company
By Nexus Properties, Inc.
A California Corporation
Its Manager
By: /s/ MICHAEL J. REIDY
----------------------------------
Michael J. Reidy
Chief Executive Officer
LENDER
LIGAND PHARMACEUTICALS INCORPORATED
A Delaware corporation
By: /s/ PAUL V. MAIER
----------------------------------
Paul V. Maier
Senior Vice President and
Chief Financial Officer
-2-
<PAGE> 1
EXHIBIT 10.5
ELAN CORPORATION, PLC
LINCOLN HOUSE
LINCOLN PLACE
DUBLIN 2, IRELAND
ELAN INTERNATIONAL SERVICES, LTD.
102 ST. JAMES COURT
FLATTS, SMITHS PARISH
BERMUDA FL 04
September 28, 1998
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attention: David E. Robinson
Re: License and Financing Transaction
Ladies and Gentlemen:
This letter of intent (the "Letter of Intent") confirms the agreement
reached by ELAN CORPORATION, PLC, a public limited company organized under the
laws of Ireland ("Elan"), ELAN INTERNATIONAL SERVICES, LTD., a Bermuda
corporation and a wholly-owned subsidiary of Elan ("EIS"), and LIGAND
PHARMACEUTICALS INCORPORATED, a Delaware corporation ("Ligand"), with respect to
(i) the purchase by EIS of an aggregate of 1,716,738 shares of common stock, par
value $0.001 per share, of Ligand (the "Common Stock") at a purchase price of
$11.65 per share, (ii) the purchase by EIS of Zero Coupon Convertible Senior
Notes due 2008 (the "Notes") at an aggregate issue price of up to $110.0 million
and (iii) the licensing by Elan of certain intellectual property to Ligand. This
Letter of Intent shall be binding on the parties hereto and sets forth the basic
terms upon which the parties have agreed. The full terms of the transactions
contemplated hereby shall be set forth in definitive agreements to be prepared
as described below.
The parties agree as follows:
1. License. Elan and Ligand shall enter into a license on terms and
conditions substantially in accordance with those set forth in the term sheet
attached hereto as Exhibit A. The parties acknowledge that Exhibit A sets forth
only the basic terms of the understanding between the parties and is subject to
the further negotiation and preparation of a definitive license agreement (the
"License Agreement") which shall contain additional terms and conditions
customary for transactions of this type. The parties agree to act in good faith
to negotiate,
<PAGE> 2
execute and deliver the License Agreement on or before October 31, 1998, or such
other date as the parties shall mutually agree (the "Closing Date").
2. Purchase of Common Stock and Notes. EIS shall purchase from Ligand
and Ligand shall sell to EIS the Common Stock and the Notes on terms and
conditions substantially in accordance with those set forth in the term sheets
attached hereto as Exhibits B and C, respectively. The parties acknowledge that
each of Exhibit B and C sets forth only the basic terms of the understanding
between the parties and is subject to the further negotiation and preparation of
definitive securities purchase and related agreements relating to the Initial
Shares (as defined in Exhibit B hereto) (the "Initial Purchase Agreement") and
the Additional Shares (as defined in Exhibit B hereto) and the Notes (the
"Additional Purchase Agreement" and, together with Initial Purchase Agreement,
the "Purchase Agreements"), which shall contain additional terms and conditions
customary for transactions of this type. The parties agree to act in good faith
to negotiate, execute and deliver the Initial Purchase Agreement on or before
September 30, 1998 and the Additional Purchase Agreement on or before the
Closing Date. The Purchase Agreements and the License Agreement are collectively
referred to herein as the "Definitive Agreements."
3. Certain Conditions. (a) The obligation of Elan and EIS to consummate
the transaction contemplated by the Definitive Agreements shall be subject to
conditions precedent customary for transactions of such type, including, but not
limited to, the following: (1)(a) Ligand shall have executed and delivered and
issued to EIS, the applicable Purchase Agreement, and such other reasonable and
customary documents and instruments as provided therein or as EIS may otherwise
reasonably request with respect to the transactions contemplated by Exhibits B
and C hereto, (b) Ligand shall have executed and delivered the Tenth Addendum to
the Amended Registration Rights Agreement, dated as of June 24, 1994, among
Ligand and the persons party thereto (the "Registration Rights Agreement"),
providing for the registration rights set forth in Exhibit B hereto and (c) with
respect to the transactions contemplated by the Additional Purchase Agreement
and the License Agreement, Ligand shall have executed and delivered the License
Agreement, and such other reasonable and customary documents and instruments as
provided therein or as Elan may otherwise reasonably request in respect of the
transactions contemplated by Exhibit A hereto, which, in the case of each of
clauses (a), (b) and (c), when duly executed and delivered by Ligand shall be
valid, binding and enforceable and in full force and effect, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and to general
principles of equity, and there shall be no breach or default by Ligand
thereunder; (2) there shall not have occurred from the date hereof through and
including the Initial Closing Date (as defined in Exhibit B) or the Closing
Date, as the case may be, any material adverse change or event that could
reasonably be expected to result in a material adverse change in the business,
assets, liabilities (contingent or otherwise), operations, condition (financial
or otherwise), solvency, properties, prospects or material agreements of Ligand
and its subsidiaries, taken as a whole (a "Material Adverse Change"); (3) Ligand
shall not have breached or defaulted in any of its
2
<PAGE> 3
material obligations hereunder and thereunder and its representations herein and
therein shall be true and correct in all material respects, as if made on and as
of the Initial Closing Date or the Closing Date, as the case may be; (4) no
consent, approval or filing (with any governmental authority or otherwise) on
the part of Ligand shall be required for the execution, delivery or performance
of the Definitive Agreements or the Registration Rights Agreement, or, if
required, such approval shall have been obtained and any applicable waiting
periods in respect thereof shall have elapsed; and (5) with respect to the
transactions contemplated by the Additional Purchase Agreement and the License
Agreement, that certain Preferred Share Rights Agreement, dated as of September
13, 1996, between Ligand and Wells Fargo Bank, N.A., as amended from time to
time (the "Rights Agreement"), shall have been amended in form and substance
reasonably satisfactory to Elan, so that the transactions contemplated by the
Definitive Agreements will not require the issuance of any Rights (as defined in
the Rights Agreement) thereunder.
(b) The obligation of Ligand to consummate the transaction contemplated
by the Definitive Agreements shall be subject to conditions precedent customary
for transactions of such type, including, but not limited to, the following:
(1)(a) EIS shall have executed and delivered to Ligand the applicable Purchase
Agreement, and such other reasonable and customary documents and instruments as
provided therein or as Ligand may otherwise reasonably request with respect to
the transactions contemplated by Exhibits B and C hereto, (b) EIS shall have
executed and delivered the Registration Rights Agreement and (c) with respect to
the transactions contemplated by the Additional Purchase Agreement and the
License Agreement, Elan shall have executed and delivered the License Agreement,
and such other reasonable and customary documents and instruments as provided
therein or as Ligand may otherwise reasonably request in respect of the
transactions contemplated by Exhibit A hereto, which, in the case of each of
clauses (a), (b) and (c), when duly executed and delivered by Elan or EIS, as
the case may be, shall be valid, binding and enforceable and in full force and
effect, subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and to general principles of equity, and there shall be no breach or default by
Elan or EIS, as the case may be, thereunder; (2) neither Elan nor EIS shall have
breached or defaulted in any of its material obligations hereunder and
thereunder and its representations herein and therein shall be true and correct
in all material respects, as if made on and as of the Initial Closing Date or
the Closing Date, as the case may be; and (3) no consent, approval or filing
(with any governmental authority or otherwise) on the part of Elan or EIS shall
be required for the execution, delivery or performance of the Definitive
Agreements, or, if required, such approval shall have been obtained and any
applicable waiting periods in respect thereof shall have elapsed.
(c) In the event that the Definitive Agreements shall not have been
executed and delivered on or prior to the later of (i) October 31, 1998 and (ii)
the expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (including as a result of the material
breach or default hereunder by either EIS or Elan, on the one hand, or
3
<PAGE> 4
Ligand, on the other hand), the non-defaulting party or parties shall have the
right to terminate this Letter of Intent by written notice to the other(s),
whereupon the transactions contemplated hereby shall be canceled and of no
further force and effect; provided that, notwithstanding the termination of this
Letter of Intent, each party shall remain liable to the other for or in respect
of any breach or default which shall have occurred prior to such date.
4. Representations and Certain Covenants. (a) Ligand represents to Elan
and EIS the following: (i) Ligand has full corporate power and authority to
execute, deliver and perform its obligations under this Letter of Intent, the
Definitive Agreements and the Registration Rights Agreement and to consummate
the transactions contemplated hereby and thereby, and this Letter of Intent has
been duly executed and delivered and constitutes the legal and valid obligation
of Ligand and is enforceable against Ligand in accordance with its terms,
subject to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and to
general principles of equity; (ii) the Common Stock and the Notes contemplated
to be issued by Exhibits B and C hereto have been or will be duly and validly
authorized and when issued will be fully paid and non-assessable and free from
any and all options, warrants and preemptive and other rights (except as
otherwise provided herein); (iii) Ligand is not in default in any material
respect of its charter or by-laws, any applicable laws or regulations or any
contract or agreement binding upon or affecting it or its properties or assets
and the execution, delivery and performance of this Letter of Intent and the
transactions contemplated hereby will not result in any such violation; and (iv)
since December 31, 1996, the Company has timely filed with the Securities and
Exchange Commission (the "Commission") all forms, reports, schedules, statements
and other documents required to be filed by it (such documents, as supplemented
and amended since the time of filing, collectively, the "SEC Documents"); the
SEC Documents, including any financial statements or schedules included therein,
at the time filed (and, in the case of registration statements and proxy
statements, on the dates of effectiveness and the dates of mailing,
respectively) (x) did not contain any untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances in which they were
made, not misleading, and (y) complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be; the financial statements of Ligand included
in the SEC Documents at the time filed (and, in the case of registration
statements and proxy statements, on the dates of effectiveness and dates of
mailing, respectively) complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto, were prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods indicated (except as indicated in the notes thereto), and fairly
present (subject, in the case of unaudited interim financial statements, to
normal, recurring year-end audit adjustments consistent with past practice), in
all material respects, the consolidated financial position of Ligand and its
subsidiaries as at the dates thereof and the consolidated results of operations
and
4
<PAGE> 5
cash flows for the periods then ended; since the date of the last SEC Document
prior to the date hereof, there has been no Material Adverse Change.
(b) Elan and EIS, jointly and severally, represent to Ligand the
following: (i) each of Elan and EIS has full corporate power and authority to
execute, deliver and perform its obligations under this Letter of Intent, the
Definitive Agreements and the Registration Rights Agreement, as the case may be,
and to consummate the transactions contemplated hereby and thereby, and this
Letter of Intent has been duly executed and delivered and constitutes the legal
and valid obligation of Elan and EIS and is enforceable against Elan and EIS in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity; (ii) neither
Elan nor EIS is in default in any material respect of its charter or by-laws,
any applicable laws or regulations or any contract or agreement binding upon or
affecting it or its properties or assets and the execution, delivery and
performance of this Letter of Intent and the transactions contemplated hereby
will not result in any such violation and (iii) neither Elan nor EIS is a "U.S.
person," as defined in Regulation S under the Securities Act.
(c) Ligand shall not, prior to the earlier of (x) the Closing
Date and (y) the abandonment or termination of the transactions contemplated
hereby, as provided in Section 3 above, without the prior written consent of
Elan, (i) make, pay or declare any dividend or distribution to any equity holder
(in such capacity) or redeem any of its capital stock; provided that the payment
by Ligand of cash to holders of Ligand warrants outstanding on the date hereof
in connection with and upon the exercise of such warrants shall, under no
circumstances, be prohibited by this clause (i); (ii) vary its business
practices, in any material respect, from past practices; (iii) enter into any
financing, joint venture, license or similar arrangement; provided that Ligand
may enter into joint venture, licensing or similar arrangements in any country
other than the United States, the United Kingdom, Germany, Japan or France; or
(iv) suffer or permit to be incurred any material liability, obligation, lien or
encumbrance against any of its properties or assets, except in the ordinary
course of business and consistent with past practice.
(d) Ligand shall, prior to the earlier of (x) the Closing Date
and (y) the abandonment or termination of the transactions contemplated hereby,
as provided in Section 3 above, afford to the employees, agents and authorized
representatives of Elan and EIS reasonable access at reasonable times, upon
reasonable prior notice, to Ligand 's properties, offices, files, agreements,
books and records as may be necessary in order that Elan and EIS may have a full
opportunity to conduct such investigations and due diligence reviews as they
shall deem necessary in connection with the transactions contemplated herein.
(e) Elan shall, prior to the earlier of (x) the Closing Date and
(y) the abandonment or termination of the transactions contemplated hereby, as
provided in Section 3 above, afford to the employees, agents and authorized
representatives of Ligand reasonable access at reasonable times, upon reasonable
prior notice, to Elan's files, agreements, books and records relating to Elan's
intellectual property to be licensed to Ligand, as may be necessary in order
that Ligand
5
<PAGE> 6
may have a full opportunity to conduct such investigations and due diligence
reviews as it shall deem necessary in connection with the transactions
contemplated by Exhibit A hereto.
(f) Each of Ligand, Elan and EIS shall use their respective
commercially reasonable efforts to complete the Definitive Agreements and close
the transactions contemplated hereby and thereby as soon as practicable, and in
any event not later than October 31, 1998.
5. Confidentiality and Non-disclosure. From and after the date of this
Letter of Intent, none of EIS, Elan or Ligand shall, except as required by
applicable law or judicial or administrative process, disclose to any person or
entity, publicly or privately, this Letter of Intent or the substance of the
transactions contemplated hereby or the involvement of the parties with each
other as contemplated hereby, without the prior written consent of the other
party.
6. Miscellaneous. This Letter of Intent (a) shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to principles of conflicts of laws and, in connection therewith, each
party consents to the non-exclusive jurisdiction of any Federal or state court
sitting in the County, City and State of New York over any dispute arising from
this Letter of Intent; (b) shall not be assigned or delegated by Elan or EIS, on
the one hand, or Ligand, on the other hand, without the consent of the other
party, except that each of Elan and EIS shall have the right to assign or
delegate such rights and/or obligations to any affiliate that is not a "U.S.
person," as defined in Regulation S under the Securities Act, and, subject to
the foregoing, shall be binding upon the parties' respective successors and
assigns; (c) may be executed in counterparts and delivered by facsimile
transmission; and (d) together with the Definitive Agreements and the
Registration Rights Agreement, constitutes the entire agreement among the
parties and supersedes all prior agreements or understandings among the parties.
6
<PAGE> 7
Please indicate your approval to the foregoing by signing a copy of this
Letter of Intent where indicated below.
Very truly yours,
ELAN CORPORATION, PLC
By: /s/ illegible
-----------------------------
Name:
Title:
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
-----------------------------
Name: Kevin Insley
Title: President and Chief
Financial Officer
Agreed to:
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ David E. Robinson
-------------------------------------
Name: David E. Robinson
Title: Chairman, President & CEO
7
<PAGE> 8
EXHIBIT A
TERM SHEET(1)
LIGAND LICENSE
LICENSE An exclusive license (the "License") from Elan
Pharmaceutical Technologies, a division of Elan
Corporation, plc ("Elan"), to Ligand Pharmaceuticals
Incorporated (collectively "Ligand") of Elan's patent
rights and know-how ("Intellectual Property") required
to package, use, promote, distribute, offer for sale and
sell Elan's once-daily solid oral dosage form of
morphine (the "Product").
For the avoidance of doubt, Elan's Intellectual Property
shall exclude patent rights and know-how owned and
licensed by ***
***
***
PRODUCT PRESENTATIONS *** capsules.
*** Ligand and its affiliates undertake ***
***
***
*** in the Territory
during the Term and for *** thereafter.
TRADEMARK Elan shall grant to Ligand a non-exclusive royalty free
license in the Territory (as defined below) for the Term
to use Elan's Morphelan(TM) trademark (the "Trademark")
solely for the purposes of exercising its rights and
performing its obligations under this License.
COMMERCIALIZATION Ligand will diligently pursue the commercialization of
the Product and shall use all *** efforts to market and
promote the Product in the Territory and in doing so,
shall use the same level of effort as with other similar
products of similar sales potential which it markets.
Within *** of the submission of the New Drug Application
- ------------
(1) Capitalized terms used in this Term Sheet and not otherwise defined herein
shall have the meanings set forth in Letter of Intent to which this Term
Sheet is attached.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 9
or its foreign equivalent (the "NDA") in each country of
the Territory, Elan and Ligand shall agree upon
appropriate due diligence obligations on Ligand for
marketing the Product including a promotional support
budget and minimum sales figures for the Product for the
*** following commercial launch of the Product having
regard to standard industry practices.
In the event that the parties are unable to agree upon
such due diligence obligations for the Product within
the time period as set out above, the parties shall
appoint an arbitrator who is technically knowledgeable
in the pharmaceutical industry to choose either Elan's
proposed terms or Ligand's proposed terms on the basis
of which terms he determines to be closer to standard
industry practice.
Ligand shall make a full scale commercial launch of the
Product in each country of the Territory within *** of
NDA approval, including marketing approvals, where
applicable, being granted in such country. Elan shall
not unreasonably withhold its agreement to a request by
Ligand for an extension of the said *** period if there
are legitimate commercial reasons for such an extension
or Elan is unable to timely supply Product for launch.
CO-PROMOTION ELAN
For the period from the date of execution of the
Definitive Agreements up until *** of the Product in
each country of the Territory, Elan shall have a *** to
co-promote the Product in such country of the Territory
for *** *** and on other terms to be agreed in good
faith between the parties and having regard to standard
industry practices in such country of the Territory.
LIGAND
For the period from the date of execution of the
Definitive Agreements up until *** *** for the Product
in each Member State of the European Union (excluding
Ireland and the United Kingdom), whether on an
individual approval basis or through the European
centralized procedure, Ligand shall have a *** to
co-promote the Product in such Member State of the
European Union for ***
2
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<PAGE> 10
*** on terms to be agreed in good faith between the
parties and having regard to standard industry practices
in such Member State of the European Union; provided
that Ligand has established an appropriate sales force
in such Member State.
In the event that the parties are unable to agree upon
the terms for co-promotion of the Product by either
party as set out above, the parties shall appoint an
arbitrator who is technically knowledgeable in the
pharmaceutical industry to choose either Elan's proposed
terms or Ligand's proposed terms for the co-promotion on
the basis of which terms he determines to be closer to
standard industry practice.
PROJECT TEAM Elan and Ligand shall establish a project team (on which
they shall have equal representation) to supervise the
day-to-day activities related to the co-operative
aspects of the research, development and
commercialization of the Product. Disputes within the
project team that cannot be resolved by consensus will
be resolved by a management committee team (on which
they shall have equal representation) from Ligand and
Elan. If such management committee team cannot resolve
the matter, the dispute will be referred to a designated
senior officer of each of Elan and Ligand.
LICENSED TERRITORY United States of America and its territories and Canada
(the "Territory").
TERM The greater of (a) the life of the patent rights in the
relevant country or countries within the Territory and
(b) ***
Not later than *** prior to the expiration of the Term
for a given country, Elan and Ligand shall enter into a
long-term supply agreement upon terms and conditions to
be mutually agreed between the parties. If the parties
fail to enter into such a long-term supply agreement,
Elan shall grant Ligand a license to the know-how to
manufacture the Product upon terms and conditions to be
mutually agreed between the parties.
3
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Confidential Treatment and filed separately with the Commission.
<PAGE> 11
SUBLICENSE AND
ASSIGNMENT RIGHTS *** shall ***
***
Neither party shall be entitled to assign this agreement
without the prior written consent of the other party,
save that either party may assign the License to their
respective affiliates provided that there is not an
adverse tax consequence for the other party.
CERTAIN CHANGES OF
CONTROL In the event that (a) a technological competitor to Elan
or its affiliates *** shall, directly or indirectly,
acquire ***% or more of the capital stock of Ligand, or
otherwise control or influence in any material respect
their management or business, or (b) any other person or
entity shall acquire ***% or more of the voting stock of
Ligand, or otherwise merge, consolidate or enter into
any similar transaction (or binding agreement in respect
thereof) with any of such entities, the License, at ***
*** provided, however, that the foregoing shall not
apply in relation to any exercise of any options by Elan
as contemplated by the definitive documents.
LICENSE ROYALTIES
PAYABLE BY LIGAND
TO ELAN In consideration of the rights and license of the Elan
patent rights for the Product, Ligand shall pay the
following amounts to Elan:
$5,000,000 in cash or in Common Stock (valued at $11.65
per share), at Ligand's option, upon signing of the
License;
$10,000,000 payable through an increase in the Notes, as
described in Exhibit C to the Letter of Intent, upon
signing of the License;
$*** in cash or in Common Stock (valued at a price per
share equal to the ***
***
***
***
*** and
$*** in cash or in Common Stock (valued at a price per
share equal to the ***
4
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<PAGE> 12
***
***
*** at Ligand's option, upon
***
PATENTS The substantive documents shall contain mutually-
agreeable provisions on filing, prosecution,
enforcement and maintenance.
REGULATORY APPROVALS Regulatory approvals for the Product in the Territory
shall be prosecuted and owned by Elan.
SUPPLY OF PRODUCT Ligand shall purchase the Product exclusively from Elan.
Product shall be supplied to Ligand in finished market
packs Ex Works the manufacturing facility designated by
Elan.
Elan shall advise Ligand of a minimum batch size for the
manufacture and supply of each dosage strength of
Product.
Ligand shall provide quarterly forecast updates on a
rolling *** basis to Elan. The *** of such forecast will
be binding.
In the event of a failure to supply (to be defined) by
Elan, Elan shall grant to Ligand a production license to
manufacture the Product.
PRICE OF PRODUCT The price to be charged by Elan to Ligand for the supply
of Product for commercial sale in the Territory shall
be:
- ***% of NSP for the *** *** for Product in the
Territory;
- ***% of NSP for the *** *** for Product in the
Territory; and
- ***% of NSP for *** during the Term of the Agreement.
Product for distribution as *** promotional samples
shall be supplied by Elan to Ligand at *** ***
5
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<PAGE> 13
In no event shall Elan be required to supply Product for
commercial sale to Ligand *** ***
NSP shall mean in the case of Product sold by Ligand or
an affiliate, that sum determined by ***
***
*** for the Product by Ligand or, its affiliate, as the
case may be, in accordance with standard accounting
principles, a maximum deduction of ***% to cover the
following:-
(a) customs duties or other taxes (excluding income or
corporation tax), directly related to the sale of the
Product which are paid by Ligand or its affiliates as
the case may be;
(b) a discount from the gross sales proceeds to cover
such normal costs as are incurred by Ligand or its
affiliates, as the case may be, in respect of transport,
shipping insurance, returns, discounts directly related
to the sale of the Product.
In Market shall mean the sale of the Product in the
Territory by Ligand or its Affiliates, to an
unaffiliated third party, including but not limited to a
wholesaler, chain store, distributor, managed care
organization, hospital or pharmacy.
Fully Allocated Cost shall include direct labour, direct
materials and supplies, variable labor, overhead and
attributable administration, quality control, quality
assurance and other costs; such costs to be calculated
in accordance with ***
PRODUCT SUPPORT Elan shall be responsible, ***, for the completion
of the clinical studies for the Product listed in
Schedule I, which are currently in progress. For the
avoidance of doubt, Ligand shall be responsible for the
cost of all development work and/or clinical trials on
the Product in addition to such ongoing clinical
studies. ***
Ligand shall commit to undertake additional clinical
6
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<PAGE> 14
expenditure, including ***
***
***
*** which shall include direct
labor, overhead and attributable administration, quality
control, quality assurance and other costs, calculated
in accordance with *** during the *** following
submission of the NDA in the United States.
CUSTOMARY TERMS The License will contain customary terms, including
terms and conditions relating to payments; patent rights
and related protection and prosecutions; auditing and
review rights, confidentiality; representations and
warranties; indemnities; and other customary provisions.
7
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<PAGE> 15
SCHEDULE I
MORPHLEAN CLINICAL DEVELOPMENT PROGRAM
<TABLE>
<CAPTION>
STUDY I.D. TRIAL NAME LOCATION COMPARATOR STUDY VOLUNTEERS/ CRO ESTIMATED ESTIMATED STATUS/
DESIGN PATIENTS START COMPLETE COMMENTS
- ----------- --------------- ------------ --------------- --------- --------------- -------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
***
</TABLE>
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 16
EXHIBIT B
TERM SHEET(1)
COMMON STOCK
INITIAL CLOSING On September 30, 1998 (the "Initial Closing Date"),
Ligand will sell to EIS and EIS will purchase from Ligand
1,278,970 shares of Common Stock (the "Initial Shares")
at a purchase price of $11.65 per share, subject to
customary anti-dilution adjustments for, among other
things, stock splits, stock dividends and similar
transactions that occur between the date of the Letter of
Intent and the Initial Closing Date.
ADDITIONAL CLOSING On the Closing Date, Ligand will sell to EIS and EIS will
purchase from Ligand, 437,768 shares of Common Stock,
(the "Additional Shares" and, together with the Initial
Shares, the "Shares") at a purchase price of $11.65 per
share, subject to customary anti-dilution adjustment for,
among other things, stock splits, stock dividends and
similar transactions that occur between the date of the
Letter of Intent and the Closing Date.
REGISTRATION RIGHTS Elan, EIS and Ligand shall enter into the Registration
Rights Agreement, providing to Elan and EIS the
registration rights set forth therein with respect to the
Shares and all shares of Common Stock issued or issuable
by Ligand under the License Agreement and upon the
conversion of the Notes. Notwithstanding the foregoing,
Elan, EIS and Ligand shall, prior to the termination of
the Registration Rights Agreement in accordance with
Section 1.17 thereof, enter into a new registration
rights agreement (the "New Registration Rights
Agreement"), to be effective upon such termination,
having terms and conditions identical to those in the
Registration Rights Agreement and providing registration
rights for the Shares and the Common Stock issued or
issuable by Ligand under the License Agreement and upon
conversion of the Notes. The New Registration Rights
Agreement shall expire on the later of (i) December 31,
2003 and (ii) the date on which no Notes are outstanding.
- -----------
(1) Capitalized terms used in this Term Sheet and not otherwise defined herein
shall have the meaning set forth in Letter of Intent to which this Term
Sheet is attached.
<PAGE> 17
STANDSTILL For a period of *** after the Closing Date, neither Elan
nor any of its affiliates shall, without the consent of
Ligand, acquire beneficial ownership of any Common Stock
or any securities of Ligand convertible into or
exchangeable for Common Stock, or any other rights to
acquire Common Stock, if, after giving effect to such
acquisition, Elan and its affiliates would own or
otherwise have the right to acquire more than 25.0% of
the outstanding Common Stock, on a fully diluted basis;
provided that this provision shall terminate and be of no
further force and effect upon the acquisition of, or
public announcement of an intent to acquire, beneficial
ownership (as defined under Rule 13d-3 of the Exchange
Act) by any person or Group (as defined in Exhibit C to
the Letter of Intent), of more than ***% of the
outstanding Common Stock; provided that, at any time on
or after the second anniversary of the Closing Date, Elan
and its affiliates may communicate with a committee of
Ligand's then-independent directors regarding a
negotiated acquisition of all, but not less than all, of
the Common Stock then outstanding.
RESTRICTIONS ON
TRANSFER From the date hereof until the *** of the Closing Date,
Elan shall not, and shall not permit any of its
affiliates to, without the consent of Ligand, directly or
indirectly, sell, offer to sell, contract to sell, grant
any option to purchase or otherwise transfer or dispose
of any of the Additional Shares, except for the sale or
transfer of Additional Shares among Elan and its
affiliates; provided that this provision shall terminate
and be of no further force and effect with respect to the
Initial Shares in the event that the Letter of Intent is
abandoned or terminated in accordance with Section 3
thereof.
PREEMPTIVE RIGHTS The Shares, together with the shares of Common Stock
issued to EIS under the License Agreement and upon
conversion of the Notes, shall possess preemptive
rights.
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<PAGE> 18
BOARD REPRESENTATION So long as Elan and its affiliates own not less than
15.0% of the outstanding Common Stock (assuming the
conversion of all Notes owned by Elan and its
affiliates), Elan shall be entitled to designate one
director (the "Elan Designee") to Ligand's board of
directors. Ligand shall use its best efforts to cause
and maintain the election of the Elan Designee to the
Ligand board of directors.
CONDITIONS The purchase of the Shares shall be subject to
conditions precedent customary for transactions
of this type, including, but not limited to,
those set forth in the Letter of Intent.
3
<PAGE> 19
EXHIBIT C
TERM SHEET(1)
ZERO COUPON CONVERTIBLE SENIOR NOTES
DUE 2008
THE NOTES Zero Coupon Convertible Senior Notes due 2008 (the
"Notes").
ISSUE PRICE The Notes will have an issue price (the "Issue
Price") representing a yield to maturity of 8.0% per
annum (computed on a semi-annual bond equivalent basis).
INITIAL FUNDING On the Closing Date, Ligand will issue to EIS
and EIS will purchase from Ligand, Notes at the Issue
Price of $30,000,000 (the "Initial Notes").
SUBSEQUENT FUNDING Ligand may, upon *** on or prior to December 31, 1999,
upon not less than 60 days' prior written notice to
Elan, cause EIS to purchase additional Notes at the
Issue Price of up to an aggregate of $80,000,000 (the
"Additional Notes"); provided that, the proceeds to
Ligand resulting from any such purchase shall be used by
Ligand solely to (i) make a $10,000,000 payment to Elan
in connection with the execution and delivery of the
License Agreement, (ii) make the remaining milestone
payments, if any, due to the stockholders, creditors and
other obligees of Seragen, Inc. ("Seragen"), in
accordance with that certain Agreement and Plan of
Reorganization, dated as of May 11, 1998, among Seragen,
Ligand and Knight Acquisition Corp., (iii) pay the
purchase price for the assets of Marathon
Biopharmaceuticals, LLC ("Marathon"), in accordance with
that certain Option and Asset Purchase Agreement, date
as of May 11, 1998, among Ligand, Marathon, 520
Commonwealth Avenue Real Estate Corp. and 660
Corporation and (iv) otherwise finance the development
of Ligand's business principally through product,
technology and other acquisitions. The purchase by EIS
of any Additional Note shall be conditioned upon the
receipt by Elan of written notice stating in reasonable
detail the proposed use by Ligand of the proceeds to be
received from such purchase and, in the event that
Ligand proposes to use such proceeds (a) for the
purposes set forth in
- ------------
(1) Capitalized terms used in this Term Sheet and not otherwise defined herein
shall have the meaning set forth in Letter of Intent to which this Term
Sheet is attached.
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 20
clauses (ii) or (iii) of the immediately preceding
sentence, Elan shall have completed, to its reasonable
satisfaction, a confirmatory due diligence investigation
relating thereto or (b) for the purposes set forth in
clause (iv) of the immediately preceding sentence, Elan,
in its sole discretion, shall have consented in writing
to such use. Notwithstanding the foregoing, in no event
shall EIS be obligated to purchase Notes, the aggregate
Issue Price of which exceeds $110,000,000.
DENOMINATIONS; FORM The Notes will be issued in minimum denominations of
$1,000 principal amount at maturity and integral
multiples thereof. The Initial Note will be represented
by one physical note and each Additional Note, if any,
issued to EIS will be represented by one physical note.
INTEREST No periodic interest payments will be made on the Notes.
CONVERSION-INITIAL
NOTES The Issue Price of the Initial Note, together with all
accrued original issue discount thereon, will be
convertible into Common Stock, at the option of EIS, at
any time on or prior to maturity, unless previously
redeemed or otherwise purchased by Ligand, at a
conversion rate equal to $14.00 per share. The
conversion rate for the Initial Note will be subject to
customary adjustments upon the occurrence of certain
events.
CONVERSION-ADDITIONAL
NOTES The Issue Price of any Additional Note, together with
all accrued original issue discount thereon, will be
convertible into Common Stock, at the option of EIS, at
any time on or prior to maturity, unless previously
redeemed or otherwise purchased by Ligand, at a per
share conversion rate equal to (i)
***
***
***
the date of issuance of such Additional Note plus (ii) a
premium equal to the ***
***
***
***
***
provided that such conversion rate shall in no event be
less than $14.00 per share or greater than $20.00 per
share. The conversion rate for such Additional Note will
be subject to customary adjustments upon the occurrence
of certain events.
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<PAGE> 21
RANKING The Notes will be general unsecured obligations of
Ligand, ranking pari passu in right of payment with all
existing and future unsubordinated indebtedness of
Ligand and senior in right of payment to all existing
and future subordinated indebtedness of Ligand.
SINKING FUND None.
OPTIONAL REDEMPTION The Notes will not be redeemable by Ligand prior to the
third anniversary of the Closing Date. On and after such
date, the Notes will be redeemable for cash at any time
at the option of Ligand, in whole or in part, at a
redemption price equal to the Issue Price thereof plus
accrued original issue discount thereon through the
date of redemption.
In addition, upon a Change of Control (as defined below)
of Elan occurring prior to the third anniversary of the
Closing Date, Ligand may, at its option, within 30 days
following such Change of Control, upon not less than 10
days' prior written notice, (i) purchase all, but not
less than all, of the Initial Shares (provided that the
Letter of Intent shall not have been abandoned or
terminated in accordance with Section 3 thereof), the
Additional Shares and the shares of Common Stock
received by Elan or its affiliates upon conversion of
the Notes and in lieu of cash payments under the License
Agreement, in each case, then owned by Elan and its
affiliates and (ii) redeem the Notes, in whole but not
in part, in each case, for a cash purchase price
determined in accordance with this paragraph; provided
that, Ligand shall be required to both purchase such
Common Stock and redeem all of the Notes if any are so
purchased or redeemed. The purchase price per share for
the Common Stock shall be the greater of
***
***
***
3
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<PAGE> 22
***
***
***
The Notes shall not be convertible during the period
from the date of such Change of Control until the
earlier of (i) notice by Ligand that it does not intend
to repurchase the Notes and (ii) the date of redemption;
provided that the failure by Ligand to deliver a notice
of repurchase to Elan on or before the 20th calendar day
following such Change of Control shall constitute a
notice that Ligand does not intend to repurchase the
Notes.
For purposes of this Term Sheet, a "Change of Control"
with respect to Elan or Ligand (in each case, the
"company") will be deemed to have occurred at such time
as (i) any person or group of related persons for
purposes of Section 13(d) of the Exchange Act ("Group")
becomes the beneficial owner (as defined under Rule
13d-3 under the Exchange Act), directly or indirectly,
of 50.0% or more of the total voting power of the common
stock of the company, (ii) there shall be consummated
any consolidation or merger of the company in which the
company is not the continuing or surviving corporation
or pursuant to which the common stock of the company
would be converted into cash, securities or other
property, other than a merger or consolidation of the
company in which the holders of the common stock of the
company outstanding immediately prior to the
consolidation or merger hold, directly or indirectly, at
least a majority of the common stock of the surviving
corporation immediately after such consolidation or
merger or (iii) during any period of two consecutive
years, individuals who at the beginning of such period
constituted the board of directors of the company
(together with any new directors whose election by such
board of directors or whose nomination for election by
the shareholders of the company has been approved by a
majority of the directors then still in office who
either were directors at the beginning of such period or
whose election or recommendation for election was
previously so approved) cease to constitute a majority
of the board of directors of the company.
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<PAGE> 23
PURCHASE AT THE OPTION
OF THE EIS The Notes will be purchased by Ligand, at the option of
EIS, on each of the fourth and seventh anniversaries of
the Closing Date, for a purchase price in cash equal to
the Issue Price thereof plus accrued original issue
discount thereon through the date of purchase; provided
that Ligand, at its option, may elect to pay such
purchase price in shares of Common Stock (based upon a
quotient obtained by dividing (i) the amount of cash to
which EIS would have been entitled had Ligand elected to
pay the purchase price in cash by (ii) the ***
***
***
***
***
In addition, upon a Change of Control of Ligand, the
Notes will be purchased for cash by Ligand, at the
option of EIS, for a change of control purchase price
equal to the Issue Price plus accrued original issue
discount thereon through the date of purchase.
CONDITIONS The conditions to the purchase of the Initial Note and
the Additional Note, if any, by EIS shall be subject to
conditions precedent customary for transactions of this
type including, but not limited to, those set forth in
the Letter of Intent.
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<PAGE> 1
EXHIBIT 10.6
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of September
30, 1998, by and between Ligand Pharmaceuticals Incorporated, a Delaware
corporation (the "Company"), and Elan International Services, Ltd., a Bermuda
corporation (the "Purchaser").
RECITALS
WHEREAS, the Company, the Purchaser and Elan Corporation, plc, a
public limited company organized under the laws of Ireland and the parent of the
Purchaser ("Elan"), have entered into a binding letter of intent, dated as of
September 29, 1998 (the "Letter of Intent");
WHEREAS, pursuant to the Letter of Intent, the Purchaser has
agreed to purchase from the Company shares of the Company's common stock, par
value $0.001 per share (the "Common Stock"), on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
SECTION 1. Purchase and Sale of Common Stock. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions set forth herein, at the Closing (as defined
in Section 2(a)) the Company shall sell to the Purchaser, and the Purchaser
shall purchase from the Company, 1,278,970 shares of Common Stock (the "Shares")
at a purchase price equal to $11.65 per share (the "Purchase Price").
SECTION 2. Closing.
(a) The closing of the sale and purchase of the Shares (the
"Closing") shall take place at the offices of Cahill Gordon & Reindel, 80 Pine
Street, New York, NY 10005, at 2:00 PM, New York City time, on the date hereof,
or such other time and place as the Company and the Purchaser may agree. The
<PAGE> 2
-2-
time at which the Closing is concluded is herein called the "Closing Date."
(b) At the Closing, the Company shall deliver to the Purchaser a
certificate or certificates, registered in the name of the Purchaser, or such
other name or names as the Purchaser may direct in writing, representing the
Shares, against payment of the Purchase Price, by certified or official bank
check payable in immediately available funds to the order of the Company or by
wire transfer in immediately available funds to an account designated in writing
by the Company.
SECTION 3. Representations of the Company. Except as otherwise set forth
in the Schedule of Exceptions attached hereto, the Company represents and
warrants to and agrees with the Purchaser as follows:
(a) Each of the Company and the Subsidiaries (as defined in
paragraph (d) of this Section 3) is duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of organization and has all
requisite corporate power and authority to own its properties and conduct its
business as now being conducted. Each of the Company and the Subsidiaries is
duly qualified to do business as a foreign corporation and is in good standing
in all other jurisdictions where the ownership or leasing of its properties or
the conduct of its business requires such qualification, except where the
failure to be so qualified would not, individually or in the aggregate, have a
material adverse effect on the business, assets, liabilities (contingent or
otherwise), operations, condition (financial or otherwise), solvency,
properties, prospects or material agreements of the Company and its
Subsidiaries, taken as a whole (any such event, a "Material Adverse Effect").
(b) The Company has all requisite corporate power and authority
to execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly and validly authorized by the Company and, when executed
and delivered by the Company, will constitute a valid and legally binding
agreement of the Company enforceable against the Company in accordance with its
terms, except that (A) the enforcement thereof may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles of
equity and the discretion of the court before which any proceeding therefor may
be brought and (B) any rights to indemnity or contribution hereunder may be
limited by federal and state securities laws and public policy considerations.
<PAGE> 3
-3-
(c) The Company has all requisite corporate power and authority
to execute, deliver and perform its obligations under the Registration Rights
Agreement (as defined in Section 6(d)). The Registration Rights Agreement has
been duly and validly authorized by the Company and, when executed and delivered
by the Company, will constitute a valid and legally binding agreement of the
Company enforceable against the Company in accordance with its terms, except
that (A) the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of equity
and the discretion of the court before which any proceeding therefor may be
brought and (B) any rights to indemnity or contribution thereunder may be
limited by federal and state securities laws and public policy considerations.
(d) The authorized, issued and outstanding capitalization of the
Company consists of: (i) 80,000,000 shares of Common Stock, of which 39,309,031
shares were issued and outstanding as of July 31, 1998, and (ii) 5,000,000
shares of convertible preferred stock (80,000 shares of which have been
designated as "Series A Participating Preferred Stock"), of which no shares are
issued and outstanding; all of the Subsidiaries of the Company are listed on
Schedule 3(d)(i) hereto (each, a "Subsidiary" and collectively, the
"Subsidiaries"); all of the outstanding shares of capital stock of the Company
and the Subsidiaries have been duly authorized and validly issued, are fully
paid and nonassessable and were not issued in violation of any preemptive or
similar rights; all of the outstanding shares of capital stock of the
Subsidiaries are owned, directly or indirectly, by the Company, free and clear
of all liens, encumbrances, equities and claims or restrictions on
transferability (other than those imposed by the Securities Act of 1933, as
amended (the "Securities Act") and the securities or "Blue Sky" laws of certain
jurisdictions) or voting; except as described in the SEC Reports (as defined in
paragraph (i) of this Section 3) or as otherwise set forth on Schedule 3(d)(ii)
hereto, there are no (i) options, warrants or other rights to purchase, (ii)
agreements or other obligations to issue or (iii) other rights to convert any
obligation into or exchange any securities for, shares of capital stock of or
ownership interests in the Company or any of the Subsidiaries; except for the
Subsidiaries, the Company does not own, directly or indirectly, any shares of
capital stock or any other equity or long-term debt securities or have any
equity interest in any firm, partnership, joint venture or other entity.
<PAGE> 4
-4-
(e) The Shares, when issued, sold and delivered to the Purchaser
at the Closing against payment therefor in accordance with the terms of this
Agreement, will be duly and validly issued, fully paid and nonassessable, will
not be issued in violation of any preemptive or similar rights and will be free
of any liens, encumbrances, restrictions on transfer other than those imposed by
the Securities Act and applicable state securities or "Blue Sky" laws.
(f) No consent, approval, authorization or order of any court or
governmental agency or body, or third party is required for the issuance and
sale by the Company of the Shares or the consummation by the Company of the
other transactions contemplated hereby, except that no representation or
warranty is made with respect to filings required by the Hart-Scott Rodino
Antitrust Improvements Act of 1976, as amended, with respect to transactions
contemplated by the Letter of Intent. None of the Company or the Subsidiaries is
(i) in violation of its certificate of incorporation or bylaws, (ii) in breach
or violation of any statute, judgment, decree, order, rule or regulation
applicable to it or any of its properties or assets, except for any such breach
or violation which would not, individually or in the aggregate, have a Material
Adverse Effect, or (iii) in breach of or default under (nor has any event
occurred which, with notice or passage of time or both, would constitute a
default under) or in violation of any of the terms or provisions of any
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate, contract or other agreement or
instrument to which any of them is a party or to which any of them or their
respective properties or assets is subject (collectively, "Contracts"), except
for any such breach, default, violation or event which would not, individually
or in the aggregate, have a Material Adverse Effect.
(g) None of the Company, the Subsidiaries, any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under the
Securities Act) or any person acting on its or their behalf has engaged in any
directed selling efforts (as that term is defined in Regulation S under the
Securities Act ("Regulation S")) with respect to the Common Stock; the Company,
the Subsidiaries and their respective Affiliates and any person acting on its or
their behalf have complied with the offering restrictions requirements of
Regulation S.
(h) The execution, delivery and performance by the Company of
this Agreement and the Registration Rights Agreement and the consummation by the
Company of the transactions contem-
<PAGE> 5
-5-
plated hereby and thereby (including, without limitation, the issuance and sale
of the Shares to the Purchaser) will not conflict with or constitute or result
in a breach of or a default under (or an event which with notice or passage of
time or both would constitute a default under) or violation of any of (i) the
terms or provisions of any Contract, except for any such conflict, breach,
violation, default or event which would not, individually or in the aggregate,
have a Material Adverse Effect, (ii) the certificate of incorporation or bylaws
of the Company or any of the Subsidiaries, or (iii) (assuming compliance with
all applicable state securities or "Blue Sky" laws and assuming the accuracy of
the representations and warranties of the Purchaser set forth in Section 4 of
this Agreement) any statute, judgment, decree, order, rule or regulation
applicable to the Company or any of the Subsidiaries or any of their respective
properties or assets, except for any such conflict, breach or violation which
would not, individually or in the aggregate, have a Material Adverse Effect.
(i) The Company has filed with the Securities and Exchange
Commission (the "SEC") all required forms, reports, registration statements and
documents required to be filed by it with the SEC since December 31, 1996
(collectively, the "SEC Reports"), all of which complied as to form when filed
in all material respects with the applicable provisions of the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the
case may be. As of their respective dates, the SEC Reports (including all
exhibits and schedules thereto and documents incorporated by reference therein)
did 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 under which they were made, not
misleading.
(j) The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Company and the Subsidiaries
included or incorporated by reference in any of the SEC Reports have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved, except as otherwise stated
therein, and present fairly, in all material respects, the consolidated
financial position of the Company and the Subsidiaries at the dates thereof and
the consolidated results of operations and cash flows for the periods then ended
(subject, in the case of any unaudited interim financial statements, to normal
year-end adjustments and to the extent they include footnotes or may be
condensed or summary statements) and such
<PAGE> 6
-6-
audited financial statements are accompanied by an unqualified opinion thereon
by the Company's independent auditors.
(k) Except as set forth on Schedule 3(k), there is not pending
or, to the knowledge of the Company, threatened any action, suit, proceeding,
inquiry or investigation to which the Company or any of the Subsidiaries is a
party, or to which the property or assets of the Company or any of the
Subsidiaries are subject, before or brought by any court, arbitrator or
governmental agency or body which, if determined adversely to the Company or any
such Subsidiary, would, individually or in the aggregate, have a Material
Adverse Effect, or which seeks to restrain, enjoin, prevent the consummation of
or otherwise challenge the issuance or sale of the Shares to be sold hereunder
or the consummation of the other transactions contemplated by this Agreement.
(l) Each of the Company and the Subsidiaries possesses all
licenses, permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals presently required or necessary
to own or lease, as the case may be, and to operate its respective properties
and to carry on its respective businesses as now conducted and as proposed to be
conducted ("Permits"), except where the failure to obtain such Permits would
not, individually or in the aggregate, have a Material Adverse Effect and except
as disclosed in the SEC Reports; each of the Company and the Subsidiaries has
fulfilled and performed all of its obligations with respect to such Permits and
no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such Permit; and none of the
Company or the Subsidiaries has received any notice of any proceeding relating
to revocation or modification of any such Permit, except where such revocation
or modification would not, individually or in the aggregate, have a Material
Adverse Effect.
(m) Since June 30, 1998, (i) except as set forth on Schedule
3(m), none of the Company or the Subsidiaries has incurred any liabilities or
obligations, direct or contingent, or entered into or agreed to enter into any
transactions or contracts (written or oral) not in the ordinary course of
business, which liabilities, obligations, transactions or contracts would,
individually or in the aggregate, be material to the business, assets,
liabilities (contingent or otherwise), opera-
<PAGE> 7
-7-
tions, condition (financial or otherwise), solvency or prospects of the Company
and the Subsidiaries, taken as a whole, (ii) none of the Company or the
Subsidiaries has purchased any of its outstanding capital stock, nor declared,
paid or otherwise made any dividend or distribution of any kind on its capital
stock (other than with respect to the Subsidiaries, the purchase of, or dividend
or distribution on, capital stock owned by the Company) and (iii) there shall
not have been any material change in the capital stock or long-term indebtedness
of the Company or the Subsidiaries.
(n) Each of the Company and the Subsidiaries has filed all
necessary federal, state and foreign income and franchise tax returns, except
where the failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect, and has paid all taxes shown as due
thereon; and other than tax deficiencies which the Company or any Subsidiary is
contesting in good faith and for which the Company or such Subsidiary has
provided adequate reserves, there is no tax deficiency that has been asserted
against the Company or any of the Subsidiaries that would, individually or in
the aggregate, have a Material Adverse Effect.
(o) Each of the Company and the Subsidiaries has good and
marketable title to all real property and good title to all personal property
owned by it and good and marketable title to all leasehold estates in the real
and personal property being leased by it free and clear of all liens, charges,
encumbrances or restrictions, except as set forth on Schedule 3(o) and except to
the extent the failure to have such title or the existence of such liens,
charges, encumbrances or restrictions would not, individually or in the
aggregate, have a Material Adverse Effect.
(p) Each of the Contracts is valid and enforceable against the
Company or the Subsidiaries, as the case may be, and is valid and enforceable
against the other party or parties thereto and the Company is not, and has no
actual knowledge that any other party is, in default under or in respect of any
such Contract, with only such exceptions as would not, individually or in the
aggregate, have a Material Adverse Effect.
(q) Each of the Company and the Subsidiaries owns or possesses
adequate licenses or other valid rights to use all patents and applications
therefore, trademarks, service marks, trade names, copyrights and know-how
(collectively "Proprietary Rights") necessary to conduct the businesses now or
proposed to be conducted by it, except for such lack of or defects in own-
<PAGE> 8
-8-
ership as would not, individually or in the aggregate, have a Material Adverse
Effect. None of the Company or the Subsidiaries has received any notice that any
Proprietary Rights have been declared unenforceable or otherwise invalid by any
court or governmental agency other than notices relating to Proprietary Rights
the loss of which would not, individually or in the aggregate, have a Material
Adverse Effect. Except as set forth on Schedule 3(q), none of the Company or the
Subsidiaries has received any notice of infringement of or conflict with (or
knows of any such infringement of or conflict with) asserted rights of others
with respect to any Proprietary Rights which, if such assertion of infringement
or conflict were sustained, would have a Material Adverse Effect.
(r) Except as would not, individually or in the aggregate, have a
Material Adverse Effect (A) each of the Company and the Subsidiaries is in
compliance with and not subject to liability under applicable Environmental Laws
(as defined below), (B) each of the Company and the Subsidiaries has made all
filings and provided all notices required under any applicable Environmental
Law, and has and is in compliance with all Permits required under any applicable
Environmental Laws and each of them is in full force and effect, (C) there is no
civil, criminal or administrative action, suit, demand, claim, hearing, notice
of violation, investigation, proceeding, notice or demand letter or request for
information pending or, to the knowledge of the Company or the Subsidiaries,
threatened against the Company or any Subsidiary under any Environmental Law,
(D) no lien, charge, encumbrance or restriction has been recorded under any
Environmental Law with respect to any assets, facility or property owned,
operated, leased or controlled by the Company or any Subsidiary, (E) none of the
Company or the Subsidiaries has received notice that it has been identified as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or any comparable
state law, (F) no property or facility of the Company or any Subsidiary is (i)
listed or proposed for listing on the National Priorities List under CERCLA or
(ii) listed in the Comprehensive Environmental Response, Compensation and
Liability Information System List promulgated pursuant to CERCLA, or on any
comparable list maintained by any state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the
common law and all applicable federal, state and local laws or regulations,
codes, orders, decrees, judgments or injunctions issued, promulgated, approved
or entered thereunder, relating to pollution or protection of public or employee
<PAGE> 9
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health and safety or the environment, including, without limitation, laws
relating to (i) emissions, discharges, releases or threatened releases of
hazardous materials into the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata), (ii) the
manufacture, processing, distribution, use, generation, treatment, storage,
disposal, transport or handling of hazardous materials, and (iii) underground
and aboveground storage tanks and related piping, and emissions, discharges,
releases or threatened releases therefrom.
(s) There is no strike, labor dispute, slowdown or work stoppage
with the employees of the Company or the Subsidiaries which is pending or, to
the knowledge of the Company or the Subsidiaries, threatened.
(t) Each of the Company and the Subsidiaries carries insurance in
such amounts and covering such risks as is adequate for the conduct of its
business and the value of its properties.
(u) None of the Company or the Subsidiaries has any liability for
any prohibited transaction or funding deficiency or any complete or partial
withdrawal liability with respect to any pension, profit sharing or other plan
which is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company or any Subsidiary makes or ever has made
a contribution and in which any employee of the Company or any Subsidiary is or
has ever been a participant. With respect to such plans, the Company and the
Subsidiaries are in compliance in all material respects with all applicable
provisions of ERISA.
(v) Each of the Company and the Subsidiaries (i) makes and keeps
accurate books and records and (ii) maintains internal accounting controls which
provide reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as necessary to
permit preparation of its financial statements and to maintain accountability
for its assets, (C) access to its assets is permitted only in accordance with
management's authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(w) Except as provided in the Registration Rights Agreement, the
Company has not granted or agreed to grant any registration rights to any person
or entity.
<PAGE> 10
-10-
(x) Under the Preferred Share Rights Agreement, dated as of
September 13, 1996, between the Company and Wells Fargo Bank, N.A., as amended
to the date hereof (the "Rights Agreement"), none of the execution of this
Agreement or the Registration Rights Agreement, or the consummation of the
transactions contemplated hereby or thereby, will cause a "distribution date" to
occur or cause rights issued thereunder to become exercisable.
(y) Except as otherwise disclosed to the Purchaser, no person has
or will have, as a result of the transactions contemplated by this Agreement,
any right, interest or valid claim against or upon the Company for any
commission, fee or other compensation as a finder or broker because of any act
by the Company or of any agent of the Company. The Company will pay, and hold
the Purchaser harmless against, any liability, loss or expense (including,
without limitation, reasonable attorneys' fees and out-of-pocket expenses)
arising in connection with any claim for any such commission, fee or other
compensation.
SECTION 4. Representations of the Purchaser. The Purchaser represents
and warrants to and agrees with the Company as follows:
(a) The Purchaser has all requisite corporate power and authority
to execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly and validly authorized by the Purchaser and, when
executed and delivered by the Purchaser, will constitute a valid and legally
binding agreement of the Purchaser enforceable against the Purchaser in
accordance with its terms, except that the enforcement hereof may be subject to
(i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought.
(b) The Purchaser has all requisite corporate power and authority
to execute, deliver and perform its obligations under the Registration Rights
Agreement. The Registration Rights Agreement has been duly and validly
authorized by the Purchaser and, when executed and delivered by the Purchaser,
will constitute a valid and legally binding agreement of the Purchaser
enforceable against the Purchaser in accordance with its terms, except that (A)
the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to
<PAGE> 11
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creditors' rights generally and (ii) general principles of equity and the
discretion of the court before which any proceeding therefor may be brought and
(B) any rights to indemnity or contribution thereunder may be limited by federal
and state securities laws and public policy considerations.
(c) The Purchaser acknowledges that the Shares have not been
registered under the Securities Act or any other applicable securities laws, are
being sold in a transaction not requiring registration under the Securities Act
and, unless so registered, may not be offered, sold or otherwise transferred
except in compliance with the registration requirements of the Securities Act or
any other applicable securities law, pursuant to an exemption therefrom or in a
transaction not subject thereto and in each case in compliance with the
conditions for transfer set forth in paragraph (e) of this Section 4.
(d) The Purchaser is outside the United States and is not a "U.S.
person" (as such term is defined in Regulation S) and is purchasing the Shares
for its own account.
(e) Until the expiration of the "one-year distribution compliance
period" within the meaning of Rule 903 of Regulation S, the Purchaser will not
sell or otherwise transfer the Shares except (i) to the Company or its
Subsidiaries, (ii) pursuant to an effective registration statement which has
been declared effective under the Securities Act, (iii) in an offshore
transaction in accordance with Rule 904 of Regulation S or (iv) pursuant to any
other available exemption from the registration requirements of the Securities
Act, including Rule 144 thereunder ("Rule 144"). After the expiration of such
"one-year distribution compliance period," the Purchaser will not sell or
otherwise transfer the Shares except pursuant to registration under the
Securities Act or an available exemption therefrom and, in any case, in
accordance with the provisions of Regulation S and applicable state securities
laws.
(f) The Purchaser understands that the certificates representing
the Shares will, so long as appropriate, bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR PURSUANT TO A VALID
EXEMPTION THEREFROM AND HAVE BEEN SOLD IN RELIANCE ON THE EXEMPTION FROM
REGISTRATION PROVIDED
<PAGE> 12
-12-
BY REGULATION S UNDER THE ACT ("REGULATION S"). THE SHARES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED
OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S
(SECTION 230.901 THROUGH SECTION 230.905, AND PRELIMINARY NOTES).
HEDGING TRANSACTIONS INVOLVING THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT.
THE TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
THE CONDITIONS SPECIFIED IN A STOCK PURCHASE AGREEMENT, DATED AS OF
SEPTEMBER 30, 1998, BETWEEN THE COMPANY AND ELAN INTERNATIONAL SERVICES,
LTD., AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH
SHARES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO SUCH
TRANSFER. A COPY OF SUCH CONDITIONS WILL BE FURNISHED BY THE COMPANY TO
THE HOLDER HEREOF WITHOUT CHARGE.
(g) The Purchaser agrees that the Company shall be entitled to
make a notation on its records and give instructions to any transfer agent of
the Shares in order to implement the restrictions on transfer set forth in this
Agreement.
(h) The Purchaser acknowledges that, in making the decision to
purchase the Shares, it has relied solely upon independent investigations made
by it and not upon any representations made by the Company with respect to the
Company or the Shares. The Purchaser acknowledges that it is a sophisticated
investor and that an investment in the Shares involves a high degree of risk.
The Purchaser further acknowledges that the Purchase Price may or may not exceed
the latest publicly quoted per share "asked" price of the Common Stock.
(i) The Purchaser is purchasing the Shares for its own account
for the purpose of investment and not (i) with a view to, or for sale in
connection with, any distribution thereof or (ii) for the account or on behalf
of any "U.S. person" (as such term is defined in Regulation S). The Purchaser
understands, acknowledges and agrees that it must bear the economic risk of its
investment in the Shares for an indefinite period of time and that prior to any
offer or sale of such securities, the Company may require, as a condition to
effecting a transfer of the Shares, an opinion of counsel to Purchaser,
acceptable to the Company, as to the registration or exemption therefrom under
the Securities Act.
<PAGE> 13
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(j) The Purchaser was not formed specifically for the purpose of
acquiring the Shares purchased pursuant to this Agreement.
(k) Neither the Purchaser nor any of its affiliates directly or
indirectly have within the past 90 days nor will such persons for a period of
one year from the Closing Date directly or indirectly enter into any short
selling of any equity security of the Company (including, without limitation,
the Common Stock) or any hedging transaction with respect to any equity security
of the Company, including, without limitation, puts, calls, or other option
transactions, option writing and equity swaps, unless in compliance with the
Securities Act.
SECTION 5. Conditions to Company's and Purchaser's Obligations.
The respective obligation of each of the Company and the Purchaser to consummate
the purchase and sale of the Shares pursuant to Section 1 of this Agreement
shall be subject to the satisfaction of the following conditions at or prior to
the Closing Date:
(a) The sale of the Shares hereunder shall not be enjoined
(temporarily or permanently) on the Closing Date.
(b) All consents, approvals, authorizations and orders of any
court or governmental agency or body, or third party required in connection with
the execution and delivery of this Agreement and the Registration Rights
Agreement and the consummation of the transactions contemplated hereby and
thereby shall have been obtained.
SECTION 6. Conditions to Purchaser's Obligations. The obligation of the
Purchaser to purchase the Shares pursuant to Section 1 of this Agreement shall,
in its sole discretion, be subject to satisfaction or waiver of the following
conditions at or prior to the Closing Date:
(a) Each of the representations and warranties of the Company set
forth in Section 3 hereof shall be true and correct on and as of the date hereof
and on and as of the Closing Date as if made on and as of the Closing Date,
except to the extent that such representations and warranties expressly relate
to an earlier date; the statements of the Company's officers made pursuant to
any certificate delivered in accordance with the provisions hereof shall be true
and correct on and as of the date made and on and as of the Closing Date; the
Company shall have performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied
<PAGE> 14
-14-
hereunder at or prior to the Closing Date; since June 30, 1998, and except as
disclosed in SEC Reports filed since such date, there shall have been no event
or development, and no information shall have become known, that, individually
or in the aggregate, has or would be reasonably likely to have a Material
Adverse Effect.
(b) On the Closing Date, the Purchaser shall have received the
opinion, dated as of the Closing Date and addressed to the Purchaser, of
Brobeck, Phleger & Harrison LLP, counsel for the Company, substantially in the
form attached hereto as Exhibit A.
(c) The Purchaser shall have received a certificate of the
Company, dated the Closing Date, signed on behalf of the Company by its Chief
Executive Officer and the Chief Financial Officer, to the effect that:
(i) The representations and warranties of the Company contained
in this Agreement are true and correct on and as of the date hereof and
on and as of the Closing Date, except to the extent that such
representations and warranties expressly relate to an earlier time, and
the Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied hereunder at or
prior to the Closing Date;
(ii) At the Closing Date and since June 30, 1998, no event or
development has occurred, and no information has become known, that,
individually or in the aggregate, has or would be reasonably likely to
have a Material Adverse Effect; and
(iii) The sale of the Shares hereunder has not been enjoined
(temporarily or permanently).
(d) On the Closing Date, the Purchaser shall have received the
Tenth Addendum to the Amended Registration Rights Agreement, dated as of June
24, 1994, by and among the Company and those entities party thereto (the
"Registration Rights Agreement"), providing for the registration rights for the
Shares upon the terms and conditions set forth therein and such agreement shall
be in full force and effect at all times from and after the Closing Date.
All such documents, certificates, schedules or instruments
delivered pursuant to this Agreement will comply with the provisions hereof only
if they are reasonably satisfactory
<PAGE> 15
-15-
in all material respects to the Purchaser and counsel for the Purchaser.
SECTION 7. Conditions to Company's Obligations.
The obligation of the Company to issue and sell the Shares
pursuant to Section 1 of this Agreement shall, in its sole discretion, be
subject to satisfaction or waiver of the following conditions at or prior to the
Closing Date:
(a) Each of the representations and warranties of the Purchaser
set forth in Section 4 hereof shall be true and correct on and as of the date
hereof and on and as of the Closing Date as if made on and as of the Closing
Date, except to the extent that such representations and warranties expressly
relate to an earlier date; the statements of the Purchaser's officers made
pursuant to any certificate delivered in accordance with the provisions hereof
shall be true and correct on and as of the date made and on and as of the
Closing Date; the Purchaser shall have performed all covenants and agreements
and satisfied all conditions on its part to be performed or satisfied hereunder
at or prior to the Closing Date.
(b) The Company shall have received a certificate of the
Purchaser, dated the Closing Date, signed on behalf of the Purchaser by its
President and Chief Financial Officer, to the effect that the representations
and warranties of the Purchaser contained in this Agreement are true and correct
on and as of the date hereof and on and as of the Closing Date, except to the
extent that such representations and warranties expressly relate to an earlier
time, and the Purchaser has performed all covenants and agreements and satisfied
all conditions on its part to be performed or satisfied hereunder at or prior to
the Closing Date.
(c) The Purchaser shall have delivered the Purchase Price in
accordance with Section 2(b) hereof.
All such documents, certificates, schedules or instruments
delivered pursuant to this Agreement will comply with the provisions hereof only
if they are reasonably satisfactory in all material respects to the Company and
counsel for the Company.
<PAGE> 16
-16-
SECTION 8. Covenants of the Company.
(a) The Company agrees that, prior to the termination of all
rights provided for in the Registration Rights Agreement in accordance with
Section 1.17 thereof, the Company will prepare, execute and deliver to the
Purchaser a registration rights agreement (the "New Registration Rights
Agreement"), to be effective upon such termination, providing registration
rights for the Shares on substantially identical terms and conditions as those
provided for in the Registration Rights Agreement. The New Registration Rights
Agreement shall expire on December 31, 2003.
(b) Subject to the terms and conditions specified in this
paragraph (b), the Company hereby grants to the Purchaser a right to purchase up
to the number of Additional Shares (as defined below) in connection with any
Transaction (as defined below) undertaken by the Company.
(i) Each time the Company proposes to offer, sell or otherwise
issue shares of any class of its capital stock or securities convertible
into or exercisable or exchangeable for a class of capital stock
("Capital Stock"), in a public or private transaction (a "Transaction"),
the Company shall deliver a notice in person, by air courier or by
facsimile ("Notice") to the Purchaser stating (a) the Company's bona
fide intention to undertake such Transaction, (b) the number of shares
of Capital Stock to be offered in the Transaction (the "Transaction
Shares"), (c) the number of Additional Shares up to which the Purchaser
may elect to purchase in such Transaction (which would be added to the
Transaction Shares), and (d) the price and terms, if any, upon which it
proposes to offer, sell or otherwise issue Capital Stock in the
Transaction.
(ii) Within 10 business days after giving of the Notice, the
Purchaser may elect to purchase, at the price and on the terms specified
in the Notice, up to the number of Additional Shares set forth in the
Notice. The number of shares of Capital Stock ("Additional Shares") that
the Purchaser may elect to purchase and include in the Transaction shall
be calculated as follows:
Additional Shares = Transaction Shares Transaction Shares
------------------
1 - X%
<PAGE> 17
-17-
X% represents the percentage (stated as a decimal) of the
outstanding shares of Common Stock then held by the Purchaser
(assuming the conversion exercise or exchange of all Capital
Stock then held by the Purchaser and acquired pursuant to this
paragraph (b)).
In the event that the price or terms upon which the Company proposes to
offer, sell or otherwise issue Capital Stock in the Transaction or the
number of Transaction Shares to be included in such Transaction changes
for any reason (other than including the Additional Shares) after the
Notice is delivered to the Purchaser, the number of Additional Shares
shall, with respect to a change in the number of Transaction Shares, be
recalculated using the new number of Transaction Shares and, in any
case, the Company shall promptly provide a revised Notice to the
Purchaser reflecting such recalculated Additional Shares and any change
to such price or terms. If the Company proposes to offer, sell or issue
any Capital Stock for consideration other than cash, the Purchaser may
exercise the right set forth in this paragraph (b) and purchase
Additional Shares for cash at a per share purchase price equal to (i)(a)
the face amount of any cash received for such Capital Stock plus (b) the
fair market value of the non-cash consideration expressly received for
such Capital Stock divided by (ii) the number of Transaction Shares
issued in such Transaction (excluding any Additional Shares). The fair
market value of any such non-cash consideration shall be determined by
an independent appraisal firm of nationally-recognized standing chosen
jointly by the Company and the Purchaser.
(iii) The right of the Purchaser in this paragraph (b) shall not
be applicable to (a) the issuance or sale of Capital Stock under any
plan, agreement or arrangement applicable only to employees, directors
or consultants and approved by the Company's board of directors or (b)
the issuance of securities pursuant to the conversion, exercise or
exchange of convertible, exercisable or exchangeable securities.
(iv) The Purchaser's rights and obligations under this paragraph
(b) shall not be assignable, except that such rights may be assigned by
the Purchaser to any Affiliate that agrees in writing to be bound by the
provisions of this paragraph (b).
<PAGE> 18
-18-
(v) Notwithstanding anything to the contrary in this paragraph
(b), the provisions of this paragraph (b) shall terminate and be of no
further force and effect upon the earlier of (i) the termination of the
Letter of Intent pursuant to Section 3(c) thereof and (ii) the
consummation of (x) any consolidation of the Company with, or merger of
the Company with or into, any person (including any individual,
partnership, joint venture, corporation, trust or group thereof)
("Person") other than a consolidation or merger pursuant to which the
stockholders of the Company immediately prior to such consolidation or
merger own more than 50% of the outstanding securities entitled to vote
in the election of directors of the surviving Person after such
consolidation or merger or (y) any sale, transfer or conveyance of all
or substantially all of the assets of the Company.
(c) Upon the later of (i) the termination of all rights under the
Registration Rights Agreement and (ii) the expiration of the New Registration
Rights Agreement, and so long as Purchaser continues to hold any Shares, in
order to permit the Purchaser to sell the Shares (subject to Section 9(a)
hereof), from time to time, pursuant to Rule 144, or any successor to such rule
or any other rule or regulation of the SEC that may at any time permit the
Purchaser to sell the Shares without registration, the Company shall:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times during which the
Company is subject to the reporting requirements of the Securities Act
or the Exchange Act;
(ii) use its best efforts to file with the SEC in a timely manner
all reports and other documents required to be filed by the Company
under the Securities Act or the Exchange Act (at all times during which
it is subject to such reporting requirements thereof); and
(iii) (x) furnish to the Purchaser promptly upon request, a
written statement by the Company as to its compliance with the reporting
requirements of the Securities Act and the Exchange Act (at any time
during which it is subject to such to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and
such other reports and documents of the Company and other information in
the possession of or reasonably obtainable by the Company as the
Purchaser may reasonably request in availing itself of Rule 144, or any
successor
<PAGE> 19
-19-
to such rule or any other rule or regulation of the SEC that may at any
time permit the Purchaser to sell the Shares without registration and
(y) take any action (including cooperating with the Purchaser to cause
the transfer agent for the Common Stock to remove any restrictive legend
on the certificates evidencing the Shares) as shall be reasonably
requested by the Purchaser or which shall otherwise facilitate the sale
of the Shares from time to time by the Purchaser pursuant to Rule 144,
or any successor to such rule or any other rule or regulation of the SEC
that may at any time permit the Purchaser to sell the Shares without
registration.
SECTION 9. Covenants of the Purchaser.
(a) The Purchaser agrees that, during the period beginning on the
date of this Agreement and ending on the later of (i) September 30, 2000 and
(ii) the *** after the consummation of the transactions contemplated by the
Letter of Intent, it shall not, and shall not permit any of its Affiliates (as
defined below) to, directly or indirectly, without the prior written consent of
the Company, sell, offer to sell, contract to sell, grant any option to purchase
or otherwise transfer or dispose of ("Transfer"), the Shares; provided that Elan
may Transfer the Shares to any of its Affiliates and any Affiliate of Elan may
Transfer the Shares to Elan or to any other Affiliate of Elan, subject to the
Purchaser's agreements set forth in Section 4 of this Agreement.
(b) For purposes of this Section 9, the term "Affiliate" shall
mean, with respect to any specified person or entity, any other person or entity
controlling, controlled by, or under common control with such specified person
or entity. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a person or entity, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative of the foregoing.
(c) Notwithstanding anything to the contrary in this Section 9,
the provisions of this Section 9 shall terminate and be of no further force and
effect upon the termination of the Letter of Intent pursuant to Section 3(c)
thereof.
SECTION 10. Notices. Any notices or other communications required or
permitted hereunder shall be sufficiently given if
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE> 20
-20-
delivered personally or sent by telex, nationally recognized overnight delivery
service, facsimile (receipt confirmed), registered or certified mail, postage
prepaid, addressed as follows or to such other address of which the parties may
have given written notice:
(i) if to the Company, to:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attn: General Counsel
Fax No.: (619) 550-1825
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101-3532
Attn: Faye H. Russell, Esq.
Fax No.: (619) 234-3848
(ii) if to the Purchaser, to:
Elan International Services, Ltd.
102 St. James Court
Flatts Smiths FL 04
Bermuda
Attn: President
Fax No.: (441) 292-2224
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attn: William M. Hartnett, Esq.
Fax No.: (212) 269-5420
(iii) (a) on the date delivered, if delivered by facsimile or
personally; (b) on the day after the notice is delivered into the
possession and control of a nationally recognized overnight delivery
service, duly marked for delivery to the receiving party; or (c) three
business days after being sent, if sent by registered or certified mail.
SECTION 11. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the parties hereto and their
<PAGE> 21
-21-
respective successors and assigns, except that neither the Purchaser nor the
Company may assign its obligations hereunder without the prior written consent
of the other party; provided that the Purchaser may assign any of its rights and
obligations hereunder to Elan or any Affiliate of Elan, subject to the
Purchaser's agreements set forth in Section 4 of this Agreement; provided,
further, that the Company may assign its obligations hereunder in connection
with the transfer or sale of all or substantially all of its assets, or in the
event of its merger or consolidation with or into another entity in a
transaction in which the Company is not the surviving entity. Any assignment in
contravention of this Section 11 shall be void. No assignment shall release the
Purchaser or the Company from any obligation or liability under this Agreement
unless expressly agreed to by the non-assigning party.
SECTION 12. Entire Agreement; Amendments. This Agreement and the other
writings referred to herein or delivered pursuant hereto contain the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof and supersedes all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. This Agreement may be amended only by a written amendment executed by
both parties.
SECTION 13. Severability. Any provision of this Agreement which is
invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining provisions hereof
in such jurisdiction or rendering that or any other provision of this Agreement
invalid, illegal or unenforceable in any other jurisdiction.
SECTION 14. Expenses. Except as otherwise expressly provided herein, the
Purchaser and the Company will pay the respective fees and expenses (including,
without limitation, legal and accounting fees and expenses) incurred by each of
them in connection with the transactions contemplated hereby.
SECTION 15. Survival of Representations and Warranties. All
representations and warranties made in this Agreement or any other instrument or
document delivered in connection herewith or therewith, shall survive the
execution and delivery hereof or thereof for a period of two (2) years.
<PAGE> 22
-22-
SECTION 16. Waiver. No failure or delay on the part of a party hereto in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder.
SECTION 17. Further Assurances. From and after the date of this
Agreement, upon the reasonable request of one party hereto, the other party
hereto shall execute and deliver such instruments, documents and other writings
as may be necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
SECTION 18. GOVERNING LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
SECTION 19. Section Headings. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.
SECTION 20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
<PAGE> 23
-23-
IN WITNESS WHEREOF, this Agreement has been duly executed under
seal by the parties hereto and delivered as of the date first above written.
LIGAND PHARMACEUTICALS
INCORPORATED
By: /s/ DAVID E. ROBINSON
-------------------------------
Name: David E. Robinson
Title: President and Chief
Executive Officer
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ KEVIN INSLEY
-------------------------------
Name: Kevin Insley
Title: President and Chief
Financial Officer
<PAGE> 24
EXHIBIT A
Opinion of Brobeck, Phleger & Harrison LLP
<PAGE> 1
EXHIBIT 10.7
TENTH ADDENDUM TO AMENDED REGISTRATION RIGHTS AGREEMENT
This Tenth Addendum ("Addendum") to the Amended Registration Rights
Agreement dated June 24, 1994, as amended through the date hereof ("Registration
Rights Agreement") between Ligand Pharmaceuticals Incorporated (the "Company")
and Elan International Services, Ltd. ("Investor") is effective as of
September 30, 1998.
RECITALS
A. As of the date hereof, the Company has issued 1,278,970 shares of the
Company's Common Stock (the "Shares") to Investor pursuant to Section 1 of that
certain Stock Purchase Agreement dated the date hereof among the Company and
Investor (the "Purchase Agreement").
B. This Addendum serves to include the Shares within the definition of
"Registrable Securities" under the Registration Rights Agreement and to modify
Schedule A to the Registration Rights Agreement to include such Shares, all
pursuant to Section 2.6(a) of the Registration Rights Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth in the Registration Rights Agreement, the parties agree as follows:
1. Section 1.1, paragraph (f) of the Registration Rights Agreement is
hereby restated in its entirety as follows:
"(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon exercise of those warrants issued to certain
Existing Investors and pursuant to which such Existing Investors were
previously granted registration rights by the Company, (ii) the shares
of Common Stock (or the shares of such other class of stock into which
the Common Stock is converted) issuable upon conversion of those certain
Unsecured Convertible Promissory Notes issued to American Home Products
Corporation pursuant to the Stock and Note Purchase Agreement dated
September 2, 1994, (iii) the 35,957 shares of Common Stock issuable or
issued upon exercise of the Warrant issued to Genentech, Inc. in
connection with the merger of L.G. Acquisition Corp., a wholly-owned
subsidiary of the Company, with and into Glycomed Incorporated, which
shares are reflected on Schedule A attached to the Fourth Addendum to
this Agreement, (iv) the 164,474 shares of Common Stock (or that number
of shares of such other class of stock into which the Common Stock is
converted) issued to S.R. One Limited pursuant to a Stock and Note
Purchase Agreement dated February 3, 1995 (the "Stock and Note Purchase
Agreement"), which shares are reflected on Schedule A attached to the
Eighth Addendum to this Agreement, and the shares of Common Stock (or
the shares of such other class of stock into which the Common Stock is
converted) issuable upon conversion of those certain Unsecured
Convertible Promissory Notes dated October 30, 1997 (the "Notes")
<PAGE> 2
issued pursuant to the Stock and Note Purchase Agreement (and upon such
conversion of the Notes, Schedule A shall be updated to include such
shares), (v) the 274,423 shares of Common Stock (or that number of
shares of such other class of stock into which the Common Stock is
converted) issued to SmithKline Beecham plc pursuant to a Stock Purchase
Agreement dated April 24, 1998 (the "Stock Purchase Agreement"), which
shares are reflected on Schedule A attached to the Ninth Addendum to
this Agreement, and the shares of Common Stock (or the shares of such
other class of stock into which the Common Stock is converted) issuable
upon conversion of that certain Warrant (the "Warrant") issued pursuant
to the Stock Purchase Agreement (and upon such conversion of the
Warrant, Schedule A shall be updated to include such shares), (vi) the
1,278,970 shares of Common Stock (or that number of shares of such other
class of stock into which the Common Stock is converted) issued to the
Investor pursuant to the Purchase Agreement, and (vii) any Common Stock
of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or
other distribution with respect to, or in exchange for or in replacement
of the shares referenced in (i), (ii), (iii), (iv), (v) and (vi) above,
excluding in all cases, however, any Registrable Securities sold by a
person in a transaction in which rights under this Agreement are not
assigned."
2. Schedule A of the Registration Rights Agreement is hereby restated in
its entirety as attached to this Addendum.
3. This Addendum may be executed in one or more counterparts.
4. This Addendum shall be binding upon the Company, Investor and each
holder of Registrable Securities and each future holder of Registrable
Securities pursuant to Section 2.6(a) of the Registration Rights Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Addendum as of the
date first above written.
ELAN INTERNATIONAL SERVICES, LIGAND PHARMACEUTICALS
LTD. INCORPORATED
By: ___________________________ By: ___________________________
Title: ________________________ Title: ________________________
[SIGNATURE PAGE TO TENTH ADDENDUM TO
AMENDED REGISTRATION RIGHTS AGREEMENT]
3
<PAGE> 4
SCHEDULE A
to
Tenth Addendum to
Amended Registration Rights Agreement
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
SHARES
NAME ISSUED
- ------------------------------------------------------------------------------
<S> <C>
American Home Products Corporation 374,626
American Home Products Corporation 374,626
American Home Products Corporation 249,749
American Home Products Corporation 124,875
Aspen Venture Partners, L.P. 2,659
Elan International Services, Ltd. 1,278,970
Enterprise Partners 3,745
Genentech, Inc. 35,957
Kleiner Perkins Caufield & Byers 7,688
ML Venture Partners II, L.P. 2,417
S.R. One, Limited 164,474
SmithKline Beecham 274,423
Venrock Associates 3,441
Venrock Associates II, L.P. 1,540
Windsor Venture Lease Partners Ltd., Inc. 283
TOTAL: 2,899,473
- ------------------------------------------------------------------------------
</TABLE>
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
(IN THOUSANDS EXCEPT EARNINGS PER SHARE)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 24,939
<SECURITIES> 18,661<F4>
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,533
<CURRENT-ASSETS> 45,952
<PP&E> 48,060
<DEPRECIATION> 17,673
<TOTAL-ASSETS> 125,736
<CURRENT-LIABILITIES> 18,706
<BONDS> 99,727<F1>
0
0
<COMMON> 43
<OTHER-SE> 7,170<F2>
<TOTAL-LIABILITY-AND-EQUITY> 125,736
<SALES> 103
<TOTAL-REVENUES> 13,399
<CGS> 183
<TOTAL-COSTS> 10,936<F3>
<OTHER-EXPENSES> 38,286
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,886
<INCOME-PRETAX> (77,227)
<INCOME-TAX> 0
<INCOME-CONTINUING> (77,227)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,227)
<EPS-PRIMARY> (1.97)
<EPS-DILUTED> (1.97)
<FN>
<F1>INCLUDES BONDS, MORTGAGES AND OTHER LONG-TERM DEBT, INCLUDING CAPITALIZED
LEASES.
<F2>INCLUDES ADDITIONAL PAID IN CAPITAL, OTHER ADDITIONAL CAPITAL AND RETAINED
EARNINGS, APPROPRIATED AND UNAPPROPRIATED.
<F3>PER CHIEF ACCOUNTANT AT THE SEC, THIS AMOUNT EXCLUDES SALES AND G&A EXPENSES,
INCLUDES COSTS AND EXPENSES APPLICABLE TO SALES AND REVENUES, AND TANGIBLE
COSTS OF GOODS SOLD.
<F4>INCLUDES RESTRICTED CASH.
</FN>
</TABLE>
