<PAGE>
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, 1999 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: (858) 550-7500
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, 1999 the registrant had 47,730,638 shares of common
stock outstanding.
<PAGE>
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, 1999 and December 31, 1998..................................3
Consolidated Statements of Operations for the three and nine months ended September 30, 1999 and 1998.......4
Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998.................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.........................................19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings..................................................................................*
ITEM 2. Changes in Securities and Use of Proceeds..........................................................20
ITEM 3. Defaults upon Senior Securities....................................................................*
ITEM 4. Submission of Matters to a Vote of Security Holders................................................*
ITEM 5. Other Information..................................................................................*
ITEM 6. Exhibits and Reports on Form 8-K...................................................................20
SIGNATURE..........................................................................................................22
</TABLE>
* No information provided due to inapplicability of item.
2
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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,
1999 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 26,733 $ 32,801
Short-term investments 19,143 37,166
Accounts receivable, net 2,265 830
Inventories 5,764 6,166
Other current assets 782 1,030
------------------ ------------------
Total current assets 54,687 77,993
Restricted short-term investments 2,013 2,554
Property and equipment, net 21,745 23,722
Acquired technology, net 39,305 40,312
Notes receivable from officers and employees 413 544
Other assets 13,550 10,895
================== ==================
$131,713 $ 156,020
================== ==================
Liabilities and stockholders' deficit Current liabilities:
Accounts payable $ 5,533 $ 12,363
Accrued liabilities 7,042 7,216
Deferred revenue 2,895 4,115
Current portion of equipment financing obligations 3,704 3,201
------------------ ------------------
Total current liabilities 19,174 26,895
------------------ ------------------
Long-term equipment financing obligations 7,140 8,165
Accrued acquisition obligation 2,900 50,000
Convertible note 2,500 2,500
Convertible subordinated debentures 41,308 39,302
Zero coupon convertible notes 103,680 40,520
Stockholders' deficit:
Convertible preferred stock, $.001 par value; 5,000,000
shares authorized; none issued -- -- -- --
Common stock, $.001 par value; 80,000,000 shares
authorized; 47,731,738 shares and 45,690,067 shares issued,
respectively 48 46
Paid-in capital 405,069 384,715
Deferred warrant expense (2,030) -- --
Adjustment for unrealized losses on available-for-sale securities (577) (482)
Accumulated deficit (447,488) (395,630)
------------------ ------------------
(44,978) (11,351)
Less treasury stock, at cost (1,114 shares) (11) (11)
------------------ ------------------
Total stockholders' deficit (44,989) (11,362)
================== ==================
$131,713 $ 156,020
================== ==================
</TABLE>
See accompanying notes.
3
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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,
1999 1998 1999 1998
--------------- ------------ --------------- ------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 2,830 $ 103 $ 9,127 $ 282
Contract manufacturing sales 656 -- -- 1,884 -- --
Collaborative research and development,
and other milestone revenues 6,279 3,844 17,456 13,117
--------------- ------------ --------------- ------------
Total revenues 9,765 3,947 28,467 13,399
--------------- ------------ --------------- ------------
Costs and expenses:
Cost of products and services sold 3,163 86 8,177 305
Research and development 15,717 16,899 44,799 48,917
Selling, general and administrative 6,015 3,825 20,056 9,924
Write-off of acquired in-process technology -- -- 30,000 -- -- 30,000
--------------- ------------ --------------- ------------
Total costs and expenses 24,895 50,810 73,032 89,146
--------------- ------------ --------------- ------------
Loss from operations (15,130) (46,863) (44,565) (75,747)
--------------- ------------ --------------- ------------
Other income (expense):
Interest income 623 521 1,894 2,406
Interest expense (3,551) (1,933) (8,942) (5,886)
Other (248) -- -- (245) -- --
Realized gain on investments -- -- 2,000 -- -- 2,000
--------------- ------------ --------------- ------------
Total other income (expense) (3,176) 588 (7,293) (1,480)
--------------- ------------ --------------- ------------
Net loss $(18,306) $(46,275) $(51,858) $(77,227)
=============== ============ =============== ============
Basic and diluted net loss per share $ (.39) $ (1.15) $ (1.11) $ (1.97)
=============== ============ =============== ============
Shares used in computing net loss per share 47,476 40,333 46,580 39,256
=============== ============ =============== ============
</TABLE>
See accompanying notes.
4
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LIGAND PHARMACEUTICALS INCORPORATED
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(51,858) $(77,227)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment 4,105 3,215
Amortization of acquired technology 1,007 -- --
Amortization of notes receivable from officers and employees 131 144
Amortization of deferred warrant expense 184 -- --
Accretion of debt discount and interest 5,166 2,006
Gain on sale of property and equipment -- -- (24)
Write off of acquired in-process technology -- -- 30,000
Change in operating assets and liabilities:
Accounts receivable (1,435) -- --
Inventories 402 -- --
Other current assets 248 (2,796)
Accounts payable and accrued liabilities (7,004) (7,070)
Deferred revenue (1,220) 1,695
----------------- -------------------
Net cash used in operating activities (50,274) (50,057)
----------------- -------------------
INVESTING ACTIVITIES
Purchase of short-term investments (17,476) (28,777)
Proceeds from short-term investments 35,405 33,620
Increase in notes receivable from officers and employees -- -- (147)
Increase in other assets (4,137) (7,422)
Decrease in other assets 1,482 3,577
Purchase of property and equipment (2,128) (3,740)
Payment of accrued acquisition obligation (37,100) -- --
Seragen assets acquired -- -- (5,756)
Proceeds from sale of property and equipment -- -- 24
----------------- -------------------
Net cash used in investing activities (23,954) (8,621)
----------------- -------------------
FINANCING ACTIVITIES
Principal payments on equipment financing obligations (2,450) (2,232)
Proceeds from equipment financing arrangements 1,927 2,627
Net change in restricted short-term investment 541 249
Net proceeds from sale of common stock and warrants 8,142 20,721
Proceeds from issuance of zero coupon convertible notes 60,000 -- --
----------------- -------------------
Net cash provided by financing activities 68,160 21,365
----------------- -------------------
Net decrease in cash and cash equivalents (6,068) (37,313)
Cash and cash equivalents at beginning of period 32,801 62,252
================= ===================
Cash and cash equivalents at end of period $26,733 $24,939
================= ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 4,686 $ 4,958
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Payment of accrued acquisition obligation with common stock $ 10,000 -- --
Warrants due X-Ceptor investors $ 2,214 -- --
Conversion of note to common stock -- -- $ 3,750
Common stock issued to purchase Seragen -- -- $ 25,996
</TABLE>
See accompanying notes.
5
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LIGAND PHARMACEUTICALS INCORPORATED
Notes to Consolidated Financial Statements
(Unaudited)
September 30, 1999
1. BASIS OF PRESENTATION
The consolidated financial statements of Ligand Pharmaceuticals
Incorporated ("Ligand") for the three and nine months ended September 30, 1999
and 1998 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, 1999 and the consolidated results of operations for the
three and nine months ended September 30, 1999 and 1998. The results of
operations for the period ended September 30, 1999 are not necessarily
indicative of the results to be expected for the year ending December 31, 1999.
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, 1998 included in the Ligand
Form 10-K and the unaudited consolidated financial statements for the quarters
ended March 31, 1999 and June 30, 1999 included in the respective Ligand Form
10-Q filed with the Securities and Exchange Commission.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the consolidated financial
statements. Actual results could differ from those estimates.
2. COMPREHENSIVE NET LOSS
Comprehensive net loss for the three and nine month periods ended September
30, 1999 and 1998 is as follows ($,000):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Comprehensive net loss $(18,308) $(48,012) $(51,953) $(77,510)
========= ========= ========= =========
</TABLE>
3. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of common
shares outstanding. Basic and diluted net loss per share amounts are equivalent
for the periods presented as the inclusion of common stock equivalents in the
number of shares used for the diluted computation would be anti-dilutive.
4. INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in-first-out method. Inventories consist of the following
($,000):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- ---------------
<S> <C> <C>
Raw materials $ 1,114 $ 2,382
Work-in-process 2,843 3,634
Finished goods 1,807 150
---------------- --------------
$ 5,764 $ 6,166
================= ===============
</TABLE>
The products Panretin(R) gel and ONTAK(R) received approval for marketing
by the U.S. Food and Drug Administration ("FDA") in February 1999. Ligand uses
third-party manufacturers for all manufacturing related to the production of
Panretin gel commercial inventory. ONTAK commercial inventory is produced at the
manufacturing facility of Marathon Biopharmaceuticals, Incorporated
("Marathon"), a wholly-owned subsidiary of Ligand's subsidiary Seragen, Inc.
("Seragen"). Inventory at September 30, 1999 also includes approximately $1.4
million of Targretin(R). A New Drug
6
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Application ("NDA") was filed by Ligand inJune 1999 for Targretin capsules. If
the FDA does not approve the NDA for Targretin capsules for commercial sale, any
capitalized costs related to Targretin will be expensed.
5. STRATEGIC ALLIANCE AND ZERO COUPON CONVERTIBLE NOTES
In July 1999, Ligand issued $40 million of zero coupon convertible notes
under the terms of the strategic alliance entered into in September 1998 with
Elan Corporation, plc and its Elan International Services, Ltd. subsidiary
("Elan"). Consistent with the initial $40 million issued in November 1998, these
notes are due in November 2008, accrue interest at 8% per annum compounded
semi-annually, are convertible at $14 per share, and are callable at accreted
value beginning in November 2001.
In August 1999, Ligand and Elan agreed to amend the September 1998
agreement to provide that the remaining takedown of up to $30 million in zero
coupon convertible notes may be utilized for general corporate purposes.
Pursuant to this amended agreement, in August 1999, Ligand issued $20 million of
zero coupon convertible notes with terms similar to the notes previously issued,
but convertible at $9.15 per share.
Assuming conversion of all of the notes issued to date, Elan would own
approximately 15.9% of Ligand's shares on a fully diluted basis.
6. ACCRUED ACQUISITION OBLIGATION
In August 1999, Ligand made a cash payment of $37.1 million related to the
$40 million contingent merger obligations incurred in connection with the
acquisition of Seragen and the purchase of the Marathon assets. According to the
terms of both acquisition agreements, the payments were due on August 5, 1999,
six months after receipt of final approval of ONTAK by the FDA. Pending
resolution of final contingencies and in accordance with the terms of the
Seragen acquisition agreement, Ligand has withheld $2.9 million from payments
made to certain Seragen stakeholders.
7. COLLABORATIVE ARRANGEMENTS
Warner-Lambert/Parke-Davis - On September 1, 1999, Ligand entered into a
Research, Development and License Agreement with the Parke-Davis Pharmaceutical
Research Division ("Parke-Davis") of Warner-Lambert Company ("Warner-Lambert").
The research and development collaboration will focus on the discovery,
characterization, design and development of small molecule compounds with
beneficial effects for the treatment and prevention of diseases mediated through
the estrogen receptor. Some of the diseases affected by drugs that act upon the
estrogen receptor are osteoporosis, cardiovascular disease, breast cancer, and
mood and cognitive disorders.
Under the terms of the agreement, Ligand may receive up to $13 million in
research funding through December 2002 as well as future product milestone
payments and royalties. Parke-Davis will fund the costs of developing and
marketing compounds selected from the collaboration and has been granted the
worldwide rights to manufacture and sell any products resulting from the
collaboration. Ligand will be entitled to milestones at various stages of each
compound's development. Upon the marketing of a product, Parke-Davis will pay
Ligand royalties on net sales of each product on a product-by-product basis. In
addition, Warner-Lambert purchased 289,750 shares of Ligand common stock at
approximately $8.63 per share resulting in proceeds to Ligand of $2.5 million.
Hoffmann-La Roche - On September 8, 1999, Ligand and Seragen entered into a
non-exclusive sublicense agreement with Switzerland-based F. Hoffmann-La Roche
Ltd. and its U.S. pharmaceutical subsidiary Hoffmann-La Roche Inc. ("Roche"),
with respect to Seragen's rights under a family of patents called the "Strom
Patents."
The sublicense grants Roche the right to make, use and sell in the U.S.,
Canada, Australia and New Zealand any product containing the active ingredient
daclizumab. Roche currently sells such a product under the trademark Zenapax(R)
for the treatment of acute organ rejection in patients receiving kidney
transplants.
In consideration for the sublicense, Roche paid Seragen a $2.5 million
royalty based on sales of Zenapax(R) occurring before the date of the Roche
agreement plus, commencing in January 2001, royalties on net sales of licensed
products in the U.S., Canada, Australia and New Zealand. Seragen will also
receive milestone payments in the event Roche receives U.S.
7
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regulatory approval of licensed products containing daclizumab for use in the
treatment of autoimmune indications.
The Strom Patents, licensed by Seragen from Beth Israel Deaconess Medical
Center ("Beth Israel"), a Harvard Medical School teaching hospital, cover the
use of antibodies that target the interleukin-2 receptor to treat transplant
rejection and autoimmune diseases. Previously a non-exclusive license was issued
to Novartis covering the product Simulect(R) to treat organ transplant
rejection, for which Ligand expects to receive royalty payments beginning in
January 2001. According to the terms of the Beth Israel agreement with Seragen,
Beth Israel also shares in the royalty and milestone payments received by
Seragen. As of September 30, 1999, Ligand had accrued a $640,000 liability to
Beth Israel related to the $2.5 million royalty received resulting in net
revenue to Ligand of $1.86 million.
8. SUBSEQUENT EVENT
X-Ceptor Therapeutics, Inc. - On October 6, 1999, Ligand completed its
second and final investment in X-Ceptor Therapeutics, Inc. ("X-Ceptor"), the
private corporation recently formed to conduct research in the field of orphan
nuclear receptors. Ligand invested $3.2 million in cash in exchange for shares
of Series B Preferred Stock ("Series B Stock").
At the first closing of the Series B Stock financing on June 30, 1999,
Ligand invested $2.8 million in cash in exchange for shares of Series B Stock.
Including Ligand's second investment, Ligand owns approximately 17% of
X-Ceptor's outstanding capital stock on an as converted basis. Ligand has
retained certain rights to repurchase the capital stock of X-Ceptor at varying
prices in June 2002 or June 2003.
At the second closing, Ligand also issued to X-Ceptor investors, founders
and certain employees warrants to purchase 950,000 shares of Ligand common stock
with a final negotiated exercise price of $10 per share and expiration date of
October 6, 2006. The warrants were valued at $4.20 per warrant based on
arms-length negotiations. The value of the warrants is recorded as a component
of stockholders' deficit and amortized to operating expense through June 2002.
Based on Ligand's initial investment, $2.214 million was recorded as deferred
warrant expense as of June 30, 1999. The $1.776 million balance of the total
warrant value of $3.990 million was recorded in October 1999.
8
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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." This outlook
represents our current judgment on the future direction of our business. Such
risks and uncertainties could cause actual results to differ materially from any
future performance suggested below. We undertake no obligation to release
publicly the results of any revisions to these forward-looking statements to
reflect events or circumstances arising after the date of this quarterly report.
Panretin(R) and Targretin(R) are registered trademarks of Ligand
Pharmaceuticals Incorporated, and ONTAK(R) is a registered trademark of Seragen,
Inc., our wholly-owned subsidiary.
OVERVIEW
Since January 1989, we have devoted substantially all of our resources to
our drug discovery and development programs focused on intracellular receptors,
also known as IR, and signal transducers and activators of transcription, also
known as STATs. We have been unprofitable since our inception. We expect to
incur substantial additional operating losses until the commercialization of our
products, begun in the first quarter of 1999, generates sufficient revenues to
cover our expenses. We expect that our operating results will fluctuate from
quarter to quarter and period to period as a result of differences in the timing
of expenses incurred and revenues earned from collaborative arrangements and
product sales. Some of these fluctuations may be significant. As of September
30, 1999, our accumulated deficit was $447.5 million.
In July 1999, we issued $40 million of zero coupon convertible notes under
the terms of our strategic alliance with Elan Corporation, plc and in August
1999 agreed to amend the underlying financing arrangement to provide for the use
of the $30 million of additional financing available under the arrangement for
general corporate purposes. In August 1999, we issued $20 million of zero coupon
convertible notes under the amended arrangement. For additional details, please
see Note 5 of the notes to consolidated financial statements.
In August 1999, we made a cash payment of $37.1 million related to our
contingent merger obligations to Seragen and Marathon stakeholders. For
additional details, please see Note 6 of the notes to consolidated financial
statements.
In September 1999, we entered into collaborative arrangements with
Hoffmann-La Roche Inc. and Warner-Lambert Company. For additional details,
please see Note 7 of the notes to consolidated financial statements.
In October 1999, we completed our second and final investment in X-Ceptor
Therapeutics, Inc. For additional details, please see Note 8 of the notes to
consolidated financial statements.
In October 1999, we received $2 million from Glaxo Wellcome plc as
milestone payments based on Glaxo Wellcome's advancing two research compounds
into exploratory development for the treatment of cardiovascular disease.
Additional milestones are due if the compounds proceed further in development.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 ("1999"), AS COMPARED WITH THREE MONTHS
ENDED SEPTEMBER 30, 1998 ("1998")
Total revenues for 1999 were $9.8 million, an increase of $5.8 million as
compared to 1998. Loss from operations for 1999 was $15.1 million, a decrease of
$31.8 million as compared to 1998. Net loss for 1999 was $18.3 million or $(.39)
per share, a decrease of $28 million from the 1998 net loss of $46.3 million or
$(1.15) per share. The principal factors causing these changes are discussed
below.
In 1998, we wrote off $30 million of in-process technology acquired in the
August 1998 merger with Seragen.
Product sales for 1999 were $2.8 million, as compared to $103,000 in 1998.
The increase is due to revenues from sales of ONTAK, approved by the FDA in
February 1999.
Contract manufacturing sales for 1999 were $656,000. These sales were
generated under contract manufacturing
9
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agreements performed at the Marathon facility acquired in January 1999.
Collaborative research and development and other milestone revenues for
1999 were $6.3 million, an increase of $2.5 million over 1998. The increase was
primarily due to $1.9 million recognized in September 1999 related to revenue
earned under a sublicense arrangement with Hoffmann-La Roche Inc. and payments
of $1 million received in September 1999 from Ferrer Internacional S.A. in
connection with the marketing and distribution agreements entered into in March
1999. The quarter-to-quarter comparison of collaborative research and
development and other milestone revenues is as follows ($,000):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
------------ --------------
<S> <C> <C>
Eli Lilly and Company $2,242 $2,558
Hoffmann-La Roche Inc. 1,860 -- --
Ferrer Internacional S.A. 1,000 -- --
SmithKline Beecham, plc 977 886
American Home Products 200 100
Abbott Laboratories -- -- 300
------------ -------------
$6,279 $3,844
============ ==============
</TABLE>
Cost of products and services sold increased from $86,000 in 1998 to $3.2
million in 1999. The increase is due to manufacturing costs and royalty expenses
of $1 million associated with our new products as well as contract manufacturing
costs of $2.2 million incurred at the Marathon facility.
Research and development expenses were $15.7 million in 1999, compared to
$16.9 million in 1998. The decrease was primarily due to the stage of clinical
trials on potential products in 1999 as compared to 1998. Selling, general and
administrative expenses were $6 million in 1999, up from $3.8 million in 1998.
The increase was due primarily to increased costs associated with the expansion
of our sales and marketing activities related to the launch of our new products.
Interest income increased from $521,000 in 1998 to $623,000 in 1999, due to
higher cash balances resulting from the $60 million in Elan financings in July
and August 1999.
Interest expense in 1999 was $3.6 million, an increase of $1.7 million over
1998. The increase is due to the accretion related to the $100 million in issue
price of zero coupon convertible notes issued to Elan in November 1998 ($40
million), July 1999 ($40 million) and August 1999 ($20 million).
NINE MONTHS ENDED SEPTEMBER 30, 1999 ("1999"), AS COMPARED WITH NINE MONTHS
ENDED SEPTEMBER 30, 1998 ("1998")
Total revenues for 1999 were $28.5 million, an increase of $15.1 million as
compared to 1998. Loss from operations for 1999 was $44.6 million, a decrease of
$31.1 million as compared to 1998. Net loss for 1999 was $51.9 million or
$(1.11) per share, a decrease of $25.3 million from the 1998 net loss of $77.2
million or $(1.97) per share. The principal factors causing these changes are
discussed below.
In 1998, we wrote off $30 million of in-process technology acquired in the
August 1998 merger with Seragen.
Product sales for 1999 were $9.1 million, as compared to $282,000 in 1998.
The increase is primarily due to revenues of $8.7 million from sales of ONTAK
and Panretin gel, approved by the FDA in February 1999.
Contract manufacturing sales for 1999 were $1.9 million. These sales were
generated under contract manufacturing agreements performed at the Marathon
facility acquired in January 1999.
Collaborative research and development and other milestone revenues for
1999 were $17.5 million, an increase of $4.4 million over 1998. The increase was
primarily due to payments of $2.5 million received from Ferrer Internacional
S.A. in connection with the marketing and distribution agreements entered into
in March 1999, $1.9 million recognized in September 1999 related to a sublicense
arrangement with Hoffmann-La Roche Inc., and $1.7 million recognized in June
1999 related to one-time payments received from X-Ceptor Therapeutics, partially
offset by additional payments of $903,000 received from American Home Products
in 1998 and a one-time payment of $686,000 received from Cytel
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Corporation in 1998. The year to date comparison of collaborative research
and development and other milestone revenues is as follows ($,000):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------ --------------
<S> <C> <C>
Eli Lilly and Company $7,646 $7,558
SmithKline Beecham, plc 2,763 2,694
Ferrer Internacional S.A. 2,500 -- --
Hoffmann-La Roche Inc. 1,860 -- --
X-Ceptor Therapeutics 1,711 -- --
Abbott Laboratories 600 900
American Home Products 376 1,279
Cytel Corporation -- -- 686
------------ --------------
$17,456 $13,117
============ ==============
</TABLE>
Cost of products and services sold increased from $305,000 in 1998 to $8.2
million in 1999. The increase is due to manufacturing costs and royalty expenses
of $3 million associated with our new products as well as contract manufacturing
costs of $5.2 million incurred at the Marathon facility.
Research and development expenses were $44.8 million in 1999, compared to
$48.9 million in 1998. The decrease was primarily due to the stage of clinical
trials on potential products in 1999 as compared to 1998 and the completion of
the research portion of the American Home Products collaboration in September
1998. Selling, general and administrative expenses were $20 million in 1999, up
from $9.9 million in 1998. The increase was due primarily to increased costs
associated with the expansion of our sales and marketing activities related to
the launch of our new products.
Interest income declined from $2.4 million in 1998 to $1.9 million in 1999,
reflecting lower cash balances following the use of cash to fund development and
clinical programs and to support commercialization activities as well as lower
interest rates on the available cash balances.
Interest expense in 1999 was $8.9 million, an increase of $3 million over
1998. The increase is due to the accretion related to the $100 million in issue
price of zero coupon convertible notes issued to Elan in November 1998 ($40
million), July 1999 ($40 million), and August 1999 ($20 million).
We have significant net operating loss carry forwards for federal and state
income taxes which are available subject to Internal Revenue Code Sections 382
and 383 carryforward limitations.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations through private and public offerings of our
equity securities, collaborative research and other milestone revenues, issuance
of convertible notes, capital and operating lease transactions, equipment
financing arrangements, investment income and product sales.
As of September 30, 1999, we had acquired a total of $43.6 million in
property, laboratory and office equipment, and tenant leasehold improvements. Of
this total, $7.6 million was recorded in the August 1998 merger with Seragen,
while substantially all of the balance has been funded through capital lease and
equipment financing arrangements. We lease our office and laboratory facilities
under an operating lease arrangement. Our current facility was occupied in
December 1997. We have entered into equipment financing arrangements to finance
future capital equipment purchases under arrangements expiring April 30, and
June 30, 2000. As of September 30, 1999, $2.6 million of financing was available
under those arrangements.
Working capital decreased to $35.5 million as of September 30, 1999, from
$51.1 million at the end of 1998. The decrease in working capital resulted from
decreases in cash and cash equivalents of $6.1 million and short-term
investments of $18.1 million used to finance operating activities offset in part
by an increase in accounts receivable of $1.5 million related to the sale of the
recently introduced products, a decrease in accounts payable of $6.9 million due
to a reduction in research and development activities, and lower deferred
revenues of $1.2 million due to the timing of completion of collaboration
agreements.
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For the same reasons, cash and cash equivalents, short-term investments and
restricted short-term investments decreased to $47.9 million at September 30,
1999 from $72.5 million at December 31, 1998. We primarily invest our cash in
United States government and investment grade corporate debt securities.
In July 1999, we issued $40 million of zero coupon convertible notes under
the terms of our strategic alliance with Elan. In addition, in August 1999, we
and Elan agreed to amend the existing finance arrangement to provide that the
$30 million of additional financing available under the arrangement may be used
for general corporate purposes. Under this amended arrangement, we issued $20
million of zero coupon convertible notes in August 1999. For additional details,
please see Note 5 of the notes to consolidated financial statements.
In August 1999, we made a $37.1 million cash payment due for the purchase
of the assets of Marathon and the acquisition of Seragen. For additional
details, please see Note 6 of the notes to consolidated financial statements.
We believe our available cash, cash equivalents, short-term investments and
existing sources of funding will be adequate to satisfy our anticipated
operating and capital requirements through September 2000. Our future operating
and capital requirements will depend on many factors, including: the
effectiveness of our commercialization activities; the pace of scientific
progress in our 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 or changes in existing collaborations; and the cost of
manufacturing scale-up.
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 year 2000
requirements. The impact of the year 2000 issue may affect other systems that
utilize imbedded computer chip technology, including 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.
We have established an active program to identify and resolve year 2000
related issues. This program includes the review and assessment of our
information technology and non-information technology systems, as well as third
parties with whom we have a material relationship. This program consists of four
phases: inventory, risk assessment, problem validation and problem resolution.
The inventory phase identified potential risks we face. They include among
others: computer software, computer hardware, telecommunications systems,
laboratory equipment, and facilities systems, such as security, environment
control and alarm; service providers, such as contract research organizations,
consultants and product distributors; and other third parties. The risk
assessment phase categorizes and prioritizes each risk by its potential impact.
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.
We initiated this program in 1998. The inventory and risk assessment phases
were completed in 1998 while the problem validation phase was completed in the
second calendar quarter of 1999. Follow-up reviews of the progress being made by
critical third parties will continue. Contingency plans were developed and
continue to be revised based upon additional information from the follow-up
vendor reviews. As of the end of the third calendar quarter of 1999, the problem
resolution phase has been completed with only minor exceptions. These exceptions
do not involve major systems and generally consist of operational actions that
must occur on or before January 1, 2000.
To date, we had determined that some of our internal information technology
and non-information technology systems were not year 2000 compliant. We actively
corrected the identified problems. These corrections included the replacement of
hardware and software systems, the identification of alternative service
providers and the creation of contingency plans. We estimate that the cost of
correcting the identified problems was approximately $100,000 for hardware and
software upgrades or modifications. In addition, we estimate that we will incur
approximately $400,000 of internal personnel costs by the time the project is
completed. We do not believe that the cost of these actions will have a material
adverse affect on our
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business. We expect that costs for completion of the project will be part of
normal operating expenses.
Any failure of our internal computer systems or of third-party equipment or
software we use, or of systems maintained by our suppliers, to be year 2000
compliant may adversely affect our business. In addition, adverse changes in the
purchasing patterns of our potential customers as a result of year 2000 issues
affecting them may adversely affect our business. These expenditures by
potential customers may result in reduced funds available to purchase our
products, which could adversely affect our business.
RISKS AND UNCERTAINTIES
The following is a summary description of some of the many risks we face in
our business. You should carefully review these risks in evaluating our business
and the businesses of our subsidiaries. You should also consider the other
information described in this report.
OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION INVOLVES A NUMBER OF
UNCERTAINTIES AND WE MAY NEVER GENERATE SUFFICIENT REVENUES FROM THE SALE OF
PRODUCTS TO BECOME PROFITABLE.
We were founded in 1987. We have incurred significant losses since our
inception. At September 30, 1999, our accumulated deficit was $447.5 million. To
date, we have received the majority of our revenues from our collaborative
arrangements. We expect to incur additional losses as we continue our research
and development, testing and regulatory activities and as we continue to build
manufacturing and sales and marketing capabilities. To become profitable, we
must successfully develop, clinically test, market and sell our products. Even
if we achieve profitability, we cannot predict the level of that profitability
or whether we will be able to sustain profitability. We expect that our
operating results will fluctuate from period to period as a result of
differences in when we incur expenses and receive revenues from product sales,
collaborative arrangements and other sources. Some of these fluctuations may be
significant.
Most of our products will require extensive additional development,
including preclinical testing and human studies, as well as regulatory
approvals, before we can market them. We do not expect that any products
resulting from our product development efforts or the efforts of our
collaborative partners, other than those for which marketing approval has been
received, will be available for sale until the first half of the 2000 calendar
year at the earliest, if at all. There are many reasons that we may fail in our
efforts to develop our other potential products, including the possibility that:
o we may discover during preclinical testing or human studies that they
are ineffective or cause harmful side effects,
o the products may fail to receive necessary regulatory approvals from
the FDA or other foreign authorities in a timely manner or at all,
o we may fail to produce the products, if approved, in commercial
quantities or at reasonable costs, or
o the proprietary rights of other parties may prevent us from marketing
the products.
WE NEED TO BUILD MARKETING AND SALES FORCES IN THE UNITED STATES AND EUROPE
WHICH WILL BE AN EXPENSIVE AND TIME-CONSUMING PROCESS.
Developing the sales force to market and sell products is a difficult,
expensive and time-consuming process. We recently developed a sales force for
the U.S. market and, at least initially, rely on another company to distribute
our products. The distributor will be responsible for providing many marketing
support services, including customer service, order entry, shipping and billing,
and customer reimbursement assistance. In addition, in Canada we are the sole
marketer of two cancer products other companies have developed. We may not be
able to continue to establish and maintain the sales and marketing capabilities
necessary to successfully commercialize our products. To the extent we enter
into co-promotion or other licensing arrangements, any revenues we receive will
depend on the marketing efforts of others, which may or may not be successful.
SOME OF OUR KEY TECHNOLOGIES HAVE NOT BEEN USED TO PRODUCE MARKETED PRODUCTS AND
MAY NOT BE CAPABLE OF PRODUCING SUCH PRODUCTS.
To date, we have dedicated most of our resources to the research and
development of potential drugs based upon our expertise in our IR and STATs
technologies. Even though there are marketed drugs that act through IRs, some
aspects of
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our IR technologies have not been used to produce marketed products. In
addition, we are 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. If we are unable to
apply our IR and STAT technologies to the development of our potential products,
we will not be successful in developing new products.
OUR DRUG DEVELOPMENT PROGRAMS WILL REQUIRE SUBSTANTIAL ADDITIONAL FUTURE
CAPITAL.
Our drug development programs require substantial additional capital,
arising from costs to:
o conduct research, preclinical testing and human studies,
o establish pilot scale and commercial scale manufacturing processes and
facilities, and
o establish and develop quality control, regulatory, marketing, sales
and administrative capabilities.
Our future operating and capital needs will depend on many factors,
including:
o the pace of scientific progress in our research and development
programs and the magnitude of these programs,
o the scope and results of preclinical testing and human studies,
o the time and costs involved in obtaining regulatory approvals,
o the time and costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims,
o competing technological and market developments,
o our ability to establish additional collaborations,
o changes in our existing collaborations,
o the cost of manufacturing scale-up, and
o the effectiveness of our commercialization activities.
OUR PRODUCTS MUST CLEAR SIGNIFICANT REGULATORY HURDLES PRIOR TO MARKETING.
Before we obtain the approvals necessary to sell any of our potential
products, we must show through preclinical studies and clinical trials that each
product is safe and effective. Our failure to show any product's safety and
effectiveness would delay or prevent regulatory approval of the product and
could adversely affect our business. The clinical trials process is complex and
uncertain. The results of preclinical studies and initial clinical trials may
not necessarily predict the results from later large-scale clinical trials. In
addition, clinical trials may not demonstrate a product's safety and
effectiveness to the satisfaction of the regulatory authorities. A number of
companies have suffered significant setbacks in advanced clinical trials or in
seeking regulatory approvals, despite promising results in earlier trials. The
FDA may also require additional clinical trials after regulatory approvals are
received, which could be expensive and time-consuming, and failure to
successfully conduct those trials could jeopardize continued commercialization.
The rate at which we complete our clinical trials depends on many factors,
including our ability to obtain adequate clinical supplies and patient
enrollment. Patient enrollment 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 patient enrollment may result in
increased costs and longer development times. In addition, some of our
collaborative partners have rights to control product development and clinical
programs for products developed under the collaborations. As a result, these
collaborators may conduct these programs more slowly or in a different manner
than we had expected. Even if clinical trials are completed, we or our
collaborative partners still may not apply for FDA approval in a timely manner
or the FDA still may not grant approval.
WE MAY NOT BE ABLE TO PAY AMOUNTS DUE ON OUR OUTSTANDING INDEBTEDNESS.
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We and our subsidiaries may not have sufficient cash to make required
payments due under existing debt. We, or our subsidiaries, may not have the
funds necessary to pay the interest on and the principal of existing debt when
due. If we, or our subsidiaries do not have adequate funds, we will be forced to
refinance the existing debt and may not be successful in doing so. Our
subsidiary, Glycomed, is obligated to make payments under certain debentures in
the total principal amount of $50 million. The debentures bear interest at a
rate of 7 1/2% per annum and are due in 2003. In addition, in October 1997, we
issued a $2.5 million convertible note to SmithKline Beecham Corporation and in
November 1998, July 1999, and August 1999 we issued zero coupon convertible
notes with a total issue price of $100 million to Elan. Glycomed's failure to
make payments when due under its debentures would cause us to default under
these notes or other notes we may issue to Elan.
WE MAY REQUIRE ADDITIONAL STOCK OR DEBT FINANCINGS TO FUND OUR OPERATIONS
WHICH MAY NOT BE AVAILABLE ON ACCEPTABLE TERMS.
We have incurred losses since our inception and do not expect to generate
positive cash flow to fund our operations for the 1999 calendar year and perhaps
for one or more subsequent years. As a result, we may need to complete
additional equity or debt financings to fund our operations. Our inability to
obtain additional financing could adversely affect our business. These
financings may not be available on acceptable terms. In addition, these
financings, if completed, still may not meet our capital needs and could result
in substantial dilution to our stockholders. For instance, the $100 million in
notes we issued to Elan are convertible into common stock at the option of Elan,
subject to some limitations. In addition, we may issue additional notes to Elan
with up to a total issue price of $10 million, which also would be convertible
into common stock. If adequate funds are not available, we may be required to
delay, reduce the scope of or eliminate one or more of our drug development
programs. Alternatively, we may be forced to attempt to continue development by
entering into arrangements with collaborative partners or others that require us
to relinquish some or all of our rights to certain technologies or drug
candidates that we would not otherwise relinquish.
WE FACE SUBSTANTIAL COMPETITION.
Some of the drugs that we are developing and marketing will compete with
existing treatments. In addition, several companies are developing new drugs
that target the same diseases that we are targeting and are taking IR-related
and STAT-related approaches to drug development. Many of our existing or
potential competitors, particularly large drug companies, have greater
financial, technical and human resources than us and may be better equipped to
develop, manufacture and market products. Many of these companies also have
extensive experience in preclinical testing and human clinical trials, obtaining
FDA and other regulatory approvals and manufacturing and marketing
pharmaceutical products. In addition, academic institutions, governmental
agencies and other public and private research organizations are developing
products that may compete with the products we are developing. These
institutions are becoming more aware of the commercial value of their findings
and are seeking patent protection and licensing arrangements to collect payments
for the use of their technologies. These institutions also may market
competitive products on their own or through joint ventures and will compete
with us in recruiting highly qualified scientific personnel. Any of these
companies, academic institutions, government agencies or research organizations
may develop and introduce products and processes that compete with or are better
than ours. As a result, our products may become noncompetitive or obsolete.
OUR SUCCESS WILL DEPEND ON THIRD-PARTY REIMBURSEMENT AND MAY BE IMPACTED BY
HEALTH CARE REFORM.
Sales of prescription drugs depend significantly on the availability of
reimbursement to the consumer from third party payors, such as government and
private insurance plans. These third party payors frequently require drug
companies to provide predetermined discounts from list prices, and they are
increasingly challenging the prices charged for medical products and services.
Our current and potential products may not be considered cost-effective and
reimbursement to the consumer may not be available or sufficient to allow us to
sell our products on a competitive basis.
In addition, the efforts of governments and third party payors to contain
or reduce the cost of health care will continue to affect the business and
financial condition of drug companies. A number of legislative and regulatory
proposals to change the health care system have been discussed in recent years.
In addition, an increasing emphasis on managed care in the United States has and
will continue to increase pressure on drug pricing. We cannot predict whether
legislative or regulatory proposals will be adopted or what effect those
proposals or managed care efforts may have on our business. The announcement
and/or adoption of such proposals or efforts could adversely affect our profit
margins and business.
WE RELY HEAVILY ON COLLABORATIVE RELATIONSHIPS AND TERMINATION OF ANY OF
THESE PROGRAMS COULD REDUCE THE FINANCIAL
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RESOURCES AVAILABLE TO US.
Our strategy for developing and commercializing many of our potential
products includes entering into collaborations with corporate partners,
licensors, licensees and others. To date, we have entered into collaborations
with Warner-Lambert Company, Eli Lilly and Company, SmithKline Beecham
Corporation, American Home Products, Abbott Laboratories, Sankyo Company Ltd.,
Glaxo-Wellcome plc, Allergan, Inc., and Pfizer Inc.. These collaborations
provide us 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. These agreements also give our collaborative partners
significant discretion when deciding whether or not to pursue any development
program. We cannot be certain that our collaborations will continue or be
successful.
In addition, our collaborators may develop drugs, either alone or with
others, that compete with the types of drugs they currently are developing with
us. This would result in less support and increased competition for our
programs. If products are approved for marketing under our collaborative
programs, any revenues we receive will depend on the manufacturing, marketing
and sales efforts of our collaborators, who generally retain commercialization
rights under the collaborative agreements. Our current collaborators also
generally have the right to terminate their collaborations under certain
circumstances. If any of our collaborative partners breach or terminate their
agreements with us or otherwise fail to conduct their collaborative activities
successfully, our product development under these agreements will be delayed or
terminated.
We may have disputes in the future with our collaborators, including
disputes concerning which of us owns the rights to any technology developed. For
instance, we were involved in litigation with Pfizer, which we settled in April
1996, concerning our right to milestones and royalties based on the development
and commercialization of droloxifene. These and other possible disagreements
between us and our collaborators could delay our ability and the ability of our
collaborators to achieve milestones or our receipt of other payments. In
addition, any disagreements could delay, interrupt or terminate the
collaborative research, development and commercialization of certain potential
products, or could result in litigation or arbitration. The occurrence of any of
these problems could be time-consuming and expensive and could adversely affect
our business.
OUR SUCCESS DEPENDS ON OUR ABILITY TO OBTAIN AND MAINTAIN OUR PATENTS AND OTHER
PROPRIETARY RIGHTS.
Our success will depend on our ability and the ability of our licensors to
obtain and maintain patents and proprietary rights for our potential products
and to avoid infringing the proprietary rights of others, both in the United
States and in foreign countries. Patents may not be issued from any of these
applications currently on file or, if issued, may not provide sufficient
protection. In addition, if we breach our licenses, we may lose rights to
important technology and potential products.
Our patent position, like that of many pharmaceutical companies, is
uncertain and involves complex legal and technical questions for which important
legal principles are unresolved. We may not develop or obtain rights to products
or processes that are patentable. Even if we do obtain patents, they may not
adequately protect the technology we own or have licensed. In addition, others
may challenge, seek to invalidate, infringe or circumvent any patents we own or
license, and rights we receive under those patents may not provide competitive
advantages to us. Further, the manufacture, use or sale of our products may
infringe the patent rights of others.
Several drug companies and research and academic institutions have
developed technologies, filed patent applications or received patents for
technologies that may be related to our business. Others have filed patent
applications and received patents that conflict with patents or patent
applications we have licensed for our use, either by claiming the same methods
or compounds or by claiming methods or compounds that could dominate those
licensed to us. In addition, we may not be aware of all patents or patent
applications that may impact our ability to make, use or sell any of our
potential products. For example, United States patent applications are
confidential while pending in the Patent and Trademark Office, and patent
applications filed in foreign countries are often first published six months or
more after filing. Any conflicts resulting from the patent rights of others
could significantly reduce the coverage of our patents and limit our ability to
obtain meaningful patent protection. If other companies obtain patents with
conflicting claims, we may be required to obtain licenses to those patents or to
develop or obtain alternative technology. We may not be able to obtain any such
license on acceptable terms or at all. Any failure to obtain such licenses could
delay or prevent us from pursuing the development or commercialization of our
potential products.
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We have had and will continue to have discussions with our current and
potential collaborators regarding the scope and validity of our patent and other
proprietary rights. If a collaborator or other party successfully establishes
that our patent rights are invalid, we may not be able to continue our existing
collaborations beyond their expiration. Any determination that our patent rights
are invalid also could encourage our collaborators to terminate their agreements
where contractually permitted. Such a determination could also adversely affect
our ability to enter into new collaborations.
We may also need to initiate litigation, which could be time-consuming and
expensive, to enforce our proprietary rights or to determine the scope and
validity of others' rights. If litigation results, a court may find our patents
or those of our licensors invalid or may find that we have infringed on a
competitor's rights. If any of our competitors have filed patent applications in
the United States which claim technology we also have invented, the Patent and
Trademark Office may require us to participate in expensive interference
proceedings to determine who has the right to a patent for the technology.
We have learned that Hoffmann-La Roche Inc. has received a United States
patent and has made patent filings in foreign countries that relate to our
Panretin capsules and gel products. We filed a patent application with an
earlier filing date than Hoffmann-La Roche's patent, which we believe is broader
than, but overlaps in part with, Hoffmann-La Roche's patent. We currently are
investigating the scope and validity of Hoffmann-La Roche's patent to determine
its impact upon our products. The Patent and Trademark Office has informed us
that the overlapping claims are patentable to us and has initiated a proceeding
to determine whether we or Hoffmann-La Roche are entitled to a patent. We may
not receive a favorable outcome in the proceeding. In addition, the proceeding
may delay the Patent and Trademark Office's decision regarding our earlier
application. If we do not prevail, the Hoffmann-La Roche patent might block our
use of Panretin(R) capsules and gel in certain cancers.
We also rely on unpatented trade secrets and know-how to protect and
maintain our competitive position. We require our employees, consultants,
collaborators and others to sign confidentiality agreements when they begin
their relationship with us. These agreements may be breached and we may not have
adequate remedies for any breach. In addition, our competitors may independently
discover our trade secrets. Any of these actions might adversely affect our
business.
WE CURRENTLY HAVE LIMITED MANUFACTURING CAPABILITY AND WILL RELY ON THIRD-PARTY
MANUFACTURERS.
We currently have no manufacturing facilities outside of Marathon's
facility and we rely primarily on others for clinical or commercial production
of our potential products. To be successful, we will need to manufacture our
products, either directly or through others, in commercial quantities, in
compliance with regulatory requirements and at acceptable cost. Any extended and
unplanned manufacturing shutdowns could be expensive and could result in
inventory and product shortages. If we are unable to develop our own facilities
or contract with others for manufacturing services, our ability to conduct
preclinical testing and human clinical trials will be adversely affected. This
in turn could delay our submission of products for regulatory approval and our
initiation of new development programs. In addition, although other companies
have manufactured drugs acting through IRs and STATs on a commercial scale, we
may not be able to do so at costs or in quantities to make marketable products.
Any of these events would adversely affect our business.
Our manufacturing process also may be susceptible to contamination, which
could cause the affected manufacturing facility to close until the contamination
is identified and fixed. In addition, problems with equipment failure or
operator error also could cause delays.
OUR BUSINESS EXPOSES US TO PRODUCT LIABILITY RISKS AND WE MAY NOT HAVE
SUFFICIENT INSURANCE TO COVER ANY CLAIMS.
Our business exposes us to potential product liability risks. A successful
product liability claim or series of claims brought against us could result in
payment of significant amounts of money and divert management's attention from
running the business. Some of the compounds we are investigating may be harmful
to humans. For example, retinoids as a class are known to contain compounds,
which can cause birth defects. We may not be able to maintain our insurance on
acceptable terms, or our insurance may not provide adequate protection in the
case of a product liability claim. To the extent that product liability
insurance, if available, does not cover potential claims, we will be required to
self-insure the risks associated with such claims.
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WE ARE DEPENDENT ON OUR KEY EMPLOYEES, THE LOSS OF WHOSE SERVICES COULD
ADVERSELY AFFECT US.
We depend on our key scientific and management staff, the loss of whose
services could adversely affect our business. Furthermore, we are currently
experiencing a period of rapid growth, which requires us to hire many new
scientific, management and operational personnel. Accordingly, recruiting and
retaining qualified management, operations and scientific personnel to perform
research and development work also is critical to our success. Although we
believe we will successfully attract and retain the necessary personnel, we may
not be able to attract and retain such personnel on acceptable terms given the
competition among numerous drug companies, universities and other research
institutions for such personnel.
WE USE HAZARDOUS MATERIALS WHICH REQUIRES US TO INCUR SUBSTANTIAL COSTS TO
COMPLY WITH ENVIRONMENTAL REGULATIONS.
In connection with our research and development activities, we handle
hazardous materials, chemicals and various radioactive compounds. We cannot
completely eliminate the risk of accidental contamination or injury from the
handling and disposing of hazardous materials. In the event of any accident, we
could be held liable for any damages that result, which could be significant. In
addition, we may incur substantial costs to comply with environmental
regulations. Any of these events could adversely affect our business.
OUR STOCK PRICE MAY BE ADVERSELY AFFECTED BY VOLATILITY IN THE MARKETS.
The market prices and trading volumes for our securities, and the
securities of emerging companies like us, have historically been highly volatile
and have experienced significant fluctuations unrelated to operating
performance. Future announcements concerning us or our competitors may impact
the market price of our common stock. These announcements might include:
o the results of research or development testing,
o technological innovations,
o new commercial products,
o government regulation,
o receipt of regulatory approvals by competitors,
o our failure to receive regulatory approvals,
o developments concerning proprietary rights, or
o litigation or public concern about the safety of the products.
YOU MAY NOT RECEIVE A RETURN ON YOUR SHARES OTHER THAN THROUGH THE SALE OF YOUR
SHARES OF COMMON STOCK.
We have not paid any cash dividends on our common stock to date, and we do
not anticipate paying cash dividends in the foreseeable future. Accordingly,
other than through a sale of your shares, you may not receive a return.
OUR SHAREHOLDER RIGHTS PLAN AND CHARTER DOCUMENTS MAY PREVENT TRANSACTIONS THAT
COULD BE BENEFICIAL TO YOU.
Our shareholder rights plan and provisions contained in our certificate of
incorporation and bylaws may discourage transactions involving an actual or
potential change in our ownership, including transactions in which you might
otherwise receive a premium for your shares over then-current market prices.
These provisions also may limit your ability to approve transactions that you
deem to be in your best interests. In addition, our board of directors may issue
shares of preferred stock without any further action by you. Such issuances may
have the effect of delaying or preventing a change in our ownership.
WE ARE SUBJECT TO YEAR 2000 RISKS FOR WHICH WE MAY NOT BE PREPARED.
For a discussion of the risks associated with our year 2000 readiness,
please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Compliance."
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PART I. FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
At September 30, 1999, our investment portfolio included fixed-income
securities of $17.1 million. These securities are subject to interest rate risk
and will decline in value if interest rates increase. However, due to the short
duration of our investment portfolio, an immediate 10% change in interest rates
would have no material impact on our financial condition, results of operations
or cash flows.
We generally conduct business, including sales to foreign customers, in
U.S. dollars and as a result we have very limited foreign currency exchange rate
risk. The effect of an immediate 10% change in foreign exchange rates would not
have a material impact on our financial condition, results of operations or cash
flows.
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PART II. OTHER INFORMATION
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 4, 1999, Ligand issued to Elan International Services, Ltd. a
warrant exercisable into 91,406 shares of common stock for aggregate cash
consideration of $383,905. The exercise price was $13.80 per share exercisable
for a period of five years from the date of issuance. On October 6, 1999, the
exercise price was changed to $10 per share exercisable for a period of seven
years from October 6, 1999. On September 30, 1999, Ligand issued to Elan
International 52,742 shares of common stock for aggregate cash consideration of
$455,063. Each of the warrant and the shares of common stock were issued to a
single entity, Elan International, under an exemption from registration under
Section 4(2) of the Securities Act of 1933. Both the warrant and the shares of
common stock were issued under a contractual pre-emptive right held by Elan
International.
On September 1, 1999, Ligand issued to Warner-Lambert Company 289,750
shares of common stock for aggregate cash consideration of $2.5 million. The
shares were issued to a single entity, Warner-Lambert, under an exemption from
registration under Section 4(2) of the Securities Act of 1933.
ITEM 6 (A) EXHIBITS
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<S> <C>
Exhibit 3.1(1) Amended and Restated Certificate of Incorporation of Ligand
Pharmaceuticals Incorporated (filed as Exhibit 3.2).
Exhibit 3.2(1) Bylaws of Ligand Pharmaceuticals Incorporated, as amended
(filed as Exhibit 3.3).
Exhibit 3.3(1) Amended Certificate of Designation of Rights, Preferences
and Privileges of Series A Participating Preferred Stock of
Ligand Pharmaceuticals Incorporated (filed as Exhibit 3.4).
Exhibit 10.1(2) Research, Development and License Agreement by and between
Warner-Lambert Company and Ligand Pharmaceuticals
Incorporated dated September 1, 1999.
Exhibit 10.2(2) Stock Purchase Agreement by and between Ligand Pharmaceuticals
Incorporated and Warner-Lambert Company dated
September 1, 1999.
Exhibit 10.3 Thirteenth Addendum to Amended Registration Rights
Agreement dated June 24, 1994, between Ligand Pharmaceuticals
Incorporated and Warner-Lambert Company, effective
September 1, 1999.
Exhibit 10.4(2) Nonexclusive Sublicense Agreement, effective
September 8, 1999, by and among Seragen, Inc., Hoffmann-La
Roche Inc. and F. Hoffmann-La Roche Ltd.
Exhibit 10.5(2) Amendment to Development, Licence and Supply Agreement between
Ligand Pharmaceuticals Incorporated and Elan Corporation, plc
dated August 20, 1999.
Exhibit 10.6 Ligand Purchase Option (to acquire outstanding capital
stock of X-Ceptor Therapeutics, Inc.), contained in Schedule
I to the Certificate of Incorporation of X-Ceptor
Therapeutics, Inc., as amended.
Exhibit 10.7(2) License Agreement effective June 30, 1999 by and between
Ligand Pharmaceuticals Incorporated and X-Ceptor
Therapeutics, Inc.
Exhibit 10.8(3) Securities Purchase Agreement dated November 6, 1998 among
Elan Corporation, plc, Elan International Services, Ltd. and
Ligand Pharmaceuticals Incorporated (filed as Exhibit 1).
Exhibit 10.9(3) Development, Licence and Supply Agreement dated
November 6, 1998 between Elan Corporation, plc and Ligand
Pharmaceuticals Incorporated (filed as Exhibit 2).
Exhibit 10.10 Zero Coupon Convertible Senior Note Due 2008 dated
July 14, 1999 between Ligand Pharmaceuticals Incorporated
and Monksland Holdings, B.V., No. R-3.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
Exhibit 10.11 Zero Coupon Convertible Senior Note Due 2008 dated
August 31, 1999 between Ligand Pharmaceuticals Incorporated
and Monksland Holdings, B.V., No. R-4.
Exhibit 10.12(3) Letter Agreement dated August 13, 1999 among Ligand
Pharmaceuticals Incorporated, Elan International Services,
Ltd. and Elan Corporation, plc (filed as Exhibit 3).
Exhibit 10.13(2) Stock Purchase Agreement dated September 30, 1999 by and
between Ligand Pharmaceuticals Incorporated and Elan
International Services, Ltd.
Exhibit 10.14 Fourteenth Addendum to Amended Registration Rights Agreement
dated June 24, 1994 between Ligand Pharmaceuticals
Incorporated and Elan International Services, Ltd., effective
September 30, 1999.
Exhibit 10.15 Series X Warrant dated August 4, 1999 between Ligand
Pharmaceuticals Incorporated and Elan International Services,
Ltd.
Exhibit 10.16 Twelfth Addendum to Amended Registration Rights Agreement
dated June 24, 1994 between Ligand Pharmaceuticals
Incorporated and Elan International Services, Ltd., effective
August 4, 1999.
Exhibit 27.1 Financial Data Schedule
</TABLE>
(1) These exhibits were 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. 333-58823) filed on July 9, 1998,
as amended.
(2) Certain confidential portions of this exhibit were omitted by means of
marking such portions with an asterisk. This exhibit has been filed
separately with the Secretary of the Commission with the asterisks pursuant
to the Company's Application Requesting Confidential Treatment under Rule
24b-2 of the Securities Act of 1934.
(3) These exhibits were previously filed as part of, and are hereby
incorporated by reference to the numbered exhibit filed with, the Schedule
13D of Elan Corporation, plc, filed on January 6, 1999, as amended.
ITEM 6 (B) REPORTS ON FORMS 8-K
No reports on Form 8-K were filed during the quarter ended on September 30,
1999.
21
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
September 30, 1999
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 15, 1999 By /s/Paul V. Maier
-------------------------
Paul V. Maier
Senior Vice President and Chief Financial Officer
22
<PAGE>
EXHIBIT 10.1
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
by and between
WARNER-LAMBERT COMPANY
and
LIGAND PHARMACEUTICALS INCORPORATED
dated
September 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - DEFINITIONS.................................. 3
ARTICLE 2 - RESEARCH PROGRAM ............................ 9
ARTICLE 3 - MANAGEMENT OF THE RESEARCH PROGRAM .......... 13
ARTICLE 4 - DEVELOPMENT PROGRAM ......................... 14
ARTICLE 5 - LICENSES -- RESEARCH, DEVELOPMENT,
MARKETING AND MANUFACTURING ................. 15
ARTICLE 6 - ROYALTIES, MILESTONES AND OTHER PAYMENTS..... 17
ARTICLE 7 - INFRINGEMENT ACTIONS BY THIRD PARTIES........ 22
ARTICLE 8 - CONFIDENTIALITY.............................. 22
ARTICLE 9 - PUBLICATION ................................. 23
ARTICLE 10 - PATENTS AND INVENTIONS....................... 24
ARTICLE 11 - REPRESENTATIONS AND WARRANTIES............... 26
ARTICLE 12 - TERM AND TERMINATION ........................ 28
ARTICLE 13 - FORCE MAJEURE................................ 31
ARTICLE 14 - ASSIGNMENT................................... 31
ARTICLE 15 - REGULATORY MATTERS .......................... 31
ARTICLE 16 - SEVERABILITY................................. 32
ARTICLE 17 - INDEMNIFICATION ............................. 32
ARTICLE 18 - MISCELLANEOUS ............................... 33
</TABLE>
2
<PAGE>
RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT
THIS RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT, (this "Agreement"),
effective the 1st day of September , 1999 (the "Commencement Date"), is by and
between WARNER-LAMBERT COMPANY, a Delaware corporation, having its principal
place of business at 201 Tabor Road, Morris Plains, New Jersey 07950
("Warner-Lambert"), and LIGAND PHARMACEUTICALS INCORPORATED, a Delaware
corporation, having its principal place of business at 10275 Science Center
Drive, San Diego, California 92121 ("Ligand"). Warner-Lambert and Ligand may be
referred to herein individually as a "Party" or collectively as the "Parties".
R E C I T A L S
WHEREAS, Ligand has developed certain expertise and acquired certain
proprietary rights relating to the discovery and development of pharmaceutical
products for the treatment and prevention of diseases, which products act
through the estrogen receptors;
WHEREAS, Warner-Lambert has certain expertise in the discovery,
development, marketing and sales of pharmaceutical products;
WHEREAS, Warner-Lambert and Ligand desire to engage in a joint research and
development effort to discover and/or design small molecule compounds which act
through the estrogen receptors and to develop pharmaceutical products from such
compounds (the "Collaboration"); and
WHEREAS, in conjunction with such joint research and development,
Warner-Lambert desires to sponsor certain research and development activities to
be carried out by Ligand, and Ligand and Warner-Lambert desire that
Warner-Lambert commercialize products resulting from the joint research and
development;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, Warner-Lambert and Ligand agree as follows:
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the terms defined in this Article 1
shall have the respective meanings set forth below:
"Act" shall have the meaning set forth in Section 10.5.
"Affiliate" shall mean, with respect to a Party, any other business entity
which directly or indirectly controls, is controlled by, or is under common
control with, such Party. As used in this definition of "Affiliate", the term
"control" shall mean direct or indirect beneficial ownership of more than 50% of
the voting or income interest in such business entity.
3
<PAGE>
"Affiliated Customer" shall mean, with respect to a Party, any Affiliate or
Sublicensee.
"ANDA" shall have the meaning set forth in Section 10.5.
"Background Technology" shall mean all technology, inventions, information,
data, know-how, compounds and materials (whether or not patented or patentable)
that (a) relate to the discovery, design, synthesis, delivery, development,
testing, use, manufacture or sale of Collaboration Compounds, Collaboration Lead
Compounds or Products for use in the Field, (b) exist as of the Commencement
Date, (c) are owned or Controlled by a Party hereto, and (d) are necessary for
the conduct of the Collaboration.
"Backup Compound" shall have the meaning set forth in Section 6.10.2.
"Claim" shall have the meaning set forth in Article 17.
"Clinical Development" shall mean the development of any Collaboration
Compound in the Field from and after the filing of an IND, through and including
product registration.
"Collaboration" shall have the meaning set forth in the third paragraph in
the Recitals.
"Collaboration Compound" shall mean a compound which is first identified,
first confirmed, first discovered, or first synthesized and identified by either
Ligand or Warner-Lambert as having Field Activity during the Term of the
Research Program or by Ligand or Warner-Lambert for *** thereafter. A
Collaboration Compound whose Field Activity is first confirmed, discovered or
identified when the compound is already in at least "preclinical development"
outside the Field by Warner-Lambert (or an affiliate, licensee or collaborator
of Warner-Lambert), shall not generate any obligation to Ligand in the form of
royalties or milestone payments unless designated a Collaboration Lead Compound
by Warner-Lambert during the Research Program or within .........*** thereafter.
For the purpose of this definition, the term "preclinical development" means the
commencement of a structure/activity relation program on or including the
compound in question.
"Collaboration Lead Compound" shall mean a Collaboration Compound or
Background Technology compound that, during the term of the Research Program or
any extension thereof, has met criteria established by the JRC of safety and
efficacy for advancement into Pre-Clinical Development and which is selected by
Warner-Lambert as a Collaboration Lead Compound according to Section 4.1.
"Collaboration Technology" shall mean (a) all Collaboration Compounds and
information related thereto; (b) such technology, inventions, information, data,
know-how and materials (whether or not patented or patentable) that (i) a Party
hereto owns or Controls, (ii) related to the Field and (iii) are conceived,
generated or reduced to practice during the Term of the Research Program
pursuant to the Research Program, including, without limitation, improvements on
either Party's Background Technology; and (c) all patents, trade secrets and
other intellectual property rights covering any of (a) or (b).
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4
<PAGE>
"Commencement Date" shall mean the date of this Agreement first written
above.
"Competing Product" shall mean, with respect to each specified
Collaboration Compound or Product, (a) any other Collaboration Compound or
Product which exhibits therapeutic or prophylactic activity which is similar to
that exhibited by such specified Collaboration Compound or Product, or which is
being developed for *** for which the specified Collaboration Compound or
Product is also being developed, and (b) a compound which is not a Collaboration
Compound, or a product which does not contain a Collaboration Compound, which is
under active development by Warner-Lambert or that is actually being sold by
Warner-Lambert and which exhibits therapeutic or prophylactic activity which is
similar to such specified Collaboration Compound or Product.
"Confidential Information" shall have the meaning set forth in Section 8.2
"Control" or "Controlled" shall mean possession of the ability to grant the
licenses or sublicenses as provided for herein without violating the terms of
any agreement or other arrangement with any Third Party.
"Cost of Goods" shall mean the cost of finished products sold and shall be
computed in accordance with United States Generally Accepted Accounting
Principles. Cost of Goods shall include Warner-Lambert's Cost of Manufacture of
such finished products, as well as the net cost or credit of any value-added
taxes actually paid or utilized in respect of the finished products, but shall
not include any royalty owed to Ligand.
"Cost of Manufacture" shall mean the fully allocated cost of manufacturing
of a product (in accordance with Good Manufacturing Practices), which includes
the direct and indirect cost of any raw materials, packaging materials, and
labor (including benefits) utilized in such manufacturing including formulation,
filling, finishing, labeling, and packaging, (as applicable) plus an appropriate
share of all factory overhead, both fixed and variable, allocated to the product
being manufactured, in accordance with the normal accounting practices for all
other products manufactured in the applicable facility.
"Designated Targets" shall mean the alpha and beta forms of the estrogen
receptor and all splice variants thereof.
"Development Costs" shall mean ***
***
***
***
***
***
***
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5
<PAGE>
***
***
***
***.
General corporate overhead shall be excluded from Development Costs.
"Europe" shall mean France, Germany, Great Britain, Italy and Spain.
"Exploratory Term" shall have the meaning set forth in Section 2.2.
"Extension Term" shall have the meaning set for the in Section 2.2.
"FDA" shall mean the United States Food and Drug Administration or any
successor entity thereto.
"Field" shall mean the discovery, characterization, design and development
of small molecule compounds for the treatment or prevention of diseases and
whose beneficial effects are mediated through the Designated Targets.
"Field Activity" shall mean the ability of a particular compound to
inhibit, stimulate or otherwise modulate activity of a Designated Target with an
*** of less than *** and which has at least a ***selectivity for the Designated
Target compared to *** *** . The JRC may amend the criteria which are used to
define Field Activity.
"FTEs" shall mean one or more researchers with appropriate qualifications
employed by Ligand or Warner-Lambert and assigned to work on the Collaboration
with such time and effort to constitute one such researcher working on the
Collaboration on a full time basis for no less than *** hours per year.
"IND" shall mean an Investigational New Drug Application as defined in the
United States Food, Drug and Cosmetic Act and the regulations promulgated
thereunder, or any corresponding foreign equivalent.
"Indemnified Group" shall have the meaning set forth in Article 17.
"Invention" shall have the meaning set forth in Section 10.2.
"Inventor" shall have meaning set forth in Section 10.2.
"Joint Research Committee" or "JRC" shall mean the joint research committee
composed of representatives of Ligand and Warner-Lambert described in Section
3.1 hereof.
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6
<PAGE>
"NDA" shall mean a New Drug Application as defined in the United States
Food, Drug and Cosmetic Act and the regulations promulgated thereunder, or any
corresponding foreign equivalent.
"Net Sales" shall mean with respect to a Product, or product subject to
royalty under this Agreement , the gross amount invoiced to Non-Affiliated
Customers for all units of such Product, or product subject to royalty under
this Agreement , sold by Warner-Lambert (or in the case of a product subject to
royalty under Section 12.3, by Ligand) and its Affiliated Customers, after
deduction for the following items ***
***
***
***
***
***
***
***
***.
"Non-Affiliated Customer" shall mean any purchaser of Product who is not an
Affiliated Customer.
"Patent Rights" shall mean, with respect to Warner-Lambert or Ligand (a)
all patent applica-tions heretofore or hereafter filed in any country within the
Territory owned or Controlled by or licensed to Ligand or Warner-Lambert during
the Term of this Agreement, together with any and all United States and foreign
patents that have issued or in the future issue therefrom, and (b) all
divisionals, continuations, continuations-in-part, reexaminations, reissues,
renewals, substitutions, confirmation, registrations, revalidations, extensions
or additions to any such patents and patent applications and patents issuing
thereon; all to the extent and only to the extent that Ligand or Warner-Lambert
now has or hereafter will have the right to grant licenses or other rights
thereunder.
"Phase I", "Phase II", and "Phase III" shall mean Phase I (or Phase I/II),
Phase II and Phase III clinical trials, respectively, in each case as prescribed
by the applicable Regulatory Agency's regulations.
"Pre-Clinical Development" shall mean, after selection of a Collaboration
Lead Compound under Section 4.1, all activities undertaken to develop the
Collaboration Lead Compound in the Field up to and including the filing of an
IND on such Collaboration Lead Compound, which are determined by the JRC or
Warner-Lambert to be necessary or desirable to file an IND on such Collaboration
Lead Compound, including the preparation and filing of an IND.
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7
<PAGE>
"Primary Screening" shall mean conducting any assay, screen or other test
on a compound under the Research Program to determine initially whether such
compound exhibits Field Activity, including without limitation such assays,
screens and other tests set forth in the Research Plan and which Ligand
currently has in its possession.
"Product" shall mean a pharmaceutical product which has as one of its
active ingredients a Collaboration Lead Compound that has been approved by the
applicable Regulatory Agency for marketing in a country for treatment,
palliation or prevention of disease in the Field.
"Project Leader" shall have the meaning set forth in Section 3.3.
"Regulatory Agency" shall mean the FDA and agencies of other governments of
other countries having similar jurisdiction over the development, manufacturing
and marketing of pharmaceutical products.
"Research Plan" shall mean the research plan for the conduct of the
collaboration, which is established and modified from time to time by the JRC.
"Research Program" shall mean the program of research in which Ligand and
Warner-Lambert will participate and which is described generally in the Research
Plan.
"Secondary Screening" shall mean conducting any assay, screen or other test
using intracellular receptors on a Collaboration Compound, after the Primary
Screening of such Collaboration Compound, for the purpose of confirming the
results of the Primary Screening or to test such Collaboration Compound for
cross-reactivity with other than the Designated Target.
"Sublicensee" shall mean any Third Party who is granted the right to sell a
Product or a product subject to a royalty under Section 12.3.
"Term of the Research Program" shall have the meaning set forth in Section
2.2.
"Term of this Agreement" shall mean the period from the Commencement Date
until, with respect to each Product, the expiration of the last royalty
obligation owed by one Party to the other with respect to such Product, or until
this Agreement is otherwise terminated pursuant to its terms.
"Territory" shall mean the entire world.
"Third Party" shall mean any party other than Warner-Lambert or Ligand or
an Affiliate of either of them.
"Trigger Event" shall have the meaning set forth in Section 6.10.1.
"Valid Claim" shall mean a claim of an issued, unexpired and unabandoned
patent included within the Patent Rights owned or Controlled by a Party, which
has not been held unenforceable or invalid by a court or other governmental
agency of competent jurisdiction, and which has not been disclaimed or admitted
to be invalid or unenforceable through reissue or otherwise.
8
<PAGE>
"Withheld Party" shall have the meaning set forth in Section 6.6.
"Withholding Party" shall have the meaning set forth in Section 6.6.
ARTICLE 2
RESEARCH PROGRAM
2.1. Conduct of Research. Each Party shall diligently conduct the work
assigned to it in the Research Plan in a professional manner and in compliance
with all requirements of applicable laws and regulations. Promptly after the
Commencement Date, each Party shall disclose to the other all Background
Technology then possessed by it which it deems to be relevant to the Field and
which it deems to be necessary or helpful for the other Party to perform the
work set out in the Research Plan. Each Party agrees to commit the qualified and
experienced personnel, facilities, equipment, expertise and other resources
necessary to perform its obligations under the Research Program.
2.2. Term of the Research Program. The term of the Research Program (the
"Term of the Research Program"), shall be comprised of two components. The first
component shall begin on the Commencement Date and shall terminate on the
fifteen month anniversary of the Commencement Date (the "Exploratory Term"). If
Warner-Lambert gives written notice to Ligand of its intention to sponsor the
Extension Term no later than fourteen months after the Commencement Date, then
the second component of the Term of the Research Program shall commence upon
expiration of the Exploratory Term and shall terminate on the third anniversary
of the Commencement Date (the "Extension Term"). If no notice is given by
Warner-Lambert, or if notice is given after fourteen months from the
Commencement Date, the Research Program shall terminate upon termination of the
Exploratory Term unless otherwise agreed in writing by Ligand.
2.3. Allocation of Personnel. Unless otherwise recommended by the JRC,
Ligand and Warner-Lambert shall allocate FTEs at the times, in the numbers and
for the areas of activity set forth below:
(a) During the Exploratory Term:
(i) ***
<TABLE>
<CAPTION>
Area of Activity Commencement Date March 1, 2000
to February 28, 2000 to November 30, 2000
<S> <C> <C>
*** *** ***
*** *** ***
</TABLE>
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9
<PAGE>
<TABLE>
<S> <C> <C>
*** *** ***
*** *** ***
(ii) ***
*** *** ***
</TABLE>
(b) During the Extension Term
(i) ***
*** as determined by the JRC
(ii) ***
*** as determined by the JRC
Allocation of personnel not within the ranges of (b)(i) and (b)(ii) shall
require the written consent of the JRC.
2.4. Screening Responsibility. Ligand shall be responsible for conducting
*** and *** as set forth in the Research Plan and as designated by the JRC, and
shall promptly inform Warner-Lambert and the JRC of the progress and results
thereof (including providing Warner-Lambert with the screening methodology and
all raw data on a monthly basis).
2.5. Transfer of Background Technology. Commencing after the Commencement
Data, and from time to time thereafter, each Party shall disclose to the other
Party such of its Background Technology as is reasonably necessary to enable the
other Party to perform Collaboration activities hereunder in accordance with the
Research Plan. During the Term of the Research Program, each Party will provide
the other Party with reasonable technical assistance relating to the use and
practice of such Party's Background Technology, solely to the extent permitted
under the licenses granted to the other Party herein.
2.6. Subcontracts. Neither Ligand nor Warner-Lambert shall subcontract to
Third Parties portions of the Research Plan to be performed by it or contract
with consultants to provide services specifically relating to the Research Plan
to any Third Party without the prior consent of the JRC, which consent shall not
be unreasonably withheld. Any such subcontractor shall enter into a
confidentiality agreement with the contracting Party which shall require such
subcontractor to maintain Confidential Information in confidence, and any such
subcontractor shall be required to comply in all material respects with all
requirements of applicable laws and
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10
<PAGE>
regulations, together with all applicable good laboratory practices and
good manufacturing practices. The contracting Party shall negotiate and execute
the applicable agreement with such Third Party, at its expense, and shall
supervise and be responsible under this Agreement for such subcontracted work.
All such subcontracts shall contain terms consistent with the terms of this
Agreement.
2.7. Information and Reports Concerning Collaboration Technology. All
Collaboration Technology made by either Party will be promptly disclosed to the
other Party, with significant discoveries or advances being communicated as soon
as practical after such information is obtained or its significance is
appreciated. The Parties will exchange at least monthly verbal or written
reports presenting a meaningful summary of their activities performed under this
Agreement. In addition to the foregoing, each Party shall promptly provide to
the other, as necessary, biological materials and the structures of all
Collaboration Compounds prepared or developed by such Party pursuant to the
Research Program.
2.8. Funding of the Research Program. In consideration for Ligand's
performance of its obligations under the Research Program, Warner-Lambert shall
pay Ligand an amount for the FTEs employed by Ligand in the Research Program
according to the following schedule:
<TABLE>
<S> <C>
During the Exploratory Term: $ *** payable in 4 equal
quarterly installments due on
......... January 1, 2000, April 1, 2000,
......... July 1, 2000 and October 1, 2000
From commencement of the Extension
Term to December 31st, 2001: $ *** per FTE per year.
From January 1st 2002 to December 31, 2002: $ *** per FTE per year
</TABLE>
***
***
During the Extension Term, Warner-Lambert shall pay Ligand quarterly in advance
for services to be performed by Ligand's FTEs under the Research Program. The
first payment shall be due and payable on December 1, 2000 and shall include
payment for any services rendered between December 1, 2000 and December 31, 2000
. Subsequent payments shall be due and payable on the first day of each calendar
quarter starting with the calendar quarter starting on January 1, 2001. In the
event Warner-Lambert elects not to extend the Term of the Research Program for
the Extension Term as set forth in Section 2.2, Ligand shall reimburse
Warner-Lambert for *** of the *** payments made by Warner-Lambert for FTEs for
*** *** . Ligand shall apply the research funding it receives from
Warner-
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11
<PAGE>
Lambert under this Agreement solely toward paying the FTE's to conduct
research with the goal of achieving the objectives of the Research Program.
2.9. Exclusivity. Except as permitted in Article 12, during the Term of the
Research Program, neither Ligand nor Warner-Lambert shall engage in any
pre-clinical (i.e, up to the filing of an IND) research activity independent of
the Collaboration, alone or with a Third Party, in the Field; provided, however,
that a Party shall have the right to engage in such pre-clinical research
activity if it acquires all or substantially all of the assets, stock or
ownership interest of a Third Party which is engaged in activities in the Field.
A Party should not be deemed to be in violation of this provision if it conducts
research of compounds or products outside the Field, including cross-reactivity
testing using Designated Targets, if such compounds or Products have activity
within the Field.
2.10 Records.
2.10.1 Records. Ligand and Warner-Lambert each shall maintain records, in
sufficient detail and in accordance with recognized scientific practices
appropriate for patent purposes, which shall be complete and accurate and shall
fully and properly reflect all work done and results achieved in the performance
of the Research Program (including all data in the form required under all
applicable laws and regulations). Such records shall include books, records, raw
data, reports, research notes, charts, graphs, comments, computations, analyses,
recordings, photographs, computer programs and documentation thereof, computer
information storage means, samples of materials and other graphic or written
data generated in connection with the Research Program including any data
required to be maintained pursuant to all requirements of applicable laws, rules
and regulations.
2.10.2 Inspection of Records. During the Term of the Research Program and
for one year thereafter, Ligand and Warner-Lambert each shall have the right,
during normal business hours and upon reasonable notice, to inspect all such
records of the other Party to the extent reasonably required for the performance
of its obligations under this Agreement (with the Party owning the records
determining what is reasonably required). Each Party shall maintain such records
and the information of the other Party contained therein in confidence in
accordance with Article 8 and shall not use such records or information except
to the extent otherwise permitted by this Agreement. Ligand shall maintain
sufficient records to verify the calculation of Ligand's allocation of Ligand
FTEs to the Research Program as required under Section 2.3. Ligand shall supply
Warner-Lambert with quarterly reports of the FTE allocation to the Research
Program. Not more than once each year during the Term of the Research Program
and for one (1) year after its expiration, Warner-Lambert shall have the right,
during normal business hours and upon reasonable notice, to audit such records
to verify such allocation. Warner-Lambert shall treat all financial information
subject to review under this Section 2.10 as confidential in accordance with the
terms of Article 8. Ligand shall promptly reimburse Warner-Lambert for any
overcharge for services provided under the Research Program.
12
<PAGE>
2.11. Extension of Program Term. Warner-Lambert shall have the right to
further extend the Term of the Research Program beyond the Extension Term in ***
increments for up to *** by giving Ligand written notice not later than ***
prior to the then current date of termination of the Term of the Research
Program and committing to support at least *** FTEs at Ligand during the term of
the further extension(s). The amount paid to Ligand per FTE during any such
extension shall be increased in the manner provided in Section 2.8 for each year
of the extension.
2.12 In Vivo Testing. The Parties recognize that certain goals of the
Research Plan requiring performance of in vivo assays may not be achievable by
Ligand using the FTEs provided in Section 2.3. Therefore, in the circumstance
where the JRC determines that in vivo assays are required which are not Ligand
responsibilities under the Research Plan, Warner-Lambert shall, in its
discretion either (a) perform, or have performed through contractors of its
selection, those assays , or (b) pay Ligand's direct external costs and
reasonable costs (fully allocated) to do the assays at Ligand, such costs
charged for FTEs not to exceed the FTE rate set forth in Section 2.8 above.
2.13 ***
***
***
***
***
***
***
***
***
***
2.14 Transfer of Compounds. In accord with ARTICLE 312.160, Title 21, Code
of US Federal Regulations, the Parties certify that the Background Technology
compounds and Collaboration Compounds transferred from one Party to the other
under this Agreement will be used only for laboratory research or clinical
research in accordance with applicable law. The Parties agree that the
Background Technology compounds and the Collaboration Compounds will be used for
no purpose other than as described herein. Neither Party shall provide
Background Technology compounds, Collaboration Compounds or other Collaboration
Technology jointly owned by the Parties or owned by the other Party to any Third
Party without the prior written consent of the JRC.
ARTICLE 3
MANAGEMENT OF THE RESEARCH PROGRAM
3.1 Joint Research Committee.
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3.1.1 Composition of the JRC. The Research Program and all pre-clinical
testing of Collaboration Compounds before commencing Pre-Clinical Development
shall be conducted under the direction of the JRC. The JRC shall be composed of
three (3) named representatives of Warner-Lambert and three (3) named
representatives of Ligand. Ligand shall choose one (1) of its three (3) named
representatives to serve as chairperson of the JRC for the Exploratory Term.
Thereafter, the JRC will appoint a successor chairman. Each Party will identify
its representatives to the JRC within thirty (30) days after the Commencement
Date and each Party shall have the right to replace its representatives at any
time in its sole discretion after giving notice to the other Party.
3.1.2 Responsibilities of the JRC. The purposes of the JRC shall be to
review, direct, supervise and coordinate all operational and scientific aspects
of the Research Program and all pre-clinical testing of Collaboration Compounds
before commencement of Pre-Clinical Development. As part of its
responsibilities, the JRC shall (a) promptly after the Commencement Date
establish criteria of safety and efficacy for advancement of Collaboration
Compounds into Pre-Clinical Development as Collaboration Lead Compounds and
establish joint research teams to carry out the Research Program, (b) review the
research by Ligand and Warner-Lambert under the Research Program and the
pre-clinical testing of Collaboration Compounds before commencement of
Pre-Clinical Development, (c) monitor the progress of the Research Program and
evaluate the work performed and the results obtained in relation to the goals of
the Research Program, (d) plan future activities under, and make any necessary
or desirable modifications to, the Research Program and the Research Plan, (e)
recommend Collaboration Compounds for further evaluation by the Parties under
the Research Program and for Pre-Clinical Development and Clinical Development
by Warner-Lambert, and (f) perform such other functions to which the Parties
agree. The Party hosting each meeting of the JRC promptly shall prepare and
deliver to the other Party within fifteen (15) business days after the date of
such meeting, minutes of such meeting setting forth all decisions of the JRC
relating to the Research Program in form and content reasonably acceptable to
the other Party.
3.1.3 Meetings of the JRC. The JRC shall meet at least once each quarter
during the Term of the Research Program, at such times and places as agreed to
by Ligand and Warner-Lambert, alternating between San Diego, California and Ann
Arbor, Michigan, or such other locations as the Parties shall agree. The JRC and
any of its members may meet or attend meetings by telephone or video conference.
The JRC will communicate regularly by telephone, facsimile and video conference.
Meetings and telephone and video conferences of the JRC may be attended by such
other directors, officers, employees, consultants and other agents of Ligand and
Warner-Lambert as the Parties from time to time reasonably agree.
3.1.4 Actions by the JRC. All decisions of the JRC shall be made by
unanimous vote of all of the members.
3.2 Disagreements. All disagreements within the JRC shall be resolved by
presenting the disagreement to David E. Robinson or his successor as Chief
Executive Officer on behalf of Ligand, and the President of Warner-Lambert's
Pharmaceutical Research Division, or their
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designees, for good faith resolution, for a period of *** . If such
disagreement is not resolved by the end of such *** period, the Parties shall be
free to pursue any legal or equitable remedy available to them.
3.3 Project Leaders. Ligand and Warner-Lambert each shall appoint a person
(a "Project Leader") to coordinate its part of the Research Program. The Project
Leaders shall be the primary contacts between the Parties with respect to the
Research Program. Each Party shall notify the other within thirty (30) days of
the date of the Commencement Date of the appointment of its Project Leader and
shall promptly notify the other Party upon changing this appointment.
ARTICLE 4
DEVELOPMENT PROGRAM
4.1. Pre-Clinical Development. The JRC will review the characteristics of
the Collaboration Compounds identified under the Research Program, and the JRC
will attempt to select certain Collaboration Compounds or Background Technology
compounds to be recommended to Warner-Lambert for further work in the Field as a
"Collaboration Lead Compound". Further, Warner-Lambert shall have the right in
its sole discretion, but without the obligation, during the Term of the
Agreement to select (either on its own or in response to a recommendation from
the JRC) Collaboration Compounds or Background Technology compounds for such
further work in the Field. Upon a written recommendation by the JRC,
Warner-Lambert will use diligent efforts to conduct all needed studies on such
Collaboration Compound or Background Technology compound to determine if such
Collaboration Compound or Background Technology compound shall be selected by
Warner-Lambert as a "Collaboration Lead Compound" and shall make such selection
within *** of such recommendation by the JRC. If so selected, Warner-Lambert
shall conduct Pre-Clinical Development of each such selected Collaboration Lead
Compound in such manner as Warner-Lambert shall determine in its sole
discretion, and shall inform Ligand and the JRC of the progress and results
thereof. If not selected, then Ligand shall have the right *** following the
date of recommendation by the JRC to develop and commercialize the compound as
if it were an abandoned Collaboration Lead Compound in accordance with Section
5.3.1.
4.2. Clinical Development. Warner-Lambert shall use diligent efforts to
pursue the Clinical Development and commercialization of each Collaboration Lead
Compound at its own expense and under its sole discretion. Notwithstanding
anything else in this Agreement, but subject to Ligand's rights under Section
5.3, Warner-Lambert shall have the sole discretion to determine (a) which
Products to develop or market or to continue to develop or market, (b) which
Products to seek regulatory approval for, and (c) when and where and how and on
what terms and conditions, to market such Products in the Territory.
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4.3 Development Information. Warner-Lambert shall be the owner of any data,
information, inventions and discoveries generated as a result of the
Pre-Clinical Development, Clinical Development and commercialization of
Collaboration Lead Compounds and Products. Within thirty (30) days after the end
of each twelve (12) month period following the commencement of Preclinical
Development by Warner-Lambert of the first Collaboration Lead Compound,
Warner-Lambert shall provide to Ligand a reasonably detailed written development
report which shall describe the progress of the Preclinical Development and/or
Clinical Development of the Collaboration Lead Compound or Product and the
filing and obtaining of the approvals necessary for marketing. The report shall
contain not less than the information identified in Exhibit A hereto.
ARTICLE 5
LICENSES -- RESEARCH, DEVELOPMENT,
MARKETING AND MANUFACTURING
5.1 Cross-Licenses to Background Technology. Each Party hereby grants and
agrees to grant to the other a worldwide, non-exclusive, royalty-free license to
use and practice such Party's Background Technology solely to the extent
necessary for the other Party to perform its obligations under the Research
Program, until the termination of the Term of the Research Program.
Notwithstanding the foregoing, the granting Party may terminate such license
granted by it hereunder immediately upon its termination of this Agreement for
breach by the other Party under Section 12.4.
5.2 License Grant to Warner-Lambert. Ligand hereby grants to Warner-Lambert
an exclusive, worldwide license, with the right to sublicense, which license
shall be exclusive even as to Ligand, under Ligand's Patent Rights, to
Background Technology and Collaboration Technology owned or Controlled by or
licensed to Ligand, including Ligand's rights in any jointly owned Patent Rights
to the extent necessary, to develop, make, have made, use, manufacture, have
manufactured, import, promote, offer for sale, sell, distribute, market and
commercialize (with the right to sublicense) any Products in the Field. The
rights granted Warner-Lambert by Ligand under this Section 5.2 are subject to
the rights of American Home Products Incorporated granted by Ligand under an
agreement made between Ligand and American Home Products Incorporated prior to
the Commencement Date. That agreement does not provide American Home Products
with rights to compounds in Ligand's compound library that have Field Activity.
5.3 Ligand Rights.
5.3.1 At any time after a Collaboration Lead Compound is in Clinical
Development, except in the case of termination by Warner-Lambert under Section
12.4 below, Ligand shall have the right in its sole discretion at its sole
expense, for its own benefit or together with an Affiliate or Third Party, to
develop and commercialize in the Territory those Collaboration Lead Compounds
which Warner-Lambert notifies Ligand that it has abandoned or elected not to
develop in the Field, provided that Warner-Lambert, or any of its Affiliates or
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Sublicensees is not developing or commercializing the Collaboration Lead
Compound for any other pharmaceutical purpose and not conducting Pre-Clinical
Development or Clinical Development with respect to, or selling or
commercializing, a Competing Product.
5.3.2 Except in the case of termination by Warner-Lambert under Section
12.4 below, if Warner-Lambert notifies Ligand that it has abandoned a Product ,
Ligand shall have the right in its sole discretion at its sole expense, for its
own benefit or together with an Affiliate or Third Party, to develop and
commercialize such Product in the Territory, provided that Warner-Lambert, its
Affiliates or Sublicensees is not conducting Pre-Clinical Development or
Clinical Development with respect to, or selling or commercializing, a Competing
Product in the Territory, and Ligand reimburses Warner-Lambert for *** % of the
*** incurred by Warner-Lambert with respect to such Product by payment of an
additional ***% royalty on Net Sales of the Product under Section 6.2 and ***%
of any milestone and royalty payments made to Ligand by a Sublicensee until such
Development Costs have been fully reimbursed.
5.3.3 In the event that Warner-Lambert decides, in its sole discretion, to
license a Product to Third Parties, it shall first notify Ligand in writing and
offer to negotiate such arrangement with Ligand. If Ligand notifies
Warner-Lambert that it desires to negotiate for such rights within thirty (30)
days of receipt of notification from Warner-Lambert, the Parties shall in good
faith and for a period of sixty (60) days, negotiate the terms of any such
commercial arrangement. If no definitive written agreement on such terms is
reached within such sixty (60) day period, Warner-Lambert may at any time
thereafter transfer such rights to a Third Party.
5.3.4 If Ligand exercises its rights under this Section 5.3 with respect to
any Collaboration Lead Compound owned by or licensed to Warner-Lambert,
Warner-Lambert (a) shall grant to Ligand an exclusive license (with the
exclusive right to sublicense) in the United States to make, have made, use and
sell Products incorporating such Collaboration Lead Compound in the Field, (b)
shall provide Ligand, at Ligand's expense, with all such information and data
which Warner-Lambert, its Affiliates or Sublicensees reasonably has available in
such country, for example access to drug master file, clinical and QA data and
the like, and shall execute such instruments as reasonably necessary , to
effectuate such license , and (c) thereafter shall have no further rights under
this Agreement with respect to such Collaboration Lead Compound or Product in
the Territory in the Field except as expressly provided in this Agreement. If
Ligand exercises the right to develop and commercialize a Collaboration Lead
Compound or Product under this Section 5.3, upon exercise Ligand shall refund
any payment made by Warner-Lambert to Ligand under Section 6.11 and that right
shall be exclusive and with the right to grant sublicenses and the provisions of
Sections 6.2 through 6.10 and Articles 7, 10 and 15 shall apply to Ligand
mutatis mutandis.
5.3.5 If Ligand, its Affiliate or Sublicensee is not diligently developing
or commercializing any such Collaboration Lead Compound or Product licensed from
Warner-Lambert under this Section 5.3 *** after the effective date of such
license, then such license shall terminate, and all rights in and to such
Collaboration Compound or Product
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shall revert to Warner-Lambert subject to the provisions of this Agreement,
except the provisions of this Section 5.3.
ARTICLE 6
ROYALTIES, MILESTONES AND OTHER PAYMENTS
6.1. Reimbursement For Research and Development. As consideration for
research and development expense incurred by Ligand in the Field, Warner-Lambert
shall pay Ligand a fee of *** due and payable upon agreement by the JRC that the
screening of the Warner-Lambert compound library has been completed according to
the Research Plan, but in no event shall such payment be made later than *** ;
and in the event that Warner-Lambert decides to sponsor the Extension term, a
fee of *** due and payable on *** .
6.2. Royalties Payable by Warner-Lambert. In consideration for the
technology and know-how provided by Ligand to the Research Program and for the
licenses granted to Warner-Lambert herein, Warner-Lambert shall pay to Ligand a
royalty on worldwide sales of Products by Warner-Lambert and Affiliated
Customers to Non-Affiliated Customers of Warner-Lambert equal to a percentage of
the annual Net Sales of such Products, where the percentage rate applicable to a
particular sale shall be determined based on the total annual Net Sales of
Products according to the following rate schedule:
<TABLE>
<S> <C>
Annual Net Sales (in millions)
Royalty Percentage of each Product in the Territory
*** ***
*** ***
*** ***
*** ***
</TABLE>
By way of clarification, the royalty on *** in Net Sales in each year during the
Term of this Agreement will be ***%. The royalties shall be payable with respect
to a particular Product, on a country-by-country basis, until the later of (a)
expiration in the particular country of the last to expire Valid Claim owned or
Controlled by Ligand or jointly owned by Ligand and Warner-Lambert that is
necessary to make, use, import for sale or sell such Product in such country, or
(b) *** from the date of the first sale of such Product to a Third Party in such
country; provided that such royalty obligation shall terminate upon the first
commercial sale in such country of such Product by a Third Party without a
license from Ligand, which sale has been approved by the applicable Regulatory
Agency. For a Product subject to a Valid Claim jointly owned by Ligand and
Warner-Lambert and not subject to a Valid Claim owned or controlled solely by
Ligand, the royalty shall be paid in full for .*** from the date
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of sale of the first Product and thereafter the royalty shall be *** %
until the expiration of the jointly owned patent.
6.3 Adjustments to Royalty.
(a) Royalty Credit. If Warner-Lambert is already obligated as of the
Commencement Date, or becomes obligated after the Commencement Date, to pay
royalties to any Third Party in connection with the manufacture, use or sale of
a Collaboration Lead Compound or Product, *** of such royalties shall be
creditable against royalties otherwise payable to Ligand under this Agreement
provided such credit, combined with any Cost of Goods adjustment under Section
6.3(b), shall not exceed *** of the aggregate royalty which would otherwise be
payable to Ligand. If a Third Party patent or other claim of right poses a
concern of infringement relating to a Collaboration Lead Compound or Product,
Warner-Lambert may license such Third Party patent or claim of right pursuant to
terms negotiated by Warner-Lambert in its sole discretion if in Warner-Lambert's
sole judgment such action would be required to permit the manufacture, use or
sale of such Collaboration Compound, Collaboration Lead Compound or Product
(b) Cost of Goods Adjustment. In the event that the sum of Warner-Lambert's
Cost of Goods plus the royalty due and owing to Ligand, taking into account any
credit under Subsection 6.3(a), and any Third Party by Warner-Lambert during any
calendar year for any Product exceeds ***% of the Net Sales of such Product, the
royalty to be paid by Warner-Lambert to Ligand shall be reduced by *** of such
excess, provided that such reduction, combined with any Royalty Credit under
Section 6.3(a), shall not exceed *** of the aggregate royalty which would
otherwise be payable to Ligand.
6.4 Currency of Payment. All payments to be made under this Agreement shall
be made in United States dollars in the United States by wire transfer to a bank
account designated by the Party to be paid. Royalties earned shall first be
determined in the currency of the country in which they are earned and then
converted to its equivalent in United States currency. The buying rates of
exchange for the currencies involved into the currency of the United States
quoted by Citibank (or its successor in interest) in New York, New York at the
close of business on the last business day of the quarterly period in which the
royalties were earned shall be used to determine any such conversion.
6.5 Payment and Reporting. The royalties due under Section 6.2 and Section
12.3 shall be paid quarterly, within three (3) months after the close of each
calendar quarter, or earlier if practical (i.e., on or before the last day of
each of the months of June, September, December and March), immediately
following each quarterly period in which such royalties are earned. With each
such quarterly payment, the payer shall furnish the payee a royalty statement
setting forth on a country-by-country basis the total number of units, gross
amount invoiced, deductions taken according to each category listed in the Net
Sales definition, and Net Sales of each royalty-bearing Product sold hereunder
for the quarterly period for which the royalties are due.
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6.6 Taxes Withheld. Any income or other tax that one Party hereunder, its
Affiliates or Sublicensees is required to withhold (the "Withholding Party") and
pay on behalf of the other Party hereunder (the "Withheld Party") with respect
to the royalties payable under this Agreement shall be deducted from and offset
against said royalties prior to remittance to the Withheld Party; provided,
however, that in regard to any tax so deducted, the Withholding Party shall give
or cause to be given to the Withheld Party such assistance as may reasonably be
necessary to enable the Withheld Party to claim exemption therefrom or credit
therefor, and in each case shall furnish the Withheld Party proper evidence of
the taxes paid on its behalf.
6.7 Computation of Royalties. All sales of Products between the selling
Party and any of its Affiliated Customers shall be disregarded for purposes of
computing Net Sales and royalties under this Section 6 and Section 12.3, but in
such instances royalties shall be payable only upon sales of the selling Party
and its Affiliated Customers to Non-Affiliated Customers. Nothing herein
contained shall obligate either Party to pay the other Party more than one
royalty on any unit of a Product.
6.8 Licenses to Affiliates and Sublicensees. Each Party shall, at the other
Party's reasonable request, enter into license and/or royalty agreements
directly with the other Party's Affiliates and permitted Sublicensees, in lieu
of the license grant to or royalty obligation of the requesting Party; provided
such agreements would not decrease the amount of royalties which would be owed
hereunder. Such agreements shall contain the same language as contained herein
with appropriate changes in parties and territory, and this Agreement shall be
amended as appropriate. No such license and/or royalty agreement will relieve
Warner-Lambert or Ligand, as the case may be, of its obligations hereunder, and
such Party will guarantee the obligations of its Affiliate or sublicense in any
such agreement. Royalties received directly from one Party's Affiliates and
Sublicensees shall be credited towards such Party's royalty obligations under
this Agreement, as applicable.
6.9 Restrictions on Payments. Payment of royalties under this Agreement
shall be adjusted or excused to the extent necessary to comply with statutes,
laws, codes or government regulations in a particular country which restrict or
prevent such royalty payments by the seller of Products.
6.10 Milestone Payments.
6.10.1 Trigger Events: As additional consideration for Ligand's
participation in the Research Program, Warner-Lambert shall pay Ligand, at the
times set forth below, milestone payments with respect to each Collaboration
Lead Compound to achieve such milestone, except as permitted in Section 6.10.2:
***
***
***
***
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***
***
***
***
***
***
***
***
***
***
***
***
***
***
For convenience of reference, each of the events described in clauses (a)
through (f) above is referred to herein as a "Trigger Event".
6.10.2 Backup Compounds. Except as provided in this Section 6.10.2,
Warner-Lambert shall not have to make milestone payments under Section 6.10.1
with respect to Trigger Events for any Collaboration Lead Compound it designates
to be a backup compound (the "Backup Compound") to a more developmentally
advanced Collaboration Lead Compound for which it is obligated to make milestone
payments under Section 6.10.1. If development of the more advanced Collaboration
Lead Compound is abandoned prior to occurrence of the Trigger Event described in
Section 6.10.1, Warner-Lambert will only have to make milestone payments for
Trigger Events achieved by the Backup Compound that were not achieved by the
abandoned Collaboration Lead Compound. If the Backup Compound reaches a Trigger
Event before the Collaboration Lead Compound for which it is a backup compound,
Warner-Lambert will make the milestone payment for that and each subsequent
Trigger Event reached by the Backup Compound but shall not be required to make
milestone payment for that and each subsequent Trigger Event realized by the
Collaboration Lead Compound. If the Backup Compound reaches the Trigger Event
described in Section 6.10.1 before abandonment of the more advanced
Collaboration Lead Compound, then Warner-Lambert will make the milestone
payments for the Trigger Event described in Section 6.10.1 and for each
subsequent Trigger Event reached by the Backup Compound.
6.11 Audits.
6.11.1 Audits. Upon the written request of Ligand and not more than once in
each calendar year, Warner-Lambert shall permit an independent certified public
accounting firm of nationally recognized standing, selected by Ligand and
reasonably acceptable to Warner-Lambert, at Ligand's expense, to have access
during normal business hours to such of the records of Warner-Lambert as may be
reasonably necessary to verify the accuracy of the royalty reports
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hereunder for eight (8) quarters prior to the date of such request. The
accounting firm shall be bound by confidentiality obligations and shall disclose
to Ligand only whether the records are correct or not and, if applicable, the
amount of any discrepancies.
6.11.2 If such accounting firm concludes that additional royalties were
owed during such period, Warner-Lambert shall pay the additional royalties
within *** of the date Ligand delivers to Warner-Lambert such accounting firm's
written report so concluding. The fees charged by such accounting firm shall be
paid by Ligand; provided, however, if the audit discloses that the royalties
payable by Warner-Lambert for the audited period are more than *** of the
royalties actually paid for such period, then Warner-Lambert shall pay the
reasonable fees and expenses charged by such accounting firm.
6.11.3 Warner-Lambert shall include in each permitted sublicense granted by
it pursuant to the Agreement a provision requiring the Sublicensee to make
reports to Warner-Lambert, to keep and maintain records of sales made pursuant
to such sublicense and to grant access to such records by Ligand's accounting
firm to the same extent required of Warner-Lambert under the Agreement. Upon the
expiration of *** following the end of any year, the calculation of royalties
payable with respect to such year shall be binding and conclusive upon Ligand,
Warner-Lambert and its Sublicensees, and such Sublicensees shall be released
from any liability or account-ability with respect to royalties for such year.
ARTICLE 7
INFRINGEMENT ACTIONS BY THIRD PARTIES
If a Party, or to its knowledge, any of its Affiliates or Sublicensees
shall be sued or threatened to be sued for infringement of a patent or other
intellectual property rights of a Third Party because of the reasonable
development, manufacture, use or sale of Collaboration Compounds, Collaboration
Lead Compounds or Products or any other action undertaken by such Party under
this Agreement, such Party shall promptly notify the other in writing of the
institution or threat of such action. The Party sued or threatened to be sued
shall have the right, in its sole discretion, to control the defense and
settlement of such claim at its own expense, in which event the other Party
shall cooperate fully in the defense of such suit and furnish to the Party sued
all evidence and assistance in its control. Any judgments, settlements or
damages payable with respect to legal proceedings covered by this Article 7
shall be paid by the Party which controls the litigation, subject to any claims
against the other Party for breach of this Agreement or otherwise available at
law or in equity. Any Third Party royalty payments required to be paid as the
result of a judgment or settlement under this Article 7 shall be paid by the
Party controlling the suit subject to any claims against the other Party for
breach of this Agreement or otherwise available at law or in equity; provided,
however, in the case of a Product sold by Warner-Lambert, if such Third Party
royalty payments arise from the infringement of a patent or other intellectual
property rights having a claim or claims which cover the screening activities or
Background Technologies of Ligand under the Research Program, the Third Party
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royalty payments shall be equally shared by Warner-Lambert and Ligand, but in no
event shall the royalty owed by Ligand under this provision exceed the royalty
due to Ligand for the Product under Article 6 .
ARTICLE 8
CONFIDENTIALITY
8.1 Nondisclosure Obligations. Except as otherwise provided in this Article
8 and subject to Article 9 hereof, during the Term of this Agreement and for a
period of *** thereafter, (a) both Parties shall maintain in confidence all
Collaboration Technology and information and data developed pursuant to the
Collaboration and solely owned by the disclosing Party or jointly owned by the
Parties; and (b) both Parties shall also maintain in confidence and use only for
purposes of this Agreement all Background Technology and all other information
and data supplied by the other Party under this Agreement, which if disclosed in
writing is marked "Confidential," or if disclosed in a non-tangible way is
characterized as confidential at the time of disclosure.
8.2 Permitted Disclosures. For purposes of this Article 8, information and
data described in clauses (a) or (b) of Section 8.1 above shall be referred to
as "Confidential Information". To the extent it is reason-ably necessary or
appropriate to fulfill its obligations or exercise its rights under this
Agreement, (a) a Party may disclose Confidential Information it is otherwise
obligated under this Article 8 not to disclose to its Affiliates, Sublicensees,
consultants, outside contractors, clinical investigators, agent, suppliers and
other Third Parties on a need-to-know basis on condition that such persons or
entities agree to keep the Confidential Information confidential for the same
time periods and to the same extent as such Party is required to keep the
Confidential Information confidential; (b) a Party or its Affiliates or
Sublicensees may disclose such Confidential Information to government or other
regulatory authorities to the extent that such disclosure is reasonably
necessary to conduct Pre-Clinical Development, Clinical Development or
commercialization of Collaboration Lead Compounds or Products or to obtain
patents on Collaboration Compounds, Collaboration Lead Compounds or Products ;
(c) a Party may disclose Confidential Information as required by applicable law,
regulation or judicial process, provided that, where practicable, such Party
shall give the other Party prior written notice thereof and adequate opportunity
to object to any such disclosure or to request confidential treatment thereof;
and (d) a Party may disclose Confidential Information as permitted under Article
9.
The obligation not to disclose or use the Confidential Information shall
not apply to any part of the Confidential Information that (i) is or becomes
patented, published or otherwise part of the public domain other than by acts of
the Party obligated not to disclose such Confidential Information or its
Affiliates or Sublicensees in contravention of this -Agreement; or (ii) is
disclosed to the receiving Party or its Affiliates or Sublicensees by a Third
Party, provided such
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Confidential Information was not obtained by such Third Party directly or
indirectly from the other Party on a confidential basis; or (iii) prior to
disclosure under this Agreement, was already in the possession of the receiving
Party or any of its Affiliates or Sublicensees, provided such Confidential
Information was not obtained directly or indirectly from the other Party on a
confidential basis; (iv) is independently developed by the receiving Party or
any of its Affiliates of sublicenses without aid or use of the Confidential
Information; or (v) is disclosed in a press release agreed to by both Parties
under Section 8.3 below.
8.3. Publicity. All publicity, press releases and other announcements
relating to this Agreement or the transactions contemplated hereby (other than
publications by Warner-Lambert of results of Pre-Clinical Development, Clinical
Development or post-marketing research) shall be reviewed in advance by, and
shall be subject to the approval of, both Parties; provided, however, that
either Party may (a) publicize the existence and general subject matter of this
Agreement without the other Party's approval, (b) disclose the terms of this
Agreement only to the extent required to comply with applicable securities laws
and in the case of (b), the non-disclosing Party shall have the right to review
and comment on such disclosure prior to its submission and the disclosing Party
shall cooperate to minimize the scope and content of such disclosure, and (c)
disclose the terms of this Agreement to prospective lenders, investment bankers
and other financial institutions of its choice solely for purposes of financing
the business operations of such Party, but only if the disclosing Party obtains
a signed confidentiality agreement with such entity upon terms similar to those
contained in this Article 8.
ARTICLE 9
PUBLICATION
The Parties shall cooperate in appropriate publication of the results of
the Research Program, but subject to the predominating interest to obtain patent
protection for any patentable subject matter. To this end, it is agreed that
prior to any public disclosure of such results, the Party proposing disclosure
shall send the other Party a copy of the information to be disclosed, and shall
allow the other Party thirty (30) days from the date of receipt in which to
determine whether the information to be disclosed contains subject matter for
which patent protection should be sought prior to disclosure, or otherwise
contains Confidential Information of the reviewing Party which such Party
desires to maintain as a trade secret. If notification is not received during
the thirty (30) day period, the Party proposing disclosure shall be free to
proceed with the disclosure. If due to a valid business reason or a belief by
the non-disclosing Party that the disclosure contains subject matter for which a
patentable invention should be sought, then prior to the expiration of the
thirty (30) day period, the non-disclosing Party shall so notify the disclosing
Party, who shall then delay public disclosure of the information for an
additional period of up to six (6) months to permit the preparation and filing
of a patent application on the subject matter to be disclosed or other action to
be taken. The Party proposing disclosure shall thereafter be free to publish or
disclose the information. The determination of authorship for any paper shall be
in accordance with accepted scientific practice. In no event may any publication
or other disclosure contain a Party's Confidential Information without such
Party's prior written consent. Ligand shall not publish the results of the
Pre-Clinical Development or the Clinical Development of any Collaboration Lead
Compound or any other information or data relating to a
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Collaboration Compound, Collaboration Lead Compound or Product without
Warner-Lambert's prior written consent. Warner-Lambert may publish the results
of the Pre-Clinical Development and Clinical Development without Ligand's prior
written consent provided that no such publication shall contain Confidential
Information solely owned by Ligand.
ARTICLE 10
PATENTS AND INVENTIONS
10.1 Ownership of Background Technology. Except as otherwise set forth
herein, each Party shall retain ownership or Control, as the case may be, over
its Background Technology. The owner of any patentable Background Technology
shall have the right, at its option and expense, to prepare, file and prosecute
(including without limitation in administrative proceedings such as oppositions
and interferences) in its own name any patent applications with respect to such
Background Technology and to maintain any patents issued.
10.2 Ownership of Collaboration Technology. Except as otherwise set forth
herein, ownership of Collaboration Technology (whether or not patentable) shall
be owned by the Party(ies) whose employee(s) are determined to be inventors in
accordance with United States laws of inventorship. Subject to Section 10.3, the
owner (the "Inventor") of any patentable Collaboration Technology (an
"Invention") shall have the right, at its option and expense and through
attorneys and agents of its choice, to prepare, file and prosecute (including
any proceedings relating to reissues, reexaminations, protests, interferences
and requests for patent extensions or supplementary protection certificates) in
its own name any patent applications with respect to any Invention owned by it
and to maintain any patents issued. In connection therewith, the non-Inventor
Party agrees to cooperate with the Inventor at the Inventor's expense in the
preparation and prosecution of all such patent applications and in the
maintenance of any patents issued. The obligations set forth in this Section
10.2 shall survive the expiration or termination of this Agreement.
10.3 Joint Inventions. Collaboration Technology jointly invented by Ligand
and Warner-Lambert will be jointly owned by Ligand and Warner-Lambert; however,
subject to Section 10.2, Warner-Lambert will have the rights and
responsibilities of the Inventor as described in this Section 10 with respect to
the preparation, filing, prosecution and maintenance of patent applications in
the name of both owners for any such patentable, jointly owned Collaboration
Technology and Ligand shall have the rights and responsibilities of a
non-Inventor therein. Warner-Lambert shall have the right but not the obligation
to pay all expenses in connection with the preparation, filing and prosecution
of patent applications that claim patentable, jointly owned Inventions.
Warner-Lambert shall from time to time notify Ligand of the amount of such
expenses, and Ligand shall promptly thereafter pay Warner-Lambert *** of its
out-of-pocket expenses. As used in the preceding sentence "out-of-pocket
expenses" means direct costs, excluding internal labor costs. Ligand may elect
in writing to disclaim all interest in any jointly invented Invention, in which
case (a) such Invention will be
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solely owned by Warner-Lambert, and Ligand will cooperate to assure
Warner-Lambert's sole ownership, (b) Ligand will have no further interest in
such Invention, by ownership, license or otherwise, and (c) Ligand will not be
responsible for reimbursing Warner-Lambert for any expenses incurred by
Warner-Lambert from and after the date that Warner-Lambert receives Ligand's
written disclaimer. Warner-Lambert may elect in writing to disclaim all interest
in any jointly invented Inventions, in which case (i) such Invention will be
solely owned by Ligand and Ligand shall be solely liable for any expenses
incurred with respect to such Invention after Warner-Lambert's disclaimer, and
Warner-Lambert will cooperate to assure Ligand's sole ownership, (ii)
Warner-Lambert will have no further interest in such Invention, by ownership,
license or otherwise, and (iii) Warner-Lambert will, at Ligand's cost and
request, continue the preparation, filing and prosecution of the relevant patent
application(s) for up to *** following Warner-Lambert's delivery of written
disclaimer, if failure to so continue would have a material adverse impact on
such patent application(s).
10.4 Protection of Patent Rights.
(a) The Inventor shall prepare, prosecute and maintain (and shall use
reasonable efforts to keep the other Party currently informed of all steps to be
taken in such preparation, prosecution and maintenance) all of its Patent Rights
which claim an Invention and upon request shall furnish the other Party with
copies of such Patent Rights and other related correspondence relating to such
Invention to and from patent offices and permit the other Party to offer its
comments thereon before the Inventor makes a submission to a patent office which
could materially affect the scope or validity of the patent coverage that may
result. The non-Inventor Party shall offer its comments promptly. Ligand and
Warner-Lambert shall each promptly notify the other of any infringement or
unauthorized use of an Invention which comes to its attention.
(b) If the Inventor fails to (i) fulfill its obligations under this Section
10, or (ii) protect against abandonment of a Patent Right which claims an
Invention, the Inventor shall permit the non-Inventor Party, at its option and
expense, to undertake such obligations, and thereafter such Patent Rights shall
be deemed to be assigned to such non-Inventor Party. The Party not undertaking
such actions shall fully cooperate with the other Party and shall provide to the
other Party whatever assignments and other documents that may be needed in
connection therewith. The Party finally conducting legal actions or proceedings
against an alleged infringer or other Party shall be entitled to any damages or
costs awarded against such infringer or other Party.
(c) In the event Ligand or Warner-Lambert becomes aware of any actual or
threatened infringement of any Patent Right of either Party which claims an
Invention, that Party shall promptly notify the other, and the Parties'
representatives shall promptly discuss how to proceed in connection with such
actual or threatened infringement. If both Parties participate in the conduct of
a legal action pursuant to this Section 10.4(c), (i) if one Party files, the
actual costs and expenses of such action shall be reimbursed first to the filing
Party and then to the participating Party out of any damages or other
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monetary awards recovered therein in favor of Warner-Lambert or Ligand, or
(ii) if both Parties file, the actual costs and expenses of such action shall be
reimbursed proportionally between the Parties out of any damages or other
monetary awards recovered therein in favor of Warner-Lambert or Ligand, based on
the actual costs and expenses incurred by each Party in connection with such
action. Any remaining damages received by Warner-Lambert shall then be treated
as Net Sales of Product by Warner-Lambert. If one Party alone conducts such
legal action, *** of the actual costs and expenses of such action shall be
reimbursed to such Party out of any damages or other monetary awards; any
remaining damages shall then be treated as Net Sales of Product. If either Party
commences any actions or proceedings (legal or otherwise) pursuant to this
Section 10.4(c), it shall prosecute the same vigorously at its expense and shall
not abandon or compromise them or fail to exercise any rights of appeal without
giving the other Party the right to take over the prosecuting Party's conduct at
such other Party's own expense.
10.5 Notification of Patent Term Restoration and Third Party Abbreviated
New Drug Applications. Ligand or Warner-Lambert, as the case may be, shall
notify the other Party of (a) the issuance of each U.S. patent, or foreign
patent where extension is possible, included within the Patent Rights which
claim an Invention, giving the date of issue and patent number for each such
patent, and (b) each notice pertaining to any patent included within the Patent
Rights which claim an Invention which it receives as patent owner pursuant to
the Drug Price Competition and Patent Term Restoration Act of 1984 (hereinafter
called the "Act") or equivalent foreign laws, including notices pursuant to 21
U.S.C. ss.355(b)(3) and ss.355(j)(2)(B)from persons who have filed an
abbreviated NDA ("ANDA"). Such notices shall be given promptly, but in any event
within five calendar days of each such patent's date of issue or receipt of each
such notice pursuant to the Act, whichever is applicable.
10.6 Any dispute between the Parties regarding the inventorship of an
Invention or Joint Invention made under the Research Program shall be resolved
through appointment of an independent patent counsel, mutually acceptable to the
Parties, after consideration of all evidence submitted by the Parties. The
expense of the independent patent counsel shall be borne equally by Ligand and
Warner-Lambert.
ARTICLE 11
REPRESENTATIONS AND WARRANTIES
Each Party hereby represents and warrants to the other Party as follows:
11.1 Corporate Existence and Power. Such Party (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state in
which it is incorporated, (b) has the corporate power and authority and the
legal right to own and operate its property and assets, to lease the property
and assets it operates under lease, and to carry on its business as it is now
being conducted, and (c) is in compliance with all requirements of applicable
law, except to the extent that any noncompliance would not have a material
adverse effect on such Party's ability to perform its obligations under this
Agreement.
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11.2 Authorization and Enforcement of Obligations. Such Party (a) has the
corporate power and authority and the legal right to enter into this Agreement
and to perform its obligations hereunder, and (b) has taken all necessary
corporate action on its part to authorize the execution and delivery of this
Agreement and the performance of its obligations hereunder. This Agreement has
been duly executed and delivered on behalf of such Party, and constitutes a
legal, valid, binding obligation, enforceable against such Party in accordance
with its terms.
11.3 Consents. All necessary consents, approvals and authorizations of all
governmental authorities and other persons required to be obtained by such Party
in connection with the execution, delivery and performance of this Agreement
have been and shall be obtained.
11.4 No Conflict. Notwithstanding anything to the contrary in this
Agreement, the execution and delivery of this Agreement and the performance of
such Party's obligations hereunder (a) do not conflict with or violate any
requirement of applicable laws or regulations or any of the terms of its
certificate of incorporation or by-laws, and (b) do not and shall not conflict
with, violate or breach or constitute a default or require any consent under any
contractual obligation of such Party.
11.5 Intellectual Property. Such Party (a) owns or is the licensee in good
standing of all Patent Rights, trade secrets and other intellectual property to
be used by it in connection with the Research Program, except to the extent that
such use is to be based upon patents, trademarks and other intellectual property
furnished by the other Party; (b) is not in default with respect to any license
agreement related to the Research Program; (c) is not aware of any patent, trade
secret or other proprietary right of any Third Party which could materially
adversely affect its ability to carry out its responsibilities under the
Research Program or the other Party's ability to exercise or exploit any license
granted to it under this Agreement; provided, however, that the Parties are
aware that the beta form of the estrogen receptor has been claimed in published
applications for patent; and (d) has received no notice of infringement or
misappropriation of any alleged rights asserted by any Third Party in relation
to any Background Technology to be used by it in connection with the Research
Program . Such Party agrees to immediately notify the other Party in writing in
the event such Party hereafter becomes in default under any license agreement
referred to in (b) above, becomes aware of any patent, trade secret or other
proprietary right of the nature referred to in (c) above, or receives a notice
of the type referred to in (d) above.
11.6 DISCLAIMER OF WARRANTIES. NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED
AS A REPRESENTATION MADE, OR WARRANTY GIVEN, BY LIGAND OR WARNER-LAMBERT (A)
THAT ANY PATENT WILL ISSUE BASED UPON ANY PENDING PATENT APPLICATION WITHIN THE
PATENT RIGHTS, (B) THAT ANY PATENT WITHIN THE PATENT RIGHTS WHICH ISSUES WILL BE
VALID, OR (C) THAT, EXCEPT FOR THE PROVISIONS OF SECTION 11.5 HEREIN WHICH SHALL
NOT BE AFFECTED BY THIS SECTION 11.6, THE USE OF ANY LICENSE GRANTED HEREUNDER
OR THE USE OF ANY PATENT RIGHTS WILL NOT INFRINGE THE PATENT OR PROPRIETARY
RIGHTS OF ANY THIRD PARTY. FURTHERMORE, NEITHER LIGAND NOR WARNER-LAMBERT MAKES
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PATENT RIGHTS EXCEPT AS PROVIDED IN SECTION 11.5. LIGAND AND WARNER-LAMBERT EACH
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SPECIFICALLY DISCLAIM THAT THE RESEARCH PROGRAM OR THE PRE-CLINICAL DEVELOPMENT
OR CLINICAL DEVELOPMENT WILL BE SUCCESSFUL, IN WHOLE OR IN PART, OR THAT ANY
CLINICAL OR OTHER STUDIES UNDERTAKEN BY IT WILL BE SUCCESSFUL. WARNER-LAMBERT
DOES NOT WARRANT THAT ITS EFFORTS TO RESEARCH, DEVELOP OR COMMERCIALIZE ANY
COLLABORATION COMPOUND, COLLABORATION LEAD COMPOUND OR PRODUCT WILL RESULT IN
REGULATORY APPROVAL OF ANY PRODUCT, NOR DOES WARNER-LAMBERT WARRANT THAT ANY
SUCH PRODUCT WILL ACHIEVE ANY LEVEL OF NET SALES OR BE CONTINUED IF IT OBTAINS
REGULATORY APPROVAL. EXCEPT AS OTHERWISE EXPRESSLY STATED HEREIN, EACH PARTY
HEREBY DISCLAIMS ANY WARRANTY, EXPRESSED OR IMPLIED, AS TO ANY PRODUCT SOLD OR
PLACED IN COMMERCE BY OR ON BEHALF OF WARNER-LAMBERT OR ITS AFFILIATES OR
SUBLICENSEES.
ARTICLE 12
TERM AND TERMINATION
12.1 Expiration. Unless terminated earlier by agreement of the Parties or
pursuant to this Article 12, this Agreement shall expire on the expiration of
the last to expire of all obligations to pay royalties under this Agreement.
12.2 Expiration of Exploratory Term Without Exercise of Option to Extension
Term. This Agreement shall terminate upon expiration without exercise of
Warner-Lambert's option to continue the Research Program through the Extension
Term. Upon such termination, each Party shall return to the other Party the
Background Technology of the other Party in its possession. Warner-Lambert shall
also assign to Ligand its interest in all jointly owned Patent Rights claiming
Collaboration Technology. Warner-Lambert shall provide Ligand, upon request,
with copies of Collaboration Technology that is in its possession and with
samples of Collaboration Compounds in its possession. Upon termination under
this Section 12.2, Warner-Lambert shall grant under its Patent Rights to Ligand
an exclusive, royalty-free, worldwide license in the Field, to use *** compounds
which are Warner-Lambert's Background Technology that have exhibited Field
Activity (and which are not lead compounds in a research or development program
undertaken by Warner-Lambert or any of its Affiliates or Third Party
collaborators) selected by Ligand within *** following such termination, for the
sole purpose of continuing research and development on such compounds in the
Field alone or with a third party. Subject to availability, Warner-Lambert shall
provide Ligand with samples of said *** compounds. The license granted by
Warner-Lambert pursuant to this Section will expire *** after its grant with
respect to all but *** compounds designated by Ligand, in writing, not later
than the expiration of the *** initial period of the license, and if no such
designation is made by Ligand within such *** period, such license shall
terminate with respect to all such compounds. Warner-Lambert shall grant under
its Patent Rights to Ligand an exclusive,
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royalty-free, worldwide license in the Field, including the right to grant
sublicenses, to make, have made, use, sell, import and export the *** compounds
designated by Ligand.
12.3 Termination of Agreement at End of Extension Term. Warner-Lambert
shall have the right to terminate this Agreement at the end of the Extension
Term by giving Ligand *** written notice if no Collaboration Lead Compound has
been selected. Each Party shall then return to the other Party the Background
Technology of such other Party that is in its possession. If a Party conducts
independent research and development on a Collaboration Compound in the Field
after such termination and files an IND on that Collaboration Compound to
conduct clinical trials for indications relating to the Field within *** after
the effective date of termination hereunder, the Party filing the IND shall pay
the other Party a royalty on worldwide sales equal to ***% of its Net Sales of
the product. The provisions of Section 6.4 to 6.9, 6.11.1, 6.11.2 and 6.11.3
shall apply to royalties payable under this Section.
12.4 Termination For Breach. A Party shall have the right to terminate the
Term of this Agreement for a material breach of this Agreement; provided,
however, that termination cannot occur until *** after the giving of notice of
intention to terminate to the breaching Party and only if the breach is not
cured during such *** period.
In the event of an uncured breach of a material obligation under this
Agreement, the non-breaching Party may terminate the Term of this Agreement and
each Party shall retain such ownership interest in the Collaboration Technology
as it shall hold on the date of the termination, provided, however, that (i) the
licenses granted to the non-breaching Party under Article 5 shall remain in full
force and effect (and the breaching Party shall transfer to the non-breaching
Party such Bakground Technology and Collaboration Technology as shall be
necessary to permit the non-breaching Party to continue conduct of the Research
Program) but the breaching Party shall forfeit all rights to develop and promote
all Collaboration Compounds, Collaboration Lead Compounds and Products, (ii) the
breaching Party shall not conduct any further research in the Field for a period
of *** from the effective date of such early termination, (iii) all licenses
granted to such breaching Party under this Agreement may be immediately
terminated by the non-breaching Party, (iv) any royalties due the breaching
Party under this Agreement shall be reduced by *** , and (v) if the breach
relates specifically to a Collaboration Lead Compound or Product, this Agreement
may only be terminated as it relates to such Collaboration Lead Compound or
Product and shall remain in full force and effect as it relates to all other
Collaboration Lead Compounds and Products..
12.5 Termination of Agreement by Warner-Lambert. Warner-Lambert shall have
the right to terminate this Agreement by giving written notice to Ligand of its
intention to do so in the event that neither Ligand nor Warner-Lambert is able
to obtain a license for technology that is necessary for the conduct of the
Research Program and that is claimed in Third Party patents, or other
intellectual property, excluding the beta form of the estrogen receptor. Notice
of termination can not be effective less than *** from the date upon which
Warner-Lambert advises Ligand in writing that such technology is necessary for
the conduct of the
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Research Program. The termination shall be effective *** after the giving
of the notice. Upon termination each Party shall return to the other Party the
Background Technology of such other Party that is in its possession. If
Warner-Lambert has selected a Collaboration Lead Compound prior to termination
under this section it shall be required to pay Ligand milestones and royalties
for its development and commercialization of as a Product as if this agreement
remains in full force and effect.
12.6 Effect of Expiration or Termination. Expiration or termination of this
Agreement shall not relieve the Parties of any obligation accruing prior to such
expiration or termination. The representations and warranties contained in this
Agreement as well as those rights and obligations contained in the terms of this
Agreement which by their intent or meaning have validity beyond the Term of this
Agreement shall survive the termination or expiration of this Agreement. The
provisions of Sections 2.10.2 and 4.3, and Articles 5, 8, 9, 11, and 17 shall
survive the expiration or termination of this Agreement. Any rights and
obligations which have accrued prior to termination or expiration of this
Agreement in any respect shall survive such termination or expiration.
12.7 Bankruptcy. Either Party shall have the right to terminate this
Agreement effective immediately in the event the other Party files a voluntary
petition in bankruptcy, is adjudicated as bankrupt, makes a general assignment
for the benefit of creditors, admits in writing that it is insolvent or fails to
discharge within fifteen (15) days an involuntary petition in bankruptcy filed
against it.
12.8 Termination of Ligand's Participation in the Research Program.
12.8.1 Termination Process. Warner-Lambert shall have the right to
terminate Ligand's participation in the Research Program, without termination of
this Agreement, by giving Ligand written notice of its intention to do so not
later than *** from the Commencement Date, if in the sole discretion of
Warner-Lambert, Ligand's performance on the Research Program is not
satisfactory. The termination of Ligand's participation in the Research Program
will be effective *** after the giving by Warner-Lambert of the notice to
terminate.
12.8.2 Effect of Termination of Ligand's Participation in the Research
Program. If Warner-Lambert terminates the Research Program pursuant to
Subsection 12.8.1 of this Article, (a) Warner-Lambert shall have a non-exclusive
license to use Ligand's Background Technology, excluding Ligand's Background
Technology compounds, and the exclusive license to Ligand Collaboration
Technology to the extent it would if Ligand participated in the Research
Program, to develop Products, and such development shall require the payment of
milestones and royalties as provided in Sections 6.2 and 6.10, and (b) Ligand
shall transfer at Warner-Lambert's expense, to Warner-Lambert such Background
Technology and Collaboration Technology for which a license is provided under
this section as shall be necessary to permit Warner-Lambert to continue the
Research Program. Notwithstanding the previous sentence,
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Warner-Lambert shall have the right to develop and commercialize Ligand
Background Technology compounds in the following manner:
a) On or before the effective date of termination of Ligand's
participation in the Research Program, Warner-Lambert can select up to ***
of Ligand's Background Technology compounds for further development in the
Field and this development shall be exclusive even as to Ligand.
b) On or before expiration of *** from the effective date of
termination of Ligand's participation in the Research Program,
Warner-Lambert can select up to *** , from the previously selected *** ,
Ligand Background Technology compounds for further development in the Field
and this development shall be exclusive even as to Ligand, and all rights
to the other *** shall revert to Ligand.
After termination of its participation in the Research Program Ligand shall
have the right to use its Background Technology in the Field, subject to
Warner-Lambert's rights under subparts a) and b) above, without restriction,
including the right to collaborate with a Third Party.
ARTICLE 13
FORCE MAJEURE
Neither Party shall be held liable or responsible to the other Party nor be
deemed to have defaulted under or breached this Agreement for failure or delay
in fulfilling or performing any term of this Agreement when such failure or
delay is caused by or results from causes beyond the reasonable control of the
affected Party including but not limited to fire, floods, embargoes, war, acts
of war (whether war be declared or not), insurrections, riots, civil commotions,
strikes, lockouts or other labor disturbances, acts of God or acts, omissions or
delays in acting by any governmental authority or the other Party, provided that
the Party so affected shall use its best efforts to avoid or remove such causes
of non-performance and shall continue performance hereunder with the utmost
dispatch whenever such causes are removed.
ARTICLE 14
ASSIGNMENT
This Agreement may not be assigned or otherwise transferred, nor, except as
expressly provided hereunder, may any right or obligations hereunder be assigned
or transferred by either Party without the consent of the other Party; provided,
however, that either Party may, without such consent, assign this Agreement and
its rights and obligations hereunder in connection with the transfer or sale of
all or substantially all of its business pertaining to this Agreement, or in the
event of its merger or consolidation or change in control or similar
transaction. Any permitted
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assignee shall assume all obligations of its assignor under this Agreement.
This Agreement shall be binding upon, subject to the terms of the foregoing
sentence, inure to the benefit of the Parties' successors, legal representatives
and assigns.
ARTICLE 15
REGULATORY MATTERS
15.1 Side Effects and Adverse Events. Ligand shall advise Warner-Lambert
within the time limits required by applicable FDA laws and regulations (or
similar foreign laws and regulations) by telefax or overnight delivery service
addressed to the attention of its Vice President, Medical Affairs of any
unexpected side effect, adverse reaction or injury which has been brought to
Ligand's attention at any place and which is alleged to have been caused by a
Product. Warner-Lambert shall have all rights and responsibilities to report
such side effect, adverse reaction or injury to the appropriate regulatory
authorities as required by applicable law.
15.2 Product Recall. In the event that Warner-Lambert determines that an
event, incident or circumstance has occurred which may result in the need for a
recall or other removal of any Product, or any lot or lots thereof, from the
market, it shall notify Ligand with respect thereto. Warner-Lambert shall, in
its sole discretion, have the right to order any such recall or other removal
and Ligand shall cooperate with such recall.
15.3 Regulatory Matters. From and after the Commencement Date, the
preparation, filing and prosecution of INDs, NDAs and other regulatory filings
required to be filed with any Regulatory Agency in respect of a Product will be
in the name of, under sole control of, and at the responsibility of
Warner-Lambert and its Affiliates. Further, Warner-Lambert and/or its Affiliates
shall own all regulatory documentation relating to such filings. The costs of
preparation, filing and prosecution of regulatory filings with regard to
Products incurred on or after the Commencement Date shall be borne entirely by
Warner-Lambert as long as Warner-Lambert retains rights to commercialize such
Product hereunder. Warner-Lambert shall be solely responsible for all contacts
and communications with governmental and regulatory authorities with respect to
all matters relating to any Product (including reporting adverse drug
reactions). Unless required by law, Ligand shall have no contacts or
communications with any governmental or regulatory authority regarding any
Product without the prior written consent of Warner-Lambert. Ligand shall
provide Warner-Lambert with copies of all communications received from any
governmental or regulatory authority relating to any Product and shall allow
Warner-Lambert at its discretion to control and/or participate in any further
contacts or communications in connection therewith.
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ARTICLE 16
SEVERABILITY
If any term or provision of this Agreement is held to be invalid, illegal
or unenforceable by a court or other governmental authority of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other term or provision of this Agreement, which shall remain in full force
and effect. The holding of a term or provision to be invalid, illegal or
unenforceable in a jurisdiction shall not have any effect on the application of
the term or provision in any other jurisdiction.
ARTICLE 17
INDEMNIFICATION
Each of Warner-Lambert and Ligand agrees to indemnify, hold harmless, and
defend the other Party and its Affiliates and their respective employees,
agents, officers, directors and permitted assigns (such Party's "Indemnified
Groups") from and against any claims by a Third Party resulting in the award or
payment of any judgments, expenses (including reasonable attorney's fees),
damages and awards (collectively a "Claim") arising out of or resulting from (a)
its negligence or willful misconduct, (b) a breach of any of its
representations, warranties or obligations hereunder, or (c) such Party's
research and development, manufacture, use, promotion, marketing or sale of any
Collaboration Compounds, Collaboration Lead Compounds or Products, except to the
extent that such Claim arises out of or results from the negligence or
misconduct of a Party seeking to be indemnified and held harmless or the
negligence or misconduct of a member of such Party's Indemnified Group. A
condition of this obligation is that, whenever a member of the Indemnified Group
has information from which it may reasonably conclude an incident has occurred
which could give rise to a Claim, such indemnified Party shall immediately give
notice to the indemnifying Party of all pertinent data surrounding such incident
and, in the event a Claim is made, all members of the Indemnified Group shall
assist the indemnifying Party and cooperate in the gathering of information with
respect to the time, place and circumstances and in obtaining the names and
addresses of any injured Parties and available witnesses. No member of the
Indemnified Group shall make any payment or incur any expense in connection with
any such Claim without prior written consent of the indemnifying party,
provided, however, that an indemnitee may take any reasonably appropriate action
that is necessary to preserve or avoid prejudice to its interests after the
indemnifying party has been notified of the Claim if the indemnitor states that
it does not believe that the indemnification obligations described herein apply
to such Claim or if the indemnitor does not or cannot perform its indemnity
obligations hereunder. The indemnifying Party shall have the right, but not the
obligation, to control any such action. The obligations set forth in this
Article 17 shall survive the expiration or termination of this Agreement.
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ARTICLE 18
MISCELLANEOUS
18.1 Notices. Any consent, notice or report required or permitted to be
given or made under this -Agreement by one of the Parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by personal delivery, or U.S. overnight courier), U.S. overnight
courier, postage prepaid (where applicable), or delivered by certified mail,
postage prepaid, return receipt requested to the address indicated below, or to
such other address as the addressee shall have last furnished in writing to the
addressor and (except as otherwise provided in this Agreement) shall be
effective upon receipt by the addressee.
<TABLE>
<S> <C>
If to Ligand: Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attention: General Counsel
With a copy to: Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attention: Chief Scientific Officer
If to Warner-Lambert: Warner-Lambert Company
Parke-Davis Pharmaceutical
Research Division
2800 Plymouth Road
Ann Arbor, MI 48105
Attention: President
With a copy to: Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
Attention: Senior Vice President
and General Counsel
</TABLE>
18.2 Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without reference to its
conflicts of law provisions, and shall not be governed by the United Nations
Convention on Contracts for the International Sale of Goods.
18.3 Entire Agreement. This Agreement contains the entire understanding of
the Parties with respect to the subject matter hereof. All express or implied
agreements and under-standings, either oral or written, heretofore made are
expressly merged in and made a part of this Agreement. This Agreement may be
amended, or any term hereof modified, only by a written instrument duly executed
by both Parties hereto.
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18.4 Headings. The captions to the several Articles and Sections hereof are
not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.
18.5 Independent Contractors. Each of Warner-Lambert and Ligand
acknowledges and agrees that neither it nor any of its employees are employees
of the other Party and that neither it nor any of its employees are eligible to
participate in any employee benefit plans of such other Party. Each of
Warner-Lambert and Ligand further acknowledges that neither it nor any of its
employees are eligible to participate in any such benefit plans even if it is
later determined that its or any of its employees' status during the period of
this Agreement was that of an employee of the other Party. In addition, each of
Warner-Lambert and Ligand waives any claim that it may have under the terms of
any such benefit plans or under any law for participation in or benefits under
any of the other Party's benefit plans.
18.6 Waiver. The waiver by either Party hereto of any right hereunder or
the failure to perform or of a breach by the other Party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other Party whether of a similar nature or otherwise.
18.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Parties have executed this Research, Development
and License Agreement as of the date first set forth above.
WARNER-LAMBERT COMPANY LIGAND PHARMACEUTICALS
INCORPORATED
By: /s/ Peter B. Corr, Ph.D. By: /s/ William L. Respess
William L. Respess
Title: Senior Vice President,
Title: /s/ Peter B. Corr, Ph.D. General Counsel and
Corporate Vice President Secretary
Warner Lambert Company
2800 Plymouth Road
Ann Arbor, MI 48105
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EXHIBIT A
REPORTING REQUIREMENTS
Each report required under Section 4.3 will include the following:
1. The declaration of a Collaboration Compound to be a Collaboration Lead
Compound.
2. The Projected and actual dates of filing of each IND for a Collaboration
Lead Compound.
3. Projected and actual initiation dates for clinical trials for each
Collaboration Lead Compound for all indications.
4. Projected and actual dates of completion of clinical phases.
5. A summary of the purpose of each clinical trial of a Collaboration Lead
Compound.
6. The projected and actual completion dates of each trial of a Collaboration
Lead Compound.
7. Any projected and actual dates of NDA submissions for each Collaboration
Lead Compound and any FDA response thereto.
8. Copies of any publications (preclinical and clinical) by Warner-Lambert or
its investigators or Warner-Lambert's third party
collaborators/investigators concerning Collaboration Lead Compounds upon
request by Ligand.
9. Copies of materials presented to financial analysts concerning a
Collaboration Lead Compound upon request by Ligand.
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EXHIBIT 10.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 1st day of September, 1999,
by and between Ligand Pharmaceuticals Incorporated, a Delaware corporation (the
"Company"), and Warner-Lambert Company, a Delaware corporation (the "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Shares.
1.1 Issuance and Sale of Shares. Subject to the terms and conditions of
this Agreement, Investor agrees to pay $2,500,000 (the "Purchase Price") to the
Company at the Closing and the Company agrees to sell and issue to Investor at
the Closing the number of shares (the "Shares") of the Company's common stock,
par value $.001 per share ("Common Stock") equal to $ 2,500,000 divided by $
8.6281 (which is the average daily closing price of the Common Stock reported by
the National Association of Securities Dealers ("NASD") on the twenty (20)
trading days preceding the fifth day prior to the date hereof).
1.2 Closing. The closing for the purchase and sale of the Shares shall take
place at the offices of Brobeck, Phleger & Harrison LLP, 550 West "C" Street,
Suite 1200, San Diego, California, on September 1, 1999, or at such other time
and place as the Company and Investor mutually agree upon orally or in writing
(which shall be designated as the "Closing"). At the Closing, the Company shall
deliver to Investor a certificate representing the Shares (free and clear of all
liens, claims and other encumbrances except as otherwise provided herein and in
the Registration Rights Agreement (as defined below)). In consideration of such
delivery, Investor shall make payment for the Shares by delivery to the Company
of the Purchase Price. All such payments by Investor at the Closing shall be in
immediately available funds in the form of certified or cashier's check payable
to the Company's order or by wire transfer of funds to the Company's designated
bank account.
2. Representations and Warranties of the Company. Except as otherwise set
forth on the Schedule of Exceptions attached as Schedule A, the Company hereby
represents and warrants to Investor that:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would be reasonably expected to have a material adverse
effect on the business, operations, properties, assets, or condition (financial
or otherwise) of the Company (a "Material Adverse Effect"). Except as disclosed
in the Form 10-K (as defined herein), the Company has no subsidiaries.
2.2 Authorization. The Company has all requisite corporate power and
authority (i) to execute, deliver and perform its obligations under this
Agreement, the
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Registration Rights Agreement (as defined below) and the Research,
Development and License Agreement between Investor and company of even date
herewith (the "Research, Development and License Agreement"); (ii) to issue the
Shares in the manner and for the purpose contemplated by this Agreement, and
(iii) to execute, deliver and perform its obligations under all other agreements
and instruments executed and delivered by it pursuant to or in connection with
this Agreement, the Registration Rights Agreement and the Research, Development
and License Agreement. All corporate action on the part of the Company, its
officers, directors and stockholders necessary for the authorization, execution
and delivery of this Agreement, the Thirteenth Addendum to the Amended
Registration Rights Agreement of even date herewith, which makes Investor a
party to the Amended Registration Rights Agreement between the Company and
certain of its stockholders (collectively, the "Registration Rights Agreement")
and the Research, Development and License Agreement, the performance of all
obligations of the Company hereunder and thereunder and the authorization,
issuance (or reservation for issuance) and delivery of the Shares being sold
hereunder has been taken or will be taken prior to the Closing, and this
Agreement, the Registration Rights Agreement and the Research, Development and
License Agreement constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
2.3 Valid Issuance of Shares. The Shares which are being purchased
hereunder, when issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable, free and clear of all liens and encumbrances and
restrictions other than as set forth in this Agreement or other than imposed by
applicable law or regulation and, based in part upon the representations of
Investor in this Agreement, the Shares will be issued in compliance with all
applicable federal and state securities laws.
2.4 SEC Reports. The Company has heretofore filed with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), all reports and other documents required to be
filed, including an Annual Report on Form 10-K for the year ended December 31,
1998 (the "Form 10-K"). None of such reports, or any other reports, documents,
registration statements, definitive proxy materials and other filings required
to be filed with the SEC under the rules and regulations of the SEC ("SEC
Filings") contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements made, at the time and in light of the circumstances under which they
were made, not misleading. Since December 31, 1998, the Company has timely filed
with the SEC all SEC Filings and all such SEC Filings complied with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, as applicable and the rules thereunder.
The audited financial statements of the Company included or incorporated by
reference in the 1998 Annual Report and the unaudited financial statements
contained in the quarterly reports on Form 10-Q filed since December 31, 1998
each have been prepared in accordance with such acts and rules and with United
States generally accepted accounting principles applied on a consistent basis
throughout the periods indicated therein and with each other, except as may be
indicated therein or in the notes thereto and except that the unaudited interim
financial statements may not contain
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all footnotes and adjustments required by United States generally accepted
accounting principles, and fairly present the financial condition of the Company
as at the dates thereof and the results of its operations and statements of cash
flows for the periods then ended, subject, in the case of unaudited interim
financial statements, to normal year-end adjustments. Except as reflected in
such financial statements, the Company has no material liabilities, absolute or
contingent, other than ordinary course liabilities incurred since the date of
the last such financial statements in connection with the conduct of the
business of the Company. Since December 31, 1998, and except as described in the
Company's SEC Filings since December 31, 1998, there has been no:
(a) change in the assets, liabilities, financial condition or operating
results of the Company from that reflected in the 1998 Annual Report, except
changes in the ordinary course of business that have not, individually or in the
aggregate, resulted in and are not reasonably expected to result in a Material
Adverse Effect (and except that the Company expects to continue to incur
substantial operating losses, which may be material);
(b) damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the business, properties or financial
condition of the Company (and except that the Company expects to continue to
incur substantial operating losses, which may be material);
(c) waiver or compromise by the Company of a material right or of a
material debt owed to it;
(d) satisfaction or discharge of any lien, claim or encumbrance by the
Company, except in the ordinary course of business and which is not material to
the business, properties or financial condition of the Company (as such business
is presently conducted);
(e) material change to a material contract or arrangement by which the
Company or any of its assets is bound or subject;
(f) sale, assignment or transfer to a third party that is not an Affiliate
(as hereafter defined) of any material patents, trademarks, copyrights, trade
secrets or other intangible assets for compensation which is less than fair
value;
(g) mortgage, pledge, transfer of a security interest in, or lien, created
by the Company, with respect to any of its material properties or assets, except
liens for taxes not yet due or payable;
(h) declaration, setting aside or payment or other distribution in respect
of any of the Company's capital stock, except any direct or indirect redemption,
purchase or other acquisition of any such stock by the Company; or
(i) event or condition of any type that has had or is reasonably expected
to have a Material Adverse Effect.
For purposes of this Section 2.4 of this Agreement, the term "Affiliate"
means any individual or entity directly or indirectly controlling, controlled by
or under common control with, a party to this Agreement. Without limiting the
foregoing, the direct or indirect ownership
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of 30% or more of the outstanding voting securities of any entity, or the
right to receive 30% or more of the profits or earnings of an entity, shall be
deemed to constitute control.
2.5 Contracts. With respect to each of the material contracts, commitments
and agreements of the Company, the Company is not, and has no actual knowledge
that any other party is, in default under or in respect of any such material
contract, commitment or agreement, the result of which default would have a
Material Adverse Effect. No party to any such material contract, commitment or
agreement, would be authorized or permitted to terminate its obligations
thereunder by reason of the execution and delivery of this Agreement or any of
the transactions contemplated herein.
2.6 Compliance. The Company has complied with, and is not in default under
or in violation of its Certificate of Incorporation, Bylaws or any and all laws,
ordinances and regulations or other governmental restrictions, orders, judgments
or decrees, applicable to the Company's business as presently conducted,
including individual products marketed by it, where any such default or
violation would have a Material Adverse Effect. The Company has not received
notice of any possible or actual violation of any applicable law, ordinance,
regulation, or order, the result of which violation would be reasonably expected
to have a Material Adverse Effect. The Company is not a party to any agreement
or instrument, or subject to any charter or other corporate restriction, or any
judgment, order, decree, law, ordinance, regulation or other governmental
restriction which would prevent or impede, or be breached or violated by, or
would result in the creation of any lien or encumbrance upon any assets of the
Company by, the transactions contemplated in this Agreement, the execution,
delivery or performance of the Registration Rights Agreement or the Research,
Development and License Agreement, 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.
2.7 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement and of the transactions contemplated hereby will
not result in any violation of or constitute, with or without the passage of
time and the giving of notice, either a default under any provision of its
Certificate of Incorporation or Bylaws.
2.8 Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority is required on the part of the
Company in connection with the Company's valid execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Research, Development and License Agreement or the consummation of any
transaction contemplated hereby or thereby, except for any filings under any
applicable state securities laws and except for any filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended. The filings
under state securities laws, if any, will be effected by the Company at its cost
within the applicable stipulated statutory period.
2.9 Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against the Company or its properties before any
court or governmental agency arising out of this Agreement, the Registration
Rights Agreement or the Research, Development and License Agreement, or the
right of the Company to enter into such instruments or to consummate the
transactions contemplated hereby or thereby. Other than Sergio M. Oliver
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et al. v. Boston University et al., C.A. No 16570-NC in the Delaware Court
of Chancery, there is no action, suit, proceeding or investigation pending or
currently threatened against the Company, which singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially
adversely affect the business, properties, operations, financial condition,
income or business prospects or equity ownership of the Company or would result
in any material liability on the part of the Company.
2.10 Permits. Except as disclosed in SEC Filings (including, inter alia,
the lack of FDA approvals for the commercial sale of many of the Company's
product candidates), the Company has all governmental franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it or as proposed to be conducted by it, the lack of
which could have a Material Adverse Effect. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
2.11 Taxes. The Company has filed all federal, state and other tax returns
which are required to be filed and has heretofore paid all taxes which have
become due and payable, except where the failure to file or pay would not be
reasonably expected to have a Material Adverse Effect. The provision for taxes
on the balance sheet as of December 31, 1998 is sufficient for the payment of
all accrued and unpaid taxes of the Company with respect to the period then
ended.
2.12 Title. The Company has good and marketable title to all material
property and assets reflected in the financial statements to the 1998 Annual
Report (or as described in the SEC Filings). Except where the failure to do so
would not have a Material Adverse Effect, the Company occupies its leased
properties under valid and binding leases conforming to the description thereof
set forth in the SEC Filings.
2.13 Intellectual Property. Except as disclosed in the SEC Filings, the
Company owns, or possesses adequate rights to use, all of their patents, patent
rights, trade secrets, knowhow, proprietary techniques, including processes and
substances, trademarks, service marks, trade names and copyrights described or
referred to in the SEC Filings or owned or used by it or which is necessary for
the conduct of its business as presently conducted, except where the failure to
own or possess such patents, patent rights, trade secrets, know-how, proprietary
techniques, including processes and substances, trademarks, service marks, trade
names and copyrights would not have a material adverse effect on the business
properties, operations, financial condition, income or business prospects of the
Company. Except as disclosed in the SEC Filings, the Company has not received
any notice of infringement of or conflict with asserted rights of others with
respect to any patents, patent rights, trade secrets, know-how, proprietary
techniques, including processes and substances, trademarks, service marks, trade
names and copyrights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would be reasonably expected to have a
Material Adverse Effect.
2.14 Capitalization; Options and Warrants. The authorized capital stock of
the Company consists of eighty five million (85,000,000) shares of which eighty
million (80,000,000) shares are Common Stock, par value $.001 per share, and
five million (5,000,000) shares are Preferred Stock, par value $.001 per share.
Except as disclosed in the SEC Filings, the
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Company has not granted any option (except for stock options and purchase
rights granted under the Company's stock option and employee stock purchase
plans), warrants, rights (including conversion or preemptive rights, except for
stock purchased under the Company's employee stock purchase plans), or similar
rights to any person or entity to purchase or acquire any rights with respect to
any shares of capital stock of the Company.
2.15 Nasdaq National Market Designation. The Common Stock is currently
included in the Nasdaq National Market of the Nasdaq Stock Market and the
Company knows of no reason or set of facts which is likely to result in the
termination or inclusion of the Common Stock in the Nasdaq National Market or
the inability of such stock to continue to be included in the Nasdaq National
Market. The Company shall use all commercially reasonable efforts to maintain
the Non-Quantitative Designation Criteria contained in Section 5 of Part III of
Schedule D of the NASD's Bylaws to the extent such criteria are within the
control of the Company. Nothing in this Section shall be interpreted to preclude
the Company from listing its Common stock on a national securities exchange in
lieu of the Nasdaq National Market.
2.16 Registration Rights. Except as set forth in the Registration Rights
Agreement, the Company is not under any obligation to register any of its
presently outstanding securities or any of its securities that may hereafter
issue.
2.17 Offering. The offer, sale and issuance of the Shares to be issued in
conformity with the terms of this Agreement constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act").
2.18 Accuracy of Representations and Warranties. No representation or
warranty by the Company contained in this Agreement, and no statement contained
in this Agreement or any exhibit, schedule, disclosure, certificate, list or
other instrument delivered or to be delivered to the Investor pursuant hereto or
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make the statements contained herein or therein not misleading.
3. Representations and Warranties of Investor. Investor hereby represents
and warrants that:
3.1 Organization, Good Standing and Qualification. Investor is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted.
3.2 Authorization. All corporate action on the part of Investor, its
officers and directors necessary for the authorization, execution and delivery
of this Agreement, the Registration Rights Agreement and the Research,
Development and License Agreement, the performance of all obligations of
Investor hereunder and thereunder has been taken or will be taken prior to the
Closing, and this Agreement, the Registration Rights Agreement and the Research,
Development and License Agreement, constitute valid and legally binding
obligations of Investor enforceable in accordance with their respective terms,
except (i) as limited by
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applicable bankruptcy, insolvency, reorganization, moratorium, and other
laws of general application affecting the enforcement of creditors' rights
generally, (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
3.3 Purchase Entirely for Own Account. This Agreement is made with Investor
in reliance upon Investor's representation to the Company, which by Investor's
execution of this Agreement Investor hereby confirms, that the Shares to be
received by Investor will be acquired for investment for Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same in violation
of the Securities Act or the California Corporate Securities Law of 1968. By
executing this Agreement, Investor further represents that Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Shares. Investor represents that it has full power
and authority to enter into this Agreement.
3.4 Investment Experience. Investor acknowledges that it is able to fend
for itself, can bear the economic risk of its investment and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Shares. Investor also represents
it has not been organized for the purpose of acquiring the Shares.
3.5 Accredited Investor. Investor is an "accredited investor" within the
meaning of SEC Rule 501 of Regulation D, as presently in effect.
3.6 Restricted Securities. It understands that the Shares it is purchasing
are characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such Shares may be resold without registration under the Securities Act, only in
certain limited circumstances. In this connection, Investor represents that it
is familiar with SEC Rule 144, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Shares unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by Sections
3.7, 6.1 and 7 (except that Sections 6.1 and 7 shall not apply to a transferee
in a registered public offering or a sale under Rule 144 or as provided in
Section 7) of this Agreement and the Registration Rights Agreement, if
applicable, and:
(a) There is then in effect a Registration Statement under the Securities
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a reasonably detailed
statement of the circumstances surrounding the proposed disposition (for
purposes of securities law compliance),
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and (ii) if reasonably requested by the Company, such Investor shall have
furnished the Company with an opinion of counsel (which may be Investor's inside
counsel), in form and substance reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
3.8 Legends. It is understood that the certificates evidencing the Shares
may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such Act."
(b) "These securities are subject to certain transfer restrictions
contained in a certain Stock Purchase Agreement dated September 1, 1999 as
amended from time to time, a copy of which may be obtained from the corporation
without charge."
To the extent that such legends are no longer applicable, the Company shall
cause its transfer agent to remove the legends upon a permitted transfer by
Investor.
3.9 Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority is required on the part of
Investor in connection with Investor's valid execution, delivery and performance
of this Agreement, the Registration Rights Agreement or the Research,
Development and License Agreement or the issuance of the Shares, except for any
filings under any applicable state securities laws and except for any filing
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended.
4. Conditions of Investor's Obligations at Closing. The obligations of
Investor under subsection 1.1 of this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, the waiver of
which shall not be effective without the consent of Investor thereto:
4.1 Representations and Warranties. The representations and warranties of
the Company contained in Section 2 shall be true and correct on and as of the
Closing with the same force and effect as though such representations and
warranties had been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing, all
corporate or other proceedings in connection with the transactions contemplated
at the Closing and all documents incident thereto shall be reasonably
satisfactory in form and in substance to Investor.
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4.3 Compliance Certificate. An officer of the Company shall have delivered
to Investor a certificate certifying that (a) the conditions specified in
Sections 4.1 and 4.2 have been fulfilled; (b) the Company has not filed a
petition in bankruptcy or insolvency or for reorganization or for an arrangement
or for the appointment of a receiver or trustee of its assets, nor is the
Company aware of any events or action that would make any such filing or
arrangement imminent; and (c) no action or event has occurred, nor is any action
or event imminent, that would impair the Company's ability to perform as
contemplated under the Research, Development and License Agreement.
4.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to
Investor and it shall have received all such counterpart original and certified
or other copies of such documents as they may reasonably request.
4.5 Blue Sky. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by any
state for the offer and sale of the Shares.
4.6 Shares. The Company shall have delivered to Investor the Shares.
4.7 Research, Development and License Agreement. The Company shall have
entered into the Research, Development and License Agreement of even date
herewith.
4.8 Registration Rights Agreement. The Company shall have entered into the
Registration Rights Agreement.
4.9 Opinion of Company Counsel. Investor shall have received an opinion
from the Company's securities counsel, dated as of the Closing, in the form
attached hereto as Schedule B.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company to Investor under this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions by Investor:
5.1 Representations and Warranties. The representations and warranties of
Investor contained in Section 3 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the Closing.
5.2 Performance. Investor shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing, all
corporate or other proceedings in connection with the transactions contemplated
at the Closing and all documents incident thereto shall be reasonably
satisfactory in form and in substance to the Company.
5.3 Compliance Certificate. An officer of Investor shall have delivered to
the Company a certificate certifying that the conditions specified in Sections
5.1 and 5.2 have been fulfilled.
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5.4 Payment of Purchase Price. Investor shall have delivered the purchase
price specified in Section 1.1.
5.5 Research, Development and License Agreement. The Investor shall have
entered into the Research, Development and License Agreement of even date
herewith.
5.6 Registration Rights Agreement. The Investor shall have entered into the
Registration Rights Agreement.
6. Covenants of Investor.
6.1 Transfer Restriction. Notwithstanding any rights under the Registration
Rights Agreement, Investor hereby agrees that during the time period commencing
as of the Closing and ending on *** (with the time period being referred to as
the "Restricted Period"), without the prior written consent of the Company
(which may be withheld in its sole discretion), neither it nor any affiliate (as
defined in Rule 144 of the Act promulgated by the SEC ("Affiliate")) shall,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any of the
Shares ("Restricted Securities"). Notwithstanding the foregoing, transfers
solely among Investor Affiliates shall not be subject to the transfer
restrictions set forth in this Section 6.1 provided the Affiliate transferee
agrees in writing to be bound by this Section 6.1. In order to enforce the
foregoing covenant, the Company may impose legends and/or stop-transfer
instructions with respect to the Restricted Securities held by Investor or any
Affiliate (and the Restricted Securities of every other person subject to the
foregoing restriction) until the end of such period.
6.2 Standstill Provisions. During the Restricted Period, Investor
(including all Affiliates of Investor) shall not acquire beneficial ownership of
any shares of Common Stock of the Company, any securities convertible into or
exchangeable for Common Stock, or any other right to acquire Common Stock,
except by way of stock dividends or other distributions or offerings made
available to holders of Common Stock generally, from the Company or any other
person or entity or by way of purchase of common stock on securities exchanges,
without the prior written consent of the Company, which consent may be withheld
in its sole discretion; provided, however, that in no event shall (i) the
original purchase of securities pursuant to this Agreement including Section 1.1
or (ii) the acquisition by Investor of another company that then owns securities
of the Company, cause a violation of this Section 6.2.
7. Right of First Offer.
7.1 Right of First Offer.
(a) The Investor shall not make any disposition of all or any portion (or
any interest) of the Shares or any portion thereof, without first giving the
Company the right to accept an offer to purchase such securities, except for any
dispositions that are exempt pursuant to the terms of Section 7.3. Subject to
Section 6.1, at the time the Investor wishes to
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10
<PAGE>
make a disposition of any or all of the securities (except for dispositions
that are exempt pursuant to the terms of Section 7.3), it shall submit an offer
to sell all, but not less than all, of such securities which Investor wishes to
dispose (the "Offered Shares") to the Company (the "Offer") by telephonic
communication with the Company's President or Chief Operating Officer (such
telephonic communication to be confirmed in writing by notice pursuant to
Section 8.6) as follows:
(i) If the Investor wishes to sell the Offered Shares in an open market
disposition, the Offer shall disclose the number of Offered Shares proposed to
be sold. As soon as practicable after receipt of the Offer, but in no event
later than *** after the Investor makes the Offer, the Company shall have the
option to accept the Offer to purchase the Offered Shares at the closing market
price on the business day next preceding the day of the Offer. In the event the
Company does not purchase the Offered Shares offered by the Investor pursuant to
the Offer, the Investor may sell the Offered Shares at any time *** *** after
the expiration of the Offer. Any such sale shall be made in *** *** .
(ii) If the Investor wishes to sell or otherwise transfer the Offered
Shares in a privately negotiated transaction, whether through broker-dealers who
may act as agent or acquire the Offered Shares as principal, or otherwise, the
Offer shall disclose the number of Offered Shares proposed to be sold or
transferred and the price at which the Offered Shares are offered to the
Company. As soon as practicable after receipt of the Offer, but in no event
later than *** after the Investor makes the Offer, the Company shall have the
option to accept the Offer to purchase the Offered Shares at the price per share
set forth in the Offer. In the event the Company does not purchase the Offered
Shares offered by the Investor pursuant to the Offer, and provided that the
price specified in the Offer is not greater than the closing market price on the
business day next preceding the day of the Offer, the Investor may sell or
transfer the Offered Shares at any time within *** after the expiration of the
Offer for any price.
(iii) If the Investor wishes to effect an underwritten offering of the
Offered Shares pursuant to registration rights granted by the Company (if
permitted thereby), the Offer shall disclose the number of Offered Shares
proposed to be sold to the underwriters. The Company shall have the option to
purchase the Offered Shares at the closing market price on the business day next
preceding the day of the Offer. As soon as practicable after receipt of the
Offer, but in no event later than *** after the Investor makes the Offer, the
Company shall have the option to accept the Offer to purchase the Offered
Shares. In the event the Company does not purchase the Offered Shares offered by
the Investor pursuant to the Offer, the Investor may sell the Offered Shares in
an underwritten offering commenced within *** after the expiration of the Offer.
(b) Any Offered Shares not sold in accordance with the applicable terms and
within the applicable time periods provided in subsection (a) above shall
continue to be subject to the requirements of a first offer pursuant to this
Section.
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11
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(c) The provisions of subsections (a) and (b) above shall not apply to any
disposition of Shares made in an open market transaction (or series of related
transactions) in which the aggregate number of such shares involved in such
disposition is less than *** (subject to appropriate adjustment in the event of
such stock splits, stock dividends, recapitalizations and the like) during any
thirty (30)-day period.
(d) If the Company accepts an Offer under this Section, the Closing of such
purchase shall occur within *** after acceptance of the Offer by the Company.
Upon such acceptance, the Company and the Investor shall be legally obligated to
consummate the purchase contemplated thereby.
(e) With respect to the Shares and shares issued upon conversion of the
Shares (collectively, the "Equity Investment Shares"), the provisions of this
Section shall lapse and cease to have any effect on the second anniversary of
the termination of the Research, Development and License Agreement.
7.2 Binding Effect. The Company's right of first offer shall be assignable
in whole or in part by the Company (but only after the Company receives notice
of a transfer which is subject to a right of first offer and only with respect
to that individual transaction) and shall inure to the benefit of its successors
and assigns. The Company's right of first offer shall be binding upon any
transferee of the Offered Securities acquired pursuant to a-disposition that is
exempt from the right of first offer pursuant to the terms of Section 7.3.
However, the Company's right of first offer shall not apply to any transferee of
the Offered Securities if those Offered Securities were previously offered to
the Company pursuant to Section 7.1, the Company elected not to purchase such
Offered Securities and the Investor sold the Offered Shares to the transferee in
compliance with Section 7.1.
7.3 Exempt Transfers. Subject to Section 7.2, the right of first offer
shall not apply to (i) transfers to controlled Affiliates of Investor or donees,
provided the transferee agrees to be bound by the obligations of this Agreement,
or (ii) transactions involving a merger, reorganization, recapitalization,
exchange offer or sale of all or substantially all of the business or capital
stock of the Company approved by the Company's board of directors.
7.4 Termination of Right of First Offer. The right of first offer under
this Section 7 shall terminate upon the earlier to occur of (i) *** or (ii) the
consummation of an acquisition or merger of the Company by or with a third party
or the sale of all or substantially all of the assets of the Company.
8. Miscellaneous.
8.1 Survival of Warranties. The warranties, representations and covenants
of the Company and Investor contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investor or the Company.
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12
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8.2 Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties (including transferees
of any of the Shares sold hereunder). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
8.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
8.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.5 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
8.6 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing by personal delivery to the party
to be notified or by Federal Express or other overnight package delivery service
or registered or certified mail, postage prepaid and addressed to the party to
be notified at the following addresses, or at such other address as such party
may designate by five (5) days' advance written notice to the other parties
(with notice deemed given upon receipt):
If to the Company:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attn: William L. Respess, Esq.
If to Investor:
Parke-Davis Pharmaceutical Research
2800 Plymouth Road
Ann Arbor, MI 48105
Attn: President
with a copy to:
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
Attn: General Counsel and Senior Vice President
13
<PAGE>
8.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. Each party agrees to indemnify and to hold harmless the other from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the indemnifying party or any of its officers, partners,
employees, or representatives is responsible.
8.8 Expenses. Irrespective of whether the Closing is effected, each party
shall pay all costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement. Notwithstanding the
foregoing, the Company shall pay any and all stamp, transfer and other similar
taxes payable or determined to be payable in connection with the execution and
delivery of this Agreement or the original issuance of the Shares, and shall
save and hold the Investor harmless from and against any and all liabilities
with respect to or resulting from any delay in paying, or omission to pay, such
taxes.
8.9 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and Investor. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding, each
future holder of all such securities, and the Company.
8.10 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
8.11 Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INVESTOR: THE COMPANY:
WARNER-LAMBERT COMPANY LIGAND PHARMACEUTICALS
INCORPORATED
By: /s/ Peter B. Corr By: /s/ William L. Respess
Peter B. Corr. Ph.D. William L. Respess
Title: Corporate Vice President Title: Senior Vice President
Warner Lambert Company General Counsel and Secretary
2800 Plymouth Road
Ann Arbor, MI 48105
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
15
<PAGE>
SCHEDULE A
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions is made and given pursuant to Section 2 of the
Stock Purchase Agreement dated as of September 1, 1999 (the "Agreement"). The
section numbers in this Schedule of Exceptions correspond to the section numbers
in the Agreement; however, any information disclosed herein under any section
number shall be deemed to be disclosed and incorporated into any other section
number under the Agreement where such disclosure would otherwise be appropriate.
Any terms defined in the Agreement shall have the same meaning when used in this
Schedule of Exceptions as when used in the Agreement unless the context
otherwise requires.
Nothing herein constitutes an admission of any liability or obligation of
the Company nor an admission against the Company's interest. The inclusion of
any agreement or other matter herein or any exhibit hereto should not be
interpreted as indicating that the Company has determined that such an agreement
or other matter is necessarily material to the Company. Investor acknowledges
that certain information contained in this schedule may constitute material
confidential information relating to the Company which may not be used for any
purpose other than in connection with Investor's decision to purchase certain
securities of the Company pursuant to the Agreement.
Section 2.1 - Organization, Good Standing and Qualification
In addition to the subsidiaries disclosed in the Form 10-K, the Company has the
following subsidiaries: Ligand JVR, Inc., Ligand Pharmaceuticals International,
Inc., Ligand Pharmaceuticals UK Limited and Marathon Biopharmaceuticals, Inc.
Section 2.2 - Authorization
None
Section 2.3 - Valid Issuance of Claims
None
Section 2.4 - SEC Reports
2.4(e) On November 9, 1998, the Company and Elan Corporation, plc made an
agreement under which Ligand acquired certain rights to market Morphelan(TM), a
sustained release morpholine formulation. Under that agreement, Ligand agreed to
pay Elan certain consideration if milestones were met with respect to its
development and to undertake a limited commitment to conduct clinical trials for
Morphelan(TM). On August 20, 1999, the Company and Elan agreed to amend the
agreement relating to the payment of milestones and Ligand's commitment to
conduct clinical trials. The result of these amendments is that, if new
milestones are met, Ligand may owe Elan up to an additional $2,000,000 more than
would have been required under the original agreement.
<PAGE>
Section 2.5 - Contracts
None
Section 2.6 - Compliance
None
Section 2.7 - Compliance with Other Instruments
None
Section 2.8 - Governmental Consents
None
Section 2.9 - Litigation
Seragen, Inc., a subsidiary of the Company, and the Company, are parties to
Sergio M. Oliver, et al. v. Boston University, et al., a putative shareholder
class action filed in the Court of Chancery in the State of Delaware in and for
New Castle County, C.A. No. 16570NC, by Sergio M. Oliver and others against
Boston University and others, including Seragen and its subsidiary Seragen
Technology, Inc. The initial complaint was brought as a direct shareholder
action and set forth causes of action related to alleged self-dealing
transactions involving Seragen and certain of its shareholders and directors,
and did not name the Company as a defendant. The complaint sought unspecified
damages and equitable relief to enjoin the holding of the meeting of Seragen's
shareholders scheduled for August 12, 1998, for the purpose of considering and
approving the transactions contemplated by the Agreement and Plan of
Reorganization among the Company, Seragen and Knight Acquisition Corp. (the
"Merger Agreement"), and other matters. In order to permit a timely decision
with respect to their request that the court enjoin the holding of the August
12, 1998 shareholders meeting, the plaintiffs sought expedited proceedings.
Following briefing by defendants and plaintiffs with respect to the plaintiffs'
request for expedited proceedings, the Vice Chancellor on August 7, 1998 entered
an order denying plaintiffs' motion for expedited proceedings, thereby
effectively denying plaintiffs' request for a preliminary injunction in respect
of the August 12, 1998 shareholders meeting. On August 12, 1998, the Company and
Seragen announced the closing under the Merger Agreement, whereby a wholly-owned
subsidiary of the Company was merged with Seragen. Plaintiffs subsequently
amended the complaint to recast their suit as a class action, and to add the
Company as a defendant. The amended complaint alleged that the Company aided and
abetted purported breaches of fiduciary duty by the Seragen related defendants
in connection with the merger and made certain misrepresentations in related
proxy materials. Defendants thereafter filed motions to dismiss all claims.
Rather than oppose the motion, plaintiffs sought and obtained permission to file
a second amended complaint asserting essentially the same claims with a shorter
class period. On August 23, 1999, defendants again filed motions to dismiss all
claims of the second amended complaint. The motions are now pending before the
Court of Chancery while briefing is completed.
2
<PAGE>
Section 2.10 - Permits
None
Section 2.11 - Taxes
None
Section 2.12 - Title
None
Section 2.13 - Intellectual Property
The Company has become aware that a United States patent has been issued
to, and foreign counterparts have been filed by, Hoffman LaRoche ("LaRoche")
which covers pharmaceutical uses of 9-cis-retinoic acid (LGD1057) which may
conflict with the Company's right under the patent applications. The U.S. Patent
and Trademark Office ("PTO") has informed the Company that the overlapping
claims are patentable to the Company and initiated an interference proceeding to
determine whether the Company or LaRoche 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 which may impact the outcome. In addition, the interference proceeding
may delay the decision of the PTO regarding the Company's application for the
current formulations of Oral and Topical Panretin (LGD1057) products. The
LaRoche patent does not cover the use of the current formulations of Oral and
Topical Panretin (LGD1057) 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 LaRoche patent might block the
Company's use of Oral Panretin (LGD1057) in certain cancers, and the Company may
not be able to obtain patent protection for the Oral and Topical Panretin
(LGD1057) products.
The Company has received notice from Oncogene Science, Inc. ("OSI") stating
that the activities of the Company's STATs program may infringe one or more
patents issued to OSI. The Company believes a number of companies in the
biotechnology industry received similar letters. The Company has received a
preliminary opinion of its outside patent counsel that its activities do not
infringe OSI's patents.
Section 2.14 - Capitalization; Options and Warrants
None
Section 2.15 - Nasdaq National Market Designation
None
3
<PAGE>
Section 2.16 - Registration Rights
None
Section 2.17 - Offering
None
Section 2.18 - Accuracy of Representations and Warranties
None
4
<PAGE>
Exhibit B
September 1, 1999
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 0795
Ladies and Gentlemen:
We have acted as counsel for Ligand Pharmaceuticals Incorporated, a
Delaware corporation (the "Company"), in connection with the issuance and sale
of shares of its Common Stock pursuant to the Stock Purchase Agreement dated
September 1, 1999 (the "Agreement") between the Company and you. This opinion
letter is being rendered to you pursuant to Section 4.9 of the Agreement in
connection with the Closing of the sale of the Common Stock. Capitalized terms
not otherwise defined in this opinion letter have the meanings given them in the
Agreement.
In connection with the opinions expressed herein, we have made such
examination of matters of law and of fact as we considered appropriate or
advisable for purposes hereof. As to matters of fact material to the opinions
expressed herein, we have relied upon the representations and warranties as to
factual matters contained in and made by the Company pursuant to the Agreement
and upon certificates and statements of government officials and of officers of
the Company. We have also examined originals or copies of such corporate
documents or records of the Company as we have considered appropriate for the
opinions expressed herein. We have assumed for the purposes of this opinion
letter the genuineness of all signatures, the legal capacity of natural persons,
the authenticity of the documents submitted to us as originals, the conformity
to the original documents of all documents submitted to us as certified,
facsimile or photostatic copies, and the authenticity of the originals of such
copies.
In rendering this opinion letter we have also assumed: (A) that the
Agreement has been duly and validly executed and delivered by you or on your
behalf, that you have the power to enter into and perform all your obligations
thereunder, and that the Agreement constitutes a valid, legal, binding and
enforceable obligation upon you; (B) that the representations and warranties
made in the Agreement by you are true and correct; (C) that any wire transfers,
drafts or checks tendered by you will be honored; and (D) that you have filed
any required state franchise, income or similar tax returns and have paid any
required state franchise, income or similar taxes.
As used in this opinion letter, the expression "we are not aware" or the
phrase "to our knowledge," or any similar expression or phrase with respect to
our knowledge of matters of fact, means as to matters of fact that, based on the
actual knowledge of individual attorneys within the firm principally responsible
for handling current matters for the Company (and not including any constructive
or imputed notice of any information), and after an examination of
<PAGE>
documents referred to herein and after inquiries of certain officers of the
Company, no facts have been disclosed to us that have caused us to conclude that
the opinions expressed are factually incorrect; but beyond that we have made no
factual investigation for the purposes of rendering this opinion letter.
Specifically, but without limitation, we have not searched the dockets of any
courts and we have made no inquiries of securities holders or employees of the
Company, other than such officers.
This opinion letter relates solely to the laws of the State of California,
the General Corporation Law of the State of Delaware and the federal law of the
United States, and we express no opinion with respect to the effect or
application of any other laws. Special rulings of authorities administering such
laws or opinions of other counsel have not been sought or obtained.
Based upon our examination of and reliance upon the foregoing and subject
to the limitations, exceptions, qualifications and assumptions set forth below
and except as set forth in the Agreement or the Schedule of Exceptions thereto,
we are of the opinion that as of the date hereof:
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware, and the Company has the
requisite corporate power and authority to own its properties and assets and to
conduct its business as, to our knowledge, it is presently conducted.
2. The Company has the requisite corporate power and authority to execute,
deliver and perform the Agreement. The Agreement has been duly and validly
authorized by the Company, duly executed and delivered by an authorized officer
of the Company and constitutes a legal, valid and binding obligation of the
Company, enforceable by you against the Company in accordance with its terms.
3. The shares of Common Stock to be purchased at the Closing have been duly
authorized and, upon purchase at the Closing pursuant to the terms of the
Agreement, will be validly issued, nonassessable and fully paid.
4. Other than in connection with any securities laws (with respect to which
we direct you to paragraph 6 below), the Company's execution and delivery of,
and its performance and compliance as of the date hereof with the terms of, the
Agreement does not violate any provision of any federal, Delaware corporate or
California law, rule or regulation applicable to the Company or any provision of
the Company's Amended and Restated Certificate of Incorporation or Bylaws and,
to our knowledge, do not conflict with or constitute a default under the
provisions of any judgment, writ, decree or order.
5. Other than in connection with any securities laws (with respect to which
we direct you to paragraph 6 below), all consents, approvals, permits, orders or
authorizations of, and all qualifications by and registrations with, any
federal, Delaware corporate or California state governmental authority on the
part of the Company required in connection with the execution and delivery of
the Agreement and consummation at the Closing of the transactions
<PAGE>
contemplated by the Agreement have been obtained, and are effective, and we
are not aware of any proceedings, or written threat of any proceedings, that
question the validity thereof.
6. Based in part upon the representations of you in the Agreement, the
offer and sale of the Common Stock to you pursuant to the terms of the Agreement
are exempt from the registration requirements of Section 5 of the Securities Act
of 1933, as amended, by virtue of Section 4(2) thereof and from the
qualification requirements of the California Corporate Securities Law of 1968,
as amended, by virtue of Section 25100(o) thereof.
Our opinions expressed above are specifically subject to the following
limitations, exceptions, qualifications and assumptions:
(A) The legality, validity, binding nature and enforceability of the
Company's obligations under the Agreement may be subject to or limited by (1)
bankruptcy, insolvency, reorganization, arrangement, moratorium, fraudulent
transfer and other similar laws affecting the rights of creditors generally; (2)
general principles of equity (whether relief is sought in a proceeding at law or
in equity), including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the discretion of any court of
competent jurisdiction in awarding specific performance or injunctive relief and
other equitable remedies; and (3) without limiting the generality of the
foregoing, (a) principles requiring the consideration of the impracticability or
impossibility of performance of the Company's obligations at the time of the
attempted enforcement of such obligations, and (b) the effect of California
court decisions and statutes which indicate that provisions of the Agreement
which permit you to take action or make determinations may be subject to a
requirement that such action be taken or such determinations be made on a
reasonable basis in good faith or that it be shown that such action is
reasonably necessary for your protection.
(B) We express no opinion as to the Company's compliance or noncompliance
with applicable federal or state antifraud or antitrust statutes, laws, rules
and regulations.
(C) We express no opinion concerning the past, present or future fair
market value of any securities.
(D) We express no opinion as to the enforceability under certain
circumstances of any provisions indemnifying a party against, or requiring
contributions toward, that party's liability for its own wrongful or negligent
acts, or where indemnification or contribution is contrary to public policy or
prohibited by law. In this regard, we advise you that in the opinion of the
Securities and Exchange Commission, indemnification of directors, officers and
controlling persons of an issuer against liabilities arising under the
Securities Act of 1933, as amended, is against public policy and is therefore
unenforceable.
(E) We express no opinion as to the enforceability under certain
circumstances of any provisions prohibiting waivers of any terms of the
Agreement other than in writing, or prohibiting oral modifications thereof or
modification by course of dealing. In addition, our opinions are subject to the
effect of judicial decisions which may permit the introduction of extrinsic
evidence to interpret the terms of written contracts.
<PAGE>
(F) We express no opinion as to the effect of Section 1670.5 of the
California Civil Code or any other California law, federal law or equitable
principle which provides that a court may refuse to enforce, or may limit the
application of, a contract or any clause thereof which the court finds to have
been unconscionable at the time it was made or contrary to public policy.
(G) We express no opinion as to your compliance with any Federal or state
law relating to your legal or regulatory status or the nature of your business.
(H) We express no opinion as to the effect of subsequent issuances of
securities of the Company, to the extent that further issuances which may be
integrated with the Closing may include purchasers that do not meet the
definition of "accredited investors" under Rule 501 of Regulation D and
equivalent definitions under state securities or "blue sky" laws.
(I) We express no opinion as to Section 8.3 of the Agreement to the extent
that it purports to exclude conflict of law principles of California law.
This opinion letter is rendered as of the date first written above solely
for your benefit in connection with the Agreement and may not be delivered to,
quoted or relied upon by any person other than you, or for any other purpose,
without our prior written consent. Our opinion is expressly limited to the
matters set forth above and we render no opinion, whether by implication or
otherwise, as to any other matters relating to the Company. We assume no
obligation to advise you of facts, circumstances, events or developments which
hereafter may be brought to our attention and which may alter, affect or modify
the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE>
EXHIBIT 10.3
THIRTEENTH ADDENDUM TO AMENDED REGISTRATION RIGHTS AGREEMENT
This Thirteenth 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 Warner-Lambert Company ("Investor") is effective as of September 1, 1999.
RECITALS
A. The Company has issued 289,750 shares of the Company's Common Stock to
Investor pursuant to that certain Stock Purchase Agreement dated the date
hereof.
B. This Addendum serves to include any shares of the Company's Common Stock
issued to Investor within the definition of "Registrable Securities" under the
Registration Rights Agreement and to provide that Schedule A to the Registration
Rights Agreement shall be further updated to include any 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
<PAGE>
Unsecured Convertible Promissory Notes dated October 30, 1997
(the "S.R. One Notes") issued pursuant to the Stock and Note Purchase
Agreement (and upon such conversion of the S.R. One 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
"SmithKline 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 SmithKline
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 Elan International Services, Ltd. pursuant to the Stock Purchase
Agreement dated September 30, 1998, which shares are reflected on
Schedule A attached to the Tenth Addendum to this Agreement, (vii) the
437,768 shares of Common Stock (or that number of shares of such other
class of stock into which the Common Stock is converted) issued to
Elan International Services, Ltd. pursuant to the Securities Purchase
Agreement, dated November 6, 1998 (the "Elan Securities Purchase
Agreement"), which shares are reflected on Schedule A attached to the
Eleventh Addendum to this Agreement, (viii) 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 the Zero Coupon
Convertible Senior Notes due 2008 (the "Elan Notes") issued pursuant
to the Elan Securities Purchase Agreement (and upon such conversion of
the Elan Notes, Schedule A shall be updated to include such shares),
(viii) the 429,185 shares of Common Stock (or the shares of such other
class of stock into which the Common Stock is converted) issued to
Elan Corporation, plc pursuant to the Development, License and Supply
Agreement dated November 9, 1998 (the "Elan License Agreement"), which
shares are reflected on Schedule A attached to the Eleventh Addendum
to this Agreement, (ix) the shares of Common Stock that may be issued
to Elan Corporation, plc pursuant to the Elan License Agreement (and
upon each such issuance, Schedule A shall be updated to include such
shares), (x) the shares of Common Stock (or the shares of such other
class of stock into which the Common Stock is converted) issuable to
Elan International Services, Ltd. upon exercise of that certain
Warrant (the "EIS Warrant") dated August 4, 1999 (and upon such
exercise of the EIS Warrant, Schedule A shall be updated to include
such shares), (xi) the shares of Common Stock (or the shares of such
other class of stock into which the Common Stock is converted) issued
to Investor pursuant to the Purchase Agreement, which shares are
reflected on Schedule A attached to this Addendum, and (xii) 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), (vi), (vii), (viii), (ix), (x) and (xi) 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."
<PAGE>
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, 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]
<PAGE>
[SIGNATURE PAGE TO THIRTEENTH ADDENDUM TO AMENDED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
first above written.
WARNER LAMBERT COMPANY LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ Peter B. Carr, Ph.D. By: /s/ William L. Respess
Title: /s/ Peter B. Corr, Ph.D. Title: Senior Vice President
Corporation Vice President General Counsel, Gov't Affairs
Warner Lambert Company
2800 Plymouth Road
Ann Arbor, MI 48105
<PAGE>
SCHEDULE A
to
Thirteenth 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 Corporation, plc 429,185
Elan International Services, Ltd. 1,716,738
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
Warner-Lambert Company 289,750
Windsor Venture Lease Partners Ltd., Inc. 283
Total:
- ----------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.4
NONEXCLUSIVE SUBLICENSE AGREEMENT
This Agreement is effective on September 8, 1999 (the "Effective Date"), and is
by and among Seragen, Inc. (hereinafter "Seragen"), a Delaware corporation
having a place of business at 97 South Street, Hopkinton, Massachusetts 01748 on
the one hand, and Hoffmann-La Roche Inc., a New Jersey corporation having
offices at 340 Kingsland Street, Nutley, New Jersey 07110 (hereinafter
"Roche-Nutley") and F.Hoffmann-La Roche Ltd, a corporation organized under the
laws of Switzerland, having offices at Grenzacherstrasse 124, CH-4070 Basel,
Switzerland (hereinafter "Roche-Basel") (hereinafter Roche-Nutley and
Roche-Basel are individually and collectively, "Roche") on the other hand.
WITNESSETH
WHEREAS, Roche is engaged in the commercialization and development of the
active ingredient daclizumab under the trademark Zenapax(R); and
WHEREAS, Seragen has entered into a License and Royalty Agreement dated
June 1, 1990 (the "Beth Israel License", a copy of which is attached hereto as
Exhibit B with financial terms redacted) with The Beth Israel Hospital
Association, now known as Beth Israel Deaconess Medical Center ("Beth Israel")
under which Seragen has exclusive license rights to certain patents and patent
applications which name Dr. Terry B. Strom as the inventor ( the "Strom Patents"
as defined below), including the right to grant sublicenses to the Strom
Patents;
WHEREAS, a dispute has arisen between Seragen and Roche concerning the
Strom Patents and daclizumab; and
WHEREAS, Roche and Seragen wish to settle all outstanding patent issues
regarding daclizumab and the Strom Patents;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and in Roche's reliance on the statements made by Beth Israel
in the document attached hereto as Exhibit C, the parties hereto agree as
follows:
ARTICLE I - DEFINITIONS
For the purpose of this Agreement, the following words and phrases shall
have the following meanings:
"Adjusted Gross Sales" means the gross sales amount, on a
country-by-country basis, in the Territory invoiced for Licensed Product by the
Roche Group to third parties, less
(a) amounts actually allowed as volume or quantity discounts, rebates (
price reductions, including Medicaid or performance based and similar
types of rebates,
1
<PAGE>
e.g., chargebacks or retroactive price reductions), returns
(including withdrawals and recalls); and
(b) sales, excise and turnover taxes imposed directly upon and actually
paid by the Roche Group.
"Affiliate" means (i) an entity which owns, directly or indirectly, a
controlling interest in Roche or Seragen, by stock ownership or otherwise; or
(ii) an entity which is owned by Roche or Seragen, either directly or
indirectly, by stock ownership or otherwise; or (iii) an entity, the majority
ownership of which is directly or indirectly common to the majority ownership of
Roche or Seragen. Anything to the contrary in this paragraph notwithstanding,
Genentech, Inc., a Delaware corporation, shall not be deemed an Affiliate of
Roche unless Roche notifies Seragen that Roche wishes for Genentech, Inc. to be
deemed an Affiliate of Roche.
"BLA" means a Biologics License Application filed pursuant to the
requirements of the FDA.
"FDA" means the United States Food and Drug Administration.
"Large Market Autoimmune Indication" means any of the following therapeutic
indications: *** ***
"Licensed Product" means any product (1) that contains daclizumab, an
immunosuppressive, humanized IgG1 monoclonal antibody that binds specifically to
the alpha subunit of the human high-affinity interleukin-2 (IL-2) receptor that
is expressed on the surface of activated lymphocytes and is currently sold under
the trademark Zenapax(R), and (2) the making, having made, using, selling,
offering for sale or importing of which, but for this Agreement, would infringe
a Valid Claim.
"Net Sales" means the amount calculated by subtracting a lump sum deduction
of *** from the Adjusted Gross Sales to cover all other expenses or discounts,
including but not limited to cash discounts, outward freights, postage charges,
packaging materials, custom duties, transportation and insurance charges,
discounts granted later than at the time of invoicing, and other direct
expenses.
"Roche Group" means, individually and collectively, Roche, its Affiliates
and sublicensees.
"Small Market Autoimmune Indication" means all autoimmune indications ***
*** *** *** that are not Large Market Autoimmune Indications.
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
2
<PAGE>
"Royalty Term" means the period of time commencing on January 1, 2001 and
ending on a country by country basis upon the last date on which the making,
having made, using, selling, offering for sale or importing of Licensed Product
in the Territory by the Roche Group would, but for this Agreement, infringe a
Valid Claim in such country.
"Strom Patents" means all patents and patent applications throughout the
world claiming priority of U.S. Serial No. 772,893, filed September 5, 1985, and
any, renewals, reexaminations, continuations, continuations-in-part, divisions,
patents of addition, extensions, and/or reissues of any of these patents and
patent applications, except that Strom Patents shall not include US Patent Nos.
5,336,489 issued August 9, 1994, 5,510,105 issued April 23, 1996, 5,587,162
issued December 24, 1996 or 5,607,675 issued March 4, 1997. Strom Patents shall
include without limitation those patents and patent applications listed on the
attached Exhibit A.
"Term of this Agreement" has the meaning set forth in Section 7.1.
"Territory" means the United States of America ("U.S"), Australia, New
Zealand and Canada.
"Valid Claim" means a claim in any unexpired and issued Strom Patent that
has not been disclaimed, revoked or held invalid by a final unappealable
decision of a court or governmental agency of competent jurisdiction, and which
claim is otherwise enforceable.
ARTICLE II - GRANT
2.1 License Grant. Seragen grants to Roche a non-exclusive sublicense with
the right to grant further sublicenses, under the Strom Patents to make, use,
have made, sell, offer for sale and import the Licensed Product in the
Territory.
2.2 Covenant. Seragen shall not undertake any act or enter into any
amendment of the Beth Israel License that would adversely affect the rights or
obligations of Roche under this Agreement without the prior written consent of
Roche.
ARTICLE III - SUBLICENSE PAYMENTS
3.1 Initial Royalty. For Net Sales of Licensed Product occurring before the
Effective Date, ROCHE shall pay to Seragen a one-time royalty of Two Million
Five Hundred Thousand ($2,500,000) dollars within seven (7) business days after
the date all parties become signatory to this Agreement and receipt by
Roche-Nutley of an invoice.
3.2 Milestones. Within thirty (30) days after achievement of each of the
milestones set forth below, Roche shall pay to Seragen the nonrefundable
milestone payment set forth below:
3
<PAGE>
(a) *** upon the first BLA approved in the US for use of the Licensed
Product to treat a Small Market Autoimmune Indication; and
(b) *** upon the first BLA approved in the US for use of the Licensed
Product to treat a Large Market Autoimmune Indication.
3.3 Royalties. During the Royalty Term, Roche shall pay to Seragen the
following royalty, , on Net Sales of the Licensed Product in the Territory:
(a) ***% of annual Net Sales up to $*** million;
(b) ***% of annual Net Sales between $*** million and $*** million;
and
(c) ***% of annual Net Sales exceeding $*** million.
ARTICLE IV - PAYMENTS; RECORDS; AUDITS
4.1 Payment; Reports. Within ninety (90) days after the end of each
calendar half year during the Royalty Term, Roche shall (i) provide Seragen with
a report of Net Sales for that calendar half year by the Roche Group and as
reported by any sublicensees in such calendar half year, and (ii) pay royalties
to Seragen under this Agreement for Net Sales in that calendar half year. Roche
shall provide the reports due to Seragen at the address listed below:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Roche shall pay the royalties due to Seragen under this Agreement by wire
transfer to:
Imperial Bank
San Diego Regional Office
701B Street
San Diego, CA 92101
ABA#: 122201444
Account #: 11-077-854
Account Name: Seragen General Account
4.2 Currency Roche shall make all payments due under this Agreement in US
Dollars. For purposes of computing royalties, when calculating Adjusted Gross
Sales, the amount of sales in currencies other than US Dollars shall be
converted into Swiss Francs for the countries concerned, using the average
monthly rate of exchange at the time for the such currencies calculated on the
basis of the daily rate of exchange as retrieved from the Reuters System during
such month. When calculating Net Sales, such conversion shall be at the average
- -----------------
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE>
rate of Swiss Francs to the US Dollar calculated on the basis of the daily rate
of exchange as retrieved from the Reuters System for the applicable reporting
period.
4.3 Records and Audits. Roche shall keep, and shall cause its Affiliates
and sublicensees to keep, complete and accurate records of Licensed Products
sold in sufficient detail to permit Ligand to determine the amount of royalties
due and confirm the accuracy of all payments due hereunder. The Roche Group, as
appropriate, shall be obligated to retain such records for no more than three
(3) years following the end of the reporting period to which such records
pertain.
At Seragen's request, Roche will cause its independent certified public
accountants to prepare, preferably during Roche's annual audit, an abstract of
Roche's books and records for review by Seragen's independent certified public
accountants. If, based on a review of such abstracts, Seragen reasonably
believes that a full audit of said books and records would be necessary for the
confirmation of the accuracy of all royalties due hereunder, Seragen's
independent certified public accountants shall have full access to review all
work papers and supporting documents pertinent to such abstracts, and shall have
the right to discuss such documentation with Roche's independent certified
public accountants. After such review and discussion, if Seragen still
reasonably believes that a full audit of said books and records would be
necessary for the confirmation of all payments due hereunder, Seragen shall have
the right to cause its independent certified public accountants to which Roche
has no reasonable objection (meaning, e.g., that such accountants have
broad-based worldwide contacts and experience) to audit such records to confirm
the Net Sales of Licensed Product and the accuracy of royalty calculations. If
the independent certified public accountants selected by Seragen are not the
independent certified public accountants used by Roche to prepare such
abstracts, Roche shall have the right to have its independent certified public
accountants and financial personnel present at all times during such audit.
The audit rights under this Section 4.3 may be exercised by Seragen no more
often than once per year, within three (3) years after the reporting period to
which such records relate, upon no less than thirty (30) days prior written
notice to Roche, and during Roche's normal business hours. Seragen will bear the
full cost of any such audit unless such audit discloses an underpayment of more
than *** from the amount of royalties due. In such case, Roche shall promptly
pay Seragen any underpayment and shall bear the full cost of such audit.
4.4 Taxes. Roche may deduct, from consideration due Seragen hereunder, any
and all withholding taxes levied on account of payments and/or royalties paid to
Seragen hereunder. Roche shall pay the withholding tax to the proper taxing
authority and, upon request of Seragen, shall obtain and send to Seragen proof
of such tax payment as evidence of such tax payment.
ARTICLE V - REPRESENTATIONS AND WARRANTIES
5.1 Corporate Power. Each party hereby represents and warrants that such
party is duly organized and validly existing under the laws of the state of its
incorporation and has full
- -----------------
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
5
<PAGE>
corporate power and authority to enter into this Agreement and to carry out
the provisions hereof.
5.2 Due Authorization. Each party hereby represents and warrants that such
party is duly authorized to execute and deliver this Agreement and to perform
its obligations hereunder.
5.3 Binding Agreement. Each party hereby represents and warrants that this
Agreement is a legal and valid obligation binding upon it and is enforceable in
accordance with its terms. The execution, delivery and performance of this
Agreement by such party does not conflict with any agreement, instrument or
understanding, oral or written, to which it is a party or by which it may be
bound, nor violate any law or regulation of any court, governmental body or
administrative or other agency having authority over it.
5.4 Seragen Representations. Seragen represents and warrants that, as of
the Effective Date:
(a) the Strom Patents are not subject to any pending interference,
opposition, cancellation or other protest proceeding;
(b) it is not aware of any information that it reasonably believes renders
invalid and/or unenforceable any claims of the Strom Patents;
(c) under the Beth Israel License, Seragen has the full and exclusive
right to grant all rights and licenses granted hereunder to Roche; and
(d) there are no patent or patent applications throughout the world other
than the Strom Patents owned or controlled by Seragen or its
Affiliates which could be asserted to prevent the Roche Group from
making, having made, using, offering for sale, selling or importing
Licensed Product in any country.
5.5 Disclaimer of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY TO THE OTHER PARTY
OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
VALIDITY, NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
5.6 Limitation of Liability. ROCHE SHALL NOT BE ENTITLED TO RECOVER FROM
SERAGEN ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION
WITH THE SUBLICENSE GRANTED HEREUNDER.
ARTICLE VI - ASSIGNMENT
Either Party shall have the right to assign its rights and obligations
under this Agreement, provided that any such assignee shall be bound by the
terms of this Agreement. Either Party shall notify the other Party within thirty
(30) days of any such assignment. The rights and
6
<PAGE>
obligations of the Parties under this Agreement shall be binding upon and
inure to the benefit of the successors and permitted assignees of the parties.
ARTICLE VII- TERM; TERMINATION
7.1 Term. The Term of this Agreement shall begin on the Effective Date and
shall continue until the end of the Royalty Term, unless terminated earlier in
accordance with Section 7.2.
7.2 Early Termination. (a) Either party may terminate this Agreement prior
to the expiration of the Royalty Term upon the occurrence of any of the
following:
(i) Upon or after the bankruptcy, insolvency, dissolution or winding up of
the other party (other than dissolution or winding up for the purposes of
reconstruction or amalgamation); or
(ii) Upon or after the breach of any material provision of this Agreement
by the other party if the breaching party has not cured such breach within sixty
(60) days following written notice thereof by the non-breaching party.
Nonpayment by Roche of royalties or other payment obligations due under this
Agreement shall constitute a breach of a material provision of this Agreement,
including nonpayment or escrowing on the grounds that one or more claims of the
Strom Patents are invalid or unenforceable.
(b) Roche shall have the right to terminate this Agreement in its entirety,
or on a country by country basis, at any time by providing thirty (30) days
prior written notice to Seragen.
(c) All rights and licenses granted under or pursuant to this Agreement by
Seragen to Roche are, and shall be otherwise be deemed to be, for purposes of
Section 365(n) of Title 11, U.S. Code ("Bankruptcy Code"), licenses of rights to
"intellectual property" as defined under Section 101(60) of the Bankruptcy Code.
The parties agree that Roche shall retain and may fully exercise all of its
rights and elections under the Bankruptcy Code.
7.3 Effect of Termination
(a) Upon termination of this Agreement by either party pursuant to Section
7.2, all rights and licenses to the extent granted to Roche by Seragen under the
Strom Patents hereunder shall revert to Seragen, and, subject to Section 7.4,
all unaccrued royalty and payment and other obligations hereunder shall
terminate.
(b) Termination of this Agreement by either party pursuant to Section 7.2
shall not relieve the parties of any obligation accruing prior to such
termination.
7.4 Survival Those terms and conditions which by their nature are intended
to survive expiration or termination of this Agreement shall survive such
expiration or termination, including without limitation Section 4.3, Section
5.5, Section 5.6, Section 7.4, and Article VIII.
7
<PAGE>
7.5 Effect of Termination of the Beth Israel License To Seragen In the
event that the Beth Israel License is terminated, this Agreement shall
immediately become a direct license to Roche from Beth Israel, under the same
terms and conditions hereunder, with Beth Israel assuming all rights and
obligations of Seragen hereunder, in accordance with article 2.3 of the Beth
Israel License. Seragen shall promptly notify Roche in event of such
termination.
ARTICLE VIII-MISCELLANEOUS PROVISIONS
8.1 Notices. Any payment, notice or other communication pursuant to this
Agreement shall be sufficiently made or given on the date of mailing if sent to
such party by certified first class mail, postage prepaid, addressed to it at
its address below or as it shall designate by written notice given to the other
party:
SERAGEN's Notification Address: ROCHE's Notification Addresses:
Ligand Pharmaceuticals Incorporated Hoffmann-La Roche Inc.
10275 Science Center Drive 340 Kingsland Street
San Diego, CA 92121 Nutley, New Jersey 07110
Attention: William L. Respess, Attention: Corporate Secretary
Senior Vice President,
General Counsel, Government Affairs F.Hoffmann-La Roche Ltd
Grenzacherstrasse 124
CH-4070 Basel
Switzerland
Attention: Corporate Law Department
8.2 Governing Law. This Agreement shall be construed, governed, interpreted
and applied in accordance with the laws of the State of New Jersey.
8.3 Integration. The parties hereto acknowledge that this Agreement sets
forth the entire Agreement and understanding of the parties hereto as to the
subject matter hereof, and shall not be subject to any change or modification
except by the execution of a written instrument subscribed to by the parties
hereto.
8.4 Severability. The provisions of this Agreement are severable, and in
the event that any provisions of this Agreement shall be determined to be
invalid or unenforceable under any controlling body of the law, such invalidity
or unenforceability shall not in any way affect the validity or enforceability
of the remaining provisions hereof.
8.5 Non-Waiver of Rights. The failure of either party to assert a right
hereunder or to insist upon compliance with any term or condition of this
Agreement shall not constitute a waiver of that right or excuse a similar
subsequent failure to perform any such term or condition by the other party.
8
<PAGE>
8.6 Publicity. Neither party will disclose the existence or terms of this
Agreement to any third party other than (1) as required by law or government
regulations, (2) to its Affiliates, assignees and sublicensees or potential
Affiliates, potential assignees and potential sublicensees (hereinafter
collectively "Receiving Party"), provided such Receiving Party is party to a
written agreement to retain such disclosure as confidential (3) to Beth Israel,
or (4) as agreed upon by the parties.
The parties have agreed to public disclosure of the press release set forth
in Exhibit D by Seragen or its Affiliate on or after the Effective Date, as well
as subsequent public disclosure of the information provided in Exhibit D.
Neither party will issue any press release or other public announcement relating
to this Agreement disclosing additional information not provided in Exhibit D
without first obtaining written approval from the other party, which approval
shall not be unreasonably withheld.
8.7 Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be an original
and all such counterparts shall together constitute but one and the same
agreement.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and
duly executed this Agreement the day and year set forth below.
SERAGEN, INC. HOFFMANN-LA ROCHE INC.
By /s/ James R. Mirto By: /s/ Dennis E. Burns
James R. Mirto
Title: Vice President, Title: Vice President
Commercial Operations
Date: 09/08/99 Date: 09/09/99
F.HOFFMANN-LA ROCHE LTD
By: /s/ Warner Henrich Rudi Schaffner
Title: Director Deputy Director
Date: 09/10/99
9
<PAGE>
EXHIBIT A
Strom Patents
1. U.S. Patent No 5,011,684 issued April 30, 1991
2. U.S. Patent No. 5,674,494 issued October 7, 1997
3. U.S. Patent No. 5,916,559 issued June 29, 1999
4. *** ***
5. Canadian Patent No. 1,275,951 issued November 6, 1990
6. Australian Patent No. 575,210 issued July 21, 1988
7. New Zealand Patent No. 213,983 issued June 28, 1989
- -----------------
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
10
<PAGE>
Exhibit B
Copy of Beth Israel License
Filed as Exhibit 10.11 to Form 10-K filed by Seragen, Inc. on April 2,
1997, as amended.
11
<PAGE>
Exhibit C
September 8, 1999 Letter from Beth Israel to Hoffmann-La Roche
12
<PAGE>
[logo]
Beth Israel Deaconess
Medical Center Office of Corporate Research
Mark Chalek 33O Brookline Avenue, Mail Stop MT-1
Boston, Massachusetts 02215 USA
Director [email protected]
Office of Corporate Research Tel 001.617.632.8559
Fax 001.617.632.7020
September 8, 1999
George W. Johnston
Vice President and Chief Patent Counsel
Hoffmann-La Roche, Inc.
340 Kingsland Street
Nutley, New Jersey 07110
Dear George:
Beth Israel Deaconess Medical Center ("BIDMC") was formed by a merger between
Beth Israel Hospital Association ("Beth Israel") and the New England Deaconess
Hospital Corporation effective October 1, 1997. BIDMC has read a Nonexclusive
Sublicense Agreement ("Agreement") effective September 1, 1999, by and among
Seragen, Inc., a Delaware Corporation ("Seragen") on one hand and Hoffmann
LaRoche Inc., a New Jersey Corporation and Hoffmann-La Roche Ltd, a corporation
organized under the laws of Switzerland (individually and collectively "Roche")
on the other hand,
BIDMC understands that Roche is entering into the Agreement in reliance on the
representations and warranties made by BIDMC to Roche set forth below.
BIDMC represents and warrants that:
1. Beth Israel was the assignee of the entire right, title and interest in
and to the Strom Patents as that term is defined in the Agreement on
the date Seragen and Beth Israel entered into the Beth Israel License
as that term is defined in the Agreement and that BIDMC is the
successor in interest to the interests of Beth Israel in and to the
Strom Patents and the Beth Israel License;
2. Seragen is empowered under the Beth Israel License to grant sublicenses
under the Strom Patents, including to Roche as in the Agreement.
<PAGE>
3. BIDMC and its Affiliates will not assert any patent or patent
application owned or controlled by BIDMC or its Affiliates as of
September 8, 1999 to be infringed by Roche making, having made, using,
selling, offering for sale or importing the Licensed Product in any
country throughout the world as the term "Licensed Product" is defined
in the Agreement. As used herein, the term "Affiliate" means (i) an
entity which owns, directly or indirectly, a controlling interest in
BIDMC, (ii) an entity which is owned, directly or indirectly, by BIDMC,
or (iii) an entity, the majority ownership of which is directly or
indirectly common to the majority ownership of BIDMC.
In addition, BIDMC covenants that, if the Beth Israel License is
terminated, BIDMC hereby agrees to Roche becoming a direct licensee of BIDMC as
provided in Section 7.5 of the Agreement.
BIDMC also hereby agrees to maintain the existence and terms of the
Agreement as confidential, except to the extent of public disclosure of the
information in Exhibit D of the Agreement in accordance with Section 8.6 of the
Agreement.
With the exception of the obligation regarding maintaining the
existence and terms of the Agreement as confidential, the provisions of this
letter will have no force and effect upon termination of the Agreement.
Agreed and accepted:
BETH ISRAEL DEACONESS MEDICAL CENTER
/s/ Mark Chalek
Mark Chalek, Director
Office of Corporate Research
cc: William L. Respess (Seragen, Inc.)
Barry Eisenstein, MD (BIDMC)
<PAGE>
Exhibit D
Press Release
Contact:
Christiane V. Sheid
(858) 550-7809
Ligand Subsidiary Sublicenses Strom Patents to Roche
-- Seragen and Beth Israel to receive royalties on sales of Zenapax(R) --
SAN DIEGO, CA - September 13, 1999 -- Ligand Pharmaceuticals Incorporated
(Nasdaq: LGND) announced today that its wholly-owned subsidiary, Seragen, Inc.,
has entered into a non-exclusive sublicense agreement with Basel,
Switzerland-based F. Hoffmann-La Roche Ltd. and its U.S. pharmaceutical
subsidiary Hoffmann-La Roche Inc., with respect to Seragen's rights under a
family of patents called the "Strom Patents." The sublicense under the Strom
Patents grants Roche the right to make, use and sell in the U.S., Canada,
Australia and New Zealand any product containing the active ingredient
daclizumab. Roche currently sells such a product under the trademark Zenapax(R)
for the treatment of acute organ rejection in patients receiving kidney
transplants.
In consideration for the sublicense, Roche will pay Seragen a $2.5 million
royalty for sales of Zenapax(R) occurring before the date of this agreement
plus, commencing in January 2001, royalties on net sales of licensed products in
the U.S., Canada, Australia and New Zealand. Seragen will also receive milestone
payments in the event Roche receives U.S. regulatory approval of licensed
products containing daclizumab for use in the treatment of autoimmune
indications.
The Strom Patents, licensed by Seragen from Beth Israel Deaconess Medical
Center, a major Harvard Medical School teaching hospital, cover the use of
antibodies that target the interleukin-2 (IL-2) receptor to treat transplant
rejection and autoimmune diseases. Previously a non-exclusive license was issued
to Novartis covering the product Simulect(R) to treat organ transplant
rejection, for which Ligand expects to receive royalty payments beginning in
January 2001. According to the terms of the Beth Israel agreement with Seragen,
Beth Israel will also share in the royalty and milestone payments.
13
<PAGE>
"We are pleased to complete this second sublicense agreement under the
Strom Patents which we acquired exclusive rights to together with Ontak(R) in
the Seragen acquisition," said David E. Robinson, Ligand Chairman, President and
CEO. "This will allow us to realize significant additional value for our
shareholders from the assets of Seragen, now a wholly owned subsidiary of Ligand
Pharmaceuticals Incorporated."
Hoffmann-La Roche Inc. is a leading research-intensive pharmaceutical
company that discovers, develops, manufactures and markets
numerous important prescription drugs that improve, prolong
and save the lives of patients with serious illnesses.
Hoffmann-La Roche is a global leader in health care with
principal businesses in pharmaceuticals, diagnostics,
vitamins, fragrances, and flavors.
LIGAND PHARMACEUTICALS INCORPORATED
Ligand Pharmaceuticals Incorporated discovers, develops and markets new
drugs that address critical unmet medical needs of patients in the areas of
cancer, skin diseases, and men's and women's hormone-related diseases, as well
as osteoporosis, metabolic disorders and cardiovascular and inflammatory
diseases. Ligand's first two drugs -- Panretin(R) gel and ONTAK(R) -- were
approved for marketing in the U.S. in early 1999 and are being marketed through
its specialty cancer and HIV-center sales force in the U.S. Four additional
oncology-related products are in late-stage development, including Targretin(R)
capsules, Targretin(R) gel, Panretin(R) capsules, and Morphelan(TM) (licensed
from Elan). Ligand's proprietary drug discovery and development programs are
based on its leadership position in gene transcription technology, primarily
related to Intracellular Receptors (IR) and Signal Transducers and Activators of
Transcription (STATs).
This news release may contain certain forward looking statements by Ligand
and actual results could differ materially from those described as a result of
factors including, but not limited to the following. There can be no assurance
that (a) there will continue to be a market in the U.S. or elsewhere for
Zenapax(R) or any product subject to the sublicense agreement, (b) Roche will
pursue any other indications for Zenapax(R) or any product subject to the
sublicense agreement, (c) Seragen will receive any royalties or milestone
payments from Roche; (d) any product under development by Ligand or Roche will
receive approval from the U.S. Food and Drug Administration or other authorities
to market the product; (e) if successfully developed and thereafter approved,
there will be a market for the drug. Additional information concerning these
14
<PAGE>
factors can be found in press releases as well as in Ligand's public periodic
filings with the Securities and Exchange Commission. Ligand disclaims any intent
or obligation to update these forward-looking statements beyond the date of this
release.
# # #
Note: Public information on Ligand Pharmaceuticals Incorporated, including
our financial statements and other filings with the Securities and Exchange
Commission, our recent press releases and the package inserts for products
approved for sales and distribution in the United States, is available on our
web site at http://www.ligand.com.
# # #
Panretin(R) and Targretin(R) are registered trademarks of Ligand
Pharmaceuticals Incorporated, and ONTAK(R) is a registered trademark of Seragen,
Inc., a wholly owned subsidiary of Ligand.
15
<PAGE>
EXHIBIT 10.5
Dated 20 August 1999
ELAN CORPORATION, plc
AND
LIGAND PHARMACEUTICALS INCORPORATED
AMENDMENT TO DEVELOPMENT, LICENCE AND SUPPLY AGREEMENT
<PAGE>
THIS AMENDMENT AGREEMENT is made on 20 August 1999.
BETWEEN:
(1) ELAN CORPORATION, PLC, a company incorporated in Ireland having its
registered office at Lincoln House, Lincoln Place, Dublin 2, Ireland
("ELAN") and
(2) LIGAND PHARMACEUTICALS INCORPORATED, a company organized under the laws of
Delaware, with offices at 10275 Science Center Drive, San Diego, California
92121, United States of America ("LIGAND").
RECITALS:
A. ELAN and LIGAND entered into a Development, License and Supply Agreement
dated 9 November, 1998 ("the Agreement").
B. The clinical costs associated with the Agreement have transpired to be
greater than ELAN and LIGAND originally envisaged and accordingly, ELAN and
LIGAND wish to enter into this Amendment Agreement to adjust the license
royalties payable to ELAN under Clause 10.1 of the Agreement, and also the
commitment by LIGAND under Clause 5.5 of the Agreement to undertake
additional clinical expenditure, including Phase III and Phase IV clinical
trials, related to the commercialization of the PRODUCT in the TERRITORY,
to the extent set forth in Clause I hereof.
All capitalized terms used in this Amendment Agreement shall have the same
meanings as are assigned thereto in the Agreement, except where expressly
provided to the contrary in this Amendment Agreement.
NOW IT IS HEREBY AGREED AS FOLLOWS:
1 Amendment to the Agreement:
ELAN and LIGAND hereby agree that the Agreement shall be amended as follows:
1.1 by the deletion of Clause I 0. I of the Agreement and the substitution
therefor of the following:
<PAGE>
"10.1 Licence Royalties:
10.1.1 In consideration of the licence of the ELAN PATENTS granted to
LIGAND under this Agreement, LIGAND shall pay to ELAN the
following amounts:-
(1) $5 million in cash or in shares of Common Stock of
LIGAND, par value $.001 per share (the "Common Stock")
(valued at $11.65 per share), at LIGAND's option, upon
the execution of the Agreement by both parties;
(2) $10 million in cash, or at LIGAND's option, in cash
through an increase in the issue amount of the
CONVERTE3LE NOTE, upon the execution of the Agreement
by both parties;
(3) *** in cash or in shares of Common Stock of LIGAND
(valued at a price per share equal to the average of
the CLOSING PRICE of the Common Stock for the 5
consecutive trading days immediately prior to the
required payment date thereof), at LIGAND's option,
upon substantial completion of full original patient
enrolment in the Phase III pivotal efficacy studies
relating to the submission of the NDA for the PRODUCT
in the U.S.A. if, and only if, accomplished-on or prior
to *** .
(4) *** in cash or in shares of Common Stock of LIGAND
(valued at a price per share equal to the average of
the CLOSING PRICE of the Common Stock for the 5
consecutive trading days immediately prior to the
required payment date thereof), at LIGAND's option,
upon submission of the NDA for the PRODUCT in the
U.S.A. provided the exact amount of this payment will
be determined (and become payable) in accordance with
the date upon which the NDA for the PRODUCT is
submitted in the USA, as specified below:
*** upon submission of the NDA for the PRODUCT in the
U.S.A. on or prior to *** ;
*** upon submission of the NDA for the PRODUCT in the
U.S.A. after *** but on or prior to *** ;
*** upon submission of the NDA for the PRODUCT in the
U.S.A. after *** but on or prior to *** ;
*** upon submission of the NDA for the PRODUCT in the
U.S.A. after *** but on or prior to *** ;
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
3
<PAGE>
*** upon submission of the NDA for the PRODUCT in the
U.S.A. *** but on or prior to *** ;
*** upon submission of the NDA for the PRODUCT in the
U.S.A. on any date after *** .
(5) *** in cash or in shares of Common Stock of LIGAND (valued
at a price per share equal to the average of the CLOSING
PRICE of the Common Stock for the 5 consecutive trading days
immediately prior to the required payment date thereof), at
LIGAND's option, upon the NDA APPROVAL of the PRODUCT in the
U.S.A.
10.1.2. In the event that LIGAND elects to issue shares of the Common
Stock pursuant to Clause 10.1.1(1), (3), (4) or (5) or the
CONVERTIBLE NOTE pursuant to Clause 10.1.1(2), each such issuance
shall be made pursuant to, and subject to the terms and
conditions set forth in, the PURCHASE AGREEMENT. Nothing in this
Agreement shall relieve LIGAND from its obligations to make the
payments set forth in Clauses 10.1.l.(l), (2), (3), (4) or (5),
in cash, in the event that any of the applicable conditions set
forth in the PURCHASE AGREEMENT are not satisfied or waived on or
prior to the required payment date thereof; provided however,
that in the event that LIGAND elects to issues shares of Common
Stock pursuant to Clause 10.1.1.(1), (3), (4) or (5) and ELAN is
unable to satisfy the conditions to such issuance as set forth in
the PURCHASE AGREEMENT or if such conditions have not been waived
by LIGAND, as the case may be, LIGAND and ELAN shall negotiate in
good faith to agree upon customary terms and conditions which
will enable LIGAND to issue such shares pursuant to a transaction
exempt from the registration requirements of the Securities Act
pursuant to Regulation D thereunder, including the giving by
ELAN, to the extent possible, of representations and warranties
in connection therewith."
1.2 by the deletion of Clause 5.5 of the Agreement and the
substitution therefore of the following:
"5.5 For the *** following submission of the NDA in the USA, LIGAND
shall commit to undertake additional clinical expenditure, ***
*** *** (including FULLY ALLOCATED COST of LIGAND and the sums
paid by LIGAND to ELAN as referred to in Clause 5.4 above). The
objective of the programme so conducted shall be to *** . LIGAND
agrees to carry out and complete the clinical efficacy programme
to a standard and timeframe that LIGAND would otherwise find
acceptable for one of its major branded products. LIGAND shall
keep ELAN informed as to *** *** . LIGAND undertakes that it
shall carry out all *** to prevailing cGCP and CGLP and most
specifically in accordance with FDA standards and guidelines. In
the event that LIGAND does not expend *** during the ***
following submission of the NDA in the USA, then, unless
otherwise agreed in writing between the parties, LIGAND shall pay
any shortfall between the *** and the actual sum expended by
LIGAND to ELAN, provided however, in the event the FDA notifies
ELAN of its refusal to grant the NDA submitted by ELAN and
LIGAND, after discussion with ELAN, determines that it is not
commercially viable for LIGAND to incur any additional
development expenses as provided in Clause 5.4, LIGAND shall have
no further obligation to expend or remit sums under this Clause
5. 5. In such event, ELAN shall have the right to terminate this
Agreement. Thereafter, ELAN shall be entitled to research,
develop and commercialise the PRODUCT in the TERRITORY. In the
event of such termination, all monies paid to ELAN by LIGAND
pursuant to this Agreement shall not be recoverable by LIGAND."
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
4
<PAGE>
2 Governing law and jurisdiction:
This Amendment Agreement is construed under and ruled by the laws of
New York. For the purposes of this Amendment Agreement the parties submit
to the non- exclusive jurisdiction of the courts of New York.
IN WITNESS of which the parties have executed this Amendment Agreement.
5
<PAGE>
Executed by LIGAND on 20 August, 1999
By: /s/David Robinson
Name: David Robinson
Title: President & CEO
Executed by ELAN on 20 August, 1999
By: /s/Seamus Mulligan
Name: Seamus Mulligan
Title: Executive Vice President
Corporate Development
6
<PAGE>
EXHIBIT 10.6
SCHEDULE I
7.4 Stock Purchase Option. Each share of the Common Stock of X-Ceptor
Therapeutics, Inc. (the "Company") and all shares of Common Stock into which any
of the Company's securities are convertible (including shares issuable upon
exercise or conversion of options, warrants and other exercisable or convertible
securities) ("X-Ceptor Capital Stock") is subject ot an exclusive irrevocable
option (the "Ligand Option") held by Ligand Pharmaceuticals Incorporated, a
Delaware corporation ("Ligand") to purchase all of the shares of X-Ceptor
Capital Stock. The Ligand Option may be exercised only as to all, but not less
than all, of the issued and outstanding shares of X-Ceptor Capital Stock. The
Ligand Option is exercisable at any one time during the fifteen (15) day period
immediately preceding the earliest to occur of (a) ninety (90) days prior to the
third anniversary of the date of the closing (the "Closing Date") of the
transactions contemplated by the Series B Preferred Stock Purchase Agreement,
dated June 30, 1999 (the "Third Anniversary"), (b) sixty (60) days following the
delivery of notice by the Company to Ligand that its cash and cash equivalents
as of the end of the month immediately preceding the notice are less than
$5,000,000 (the "Cash Balance Notice"), or (c) such earlier date upon which the
Ligand Option terminates; provided that Ligand may extend the period within
which it can exercise the Option until the fourth anniversary of the Closing
Date (the "Extension Anniversary") by providing notice no later than the earlier
of ninety (90) days prior to the Third Anniversary or fifteen (15) days
following the Cash Balance Notice and providing additional funding of $5,000,000
in cash to the Company no later than fifteen (15) days following the earlier of
the Third Anniversary or receipt of the Cash Balance Notice (the "Option
Expiration Date"), in which case Ligand may exercise the Ligand Option at any
one time during the fifteen (15) day period immediately preceding the date which
is 90 days prior to the Extension Anniversary.
(a) Exercise Price. Upon exercise of the Ligand Option, Ligand shall pay
for the outstanding X-Ceptor Capital Stock (other than shares held by Ligand,
its affiliates (in excess of an aggregate of 200,000 shares of Common Stock) or
any of their transferees) (the "Option Exercise Price") as follows:
(i) The fair market value of a share of Common Stock (the "Fair Market
Value") shall be determined in accordance with the following formula:
A = B/C
Where: A = Fair Market Value per share of Common Stock
B = $61,400,000 less an amount equal to product of (i)
$2.07432, multiplied by (ii) the excess, if any, of (A)
18,900,000, over (B) the aggregate number of shares of
Series B Preferred sold by the Company on the Closing Date
and within 120 days of the Closing Date (such amount being
the "Series B Shortfall") if the Exercise Date occurs at any
time on or before the Third Anniversary, or $79,800,000 less
an amount equal to the
<PAGE>
product of (i) $2.6959, multiplied by
(ii) the Series B Shortfall if the Exercise Date occurs
after the Third Anniversary
C = Number of shares of Common Stock outstanding on the Option
Closing Date taking into account the automatic conversion of
any shares of Preferred Stock pursuant to the Company's
Certificate of Incorporation immediately prior to the Option
Closing Date (excluding any shares held by Ligand, its
affiliates (in excess of an aggregate of 200,000 shares of
Common Stock) or any of their transferees) and including all
shares issuable upon conversion or exercise of options,
warrants, convertible notes or other convertible or
exercisable securities (collectively, "Convertible
Securities")
(ii) Ligand shall first make a payment for each outstanding Convertible
Security in accordance with the following formula (collectively, the
"Convertible Securities Payment"), which shall be calculated separately for each
Convertible Security:
X = (A - B) * C
Where: X = Payment for each outstanding Convertible Security
A = Fair Market Value per share of Common Stock into which the
Convertible Security is exercisable or convertible (as
determined in accordance with Section 7.4(a)(i) above)
B = Per share Exercise or conversion price for the Convertible
Security
C = Number of shares of Common Stock into which the
Convertible Security is exercisable or convertible
If A is less than B, no payment shall be required for such Convertible
Security.
(iii) Ligand shall then make a payment for each outstanding share of
X-Ceptor Common Stock in accordance with the following formula:
Y = (B - C)/D
Where: Y = Payment for each outstanding share of Common Stock
B = $61,400,000 less an amount equal to product of (i)
$2.07432, multiplied by (ii) the Series B Shortfall if
2
<PAGE>
the Exercise Date occurs at any time on or before the Third
Anniversary, or $79,800,000 less an amount equal to the
product of (i) $2.6959, multiplied by (ii) the Series B
Shortfall if the Exercise Date occurs after the Third
Anniversary
C = Convertible Securities Payment
D = Number of shares of X-Ceptor Common Stock outstanding on
the Option Closing Date taking into account the automatic
conversion of any shares of Preferred Stock pursuant to the
Company's Certificate of Incorporation immediately prior to
the Option Closing Date (excluding any shares held by
Ligand, its affiliates (in excess of an aggregate of 200,000
shares of Common Stock) or any of their transferees) but
excluding all Convertible Securities and shares of X-Ceptor
Common Stock issuable upon exercise or conversion thereof.
(b) Form of Payment. Subject to Sections 7.4(e) and (f) hereof, the Option
Exercise Price calculated in accordance with Section 7.4(a) may be paid in cash,
in shares of Ligand Common Stock or in any combination thereof, at the sole
discretion of Ligand. The number of shares of Ligand Common Stock to be
delivered in payment of all or a portion of the Option Exercise Price shall be
determined by dividing the portion of the Option Exercise Price to be paid in
shares of Ligand Common Stock by the lower of (a) the average of the last sale
price of Ligand Common Stock quoted on the Nasdaq National Market or, if then
traded on a national securities exchange, the average of the closing prices of
Ligand Common Stock on the principal national securities exchange on which
listed or, if quoted on the Nasdaq over-the-counter system, the average of the
mean of the closing bid and asked prices of Ligand Common Stock quoted on such
system (in each event, the "Ligand Closing Price"), on each of the twenty (20)
trading days immediately preceding the date Ligand gives written notice of the
exercise of the Ligand Option as provided in Section 7.4(c) hereof (such date of
delivering the notice being the "Exercise Date") and (b) the closing price on
the Exercise Date. No fractional shares of Ligand Common Stock shall be issued
in payment of all or a portion of the Option Exercise Price. Instead of any
fractional shares of Ligand Common Stock that would otherwise be issuable in
payment of all or a portion of the Option Exercise Price, Ligand shall pay a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest multiplied by the lower of (a) the average of the
Ligand Closing Price on each of the twenty (20) trading days immediately
preceding the Exercise Date and (b) the closing price on the Exercise Date.
(c) Manner of Exercise. To exercise the Ligand Option, Ligand shall give
written notice on or before the Option Expiration Date in accordance with the
first paragraph of Section 7.4 to each holder of record of X-Ceptor Capital
Stock and to the Company, which notice shall state that the Ligand Option is
being exercised and shall set forth: (i) the Option Exercise Price determined in
accordance with Section 7.4(a) hereof; (ii) the portion, if any, of the Option
Exercise Price to be paid in cash and the portion, if any, of the Option
Exercise Price to be paid in shares of Ligand Common Stock; (iii) the date on
which all of X-Ceptor Capital Stock shall be purchased in accordance with the
terms hereof, which date shall be (x) the earlier to
3
<PAGE>
occur of (1) the Third Anniversary, (2) the date which is sixty (60) days
following the date on which X-Ceptor delivers the Cash Balance Notice, or (y) if
Ligand shall have extended the term of the Ligand Option, the Extension
Anniversary; provided, however, that such date shall be extended at the option
of the holders of 66 2/3% of X-Ceptor Common Stock (other than Ligand, its
affiliates (in excess of an aggregate of 200,000 shares of Common Stock) and
transferees) until such time as the registration statement referred to in
Section 7.4(f) shall become effective (such date being the "Option Closing
Date"); and (iv) any instructions that such holders will need to obtain payment
of the Option Exercise Price. The Ligand Option shall be deemed to be exercised
on the Exercise Date, at which time the decision to exercise the Ligand Option
shall be deemed irrevocable. If Ligand elects to exercise the Ligand Option by
delivering solely shares of Ligand Common Stock, such exercise may occur by
means of a merger of either a subsidiary of Ligand with and into the Company or
the Company with and into a subsidiary of Ligand (the "Merger") pursuant to
which X-Ceptor Capital Stock shall be cancelled in exchange for the shares of
Ligand Common Stock delivered; provided, however, that in no event shall any of
the holders of X-Ceptor Capital Stock be required to make any representations or
warranties, incur any liabilities or assume any obligations in connection with
such Merger.
(d) [Intentionally Omitted].
(e) Payment Agent. Subject to the provisions of Section 7.4(f) hereof on or
before the Option Closing Date, Ligand shall deposit the full amount of the
Option Exercise Price for all of the X-Ceptor Capital Stock with a bank,
transfer agent or similar entity designated by Ligand (the "Payment Agent") to
pay, on Ligand's behalf, the Option Exercise Price. All cash, if any, and Ligand
Common Stock, if any, deposited with the Payment Agent shall be delivered in
trust for the benefit of the holders of record of X-Ceptor Capital Stock or any
Preferred Stock not yet converted on the Exercise Date. Ligand shall provide the
Payment Agent with irrevocable instructions to pay, on or after the Option
Closing Date, the Option Exercise Price for X-Ceptor Capital Stock to such
record holders upon surrender of their certificates representing shares of
X-Ceptor Capital Stock. Payment for shares of X-Ceptor Capital Stock shall be
mailed to each such record holder at the address set forth in Company's records
or at the address provided by each such record holder or, if no address is set
forth in Company's records for any such record holder or provided by any such
record holder, to such record holder at the address of the Company, but only
upon receipt from each such record holder of certificates evidencing shares of
X-Ceptor Capital Stock or a lost stock affidavit and indemnity in lieu thereof;
provided that payment for shares of the Series A Preferred Stock or Series B
Preferred Stock of the Company (or any shares of Common Stock issued upon
conversion thereof) shall be made on the Option Closing Date by wire transfer of
immediately available funds to each record holder thereof in accordance with the
wire transfer instructions provided by such record holders in writing no less
than five (5) business days prior to the Option Closing Date. Any cash or Ligand
Common Stock deposited with the Payment Agent pursuant to this Section 7.4(e)
that remains unclaimed for two (2) years following the Option Closing Date and
all interest and/or dividends earned thereon shall be automatically returned to
Ligand.
(f) Registration and Listing. If Ligand fails by the Option Closing Date to
have both (a) a registration statement declared effective under the Securities
Act with respect to the shares of Ligand Common Stock, if any, to be delivered
as payment pursuant to the exercise of the Ligand Option which registration
statement covers the public resale by the holders of such
4
<PAGE>
shares for a period of two (2) years after its effectiveness and (ii) the
shares of Ligand Common Stock to be issued in connection therewith (1) listed on
the Nasdaq National Market, or (2) if Ligand Common Stock is traded on a
national securities exchange, listed on such exchange, or (3) if Ligand Common
Stock is listed on neither the Nasdaq National Market, nor a national securities
exchange, qualified for inclusion in the Nasdaq over-the-counter system, then
Ligand shall be obligated to make such payment all in cash on the Option Closing
Date. Notwithstanding any other provision herein to the contrary, Ligand shall
not be in breach or violation of this Section 7.4 for any failure to timely pay
any amount due and payable to record holders of X-Ceptor Capital Stock hereunder
in shares of Ligand Common Stock if such failure to timely pay such amount
arises from delay in satisfying any of the provisions of this Section 7.4(f) so
long as Ligand shall have taken all reasonable actions and shall have acted
diligently in attempting to timely satisfy such provisions and shall continue to
diligently seek the satisfaction thereof; provided, however, that such delay may
not exceed thirty (30) days from the originally scheduled Option Closing Date.
(g) Transfer of Title. Transfer of title to Ligand of all of the issued and
outstanding shares of X-Ceptor Capital Stock shall be deemed to occur
automatically on the Option Closing Date subject to the payment by Ligand on
such date of the amount owing to the record holders of X-Ceptor Capital Stock as
determined in accordance with Section 7.4(a) hereof, and thereafter the Company
shall be entitled to treat Ligand as the sole holder of record of all issued and
outstanding shares of X-Ceptor Capital Stock, notwithstanding the failure of any
holder of shares of X-Ceptor Capital Stock to tender certificates representing
such shares to the Payment Agent for payment therefor in accordance with Section
7.4(e) hereof. After the Option Closing Date, the record holders of X-Ceptor
Capital Stock as determined in connection with Section 7.4(c) hereof shall have
no rights in connection with such X-Ceptor Capital Stock other than the right to
receive the Option Exercise Price.
(h) Legend.
(i) Any certificates evidencing shares of X-Ceptor Capital Stock shall
bear a legend in substantially the following form:
THE SHARES OF X-CEPTOR THERAPEUTICS, INC. ("X-CEPTOR") EVIDENCED HEREBY ARE
SUBJECT TO AN OPTION HELD BY LIGAND PHARMACEUTICALS INCORPORATED AS DESCRIBED IN
X-CEPTOR'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED FROM
TIME TO TIME, AND IN A PURCHASE AGREEMENT AMONG X-CEPTOR, LIGAND PHARMACEUTICALS
INCORPORATED AND THE OTHER PARTIES THERETO, AS AMENDED FROM TIME TO TIME (THE
"PURCHASE AGREEMENT"), TO PURCHASE SUCH SHARES AT A PURCHASE PRICE DETERMINED
PURSUANT TO ARTICLE IV, SECTION H OF X-CEPTOR'S AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION AND SECTION 7.4 OF THE PURCHASE AGREEMENT, EXERCISABLE BY
WRITTEN NOTICE AT ANY TIME DURING THE PERIOD AS SET FORTH THEREIN. COPIES OF
X-CEPTOR'S AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND THE PURCHASE
AGREEMENT ARE AVAILABLE AT THE PRINCIPAL PLACE OF BUSINESS OF X-CEPTOR, AND
SHALL BE FURNISHED TO ANY X-CEPTOR STOCKHOLDER UPON WRITTEN REQUEST WITHOUT
COST.
5
<PAGE>
(ii) Upon the termination or expiration (other than by exercise) of the
Ligand Option, the Company shall, at the request of any holder of shares of
X-Ceptor Capital Stock bearing the legend described in this Section 7.4(h), take
such steps as are necessary to remove such legend from such shares of X-Ceptor
Capital Stock.
(i) Assignment.
(i) Ligand may assign, delegate, transfer or sell any or all of its
rights or obligations under this Section 7.4, in whole or in part, to any
person or entity without the prior approval of the holders of record of the
outstanding shares of X-Ceptor Capital Stock; provided, however, that, Ligand
shall not, without the prior approval of the holders of record of a majority of
the outstanding shares of X-Ceptor Capital Stock (except for Ligand, affiliated
companies and their transferees) not prohibited from approving such matter by
contract or otherwise, make such an assignment, delegation, transfer or sale
unless such person or entity (A) shall be a solvent corporation or other such
entity, (B) shall have, immediately after such acquisition, merger,
consolidation or similar transaction, a tangible net worth (determined in
accordance with generally accepted accounting principles then in effect) at
least equal to the tangible net worth (as so determined) of Ligand immediately
prior thereto, and (C) shall have agreed in writing to be bound by the terms of
this Section 7.4, (a "Qualified Person or Entity"), except that such Qualified
Person or Entity shall only be entitled to pay the Option Exercise Price in
cash; provided further, that in the event of any assignment, delegation,
transfer or sale, Ligand shall provide written notice to such record holders of
any such assignment, delegation, transfer or sale not later than thirty (30)
days after such assignment, delegation, transfer or sale setting forth the
identity and address of the assignee and summarizing the terms of the
assignment, delegation, transfer or sale.
(ii) Upon the assignment, delegation, transfer or sale by any record
holder of X-Ceptor Capital Stock, (A) this Agreement shall automatically be
assigned to, assumed by and binding upon such record holder's assignee,
purchaser or transferee and (B) such shares of X-Ceptor Capital Stock shall
continue to be subject to the Ligand Option and the other terms and conditions
of this Agreement.
(iii) A change in control of a party hereto (except as set forth in
Section 7.4(j)) shall not be deemed to be an assignment or transfer by such
party.
(iv) Subject to the foregoing, this Section 7.4 shall be binding upon
the successors and assigns of the parties.
(j) Automatic Assignment. Notwithstanding the provisions of Section 7.4
(i) hereof, in the event of: (i) a consolidation or merger of Ligand
with or into any Qualified Person or Entity, other than a wholly-owned
subsidiary, in which the stockholders of Ligand own less than a majority of the
voting stock of the surviving corporation immediately following such
consolidation or merger, or
(ii) a sale of all or substantially all of the assets of Ligand to any
Qualified Person or Entity, or
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(iii) any transaction approved by Ligand in which more than 50% of the
then outstanding Ligand Common Stock is transferred to any Qualified Person or
Entity, then all of Ligand's rights and obligations under this Section 7.4 shall
automatically be assigned, delegated and transferred to such Qualified Person or
Entity, and such Qualified Person or Entity may exercise the Option in Ligand's
stead; provided, however, that such person or entity may only pay the Option
Exercise Price in cash.
(k) Termination. Ligand's right to exercise the Ligand Option shall
terminate on the earliest to occur of: (i) the Option Closing Date; (ii) if the
Ligand Option is not exercised, the earliest to occur of (A) ninety (90) days
prior to the Third Anniversary or (B) sixty (60) days following delivery of the
Cash Balance Notice, unless Ligand has extended the period within which it can
exercise the Ligand Option as contemplated by Section 7.4(a) hereof, in which
case Ligand's rights to exercise the Ligand Option shall terminate ninety (90)
days prior to the Extension Anniversary; or (iii) at the sole option of the
Company following occurrence of any of the following events: (A) Ligand fails to
make the payment described in Section 7.4(b) hereof on the Option Closing Date
in accordance with Section 7.4(e) hereof; (B) Ligand (1) seeks the liquidation,
reorganization, dissolution or winding-up of itself or the composition or
readjustment of all or substantially all of its debts, (2) applies for or
consents to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or substantially all of its
assets, (3) makes a general assignment for the benefit of its creditors, (4)
commences a voluntary case under Title 11 of the United States Code, (5) files a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up or composition or readjustment of debt or
(6) adopts any resolution of its Board of Directors or stockholders for the
purpose of effecting any of the foregoing; (C) a proceeding or case is commenced
without the application or consent of Ligand and such proceeding or case
continues undismissed, or an order, judgment or decree approving or ordering any
of the following is entered and continues unstayed and in effect for a period of
sixty (60) days from and after the date service of process is effected upon
Ligand, seeking (1) Ligand's liquidation, reorganization, dissolution or winding
up, or the composition or readjustment of all or substantially all of its debts,
(2) the appointment of a trustee, receiver, custodian, liquidator or the like of
Ligand or of all or substantially all of its assets or (3) similar relief in
respect of Ligand under any law relating to bankruptcy, insolvency,
reorganization, winding up or the composition or readjustment of debt; or (D)
material default by Ligand on any material loan agreement which default is not
cured in accordance with such loan agreement. Company shall promptly notify each
holder of record of X-Ceptor Capital Stock in writing upon the occurrence of an
event specified in Section 7.4(k)(iii) herein.
(l) Amendments. Any term of this Section 7.4 may be amended and the
observance of any term of this Section 7.4 may be waived (either generally or in
a particular instance, either retroactively or prospectively, and either for a
specified period of time or indefinitely) only with the written consent of the
Company, Ligand and sixty-six and two-thirds percent (66-2/3%) of the shares of
then outstanding Series B Preferred (other than Ligand, its affiliates (in
excess of an aggregate of 200,000 shares of Common Stock) or transferees).
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(m) Preservation of Ligand's Rights. Company shall not take, or permit any
other person or entity within its control to take, any action inconsistent with
Ligand's rights under this Section 7.4. Company shall not enter into any
arrangement, agreement or understanding, either oral or written, that is
inconsistent with the rights of Ligand and the obligations of Company under this
Section 7.4.
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EXHIBIT 10.7
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("License Agreement") effective the 30th day of
June, 1999 ("Effective Date") is entered into by and between LIGAND
PHARMACEUTICALS INCORPORATED, a Delaware corporation having offices at 10275
Science Center Drive, San Diego, California 92121 ("Ligand") and X-CEPTOR
THERAPEUTICS, INC., a Delaware corporation having offices at 10555 Science Park
Drive, Suite B, San Diego, California 92121 ("X-Ceptor").
RECITALS
A. Ligand is engaged in the research and development of pharmaceutical
products which function as ligands for a class of protein receptors which are
found within eucaryotic cells and are referred to as "intracellular receptors."
B. In conjunction with its research and development activities Ligand has
licensed from third parties patents and patent applications and developed
technology of its own useful in discovering and developing pharmaceutical
products which act through intracellular receptors.
C. Among the intracellular receptors are numerous intracellular receptors
whose natural ligand is not known and these receptors are commonly referred to
as "orphan receptors."
D. X-Ceptor intends to engage in research and development of pharmaceutical
products which act as ligands of orphan receptors and wishes to acquire certain
rights to technology owned or licensed by Ligand to be used in that research and
development effort and Ligand is willing to grant X-Ceptor such rights.
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Ligand and X-Ceptor hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Affiliate" shall mean, with respect to a party, and X-Ceptor's
sublicensees and collaborators, any other business entity which directly or
indirectly controls, is controlled by, or is under common control with, such
party, sublicensees or collaborators. A business entity shall be regarded as in
control of another business entity if it owns, or directly or indirectly
controls, at least fifty percent (50%) of the voting stock or other ownership
interest of the other, or if it directly or indirectly possesses the power to
direct or cause the direction of the management and policies.
1.2 "Cancer" shall mean the group of diseases characterized by (a) the
malignant growth of tissues or cells within the human body or (b) the closely
related conditions identifiable
<PAGE>
as precursor lesions for malignancy, e.g., cervical dysplasias, actinic
keratoses, and leukoplakia in the oropharynx.
1.3 "Exclusive Technology" shall mean the patents or patent applications
identified in Exhibit A to the extent, and only to the extent, that claims
therein read upon (i) an Orphan Receptor, (ii) a gene for an Orphan Receptor,
(iii) a composition containing an Orphan Receptor or a gene for an Orphan
Receptor, (iv) a vector containing a gene for an Orphan Receptor, (v) a
recombinant cell that expresses an Orphan Receptor, and (vi) a method of making
or using an Orphan Receptor, including assay methods using an Orphan Receptor.
***
***
***
***
***
***
*** . Exclusive Technology shall include
continuations, continuations-in-part,divisionals and foreign equivalents of
patents or patent applications in Exhibit A and reissues of any patents in the
Exclusive Technology.
1.4 "Field" shall mean the discovery, characterization, development and
commercialization of Products for use in the treatment, palliation, prevention
and or remission of human diseases.
1.5 "First Commercial Sale" shall mean, with respect to a Product, the
first sale to a third party who is not an Affiliate, in the case of sales by
X-Ceptor, its collaborators and sublicensees.
1.6 "Restricted Field" shall mean the discovery, characterization,
development and commercialization of drug products which act through Orphan
Receptors for the treatment, palliation, prevention and/or remission of Cancer.
1.7 "Ligand Option" shall mean the option to purchase all outstanding
shares of capital stock of X-Ceptor granted to Ligand pursuant to agreements of
the stockholders of X-Ceptor and as set forth in Article Four, Section H of the
Amended and Restated Certificate of Incorporation of X-Ceptor Therapeutics, Inc.
as further amended from time to time.
1.8 "Net Sales" shall mean the gross sales invoiced to customers who are
not Affiliates of X-Ceptor, its sublicensees or collaborators for Products sold
during a quarterly period in which a Ligand Royalty (as defined in Section 4.1)
accrues less:
***
***
***
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***
***
***
***
1.9 "Nonexclusive Technology" shall mean the patents and patent
applications in Exhibit B. Nonexclusive Technology shall include continuations,
continuations-in-part, divisionals and foreign equivalents of patents or patent
applications in Exhibit B and reissues of any patents in the Nonexclusive
Technology.
1.10 "Orphan Receptor" shall mean all species of any of (i) the *** ***
receptors, and (ii) any orphan receptor discovered by Ligand prior to the
expiration of the Ligand Option.
1.11 "Products" shall mean chemical compounds which (i) were discovered
utilizing the Exclusive Technology and the Nonexclusive Technology during the
life of the patent claims included therein and (ii) modulate the activity of an
Orphan Receptor.
ARTICLE II
REPRESENTATIONS AND WARRANTIEs
Each party hereby represents and warrants to the other party as follows:
2.1 Corporate Existence and Power. Such party (a) is a corporation duly
organized, validly existing and in good standing under the laws of the state in
which it is incorporated, (b) has the corporate power and authority and the
legal right to own and operate its property and assets, to lease the property
and assets it operates under lease, and to carry on its business as it is now
being conducted, and (c) is in compliance with all requirements of applicable
law, except to the extent that any noncompliance would not have a material
adverse effect on the properties, business, financial or other condition of such
party and would not materially adversely affect such party's ability to perform
its obligations under this Agreement.
2.2 Authorization and Enforcement of Obligations. Such party (a) has the
corporate power and authority and the legal right to enter into this Agreement
and to perform its obligations hereunder, and (b) has taken all necessary
corporate action on its part to authorize the execution and delivery of this
Agreement and the performance of its obligations hereunder. This
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Agreement has been duly executed and delivered on behalf of such party, and
constitutes a legal, valid, binding obligation, enforceable against such party
in accordance with its terms.
2.3 Consents. All necessary consents, approvals and authorizations of all
governmental authorities and other persons required to be obtained by such party
in connection with the execution, delivery and performance of this Agreement
have been and shall be obtained.
2.4 Exclusive Technology and Nonexclusive Technology. Ligand warrants that
it is the owner of the entire right, title and interest in, or that it is a
licensee of, the Exclusive Technology and the Nonexclusive Technology, all of
which is and shall remain unencumbered by any license, security interests, or
other rights or claims of any third party (except a third party licensor's
rights under an applicable license agreement), and no other person or entity has
or shall have any valid claim of ownership to the Exclusive Technology and
Nonexclusive Technology. Ligand further represents and warrants that there are
no claims, judgements or settlements relating to the Exclusive Technology and
the Nonexclusive Technology to be paid by Ligand other than royalties and other
payments owed licensors and no claim has been brought or, to Ligand's knowledge,
threatened by any person alleging (i) any claim of ownership adverse to Ligand
or its licensors or (ii) any violation of any intellectual property rights of
such third party by Ligand's practice or utilization of the Exclusive Technology
or Nonexclusive Technology in the Field.
2.5 Right to Enter into Agreement. Ligand represents and warrants that it
has the right to grant the licenses provided under this agreement, and that it
has not granted and will not grant licenses to any other person or entity that
affects the grants within this Agreement.
2.6 No Conflict. Notwithstanding anything to the contrary in this
Agreement, the execution and delivery of this Agreement and the performance of
such party's obligations hereunder (a) do not conflict with or violate any
requirement of applicable laws or regulations and (b) do not and shall not
conflict with, violate or breach or constitute a default or require any consent
under, any contractual obligation of such party.
2.7 Disclaimer of Warranty. LIGAND EXPRESSLY DISCLAIMS ANY WARRANTY THAT
PATENTS INCLUDED WITHIN THE LICENSE GRANT OF SECTION 3.1 ARE VALID OR THAT
PRACTICE OF THE TECHNOLOGY LICENSED TO X-CEPTOR HEREUNDER WOULD NOT INFRINGE THE
PATENT RIGHTS OF OTHERS OR THAT PRODUCTS DEVELOPED USING THE EXCLUSIVE
TECHNOLOGY OR THE NONEXCLUSIVE TECHNOLOGY WILL NOT INFRINGE THE PATENT RIGHTS OF
OTHERS.
ARTICLE III
LICENSE GRANT
3.1 License Grant to X-Ceptor. Ligand hereby grants to X-Ceptor, subject to
the terms herein recited, a perpetual exclusive license, to the Exclusive
Technology, which license is exclusive even as to Ligand, and a perpetual
nonexclusive license to the Nonexclusive Technology, each respectively in the
Field. The exclusive license and the nonexclusive license
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are worldwide and include the right to grant sublicenses as limited herein;
provided that X-Ceptor can exploit its licenses granted hereunder within the
Field independently, with Affiliates, with sublicensees and with collaborators.
3.2 Ligand Retained Rights. Ligand retains the right to test compounds in
binding and other assays for activity against an Orphan Receptor in the
Exclusive Technology for the purpose of cross reactivity testing and toxicity
where the compound tested is not being developed to exploit its activity against
an Orphan Receptor included in the Exclusive Technology and to use an Orphan
Receptor included in the Exclusive Technology in assays where it forms a
heterodimer with another receptor. Ligand can exploit its rights outside the
Field alone, with Affiliates and collaborators and by way of sublicense. Ligand
will not, and will not grant the right to others to, develop or commercialize
products which are modulators of the Orphan Receptors.
3.3 Know-How License to X-Ceptor. Ligand shall cooperate with X-Ceptor in
setting up assays for identifying ligands to the orphan receptors in the
Exclusive Technology. Ligand hereby grants to X-Ceptor a nonexclusive license to
unpatented know-how of Ligand necessary to perform the assays on a royalty free
basis solely for the purpose of practicing the Exclusive Technology and the
Nonexclusive Technology in the Field. Such know-how may be sublicensed to a
third party to whom X-Ceptor licenses Exclusive Technology and Nonexclusive
Technology solely for the purpose of practicing that Exclusive Technology or
Nonexclusive Technology licensed to the third party.
3.4 Obligations of Sublicensees. In any sublicense of Exclusive Technology
or Nonexclusive Technology to a third party X-Ceptor shall include a statement
to the effect that the third party acknowledges that the sublicense is subject
to this Agreement and that Ligand and, where applicable, its licensors can bring
suit directly against a sublicensee to enforce the terms of this Agreement
including the collection of any unpaid royalty. Ligand shall be supplied a copy
of any sublicense to Exclusive Technology or Nonexclusive Technology promptly
following execution of such sublicense; provided, however, that, X-Ceptor may
redact the commercial terms of a sublicense. A sublicensee shall be entitled to
cure any breach of this Agreement by X-Ceptor and thereby retain the sublicense
rights granted hereunder. X-Ceptor agrees to make redacted financial terms
available to Ligand under a confidentiality/nondisclosure agreement reasonably
acceptable to both parties as part of Ligand's due diligence carried out in
consideration of exercise of the Ligand Option.
3.5 Limitations on Rights to Collaborate and Sublicense. No sublicense
granted by X-Ceptor and no agreement between X-Ceptor and a third party to
collaborate in the research, development and/or commercialization of Products
shall restrict X-Ceptor's right to assign or otherwise transfer to Ligand, or
any Affiliate of Ligand, the agreement containing such sublicenses or relating
to such collaborations in connection with exercise of the Ligand Option. Any
sublicense to Nonexclusive Technology shall expire *** after exercise by Ligand
of the Ligand Option.
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3.6 Right and Obligation of X-Ceptor to Participate in Prosecution of
Patent Applications. Ligand shall permit X-Ceptor to review and comment upon new
patent applications, office actions and responses thereto for patent
applications included in the Exclusive Technology.
3.7 Special Provisions Concerning the Restricted Field. Notwithstanding any
other provisions in this Agreement, X-Ceptor will not have the right during the
term of the Ligand Option to grant any other party a license in the Restricted
Field or to collaborate with any other party in the development of Products to
which the other party acquires rights in the Restricted Field.
3.8 Ligand Restrictions. Ligand shall not grant a third party a license to
the Nonexclusive Technology in the Field during the term of the Ligand Option
and, if the Ligand Option is not exercised, for *** after the expiration
unexercised of the Ligand Option.
ARTICLE IV
ROYALTIES, OTHER PAYMENTS AND ROYALTY TERM
4.1 Royalties. X-Ceptor shall pay a royalty on sales of Products, on a
Product-by-Product and country-by-country basis, in an amount equal to *** of
Net Sales thereof (whether the underlying sales of Products are by X-Ceptor, a
sublicensee of X-Ceptor, or a collaborator of X-Ceptor) ("Ligand Royalty") plus
"X" where X is ***
***
***
("Third Party Royalty"); provided Ligand will not
agree to an increase in rates of Third Party Royalties for the Exclusive
Technology or Nonexclusive Technology from those in effect on the Effective
Date. X-Ceptor shall have the right to decline to accept a license to any aspect
of the Exclusive Technology or Nonexclusive Technology which would increase the
royalties payable by X-Ceptor above those established by the aforementioned
formula as of the Effective Date. The parties acknowledge that the definition of
Net Sales under this Agreement may vary from the definition of the royalty base
upon which a royalty obligation to a third party is based and that X-Ceptor will
use the applicable royalty base or bases for calculating the royalty obligation
to a third party or third parties in calculating the Third Party Royalty. Ligand
will provide X-Ceptor with the applicable base for calculating a third party
royalty included in X on a Product by Product basis and, as of the Effective
Date, has delivered accurate copies of applicable agreements with its licensors
to X-Ceptor, a list of which is attached hereto as Exhibit C. Ligand agrees to
apply all sums received from X-Ceptor as payment for royalties owed by Ligand to
the satisfaction of such royalty obligations and to take all actions required to
keep in full force and effect the licenses from third parties, including the
Salk Institute for Biological Studies ("Salk Institute"), as required to enable
X-Ceptor to continue to use Exclusive Technology and Nonexclusive Technology.
4.2 Royalty-Term. The Ligand Royalty on a Product shall be paid for the
longer of (i) ***
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or (ii) *** . The Third Party Royalty shall be paid for the term of Ligand's
royalty obligation to an affected third party.
4.3 Direct Payments to Third Parties. At Ligand's direction, X-Ceptor shall
pay a royalty on sales of a Product owed a third party in the manner required by
Ligand's agreement with the third party with a copy of the royalty report
provided the third party also provided to Ligand. Payments made to a third party
directly by X-Ceptor shall not be included in calculation of the Third Party
Royalty under Section 4.01.
4.4 Minimum Annual Royalties. During the term of this Agreement X-Ceptor
shall pay Ligand *** per annum payable on the first and each subsequent
anniversary of this Agreement to be applied to annual royalties payable by
Ligand to the Salk Institute for so long as royalties are due the Salk
Institute; provided, however, that Ligand will refund to X-Ceptor an amount
equal to *** less the amount paid to the Salk Institute for Biological Studies
("Salk Institute") by Ligand as a result of Net Sales of Products under this
Agreement for the year in which the minimum annual royalty is made by X-Ceptor.
4.5 Reconciliation of Salk Institute Payments. To the extent that Ligand is
entitled to claim a credit against its minimum annual royalty obligations to the
Salk Institute as a result of payments to Ligand under Section 4.1 of this
Agreement, Ligand shall refund to X-Ceptor an amount equal to the credit it is
entitled to take, up to a maximum of *** , such refund payment to take place
within thirty (30) days of the date Ligand is entitled to take such credit.
4.6 Patent Expenses. During the term of this Agreement X-Captor shall
reimburse Ligand for all expenses incurred by Ligand or for which Ligand has the
obligation to reimburse related to prosecuting patent applications and
maintaining patents in the Exclusive Technology.
ARTICLE V
ROYALTY REPORTS AND ACCOUNTING
5.1 Reports, Exchange Rates Applicable to Ligand Royalty. During the term
of this Agreement following the First Commercial Sale of a Product, X-Ceptor
shall furnish to Ligand a written report within sixty (60) days of the end of
each calendar quarter showing in reasonably specific detail, on a country by
country basis, (a) the gross sales of all Products sold by X-Ceptor, its
Affiliates and its sublicensees during the Reporting Period (as defined
hereinbelow) to which the report is applicable and the calculation of Net Sales
from such gross sales; (b) the Ligand Royalty payable in U.S. dollars, if any,
which shall have accrued hereunder based upon Net Sales of Products; (c)
withholding taxes, if any, required by law to be deducted in respect of such
sales; (d) the dates of the First Commercial Sales of any Products in any
country during the Reporting Period; and (e) the exchange rates used in
determining the amount of U.S. dollars. With respect to sales of Products
invoiced in U.S. dollars, the gross sales, Net Sales, and royalties payable
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shall be expressed in U.S. dollars. With respect to sales of Products invoiced
in a currency other than U.S. dollars, the gross sales, Net Sales and royalties
payable shall be expressed in the domestic currency of the party making the sale
together with the U.S. dollar equivalent of the royalty payable, calculated
using the Inter Bank rate set forth in the International Report published by
International Reports Inc. as Foreign Exchange Rates quoted in New York on the
day nearest the last business day of the calendar quarter. As used in this
Section 5.1, the term "Reporting Period" shall mean a calendar quarter with
respect to gross sales in the United States (not including Puerto Rico) and a
fiscal quarter ending on the final day of February, May, August and November (as
the case may be) for gross sales outside the United States (including Puerto
Rico). The gross sales made outside the United States during a fiscal quarter
will be reported with the gross sales made in the United States during the
calendar quarter in which the last month of the fiscal quarter falls.
5.2 Reports Applicable to Royalties to Third Parties. During the term of
this Agreement following the First Commercial Sale of a Product, X-Ceptor shall
provide Ligand with reports relating to all royalties included in the Third
Party Royalty for that Product in the same format and containing the same
information required by Ligand's agreements with applicable third parties.
5.3 Audits.
5.3.1 Upon the written request of Ligand and not more than once in each
calendar year, X-Ceptor shall permit an independent certified public accounting
firm of nationally recognized standing, selected by Ligand and reasonably
acceptable to X-Ceptor, at Ligand's expense, to have access during normal
business hours to such of the records of X-Ceptor as may be reasonably necessary
to verify the accuracy of the royalty reports hereunder for any year ending not
more than thirty-six (36) months prior to the date of such request. The
accounting firm shall disclose to Ligand only whether the records are correct or
not and, if applicable, the specific details concerning any discrepancies.
5.3.2 If such accounting firm concludes that additional royalties were owed
during such period, X-Ceptor shall pay the additional royalties within thirty
(30) days of the date Ligand delivers to X-Ceptor such accounting firm's written
report so concluding. The fees charged by such accounting firm shall be paid by
Ligand; provided, however, if the audit discloses that the royalties payable by
X-Ceptor for the audited period are more than *** of the royalties actually paid
for such period, then X-Ceptor shall pay the reasonable fees and expenses
charged by such accounting firm. If the accounting firm concludes that X-Ceptor
has overpaid its royalty obligation, the amount of the overpayment may be taken
as a credit against future royalties payable to Ligand hereunder.
5.3.3 X-Ceptor shall include in each permitted sublicense granted by it
pursuant to the Agreement a provision requiring the sublicensee to make reports
to X-Ceptor, to keep and maintain records of sales made pursuant to such
sublicense and to grant access to such records by Ligand's accounting firm to
the same extent required of X-Ceptor under the Agreement. Upon the expiration of
thirty-six (36) months following the end of any year, the calculation of
royalties payable with respect to such year shall be binding and conclusive upon
Ligand, X-Ceptor and its
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sublicensees, and such sublicensees shall be released from any liability or
accountability with respect to royalties for such year.
5.4 Confidential Financial Information. Ligand shall treat all financial
information subject to review under this Article 5 as confidential and shall
cause its accounting firm to retain all such financial information in
confidence; provided, however, that Ligand shall have the right to disclose to
third parties information required under any agreement with a third party
pertaining to technology of the third party included in the Exclusive Technology
and the Nonexclusive Technology and to publicly report information required of
it under federal or state financial disclosure laws.
ARTICLE VI
PAYMENTS
6.1 Payment Terms. Royalties shown to have accrued by each royalty report
provided for under Article 5 of this Agreement shall be due and payable on the
date such royalty report is due. Payment of royalties in whole or in part may be
made in advance of such due date.
6.2 Payment Method. All royalties and other payments by X-Ceptor to Ligand
under this Agreement shall be made by bank wire transfer in immediately
available funds to such account as Ligand shall designate before such payment is
due; provided, however, that any fees or taxes imposed on a transfer by a
non-United States Bank that would not be imposed on a transfer by a United
States Bank shall be paid by X-Ceptor. If at any time legal restrictions in any
country in the Territory prevent the prompt remittance in the manner set forth
in this Section 6.2 of part or all royalties owing with respect to Product sales
in such country, then the parties shall mutually determine a lawful manner of
remitting the restricted part of such royalty payments so long as such legal
restrictions exist.
6.3 Withholding Taxes. All amounts owing from X-Ceptor to Ligand under this
Agreement shall be paid without deduction to account for any withholding taxes,
value-added taxes or other taxes, levies or charges with respect to such amounts
payable on behalf of X-Ceptor, its Affiliates or sublicensees and any taxes
required to be withheld on behalf of X-Ceptor, its Affiliates or sublicensees in
any country within the Territory; provided, however, that X-Ceptor may deduct
the amount of any taxes imposed on Ligand which are required to be withheld or
collected by X-Ceptor, its Affiliates or sublicensees under the laws of any
country on amounts owing from X-Ceptor to Ligand hereunder to the extent
X-Ceptor, its Affiliates or sublicensees pay to the appropriate governmental
authority on behalf of Ligand such taxes. X-Ceptor shall promptly deliver to
Ligand proof of payment of such taxes together with copies of all communications
from or with such governmental authority with respect thereto.
6.4 Late Payments. Unless otherwise provided in this Agreement, X-Ceptor
shall pay interest to Ligand on the aggregate amount of any payments by X-Ceptor
that are not paid on or before the date such payments are due under the
Agreement at a rate per annum equal to the lesser of the prime rate of interest
as reported by Bank of America NT&SA in San Francisco,
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California, from time to time, plus *** or the highest rate permitted by
applicable law, calculated on the number of days such payment is more than
thirty (30) days delinquent.
ARTICLE VII
ENFORCEMENT OF LICENSED PATENTS IN THE EXCLUSIVE
TECHNOLOGY AND THE NONEXCLUSIVE TECHNOLOgy
7.1 X-Ceptor shall have no right to enforce a patent licensed or
sublicensed to X-Ceptor under this Agreement as part of the Exclusive Technology
or Nonexclusive Technology except as expressly provided in this Section 7.1. Any
right given X-Ceptor by Ligand under this Section 7.1 to enforce a patent shall
be, in the case of sublicensed patents, subject to the rights of Ligand's
licensor and shall not extend beyond Ligand's rights of enforcement, if any, and
shall be subject to any restrictions placed on Ligand. Except as so limited by
the foregoing sentence, X-Ceptor shall have the right to require Ligand to
assert its rights to enforce a patent licensed or sublicensed to X-Ceptor under
this Agreement for acts which would be infringing if carried out by X-Ceptor but
for the license granted hereunder provided that Ligand has had actual notice of
such acts of infringement and not abated such infringement or brought suit to
terminate such infringement within six (6) months of receipt of that notice. Any
action for infringement brought by Ligand under this Section 7.1 shall be at the
expense of X-Ceptor using counsel of Ligand's choice reasonably acceptable to
X-Ceptor. If a monetary recovery is obtained by Ligand by way of judgment or
settlement it shall go to X-Ceptor to the extent of the legal fees incurred by
Ligand and reimbursed by X-Ceptor. Any other recovery, to the extent not
required to be paid to a Ligand licensor shall be shared *** by Ligand and ***
by X-Ceptor. If the alleged infringer has committed acts of infringement in
addition to those within the scope of X-Ceptor's license, the expenses shall be
shared equally by X-Ceptor and Ligand and reimbursement to X-Ceptor shall be
from *** of any judgment obtained by Ligand and any recovery in excess of
expenses shall be reduced by *** before application of the sharing formula in
this Section 7.1
ARTICLE VIII
TRANSFER OF MATERIALS
8.1 Schedule and Manner of Materials Transfer. Ligand shall transfer a
quantity of each of the materials ("Materials") listed in the schedule in
Exhibit D to X-Ceptor to the extent they are available to Ligand, subject to any
restrictions placed on their transfer or use by a third party. The transfer of
these materials will be done after the Effective Date upon the request of
X-Ceptor. Ligand will provide to X-Ceptor (i) with respect to the plasmids
listed on Exhibit D, *** , and (ii) with respect to the *** listed on Exhibit D,
(a) *** which express such protein and (b) *** for such protein. If X-Ceptor
desires additional amounts of a Material, upon request by X-Ceptor Ligand shall
provide additional amounts not to exceed *** provided that the amount of a
requested
- -----------------
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
10
<PAGE>
Material to be provided will depend upon the amount available to Ligand
and, in no event, will Ligand be required to transfer such Material in an amount
which depletes its stock thereof.
8.2 Limitations on Use of Materials. Materials will be used by X-Ceptor
solely for experimental research purposes in X-Ceptor's laboratories. In this
regard, X-Ceptor will use the Materials in compliance with any applicable
Federal, State or local law or regulation. Any animal studies carried out by
X-Ceptor with Materials will be in accordance with the Declaration of Helsinki
and/or with the Guide for the Care and Use of Laboratory Animals as adopted and
promulgated by the National Institutes of Health, and that no animal used in the
scientific investigation of the Materials will be used for food purposes or be
kept as a domestic pet or livestock. Materials are to be used with caution and
prudence in any experimental work, since all of their characteristics are not
known and they are not to be used for testing in or treatment of human beings.
8.3 Restrictions on Transfer. The Materials provided X-Ceptor under this
Article VIII are transferable to other parties except where transfer is
restricted by Ligand's supplier of such Materials. Therefore, prior to any
transfer to a third party of such Materials, X-Ceptor will give notice to Ligand
of its intention to transfer and Ligand shall promptly advise X-Ceptor of any
applicable restrictions. X-Ceptor agrees to abide by the restrictions of
Ligand's suppliers.
8.4 No Other Licenses. No other right or license is granted to X-Ceptor for
these Materials, or to the use of these Materials, is granted or implied as a
result of Ligand's transfer of Materials to X-Ceptor.
8.5 No Warranty. Ligand makes no representation as to the identify, purity,
or activity of the Materials. THE MATERIALS ARE PROVIDED AS IS. LIGAND MAKES NO
WARRANTIES, EXPRESSED OR IMPLIED, IN CONNECTION WITH MATERIALS, INCLUDING
WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR WARRANTY OF FITNESS FOR A
PARTICULAR PURPOSE. X-CEPTOR AGREES TO USE MATERIALS WITH THE CLEAR
UNDERSTANDING THAT LIGAND, ITS EMPLOYEES AND AGENTS HAVE NO LIABILITY IN
CONNECTION WITH MATERIALS OR THEIR USE, INCLUDING ANY LIABILITY FOR
COMPENSATORY, CONSEQUENTIAL, INCIDENTAL OR OTHER DAMAGES.
8.6 Ligand Chemical Library. Ligand shall. provide X-Ceptor with access to
Ligand's chemical compound library of approximately *** compounds, without
prejudice to Ligand's interests, upon reasonable terms and conditions to
include, without limitation, the reimbursement of Ligand's costs of making such
chemical compounds available to X-Ceptor, the quantities of such chemical
compounds to be provided to X-Ceptor and the timetable on which such chemical
compounds would be supplied to X-Ceptor.
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
11
<PAGE>
ARTICLE IX
TERM AND TERMINATION
9.1 Term. Unless sooner terminated in accordance with another provision of
this Article IX, this Agreement shall continue in full force and effect until
the later of (i) expiration of the last patent included in the Exclusive
Technology or the Nonexclusive Technology or (ii) expiration of the obligation
to pay a royalty to the extent that obligation continues beyond the expiration
of the last patent in the Exclusive Technology or Nonexclusive Technology.
9.2 Termination for Breach. This Agreement may be terminated by either
party upon the occurrence of a material breach of this Agreement which results
in a substantial diminution in the value of X-Ceptor as a whole by the other
party giving notice to the breaching party of an intention to terminate unless
the breach is cured within sixty (60) days of receipt of the notice, termination
being effective upon the expiration of the sixty (60) day period, unless the
party alleged to be in breach requests that designated representatives of the
parties meet and attempt to resolve the dispute within thirty (30) days
following the last day of the thirty (30) - day cure period (the "Resolution
Period") during which time the parties shall so meet and in good faith attempt
to resolve the dispute; and provided that if those designated representatives
are unable to reach agreement within the Resolution Period, the parties will
engage in good-faith mediation assisted by a neutral person mutually acceptable
to the parties during a period not to exceed thirty (30) days following the last
day of the Resolution Period (the "Mediation Period"), after which the party
alleging breach may then terminate this Agreement immediately provided that such
breach has not been cured. The parties agree to share equally the expenses of
the neutral person.
9.3 Termination in Bankruptcy. Either party may terminate this Agreement
upon the other party's bankruptcy or insolvency which remains uncured for a
period of sixty (60) days following the event which triggers such party's
bankruptcy or insolvency, to the extent permitted by applicable federal
bankruptcy laws.
9.4 Effect of Termination. Termination of this Agreement by Ligand shall
not relieve X-Ceptor or its sublicensees of the obligation to report and pay
royalties on sales of Products occurring after such termination. Upon
termination of this Agreement by X-Ceptor under Section 9.2 or 9.3, the licenses
granted in Articles III and VIII shall continue in full force and effect.
ARTICLE X
MISCELLANEOUS
10.1 Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the parties hereto to the other
shall be in writing, delivered personally or by facsimile (and promptly
confirmed by personal delivery, U.S. first class mail or courier), U.S. first
class mail or courier, postage prepaid (where applicable), addressed to such
other party at its address indicated below, or to such other address as the
addressee shall have last
12
<PAGE>
furnished in writing to the addressor and (except as otherwise provided in
this Agreement) shall be effective upon receipt by the addressee.
If to Ligand: Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attention: General Counsel
Facsimile: (858) 550-1825
If to X-Ceptor: X-Ceptor Therapeutics, Inc.
10555 Science Park Drive, Suite B
San Diego, California 92121
Attention: Chief Executive Officer
Facsimile: ()
10.2 Applicable Law. The Agreement shall be governed by and construed in
accordance with the laws of the State of California without reference to its
conflicts of law provisions.
10.3 Entire Agreement. This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof. All express or implied
agreements and understandings, either oral or written, heretofore made are
expressly merged in and made a part of this Agreement. This Agreement may be
amended, or any term hereof modified, only by a written instrument duly executed
by both parties hereto.
10.4 Headings. The captions to the several Articles and Sections hereof are
not a part of this Agreement, but are merely guides or labels to assist in
locating and reading the several Articles and Sections hereof.
10.5 Independent Contractors. It is expressly agreed that Ligand and
X-Ceptor shall be independent contractors and that the relationship between the
two parties shall not constitute a partnership, joint venture or agency. Neither
Ligand nor X-Ceptor shall have the authority to make any statements,
representations or commitments of any kind, or to take any action, which shall
be binding on the other, without the prior consent of the party to do so.
10.6 U.S. Export Laws and Regulations. Each party warrants and represents
to the other that it does not intend to, nor will it export from the United
States or reexport from any foreign country, or permit a third party to export
or reexport technology or technical information of the other party, to a country
where such export or reexport would be in violation of U.S. Export
Administration Regulations.
10.7 Waiver. The waiver by either party hereto of any right hereunder or
the failure to perform or of a breach by the other party shall not be deemed a
waiver of any other right hereunder or of any other breach or failure by said
other party whether of a similar nature or otherwise.
13
<PAGE>
10.8 Additional Remedies. Any remedy provided in this Agreement shall be in
addition to, and not in lieu of, any other remedy that a party shall have at law
or in equity.
10.9 Assignment. Ligand may not assign this Agreement without the prior
written consent of X-Ceptor except in connection with transfer or sale of all or
substantially all of its business pertaining to this Agreement, or in the event
of its merger or consolidation or change of control or similar transaction;
provided Ligand may assign its rights (but not its obligations) under this
Agreement without the prior written consent of X-Ceptor. This Agreement may not
be assigned by X-Ceptor during the term of the Ligand Option. After the
expiration of the Ligand Option without it having been exercised, X-Ceptor may
not assign this Agreement without the prior written consent of Ligand except in
connection with transfer or sale of all or substantially all of its business
pertaining to this Agreement, or in the event of its merger or consolidation or
change of control or similar transaction.
10.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
X-CEPTOR THERAPEUTICS, INC. LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ Kevin Kinsella By: /s/ David E. Robinson
Title: Chairman, President & CEO Title:
<PAGE>
EXHIBIT A
- ------------------------------ ---------------------------------
Orphan Receptor Technology Patent Numbers
- ------------------------------ ---------------------------------
- ------------------------------ ---------------------------------
*** ***
*** ***
*** ***
- ------------------------------ ---------------------------------
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Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT A
- ------------------------------ -------------------------------
Orphan Receptor Technology U.S. Series No., Patent
- ------------------------------ -------------------------------
- ------------------------------ -------------------------------
*** ***
*** ***
*** ***
- ------------------------------ -------------------------------
- -----------------
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Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT B
- -------------------------------- ------------------------------
Research Tools Patent Numbers
- -------------------------------- ------------------------------
- -------------------------------- ------------------------------
*** ***
*** ***
*** ***
- -------------------------------- ------------------------------
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT B
- ---------------------------- ----------------------------------
Research Tools U.S. Serial No., Patent
- ---------------------------- ----------------------------------
- ---------------------------- ----------------------------------
*** ***
*** ***
*** ***
- ---------------------------- ----------------------------------
- -----------------
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Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT C
I. License Agreement dated October 20, 1998 between Salk Institute for
Biological Studies and Progenx Incorporated, as amended through the
Effective Date by the First Amendment dated September 15, 1989, the Second
Amendment dated December 1, 1989 substituting Ligand Pharmaceuticals
Incorporated for Progenx Incorporated and the Third Amendment dated October
20, 1990
II. Exclusive License Agreement dated January 4, 1990 between Baylor Coollege
of Medicine and Ligand Pharmaceuticals Incorporated for ***
III Sponsored Research and License Agreement dated March 9, 1992 between Baylor
College of Medicine and Ligand Pharmaceuticals Incorporated, as amended
through the Effective Date by the First Amendment dated September 1, 1992,
and the Second Amendment dated April 2, 1997.
IV. License Agreement dated March 31, 1994 between Baylor College of Medicine
and Ligand Pharmaceuticals Incorporated
- -----------------
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Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT D
***
***
***
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
***
***
***
- -----------------
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
***
***
***
- -----------------
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
***
***
***
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
***
EXHIBIT D
***
***
***
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*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
<PAGE>
EXHIBIT 10.10
THE SECURITY EVIDENCED HEREBY HAS 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 HAS BEEN SOLD IN RELIANCE ON THE
EXEMPTION FROM REGISTRATION PROVIDED BY REGULATION S UNDER THE ACT ("REGULATION
S"). THE SECURITY EVIDENCED HEREBY MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S (ss.230.901
THROUGH ss.230.905, AND PRELIMINARY NOTES).
THE TRANSFER OF THE SECURITY EVIDENCED HEREBY IS SUBJECT TO THE CONDITIONS
SPECIFIED IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF NOVEMBER 6, 1998, BY
AND AMONG THE COMPANY, ELAN INTERNATIONAL SERVICES, LTD. AND ELAN CORPORATION,
PLC, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITY
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.
LIGAND PHARMACEUTICALS INCORPORATED
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
No. R-3
Issue Date: July 14, 1999
Issue Price: $40,000,000
($481.22 for each $1,000 Principal Amount)
Original Issue Discount: $43,121,503
($518.78 for each $1,000 Principal Amount)
Ligand Pharmaceuticals Incorporated, a Delaware corporation, promises to
pay to Monksland Holdings, B.V. or registered assigns, on November 9, 2008, the
Principal Amount of Eighty-Three Million, One Hundred and Twenty-One Thousand,
Five Hundred and Three Dollars ($83,121,503) or such Principal Amount as may
result from an Accrual Increase as specified on the other side of this Security.
This Security shall not bear interest except as specified on the other side
of this Security. Original Issue Discount will accrue as specified on the other
side of this Security. This Security is convertible into Common Stock as
specified on the other side of this Security.
<PAGE>
Additional provisions of this Security are set forth on the other side of
this Security.
This Security is one of the Zero Coupon Convertible Senior Notes due 2008
issued pursuant to the Securities Purchase Agreement, dated as of November 6,
1998, by and among Ligand Pharmaceuticals Incorporated, Elan International
Services, Ltd. and Elan Corporation, plc (the "Purchase Agreement").
IN WITNESS WHEREOF, Ligand Pharmaceuticals Incorporated has caused this
instrument to be duly executed.
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ David E. Robinson
Name:
Title: President
Attest
By: /s/ Paul Maier
Name:
Title: Chief Financial Officer
Dated: July 14, 1999
2
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
1. INTEREST
(a) This Security shall not bear interest, except as specified in this
paragraph or in paragraph 12 hereof. If the Principal Amount hereof or any
portion of such Principal Amount is not paid when due (whether upon acceleration
pursuant to paragraph 9 hereof, upon the date set for payment of the Redemption
Price pursuant to paragraph 3 hereof, upon the date set for payment of a
Purchase Price or a Company Change of Control Purchase Price pursuant to
paragraph 4 hereof, upon the date set for payment of the Elan Change of Control
Purchase Price pursuant to paragraph 5 hereof or upon the Stated Maturity of
this Security) or if shares of Common Stock (and cash in lieu of fractional
shares) in respect of a conversion of this Security in accordance with paragraph
6 hereof are not delivered when due, then, in each such case, the overdue amount
shall bear interest at the rate of 10.0% per annum, compounded semiannually (to
the extent that the payment of such interest shall be legally enforceable),
which interest shall accrue from the date such overdue amount was due to the
date payment of such amount, including interest thereon, has been made. All such
interest shall be payable on demand. The accrual of such interest on overdue
amounts shall be in lieu of, and not in addition to, the continued accrual of
Original Issue Discount.
(b) Original Issue Discount (the difference between the Issue Price and the
Principal Amount of a Security) in the period during which a Security remains
outstanding shall accrue at 8.0% per annum, on a semiannual bond equivalent
basis using a 360-day year consisting of twelve 30-day months, commencing on the
Issue Date of this Security, and shall cease to accrue on the earlier of (i) the
date on which the Principal Amount hereof or any portion of such Principal
Amount becomes due and payable and (ii) any Redemption Date, Purchase Date,
Company Change of Control Payment Date, Elan Change of Control Payment Date or
Conversion Date.
(c) In the event that the Company defaults in the performance or observance
of any agreement, covenant, term or condition contained in the Registration
Rights Agreement or the New Registration Rights Agreement, as the case may be,
and such default continues for a period of 30 days after receipt by the Company
of notice thereof (provided that, if such default is not cured on or prior to
the last day of such 30 day period and such breach is then capable of being
cured and the Company is then working in good faith to cure such default, such
30 day period shall be extended by an additional 20 days from the last day of
such 30 day period) (a "Registration Rights Default"), the Company acknowledges
that the Holders of the Securities will suffer damages and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees that, as liquidated damages, the rate at which Original Issue
Discount or interest pursuant to paragraph 1(a) or 12 hereof, if any, accrues
shall be increased over and above the rate stated in paragraph 1(b), 1(a) and
12(a), respectively (an "Accrual Increase"), by an additional 50 basis points
for each 90-day period in which a Registration Rights Default continues;
provided that the aggregate of such Accrual Increase shall not exceed 200 basis
points over and above the rate set forth in paragraph 1(b), 1(a) and 12(a)
hereof, as the case may be; provided, further, that any Accrual Increase shall
immediately cease
<PAGE>
upon the cure of any such Registration Rights Default. Whenever, in this
Security, there is mentioned, in any context, Principal Amount, Original Issue
Discount or interest, or any other amount payable under or with respect to this
Security, including the Redemption Price, the Purchase Price, the Company Change
of Control Purchase Price and the Elan Change of Control Purchase Price, such
mention shall be deemed to include mention of an Accrual Increase to the extent
that, in such context, such Accrual Increase is, was or would be in effect.
2. METHOD OF PAYMENT
Holders must surrender Securities to the Company to collect payments in
respect of the Securities. The Company will pay cash amounts in money of the
United States that at the time of payment is legal tender for payment of public
and private debts (and all references in the Securities to "$" or "dollars"
shall refer to such currency) by wire transfer in immediately available funds,
to an account or accounts designated in writing by each Holder not less than 5
Business Days prior to the date of the applicable payment.
3. REDEMPTION AT THE OPTION OF THE COMPANY
(a) No sinking fund is provided for the Securities. The Securities are
redeemable as a whole at any time, or in part from time to time, at the option
of the Company, at the redemption prices (each, a "Redemption Price") set forth
in paragraph 3(b) hereof; provided that the Securities are not redeemable prior
to November 9, 2001.
(b) The table below shows the Redemption Prices of a Security per $1,000
Principal Amount on the dates shown below and at Stated Maturity, which prices
reflect accrued Original Issue Discount calculated to each such date. The
Redemption Price of a Security redeemed between such dates would include an
additional amount reflecting the additional Original Issue Discount accrued
since the next preceding date in the table to the actual Redemption Date.
<TABLE>
<CAPTION>
(2)
Accrued
(1) Original Issue (3)
Security Discount Redemption Price
Redemption Date Issue Price At 8.0% (1) + (2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
November 9, 2001................................... $481.22 $ 96.26 $ 577.48
November 9, 2002................................... 481.22 143.38 624.60
November 9, 2003................................... 481.22 194.34 675.56
November 9, 2004................................... 481.22 249.47 730.69
November 9, 2005................................... 481.22 309.09 790.31
November 9, 2006................................... 481.22 373.58 854.80
November 9, 2007................................... 481.22 443.34 924.56
At maturity........................................ 481.22 518.78 1,000.00
</TABLE>
2
<PAGE>
If converted to a semiannual coupon note following the occurrence of a Tax
Event, the Securities will be redeemable at the Restated Principal Amount plus
interest accrued and unpaid from, and including, the date of such conversion to,
but excluding, the Redemption Date.
(c) If less than all of the Securities are to be redeemed, the Company
shall select the Securities to be redeemed pro rata. If any Security selected
for redemption is thereafter surrendered for conversion in part, the converted
portion of such Security shall be deemed (so far as may be), solely for purposes
of determining the aggregate Principal Amount of Securities to be redeemed by
the Company, the portion selected for redemption. Nothing in this paragraph 3
shall affect the right of any Holder to convert any Security pursuant to
paragraph 6 hereof.
(d) Provisions of this Security that apply to the redemption of all of a
Security also apply to the redemption of any portion of such Security.
(e) At least 30 days but not more than 60 days before a Redemption Date,
the Company shall cause notice of redemption to be mailed, by first class mail,
postage prepaid, to each Holder of Securities at such Holder's address appearing
on the register maintained by the Company. Such notice shall identify the
Securities to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the Conversion Price in effect on the date of such notice;
(iv) that Securities called for redemption may be converted at
any time prior to the close of business on the Redemption
Date;
(v) that Securities called for redemption must be surrendered to
the Company to collect the Redemption Price and the
procedures to be followed to so surrender such Securities;
(vi) if fewer than all the outstanding Securities are to be
redeemed, the identification and Principal Amounts of the
particular Securities to be redeemed;
(vii) that, unless the Company defaults in payment of the
Redemption Price, Original Issue Discount on the Securities
called for redemption and interest, if any, will cease to
accrue on and after the Redemption Date;
(viii) that Holders whose Securities are being redeemed only in
part will, without charge, be issued a new Security equal in
Principal Amount to the unredeemed portion of the
Securities; and
(ix) that the Redemption Price for any Security called for
redemption will be paid one Business Day following the later
of (x) the Redemption Date and (y) the date such Security is
surrendered to the Company.
3
<PAGE>
(f) Once notice of redemption is given, Securities called for redemption
shall become due and payable on the Redemption Date and at the Redemption Price
stated in such notice, except for Securities that are converted. The Redemption
Price for the Securities called for redemption shall be paid one Business Day
following the later of (x) the Redemption Date and (y) the date such Securities
are surrendered to the Company.
(g) Receipt by the Company of the Securities called for redemption prior
to, on or after the Redemption Date shall be a condition to the receipt by the
Holder of the Redemption Price therefor.
(h) Upon surrender of a Security that is redeemed in part, the Company
shall, without charge, execute and deliver to the Holder a new Security equal in
Principal Amount to the unredeemed portion of such Security.
4. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER
(a) Purchase at the Option of the Holder. The Company shall be obligated to
purchase, at the option of the Holder, the Securities held by such Holder on the
following purchase dates (each, a "Purchase Date") and at the following purchase
prices per $1,000 Principal Amount (each, a "Purchase Price"), which Purchase
Prices reflect accrued Original Issue Discount to each such date. Such Purchase
Prices may be paid, at the option of the Company, in cash or by the issuance and
delivery of shares of Common Stock, subject to the conditions set forth in
paragraph 4(a)(iv) hereof.
<TABLE>
<CAPTION>
(2)
Accrued
(1) Original Issue (3)
Security Discount Purchase Price
Purchase Date Issue Price At 8.0% (1) + (2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
November 9, 2002................................... $481.22 $143.38 $624.60
November 9, 2005................................... 481.22 309.09 790.31
</TABLE>
If, prior to the Purchase Date, the Securities have been converted to a
semiannual coupon note following the occurrence of a Tax Event, the Purchase
Price will be equal to the Restated Principal Amount plus interest accrued and
unpaid from, and including, the date of such conversion to, but excluding, the
Purchase Date.
(i) In order to have Securities purchased pursuant to this paragraph 4(a),
the Holder shall (x) deliver to the Company (for each Security or
portion thereof to be purchased) a written notice of purchase in the
form attached to this Security as Annex A (a "Purchase Notice") at any
time on or prior to the close of business on such Purchase Date and
(y) surrender such Securities to the Company prior to, on or after the
Purchase Date, such surrender being a condition to receipt by the
Holder of the Purchase Price therefor.
4
<PAGE>
Provisions of this Security that apply to the purchase of all
of a Security also apply to the purchase of any portion of such
Security.
Subject to the right of a Holder to convert Securities as to
which a Purchase Notice has been delivered into Common Stock at any
time prior to the close of business on the Purchase Date, such Holder
may not withdraw such Purchase Notice.
Any purchase of Securities contemplated pursuant to this
paragraph 4(a) shall be consummated by the delivery of the Purchase
Price to be received by the Holder (in cash or Common Stock, as the
case may be) one Business Day following the later of (x) the Purchase
Date and (y) the date such Securities are surrendered to the Company.
(ii) The Securities to be purchased pursuant to this paragraph 4(a) may be
paid for, at the option of the Company, in cash or Common Stock,
subject to the conditions set forth in paragraph 4(a)(iv) hereof. The
Company shall designate, in the Company Notice (as defined below)
delivered pursuant to paragraph 4(a)(v) hereof, whether the Company
will purchase the Securities for cash or Common Stock; provided that
the Company will pay cash for fractional shares of Common Stock
pursuant to paragraph 4(a)(iv)(A) hereof. The Company may not change
its election with respect to the consideration to be paid once the
Company has given the Company Notice, except pursuant to paragraph
4(a)(iv)(B) hereof.
(iii) On each Purchase Date, if the Company Notice shall state that the
Company will purchase Securities for cash, the Securities in respect
of which a Purchase Notice has been given shall be purchased by the
Company with cash in an amount equal to the aggregate Purchase Price
of such Securities.
(iv) On each Purchase Date, if the Company Notice shall state that the
Company will purchase Securities for Common Stock, the Securities in
respect of which a Purchase Notice has been given shall be purchased
by the Company by the issuance of a number of whole shares of Common
Stock equal to the quotient obtained by dividing (x) the amount of
cash to which the Holder would have been entitled had the Company
elected to pay the Purchase Price of such Securities in cash by (y)
the average of the Closing Prices of the Common Stock for the 20
consecutive trading days ending on and including the second trading
day immediately preceding the Purchase Date, subject to paragraph
4(a)(iv)(A) hereof.
(A) The Company will not issue a fractional share of Common
Stock in payment of the Purchase Price. Instead, the Company will
pay cash in an amount equal to the current market value of the
fractional share. The current market value of a fraction of a
share of Common Stock shall be determined by multiplying the
average of the Closing Prices of the Common Stock for the 20
consecutive trading days ending on and including the second
trading day immediately preceding the Purchase Date by such
fraction and rounding to the nearest whole cent, with one-half
cent being rounded upward. It is understood that if a Holder
elects to have more than one Security purchased, the number of
5
<PAGE>
whole shares of Common Stock shall be based on the aggregate
amount of Securities to be purchased.
(B) The Company's right to elect to purchase the Securities
of any Holder through the issuance of shares of Common Stock
shall be conditioned upon the following: (x) assuming compliance
with all applicable state securities or "Blue Sky" laws, and
assuming the accuracy of the statements of such Holder set forth
in the Purchase Notice, the issuance of such shares of Common
Stock shall be exempt from the registration requirements of
Section 5 of the Securities Act, (y) no consent, approval,
authorization or order of any court or governmental agency or
body or third party shall be required for the issuance by the
Company of such shares of Common Stock and (z) such Holder shall
have received an Opinion of Counsel (which shall be included with
the Company Notice) stating that the terms of the issuance of
such Common Stock are in conformity with this paragraph 4(a),
that such Common Stock has been duly authorized and, upon
issuance, will be validly issued, nonassessable and fully paid,
will not be issued in violation of any preemptive or similar
rights and will be free of any liens, encumbrances or
restrictions on transfer imposed by the Company other than those
imposed by the Securities Act and applicable state securities or
"Blue Sky" laws (provided that such Opinion of Counsel may state
that, insofar as it relates to the absence of preemptive or
similar rights, it is given upon the best knowledge of such
counsel) and that clause (x) of this paragraph 4(a)(iv)(B) has
been satisfied.
(C) If the conditions set forth in paragraph 4(a)(iv)(B)
hereof are not satisfied as of the Purchase Date, and the Company
shall have elected to purchase the Securities through the
issuance of shares of Common Stock, the Company shall, without
further notice, pay the Purchase Price in cash.
(v) The Company shall cause a notice of its election to pay the Purchase
Price with cash or Common Stock (the "Company Notice") to be sent by
first class mail, postage prepaid, to the Holders at their addresses
appearing in the register maintained by the Company. The Company
Notice shall be sent to Holders on a date not less than 20 Business
Days prior to the Purchase Date (such date being herein referred to as
the "Company Notice Date"); provided that, in the event that the
Company shall not have delivered the Company Notice on or prior to the
Company Notice Date, the Company shall be deemed to have irrevocably
elected to pay the Purchase Price in cash. The Company Notice shall
state the manner of payment elected and shall contain the following
information:
In the event that the Company has elected to pay the Purchase Price with
Common Stock, the Company Notice shall state that each Holder will receive
Common Stock (except for any cash amount to be paid in lieu of fractional
shares) in accordance with this paragraph 4(a) and shall be accompanied by the
Opinion of Counsel described in paragraph 4(a)(iv)(B) hereof.
In any case, each Company Notice will include the Purchase Notice to be
completed by the Holder and shall state:
6
<PAGE>
(A) the Purchase Price on such Purchase Date and the Conversion Price in
effect on the date of the Company Notice;
(B) that Securities must be surrendered to the Company to collect payment
and any procedures to be followed in so surrendering the Securities;
(C) that Securities as to which a Purchase Notice has been given may be
converted at any time prior to the close of business on the applicable Purchase
Date;
(D) that, unless the Company defaults in the payment of the Purchase Price,
Original Issue Discount on all Securities in respect of which a Purchase Notice
has been delivered or interest, if any, will cease to accrue on and after the
Purchase Date;
(E) that Holders whose Securities are being purchased only in part will,
without charge, be issued a new Security equal in Principal Amount to the
unpurchased portion of the Securities; and
(F) that the Purchase Price for any Security as to which a Purchase Notice
has been given will be paid one Business Day following the later of (x) the
Purchase Date and (y) the date such Security is surrendered to the Company.
(vi) All shares of Common Stock delivered upon purchase of the
Securities shall be newly issued shares or treasury shares, shall be duly
and validly issued, fully paid and nonassessable, shall not be issued in
violation of any preemptive or similar rights and shall be free of any
liens, encumbrances or restrictions on transfer other than those imposed by
the Securities Act and applicable state securities or "Blue Sky" laws.
(vii) Receipt of such Security by the Company prior to, on or after
the Purchase Date shall be a condition to the receipt by the Holder of the
Purchase Price therefor.
(viii) On the Business Date immediately following the later of (x) the
Purchase Date and (y) the date on which such Securities are surrendered to
the Company, the Company shall deliver to each Holder entitled to receive
Common Stock a certificate for the number of full shares of Common Stock
issuable in payment of the Purchase Price and cash in lieu of any
fractional shares.
(ix) If a Holder is paid in Common Stock, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on such issuance of
Common Stock.
(x) Upon surrender of a Security that is to be purchased only in part,
the Company shall, without charge, execute and deliver to the Holder a new
Security equal in Principal Amount to the unpurchased portion of such
Security.
(b) Purchase at the Option of the Holder upon Company Change of Control.
Upon a Change of Control of the Company, the Company shall be obligated to make
an offer to purchase all outstanding Securities (the "Company Change of Control
Offer") at a purchase price per $1,000 Principal Amount (the "Company Change of
Control Purchase Price") equal to the sum
7
<PAGE>
of (x) the Issue Price plus (y) accrued Original Issue Discount to the
Company Change of Control Payment Date. If, prior to the Company Change of
Control Payment Date, the Securities have been converted to a semiannual coupon
note following the occurrence of a Tax Event, the Company Change of Control
Purchase Price will be equal to the Restated Principal Amount plus interest
accrued and unpaid from, and including, the date of such conversion to, but
excluding, the Company Change of Control Payment Date.
(i) Within 10 days after the occurrence of a Change of Control of the
Company, the Company shall cause a notice of the Company Change of Control
Offer (the "Company Change of Control Offer Notice") to be sent by
first-class mail, postage prepaid, to the Holders at their addresses
appearing in the register maintained by the Company, stating:
(A) the event or events causing such Change of Control of the Company
and the date such Change of Control occurred;
(B) that the Company Change of Control Offer is being made pursuant to
this paragraph 4(b);
(C) the Company Change of Control Purchase Price and the purchase date
(which shall be a Business Day no earlier than 10 days nor later than 30
days from the date such notice is mailed (the "Company Change of Control
Payment Date"));
(D) that a Company Change of Control Purchase Notice (as defined
below) must be delivered to the Company on or prior to the close of
business on the Company Change of Control Payment Date and that Securities
must be surrendered to the Company prior to, on or after the Company Change
of Control Payment Date to collect payment, including any procedures to be
followed in so surrendering the Securities;
(E) that any Security as to which a Company Change of Control Purchase
Notice has not been delivered will continue to accrue Original Issue
Discount or interest, if any;
(F) the Conversion Price in effect on the date of the Company Change
of Control Offer Notice and any adjustments thereto resulting from such
Change of Control;
(G) that the Securities as to which a Company Change of Control
Purchase Notice has been given may be converted into Common Stock at any
time prior to the close of business on the Company Change of Control
Payment Date;
(H) that, unless the Company defaults in the payment of the Company
Change of Control Payment, Original Issue Discount on all Securities as to
which a Company Change of Control Purchase Notice has been delivered or
interest, if any, will cease to accrue on and after the Company Change of
Control Payment Date;
8
<PAGE>
(I) that Holders whose Securities are being purchased only in part
will, without charge, be issued a new Security equal in Principal Amount to
the unpurchased portion of the Securities; and
(J) that the Company Change of Control Purchase Price for any Security
as to which a Company Change of Control Purchase Notice has been given will
be paid one Business Day following the later of (x) the Company Change of
Control Payment Date and (y) the date such Security is surrendered to the
Company.
(ii) A Holder may elect to have its Securities purchased pursuant to a
Company Change of Control Offer upon delivery of a written notice of
purchase (the "Company Change of Control Purchase Notice") to the Company
at any time prior to the close of business on the Company Change of Control
Payment Date, stating:
(A) the certificate number of each Security which the Holder will
deliver to be purchased; and
(B) the portion of the Principal Amount of such Security which the
Holder has elected to have purchased.
(iii) Receipt of such Security by the Company prior to, on or after
the Company Change of Control Payment Date shall be a condition to the
receipt by the Holder of the Company Change of Control Purchase Price
therefor.
(iv) Provisions of this Security that apply to the purchase of all of
a Security also apply to the purchase of any portion of such Security.
(v) Any purchase of Securities contemplated pursuant to this paragraph
4(b) shall be consummated by the delivery of the Company Change of Control
Purchase Price to be received by the Holder one Business Day following the
later of (x) the Company Change of Control Payment Date and (y) the date
such Securities are surrendered to the Company.
(vi) If any Security is to be purchased only in part, the Company
shall, without charge, issue to the Holder a new Security equal in
Principal Amount to the unpurchased portion of such Security.
(vii) The Company will comply with the requirements of Section 14(e)
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Securities pursuant to a Company
Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this
paragraph 4(b), the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its
obligations under this paragraph 4(b) by virtue thereof.
9
<PAGE>
5.PURCHASE AT THE OPTION OF THE COMPANY UPON ELAN CHANGE OF CONTROL
(a) Upon a Change of Control of Elan occurring prior to November 9, 2001,
the Company may, at its option, repurchase (the "Elan Change of Control
Purchase") the Securities held by Elan or any of its Affiliates on the date of
such Change of Control, in whole but not in part, at a cash purchase price per
$1,000 Principal Amount (the "Elan Change of Control Purchase Price") equal to
the greater of (i) the sum of (A) the Issue Price plus (B) accrued Original
Issue Discount to the Elan Change of Control Payment Date (provided that if,
prior to the Elan Change of Control Payment Date, the Securities have been
converted to a semiannual coupon note following the occurrence of a Tax Event,
the sum set forth in this clause (i) shall be the Restated Principal Amount plus
interest accrued and unpaid from, and including, the date of such conversion to,
but excluding, the Elan Change of Control Payment Date) and (ii) the product of
(a) the number of shares of Common Stock into which the Securities to be
redeemed may be converted pursuant to paragraph 6 hereof on the day immediately
preceding the Elan Change of Control Payment Date and (b) the average of the
Closing Prices of the Common Stock for the 20 consecutive trading days ending on
and including the second trading day immediately prior to the Elan Change of
Control Payment Date (as defined below); provided that, as a condition to any
such repurchase, the Company shall repurchase all, but not less than all, of the
Initial Shares, the Shares, the Conversion Shares and the License Shares, in
each case, held by Elan and its Affiliates on the date of such Change of
Control, pursuant to and in accordance with the terms of the Purchase Agreement.
(b) If an Elan Change of Control Purchase is to be made by the Company, the
Company shall, on or prior to the 10th day following receipt of an Elan Change
of Control Notice, cause an irrevocable notice of the Elan Change of Control
Purchase (the "Elan Change of Control Purchase Notice") to be sent by first
class mail, postage prepaid, to Elan stating:
(i) that the Elan Change of Control Purchase is being made pursuant to
this paragraph 5;
(ii) the Elan Change of Control Purchase Price and the purchase date
(which shall be a Business Day no earlier than 10 days nor later than 20
days from the date of the Elan Change of Control Purchase Notice (the "Elan
Change of Control Payment Date"));
(iii) that the Elan Change of Control Purchase Price for any Security
as to which the Elan Change of Control Purchase Notice relates will be paid
on the Business Day following the later of (x) the Elan Change of Control
Payment Date and (y) the date such Security is surrendered to the Company;
(iv) that Elan shall, and shall cause its Affiliates to, surrender to
the Company on or prior to the Elan Change of Control Payment Date all
Securities owned by any of them on the date of the Change of Control of
Elan and the procedures to be followed in so surrendering such Securities;
and
(v) that, unless the Company defaults in the payment of the Elan
Change of Control Purchase Price, Original Issue Discount on all such
Securities or interest, if any,
10
<PAGE>
will cease to accrue on and after the Elan Change of Control Payment
Date and, effective upon the date of the Change of Control of Elan, such
Securities shall cease to be convertible.
(c) In the event that the Company fails to deliver the Elan Change of
Control Purchase Notice on or prior to the 10th day following receipt of an Elan
Change of Control Notice pursuant to paragraph 5(b) hereof, such failure shall
be deemed to be a waiver by the Company of its right to repurchase the
Securities pursuant to this paragraph 5.
(d) Upon the giving of the Elan Change of Control Purchase Notice pursuant
to this paragraph 5, such notice may not be revoked by the Company and all
Securities as to which such Elan Change of Control Purchase Notice relates shall
become due and payable in accordance with this paragraph 5 at the Elan Change of
Control Purchase Price.
(e) Receipt of such Securities by the Company prior to, on or after the
Elan Change of Control Payment Date shall be a condition to the receipt by the
Holder of the Elan Change of Control Purchase Price therefor.
6. CONVERSION
(a) A Holder of a Security may, on or prior to November 9, 2008, convert in
whole at any time or in part from time to time such Security into Common Stock;
provided, however, that if a Security is called for redemption, the Holder may
convert it at any time before the Redemption Date. A Security in respect of
which the Holder has delivered a Purchase Notice or a Company Change of Control
Purchase Notice exercising the option of such Holder to require the Company to
purchase such Security may, notwithstanding such notice, convert the Security in
accordance with this paragraph 6 until the close of business on the Payment Date
or the Company Change of Control Payment Date, as the case may be. Upon the
occurrence of a Change of Control of Elan, the Securities then held by Elan and
its Affiliates may not be converted on or prior to the 10th day following the
giving of an Elan Change of Control Notice; provided that, if an Elan Change of
Control Purchase Notice is given by the Company pursuant to paragraph 5(b)
hereof, the Securities may not be converted unless the Company defaults in the
payment of the Elan Change of Control Purchase Price for all Securities as to
which such Elan Change of Control Purchase Notice relates. Notwithstanding the
foregoing, neither Elan nor any of its Affiliates may convert any Security held
by it if, at the time of such conversion, Elan is in violation of Section 14(c)
of the Purchase Agreement.
(b) This Security shall be convertible into a number shares of Common Stock
equal to (x) the Issue Price plus all accrued Original Issue Discount to the
applicable Conversion Date (as defined below) (provided that if, prior to the
applicable Conversion Date, the Securities have been converted to a semiannual
coupon note following the occurrence of a Tax Event, this clause (x) shall be
the Restated Principal Amount plus interest accrued and unpaid from, and
including, the date of such conversion to, but excluding, such Conversion Date)
divided by (y) $14.00, as adjusted to the Conversion Date (the "Conversion
Price"). Provisions of this Security that apply to conversion of all of a
Security also apply to conversion of a portion of such Security.
11
<PAGE>
(c) The shares of Common Stock issuable upon conversion of this Security
shall, to the extent required, bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND 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. THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF REGULATION S (ss.230.901 THROUGH ss.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 SECURITIES PURCHASE
AGREEMENT, DATED AS OF NOVEMBER 6, 1998, BY AND AMONG THE
COMPANY, ELAN INTERNATIONAL SERVICES, LTD. AND ELAN
CORPORATION, PLC, 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.
(d) To convert this Security a Holder must (i) complete and duly sign a
conversion notice in the form attached hereto as Annex B (the "Conversion
Notice") and deliver such notice to the Company and (ii) surrender this Security
to the Company. The date on which a Holder of Securities satisfies all the
foregoing requirements is the conversion date (the "Conversion Date"). Not more
than three Business Days after the Conversion Date, the Company shall deliver to
the Holder a certificate for the number of full shares of Common Stock issuable
upon such conversion and cash in lieu of any fractional share. The Person in
whose name the certificate is registered shall be treated as a stockholder of
record on and after the Conversion Date; provided, however, that no surrender of
a Security on any date when the stock transfer books of the
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<PAGE>
Company shall be closed shall be effective to constitute the Person or
Persons entitled to receive the shares of Common Stock upon such conversion as
the record holder or holders of such shares of Common Stock on such date, but
such surrender shall be effective to constitute the Person or Persons entitled
to receive such shares of Common Stock as the record holder or holders thereof
for all purposes at the close of business on the next succeeding day on which
such stock transfer books are open; such conversion shall be at the Conversion
Price in effect on the date that such Security shall have been surrendered for
conversion, as if the stock transfer books of the Company had not been closed.
Upon conversion of a Security, such Person shall no longer be a Holder of such
Security. Any Security for which a Conversion Notice is delivered on any
Business Day shall be deemed to be converted simultaneously with all other
Securities for which a Conversion Notice is delivered on such Business Day,
subject to the surrender of such Securities to the Company pursuant to this
paragraph 6.
(e) If a Holder converts more than one Security at the same time, the
number of shares of Common Stock issuable upon such conversion shall be based on
the sum of (x) the aggregate Issue Price plus (y) the aggregate accrued Original
Issue Discount, in each case, of the Securities converted; provided that if,
prior to the applicable Conversion Date, the Securities have been converted to a
semiannual coupon note following the occurrence of a Tax Event, such conversion
shall be based on the sum of (x) the aggregate Restated Principal Amount plus
(y) the aggregate interest accrued and unpaid from, and including, the date of
such conversion to, but excluding, such Conversion Date. Upon surrender of a
Security that is converted in part, the Company shall execute and deliver to the
Holder a new Security in a denomination equal in Principal Amount to the
unconverted portion of the Security surrendered. If the last day on which a
Security may be converted is not a Business Day, such Security may be
surrendered to the Company on the next succeeding Business Day.
(f) The Company shall not issue a fractional share of Common Stock upon
conversion of a Security. Instead, the Company shall deliver cash in an amount
equal to the current market value of the fractional share. The current market
value of a fraction of a share shall be determined to the nearest 1/10,000th of
a share by multiplying the average of the Closing Prices of the Common Stock for
the 20 consecutive trading days immediately prior to the applicable Conversion
Date by such fraction and rounding to the nearest whole cent, with one-half cent
being rounded upward.
(g) If a Holder converts a Security, the Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon such conversion.
(h) The Company shall reserve out of its authorized but unissued Common
Stock a sufficient number of shares of Common Stock to permit the conversion of
the Securities. All shares of Common Stock delivered upon conversion of the
Securities shall be newly issued shares or treasury shares, shall be validly
issued, nonassessable and fully paid, shall not be issued in violation of any
preemptive or similar rights and shall be free of any liens, encumbrances or
restrictions on transfer imposed by the Company other than those imposed by the
Securities Act and applicable state securities or "Blue Sky" laws. The Company
shall cause all such reserved shares of Common Stock to be listed on the Nasdaq
National Market or any other United States securities exchange or market where
the Common Stock is principally traded.
(i) The Conversion Price shall be adjusted from time to time by the Company
as follows:
(i) In case the Company shall, at any time or from time to time on or
after the Issue Date, (A) pay a dividend or make a distribution on its
Common Stock in shares of Common Stock, (B) subdivide its outstanding
Common Stock into a greater number of
13
<PAGE>
shares, (B) combine its outstanding Common Stock into a smaller number
of shares or (D) issue by reclassification of its Common Stock any other
shares of its Capital Stock, then, in each such case, the Conversion Price
in effect immediately prior to such action shall be adjusted so that the
Holder of any Security thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other Capital
Stock of the Company which such Holder would have owned or have been
entitled to receive after the happening of any of the events described
above had such Security been converted immediately prior to the happening
of such event. If any dividend or distribution of the type described in
clause (A) above is not so paid or made, the Conversion Price shall again
be adjusted to the Conversion Price which would then be in effect if such
dividend or distribution had not been declared. An adjustment made pursuant
to this paragraph 6(i)(i) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of subdivision,
combination or reclassification. If, after an adjustment made pursuant to
this paragraph 6(i)(i), the Holder of any Security thereafter converted
shall become entitled to receive shares of two or more classes of Capital
Stock of the Company, the board of directors of the Company shall determine
the allocation of the adjusted Conversion Price between or among such
classes of Capital Stock, which determination shall be final and binding on
all Holders. After such allocation, the Conversion Price of each class of
Capital Stock of the Company shall thereafter be subject to adjustment on
terms comparable to those applicable to Common Stock in this paragraph
6(i).
(ii) If, at any time or from time to time on or after the Issue Date,
the Company issues or sells any Common Stock for consideration in an amount
per share less than the average of the Closing Prices of the Common Stock
for the 20 consecutive trading days ending on and including the second
trading day immediately prior to such issuance or sale, the Conversion
Price shall be adjusted in accordance with the following formula:
P
E1 = -
E x O + M
-----
A
where:
E1 = the adjusted Conversion Price;
E = the then current Conversion Price;
O = the number of shares of Common stock
outstanding immediately prior to the
issuance or sale of such additional
shares of Common Stock;
P = the aggregate consideration received
for the issuance or sale of such
additional shares of Common Stock;
14
<PAGE>
M = the average Closing Prices of the
Common Stock for the 20 consecutive
trading days ending on and including
the second trading day immediately
prior to the date of the issuance or
sale of such additional shares of
Common Stock; and
A = the number of shares of Common Stock
outstanding immediately after the
issuance or sale of such additional
shares of Common Stock.
The adjustments shall be made successively whenever any such issuance or
sale is made, and shall become effective immediately after such issuance or
sale.
This paragraph 6(i)(ii) does not apply to:
(A) the issuance of the License Shares pursuant to and in accordance
with the License Agreement and the Purchase Agreement;
(B) the conversion of the Securities or the conversion, exercise or
exchange of any other securities convertible into, or exercisable or
exchangeable for, Common Stock;
(C) the issuance of Common Stock pursuant to a valid and binding
written agreement with any Person, the terms of which provide that such
Common Stock is to be issued on a date after the execution of such
agreement and upon the occurrence of specified events (other than solely
the passage of time);
(D) the issuance Common Stock to the shareholders of any Person which
mergers into the Company or any Subsidiary of the Company in proportion to
such shareholders' ownership of the securities of such Person, upon such
merger; or
(E) Common Stock issued in a bona fide public offering pursuant to a
firm commitment or "best efforts" underwriting.
(iii) If, at any time or from time to time on or after the Issue Date,
the Company shall issue rights, options or warrants to all holders of its
Common Stock entitling them (for a period expiring within 60 days after the
record date mentioned below) to subscribe for or purchase shares of Common
Stock at a price per share less than the greater of (x) the average of the
Closing Prices of the Common Stock for the 20 consecutive trading days
ending on and including the second trading day immediately prior to the
record date and (y) the then current Conversion Price, the Conversion Price
shall be adjusted in accordance with the following formula:
N x P
E1 = -----
E x O + M
-----
O + N
15
<PAGE>
where:
E1 = the adjusted Conversion Price;
E = the then current Conversion Price;
O = the number of shares of Common Stock
outstanding on the record date fixed
for determination of stockholders
entitled to participate in such
issuance;
N = the number of additional shares of
Common Stock offered pursuant to such
issuance;
P = the offering price per share of such
additional shares of Common Stock;
and
M = the greater of (x) the average of the
Closing Prices of the Common Stock for
the 20 consecutive trading days ending
on and including the second trading day
immediately prior to the record date
and (y) the then current Conversion
Price.
The adjustment shall be made successively whenever any such issuance is
made and shall become effective immediately after the record date fixed for the
determination of stockholders entitled to participate in such issuance.
To the extent that shares of Common Stock are not delivered after the
expiration of such rights, options or warrants, the Conversion Price shall be
readjusted to the Conversion Price which would then be in effect had the
adjustments made upon the issuance of such rights, options or warrants been made
on the basis of delivery of only the number of shares of Common Stock actually
delivered. If such rights, options or warrants are not so issued, the Conversion
Price shall again be adjusted to be the Conversion Price which would then be in
effect if the record date for the determination of stockholders entitled to
participate in such distribution had not been fixed. In determining whether any
rights, options or warrants entitle the Holders to subscribe for or purchase
shares of Common Stock at a price per share less than the average of the Closing
Prices of the Common Stock for the 20 consecutive trading days ending on and
including the second trading day immediately preceding the record date, and in
determining the aggregate offering price of such shares of Common Stock, there
shall be taken into account any consideration received by the Company for such
rights, options or warrants, the value of such consideration, if other than
cash, to be determined in good faith by the board of directors of the Company
(irrespective of the accounting treatment thereof), which determination shall be
final and binding on all Holders. Such determination shall be described in a
board resolution. Notwithstanding the foregoing provisions of this paragraph
6(i)(iii), an event which would otherwise give rise to an adjustment under this
paragraph 6(i)(iii) shall not give rise to such an adjustment if the Company
includes the Holders in such distribution on a pro rata basis as if each such
Holder held the number of shares of Common Stock into which such Holder's
Securities
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<PAGE>
are convertible on the record date fixed for determination of the
stockholders entitled to participate in such distribution and with the same
notice as is provided to such stockholders.
This paragraph 6(i)(iii) does not apply to transactions described in
paragraph 6(i)(iv).
(iv) If, at any time or from time to time on or after the Issue Date,
the Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock any class of Capital Stock of the Company (other than
Common Stock) or evidences of its indebtedness or assets (excluding cash
dividends or other cash distributions from current or retained earnings
other than any Extraordinary Cash Dividend) or rights, options or warrants
to subscribe for or purchase any of the foregoing, the Conversion Price
shall be adjusted in accordance with the following formula:
E1 = E x M - F
-----
M
where:
E1 = the adjusted Conversion Price;
E = the then current Conversion Price;
M = the greater of (x) the average of the
Closing Prices of the Common Stock for
the 20 consecutive trading days ending
on and including the second trading day
immediately prior to the record date
mentioned below and (y) the then
current Conversion Price; and
F = the fair market value on the record
date fixed for determination of the
stockholders entitled to participate in
such distribution of the assets,
securities, rights, options or warrants
applicable to one share of Common
stock. The board of directors shall
determine such fair market value in
good faith (irrespective of the
accounting treatment thereof), which
determination shall be final and
binding on the Holders. Such
determination shall be described in a
board resolution.
The adjustment shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date fixed for the
determination of stockholders entitled to receive such distribution. To the
extent that shares of Common Stock are not so delivered after the expiration of
such rights, options, or warrants, the Conversion Price shall be readjusted to
the Conversion Price which would then be in effect had the adjustment made upon
the issuance of such rights, options or warrants been made on the basis of the
delivery of only the number of shares of Common Stock actually delivered.
Notwithstanding the
17
<PAGE>
foregoing provisions of this paragraph 6(i)(iv), an event which would
otherwise give rise to an adjustment under this paragraph 6(i)(iv) shall not
give rise to such an adjustment if the Company includes the Holders in such
distribution on a pro rata basis as if each such Holder held the number of
shares of Common Stock into which such Holder's Securities are convertible on
the record date fixed for determination of the stockholders entitled to
participate in such distribution and with the same notice as is provided to such
stockholders.
This paragraph 6(i)(iv) does not apply to any transaction described in
paragraph 6(i)(iii) hereof.
(v) If, at any time or from time to time on or after the Issue Date,
the Company shall (x) enter into any valid and binding written agreement
with any Person to issue or sell Common Stock on a date after the execution
of such agreement and upon the occurrence of specified events (other than
solely the passage of time) or (y) issue or sell any securities convertible
into, or exercisable or exchangeable for, Common Stock, in each case, for
consideration per share of Common Stock less than the average of the
Closing Prices of the Common Stock for the 20 consecutive trading days
ending on and including the second trading day immediately prior to, in the
case of clause (x), the date of execution of such agreement, and, in the
case of clause (y), the date of such issuance or sale, the Conversion Price
shall be adjusted in accordance with the following formula:
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<PAGE>
E1 = P
-
E x O - M
-----
O + D
where:
E1 = the adjusted Conversion Price;
E = the then current Conversion Price;
O = the number of shares of Common Stock outstanding
immediately prior to, in the case of clause (x) above,
the date of execution of such agreement, and, in the
case of clause (y) above, the issuance or sale of such
securities;
P = (a) in the case of clause (x) above, the minimum
aggregate amount of consideration payable to the
Company upon the issuance or sale of such Common Stock
(including the minimum aggregate amount of cash
payments to be made by the Company to the other Person
or Persons party to such agreement in lieu of which
such Common Stock may be issued) and (b) in the case of
clause (y) above, the aggregate consideration received
for the issuance or sale of such securities plus the
minimum aggregate amount of additional consideration,
other than the surrender of such securities, payable to
the Company upon conversion, exercise or exchange of
such securities;
M = the Closing Prices of the Common stock for the 20
consecutive trading days ending on and including the
second trading day immediately prior to, in the case of
clause (x) above, the date of execution of such
agreement, and, in the case of clause (y) above, the
date of such issuance or sale; and
D = the maximum stated number of shares deliverable
pursuant to such agreement or upon conversion, exercise
or exchange of such securities, as the case may be.
The adjustment shall be made successively whenever any such agreement is
executed or such issuance or sale is made, and shall become effective
immediately after the execution of such agreement or such issuance or sale.
If all of the Common Stock deliverable pursuant to any such agreement or
upon conversion, exercise or exchange of such securities have not been issued
upon the expiration or termination of such agreement or when such securities are
no longer outstanding, as the case may be, then the Conversion Price shall be
readjusted to the Conversion Price which would then be in
19
<PAGE>
effect had the adjustment made upon the execution of such agreement or the
issuance or sale of such securities been made on the basis of the actual number
of shares of Common Stock issued pursuant to such agreement or upon conversion,
exercise or exchange of such securities.
This paragraph 6(i)(v) does not apply to:
(A) any stock options issued to employees and consultants (other than
officers or directors) of the Company pursuant to any employee stock option
or purchase plan or program approved by the board of directors of the
Company;
(B) the issuance of the Securities; or
(C) any transaction described in paragraph 6(i)(iii) or (iv).
In the event of any change in the number of shares of Common Stock
deliverable, or in the consideration payable to the Company, pursuant to any
such agreement or upon the conversion, exercise or exchange of such securities,
including, but not limited to, a change resulting from any anti-dilution
provisions thereof, the Conversion Price shall, on the date of such change, be
recomputed to reflect such change.
(vi) For purposes of any computation respecting consideration received
pursuant to paragraph 6(i)(ii) and (v) hereof, the following shall apply:
(A) in the case of the issuance or sale of shares of Common Stock for
cash, the consideration shall be the amount of such cash; provided that in
no event shall any deduction be made for any commissions, discounts or
other expenses incurred by the Company in connection therewith;
(B) in the case of the issuance or sale of shares of Common Stock for
a consideration in whole or in part other than cash, the consideration
other than cash shall be deemed to be the fair market value thereof as
determined in good faith by the board of directors of the Company
(irrespective of the accounting treatment thereof), which determination
shall be final and binding on the Holders. Such determination shall be
described in a board resolution; and
(C) in the case of any agreement referred to in clause (x) of
paragraph 6(i)(v) hereof or the issuance or sale of securities referred to
in clause (y) of paragraph 6(i)(v) hereof, the consideration, if any, to be
received by the Company for the issuance or sale of Common Stock pursuant
to such agreement or upon the conversion, exercise or exchange of such
securities shall determined in the same manner as provided in clauses (A)
and (B) of this paragraph 6(i)(vi).
(vii) No adjustment in the Conversion Price need be made unless the
adjustment would require a decrease of at least 1% in the Conversion Price
then in effect; provided that any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this paragraph 6(i) shall be
made to the nearest cent or to the nearest 1/10,000th of a share, as the
case may be.
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<PAGE>
(viii) No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest. No
adjustment need be made for a change in the par value or no par value of
the Common Stock. To the extent that the Securities become convertible into
cash, no adjustment need by made thereafter as to the amount of cash into
which such Securities are convertible. Neither Original Issue Discount nor
interest will accrue on cash.
(ix) Whenever the Conversion Price is adjusted, the Company shall
promptly mail to each Holder, by first-class mail, postage prepaid, at its
address appearing on the register maintained by the Company, a notice of
the adjustment.
(x) In case:
(A) the Company shall take any action that would require an adjustment
in the Conversion Price pursuant to paragraph 6(i)(i), (ii), (iii), (iv) or
(v) hereof;
(B) of any event described in paragraph 6(i)(xi) hereof; or
(C) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company shall cause to be mailed to each Holder, by first-class mail,
postage prepaid, at its address appearing on the register maintained by the
Company, as promptly as possible but in any event at least 15 days prior to the
applicable date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of any dividend or distribution or (y) the
date on which any reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur.
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of such dividend, distribution, reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding-up.
(xi) In the event of: (a) any reclassification or change of
outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (b) any consolidation or
amalgamation with, or merger with or into, another Person as a result of
which holders of Common Stock shall be entitled to receive cash, securities
or other property with respect to or in exchange for such Common Stock or
(c) any sale, transfer, assignment, lease, conveyance or other disposition
of all or substantially all of the assets of the Company (in one
transaction or series of related transactions) to any other Person as a
result of which holders of Common Stock shall be entitled to receive cash,
securities or other property with respect to or in exchange for such Common
Stock, then the Company or the Person (if other than the Company) formed by
such consolidation or amalgamation or into which the Company is merged or
to which the properties and assets are sold, assigned, transferred, leased,
conveyed or otherwise disposed of, as the case may be, shall expressly
agree in writing, in form and substance satisfactory to a majority of
Holders of Securities then outstanding (excluding Securities then held by
the Company or any of its Affiliates), that each Security shall be
convertible into the kind and amount
21
<PAGE>
of securities, cash or other assets which the Holder of such Security
would have owned immediately after such reclassification, change,
consolidation, amalgamation, merger, sale, transfer, assignment, lease,
conveyance or other disposition if such Holder had exercised such Security
immediately before the record date or effective date, as the case may be,
of the transaction. Such written agreement shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this paragraph 6(i).
The Company shall cause notice of the execution of such written agreement
to be mailed to each Holder, by first-class mail, postage prepaid, at its
address appearing on the register maintained by the Company, within 20 days
after execution thereof. Failure to deliver such notice shall not affect the
legality or validity of such agreement.
The above provisions of this paragraph 7(i)(xi) shall similarly apply to
successive reclassifications, changes, consolidations, amalgamations, mergers,
sales, transfers, assignments, leases, conveyances or other dispositions.
If this paragraph 6(i)(ix) applies to any event or occurrence, paragraph
6(i)(i), (ii), (iii), (iv) and (v) hereof shall not apply.
(xii) Rights or warrants distributed by the Company to all holders of
Common Stock entitling the holders thereof to subscribe for or purchase
shares of the Company's Capital Stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a
specified event or events (each, a "Trigger Event"): (i) are deemed to be
transferred with such shares of Common Stock, (ii) are not exercisable and
(iii) are also issued in respect of future issuances of Common Stock, shall
be deemed not to have been distributed for purposes of this paragraph 6(i)
(and no adjustment to the Conversion Price under this paragraph 6(i) will
be required) until the occurrence of the earliest Trigger Event, whereupon
such rights and warrants shall be deemed to have been distributed and an
appropriate adjustment (if any is required) to the Conversion Price shall
be made under this paragraph 6(i). If any such right or warrant, including
any such existing rights or warrants distributed prior to the Issue Date,
are subject to events, upon the occurrence of which such rights or warrants
become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the date of the occurrence of any and
each such event shall be deemed to be the date of distribution with respect
to new rights or warrants with such rights (and a termination or expiration
of the existing rights or warrants without exercise by any of the holders
thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event
(of the type described in the preceding sentence) with respect thereto that
was counted for purposes of calculating a distribution amount for which an
adjustment to the Conversion Price under this paragraph 6(i) was made, (A)
in the case of any such rights or warrants which shall have been redeemed
or repurchased without exercise by any holders thereof, the Conversion
Price shall be readjusted upon such final redemption or repurchase to give
effect to such distribution or Trigger Event, as the case may be, as though
it were a cash distribution, equal to the per share redemption or
repurchase price received by a holder or holders of Common Stock with
respect to such rights or warrants (assuming such holder had retained such
rights or warrants), made to
22
<PAGE>
all holders of Common Stock as of the date of such redemption or
repurchase and (B) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof, the
Conversion Price shall be readjusted as if such rights and warrants had not
been issued. Notwithstanding the foregoing, no Holder shall be entitled to
any adjustment in the Conversion Price of the Notes held by such Holder
pursuant to this paragraph 6(i) if the applicable Trigger Event shall have
been caused by the acquisition of securities of the Company by such Holder
or any of its Affiliates.
(j) After an adjustment to the Conversion Price under paragraph 6(i), (ii),
(iii), (iv) or (v) hereof, any subsequent event requiring an adjustment shall
cause an adjustment to the Conversion Price as so adjusted.
(k) No adjustment shall be made pursuant to paragraph 6(i)(i), (ii), (iii),
(iv) or (v) hereof if, as a result thereof, the Conversion Price would be
increased.
7. COVENANTS
(a) Payment of Securities. The Company shall promptly make all payments in
respect of the Securities on the dates and in the manner provided herein.
The Company shall, to the extent permitted by law, pay interest on overdue
amounts at the rate set forth in paragraph 1 of the Securities, which interest
on overdue amounts (to the extent that the payment of such interest shall be
legally enforceable) shall accrue from the date such amounts became overdue.
(b) SEC Reports. The Company shall deliver to each Holder, by first-class
mail, postage prepaid, at its address appearing on the register maintained by
the Company, at the time the Company distributes them to the holders of its
Common Stock, copies of its annual reports to shareholders and its proxy
statements. In addition, the Company shall deliver to Elan, by first-class mail,
postage prepaid, at its address appearing on the register maintained by the
Company, within 30 days after the Company files them with the SEC, copies of all
other information, documents and reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act (or any successor provision thereof). In the event that the Company
is at any time no longer subject to the reporting requirements of the Exchange
Act (or any such successor provision), it shall deliver to each Holder, by
first-class mail, postage prepaid, at its address appearing on the register
maintained by the Company, reports containing substantially the same information
as would have been required to be filed with the SEC had the Company continued
to have been subject to such reporting requirements, including, with respect to
annual information only, a report thereon by the Company's certified independent
public accountants as such would be required in such reports to the SEC and, in
each case, together with a management's discussion and analysis of financial
condition and results of operations as such would be so required. In such event,
such reports shall be so delivered at the time the Company would have been
required to provide such reports had it continued to have been subject to such
reporting requirements.
23
<PAGE>
(c) Compliance Certificates; Notice of Defaults.
(i) The Company shall deliver to each Holder, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during such fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled
its obligations under the Securities, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge,
the Company has kept, observed, performed and fulfilled each and every
covenant contained in the Securities and is not in default in the
performance or observance of any of the terms, provisions and conditions
contained in the Securities (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which
he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto).
(ii) The Company shall, so long as any of the Securities are
outstanding, deliver to each Holder, forthwith upon any Officer becoming
aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
(d) Further Instruments and Acts. Upon request of the Holders of at least a
majority in the aggregate Principal Amount of the outstanding Securities
(excluding Securities at the time owed by the Company and its Affiliates), the
Company will execute and deliver such further instruments and do such further
acts as may be reasonably necessary or proper to carry out more effectively the
provisions of the Securities.
(e) Taxes. The Company shall, and shall cause each of its Subsidiaries to,
pay prior to delinquency all material taxes, assessments and governmental
levies, except as contested in good faith and by appropriate proceedings.
(f) Legal Existence. Subject to paragraph 8 hereof, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its legal existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with their respective organizational
documents (as the same may be amended from time to time) and the rights (charter
and statutory), licenses and franchises of the Company and its Subsidiaries;
provided that the Company shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any of
its Subsidiaries if the board of directors of the Company shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and its Subsidiaries, taken as a whole.
(g) Withholding Taxes. All transfers of Securities by the Holders thereof
and all payments made by the Company under or with respect to the Securities
(including the issuance of securities upon the conversion of the Securities)
shall be made free and clear of and without withholding or deduction for or on
account of any present or future Taxes, unless the Company is required to
withhold or deduct Taxes by law or by the interpretation or administration
thereof. If the Company is required by law or by the interpretation or
administration thereof to withhold or deduct any amount of Taxes in connection
with the Securities, such amount shall be withheld
24
<PAGE>
and deducted by the Company without alteration of or increase in its
obligations under the Securities; provided, however, that, if the Holder thereof
has delivered to the Company a complete, manually signed copy of Internal
Revenue Service Form 1001 (or any successor form) or Internal Revenue Service
Form 4224 (or any successor form) properly certifying to such Holder's
entitlement to a complete exemption from U.S. withholding Tax with respect to
such payment under applicable United States Treasury Regulations, such payment
shall be made free and clear of and without withholding or deduction for or on
account of any Taxes. In connection with any payment made by the Company under
any Security which is made in whole or in part through the delivery of shares of
Common Stock of the Company (including upon the conversion of the Securities),
the amount required to be withheld or deducted shall first be withheld or
deducted from the amount of cash (up to the total amount thereof) which would
otherwise be paid at such time. Any additional amount required to be withheld or
deducted, unless otherwise agreed by the Company and the Holder of a Security,
shall be withheld and deducted by reducing the number of shares of Common Stock
to be delivered by that number of shares of Common Stock equal to the remaining
amount required to be withheld or deducted divided by the Conversion Price in
effect on the date of such payment.
(h) Line of Business. The Company and its Subsidiaries will not engage in
any businesses other than the business of researching, developing, marketing,
selling, manufacturing, distributing or licensing pharmaceutical, medical,
biologic, genetic or related products and services and financing activities
related solely thereto, including the businesses in which the Company and its
Subsidiaries are engaged on the Issue Date.
(i) Use of Proceeds. The Company will use the gross proceeds from the
issuance of any Additional Notes in accordance with Section 1(b) of the Purchase
Agreement and otherwise in accordance with the Purchase Request related thereto.
(j) Maintenance of Properties; Insurance; Books and Records; Compliance
with Law.
(i) The Company shall, and shall cause each of its Subsidiaries to, at
all times cause all material properties used or useful in the conduct of
its business to be maintained and kept in good condition, repair and
working order (reasonable wear and tear excepted) and supplied with all
necessary equipment, and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereto; provided
that, subject to the other provisions of the Securities, nothing in this
paragraph 7(j)(i) shall prevent the Company or any of its Subsidiaries from
selling, abandoning or otherwise disposing of any property (including any
lease of property) if in the judgment of the Company the same is no longer
useful in the business of the Company or such Subsidiary, as the case may
be.
(ii) The Company shall maintain, and shall cause to be maintained for
each of its Subsidiaries, insurance covering such risks as are usually and
customarily insured against by corporations similarly situated, in such
amounts as shall be customary for corporations similarly situated and with
such deductibles and by such methods as shall be customary and reasonably
consistent with past practice.
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<PAGE>
(iii) The Company shall, and shall cause each of its Subsidiaries to,
keep proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of
the Company and each Subsidiary of the Company, in accordance with U.S.
generally accepted accounting principles consistently applied to the
Company and its Subsidiaries, taken as a whole.
(iv) The Company shall, and shall cause each of its Subsidiaries to,
comply with all statutes, laws, ordinances or government rules and
regulations to which they are subject, non-compliance with which would
materially adversely affect the business, prospects, earnings, properties,
assets or financial condition of the Company and its Subsidiaries, taken as
a whole.
8. SUCCESSOR CORPORATION
(a) The Company shall not consolidate with, amalgamate with, merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets (as an entirety or substantially as an entirety
in one transaction or a series of related transactions), to any Person unless:
(i) (x) the Company shall be the continuing Person, or (y) the Person
(if other than the Company) formed by such consolidation or amalgamation or
into which the Company is merged or to which the properties and assets of
the Company are sold, assigned, transferred, leased, conveyed or otherwise
disposed of (in any case, the "Successor Company") shall be a corporation
organized and existing under the laws of the United States or any State
thereof or the District of Columbia and the Successor Company shall
expressly affirm, in writing, the due and punctual performance of all of
the terms, covenants, agreements and conditions of the Securities to be
performed or observed by the Company, and such obligations shall remain in
full force and effect; and
(ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing.
(b) In connection with any consolidation, amalgamation, merger or sale,
assignment, transfer, lease, conveyance or other disposition of assets
contemplated by this paragraph 8, prior to the consummation of such transaction
or transactions the Company shall deliver, or cause to be delivered, to each
Holder, by first-class mail, postage prepaid, at its address appearing in the
register maintained by the Company, an Opinion of Counsel stating that (i) such
consolidation, amalgamation, merger or sale, assignment, transfer, lease,
conveyance or other disposition of assets complies with this paragraph 8, (ii)
all conditions precedent herein provided for relating to such transaction or
transactions have been complied with and (iii) the affirmation provided for in
this paragraph 8 has been duly authorized, executed and delivered by the
Successor Company and the Securities are valid and legally binding obligations
of the Successor Company enforceable against it in accordance with their terms
(subject to bankruptcy, insolvency, reorganization and similar laws affecting
the rights and remedies of creditors generally and general equitable
principles).
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<PAGE>
(c) For purposes of paragraph 8(a) and (b) hereof, the transfer (by sale,
assignment, lease, conveyance or other disposition, in a single transaction or
series of related transactions) of all or substantially all of the properties or
assets of one or more Subsidiaries of the Company, the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
(d) Upon any consolidation, amalgamation or merger, or any sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the assets of the Company in accordance with this paragraph
8, the Successor Company shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Securities with the
same effect as if such Successor Company had been named as the Company in the
Securities, and thereafter the predecessor corporation shall be relieved of all
obligations and covenants under the Securities.
9. DEFAULTS AND REMEDIES
(a) An "Event of Default" occurs if:
(i) after exercise of its option pursuant to paragraph 12 hereof
following a Tax Event, the Company defaults in the payment of interest upon
any Security or delivery of any Tax Event Option related thereto, when such
interest becomes due and payable, and such default continues for a period
of 30 days;
(ii) the Company defaults in the payment of the Principal Amount,
Issue Price, accrued Original Issue Discount, Redemption Price, Purchase
Price, Company Change of Control Purchase Price or Elan Change of Control
Purchase Price on any Security when the same becomes due and payable at its
Stated Maturity, upon redemption, upon declaration, when due for purchase
by the Company or otherwise;
(iii) the Company defaults in the observance or performance of any
agreement, covenant, term or condition contained in any Security (other
than those referred to in clause (i) and (ii) above) and such failure
continues for 30 days after receipt by the Company of notice thereof
(except in the case of a failure or default with respect to paragraph 8
hereof, which shall constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(iv) the Company defaults in any payment of principal of or interest
on any other obligation for money borrowed or the Company fails to perform
or observe any other agreement, covenant, term or condition contained in
any agreement under which any such obligation is created and the effect of
such default or failure is to cause, or the holder or holders of such
obligation (or a trustee on behalf of such holder or holders), as a
consequence of such default or failure shall take action to cause, such
obligation to become due prior to any stated maturity thereof; provided
that the aggregate amount of all obligations as to which such acceleration
shall occur is equal to or greater than $4.0 million;
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<PAGE>
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $4.0 million (in excess of amounts
covered by insurance and as to which the insurer has acknowledged coverage)
shall be rendered against the Company or any Subsidiary thereof, and shall
not be discharged for any period of 60 consecutive days during which a stay
of enforcement shall not be in effect;
(vi) the Company or any Subsidiary thereof pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all or
substantially all of its property,
(D) makes a general assignment for the benefit of its creditors, or
(E) generally is not paying its debts as they become due;
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against either of the Company or any Subsidiary
thereof in an involuntary case,
(B) appoints a Custodian of either of the Company or any Subsidiary
thereof or for all or substantially all of the property of either of the
Company or any Subsidiary thereof, or
(C) orders the liquidation of either of the Company or any Subsidiary
thereof, and the order or decree remains unstayed and in effect for 60
days; or
(viii) the Company fails to deliver shares of Common Stock (or cash in
lieu of fractional shares) when such Common Stock (or cash in lieu of
fractional shares) is required to be delivered, upon conversion of a
Security and such failure is not remedied for a period of 10 days.
(b) If an Event of Default (other than an Event of Default specified in
paragraph 9(a)(vi) or (vii) hereof occurs and is continuing, the Holders of at
least 25% in aggregate Principal Amount of the Securities at the time
outstanding (excluding Securities at the time owned by the Company and its
Affiliates) by notice to the Company, may declare the Issue Price and accrued
Original Issue Discount (or, if the Securities have been converted to a
semiannual coupon note following a Tax Event, the
28
<PAGE>
Restated Principal Amount and accrued and unpaid interest) through the date
of declaration on all the Securities to be immediately due and payable. Upon
such a declaration, such Issue Price and accrued Original Issue Discount (or, if
the Securities have been converted to a semiannual coupon note following a Tax
Event, the Restated Principal Amount and accrued and unpaid interest) shall
become and be due and payable immediately. If an Event of Default specified in
paragraph 9(a)(vi) or (vii) hereof occurs and is continuing, the Issue Price and
accrued Original Issue Discount (or, if the Securities have been converted to a
semiannual coupon note following a Tax Event, the Restated Principal Amount and
accrued and unpaid interest) on all the Securities shall become and be
immediately due and payable without any declaration or other act on the part of
any Holders. The Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding (excluding Securities at the time owned by
the Company and its Affiliates), by notice to the Company (and without notice to
any other Holder), may rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of the Issue Price
and accrued Original Issue Discount (or accrued and unpaid interest) that have
become due solely as a result of acceleration. No such rescission shall affect
any subsequent or other Default or Event of Default or impair any consequent
right.
(c) If an Event of Default occurs and is continuing, any Holder may pursue
any available remedy to collect the payment of the Issue Price and accrued
Original Issue Discount (or, if the Securities have been converted to a
semiannual coupon note following a Tax Event, the Restated Principal Amount and
accrued and unpaid interest) on the Securities or to enforce the performance of
any provision of the Securities.
A delay or omission by any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of, or acquiescence in, the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
(d) The Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding (excluding Securities at the time owned by
the Company and its Affiliates), by notice to the Company (and without notice to
any other Holder), may waive an existing Default or Event of Default and its
consequences except (i) an Event of Default described in paragraph 9(a)(i), (ii)
or (viii) hereof or (ii) a Default in respect of a provision that under
paragraph 11 hereof cannot be amended without the consent of each Holder
affected. When a Default or Event of Default is waived, it is deemed cured, but
no such waiver shall extend to any subsequent or other Default or Event of
Default or impair any consequent right.
(e) Notwithstanding any other provision of the Securities, the right of any
Holder to receive payment of the Principal Amount, Issue Price, accrued Original
Issue Discount, Redemption Price, Purchase Price, Company Change of Control
Purchase Price, Elan Change of Control Purchase Price or interest, if any, in
respect of the Securities held by such Holder, on or after the respective due
dates expressed in the Securities and to convert the Securities in accordance
with paragraph 6 hereof, or to bring suit for the enforcement of any such
payment on or after such respective dates or the right to convert the
Securities, shall not be impaired or affected adversely without the consent of
each such Holder.
(f) The Company covenants (to the extent it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury or
other law wherever enacted, now or at
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any time hereafter in force, which would prohibit or forgive the Company
from paying all or any portion of the Principal Amount, Issue Price plus accrued
Original Issue Discount, Redemption Price, Purchase Price, Company Change of
Control Purchase Price or Elan Change of Control Purchase Price, in each case,
in respect of Securities, or any interest on such amounts, as contemplated
herein, or which may affect the covenants or the performance of the Securities;
and the Company (to the extent it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Holders, but
will suffer and permit the execution of every power as though no such law had
been enacted.
10. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE
(a) The Company shall cause to be kept at its offices a register in which
the Company shall provide for the registration of Securities and of transfers of
Securities. Upon surrender for registration of transfer of any Security, the
Company shall execute, in the name of the designated transferee or transferees,
one or more Securities of a like aggregate Principal Amount and bearing such
restrictive legends as may be required by the terms of the Securities.
At the option of the Holder, and subject to the other provisions of the
Securities, Securities may be exchanged for other Securities of a like aggregate
Principal Amount, upon surrender of the Securities to be exchanged to the
Company. Whenever any Securities are so surrendered for exchange, and subject to
the other provisions of the Securities, the Company shall execute and deliver
the Securities which the Holder making the exchange is entitled to receive.
Every Security presented for registration of transfer or exchange shall be
accompanied by the written instrument of transfer in the form attached hereto as
Annex C, duly executed by the Holder thereof.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and subject to the same provisions as the Securities surrendered upon such
registration of transfer or exchange.
Subject to paragraph 7(g) hereof and notwithstanding any other provision of
this Section 10(a), no transfer of any Security shall be permitted, and no
registration of transfer shall be effected unless, prior to the time of such
transfer or registration of transfer, the Holder has made arrangements
reasonably satisfactory to the Company for payment or reimbursement of any and
all Taxes which would, in the absence of payment by the transferor, be required
to be paid by the Company as a result of such transfer. No service charge shall
be made for any registration of transfer or exchange. The Company acknowledges
that Treasury Regulation Section 1.4412(b)(3) (effective January 1, 1999) is not
applicable to any Security issued prior to January 1, 1999.
In the event of a redemption of the Securities, the Company will not be
required (i) to register the transfer of or exchange Securities for a period of
5 days immediately preceding the date notice of any redemption is given pursuant
to paragraph 3(e) hereof or (ii) to register the transfer of or exchange any
Security, or portion thereof, called for redemption.
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<PAGE>
(b) Except as permitted by this paragraph (b), each Security (and all
Securities issued in exchange therefor or substitution thereof) shall, so long
as appropriate, bear a legend (the "Legend") to substantially the following
effect (each, a "Transferred Restricted Security"):
THE SECURITY EVIDENCED HEREBY HAS 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.
THE TRANSFER OF THE SECURITY EVIDENCED HEREBY IS SUBJECT TO
THE CONDITIONS SPECIFIED IN A SECURITIES PURCHASE AGREEMENT,
DATED AS OF NOVEMBER 6, 1998, BY AND AMONG THE COMPANY, ELAN
INTERNATIONAL SERVICES, LTD. AND ELAN CORPORATION, PLC, AND
THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH
SECURITY 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.
At such time as any Transfer Restricted Security may be freely transferred
without registration under the Securities Act and without being subject to
transfer restrictions pursuant to the Securities Act, the Company shall permit
the Holder of such Transfer Restricted Security to exchange such Transfer
Restricted Security for a new Security which does not bear the applicable
portion of the Legend upon receipt of certification from such Holder
substantially in the form attached hereto as Annex D and, at the request of the
Company, upon receipt of an opinion of counsel addressed to the Company that the
transfer restrictions contained in the Legend are no longer applicable. In
addition, at such time as such Security is no longer subject to the transfer
conditions set forth in the Purchase Agreement, the Company shall permit the
Holder of such Security to exchange such Security for a new Security which does
not bear the portion of the Legend referring to such transfer conditions.
In addition to the Legend, until the expiration of the "one-year
distribution compliance period" within the meaning of Rule 903 of Regulation S
under the Securities Act, each Security (and all Securities issued in exchange
therefor or substitution thereof) shall bear a legend (the "Reg. S Legend") to
substantially the following effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
THE PROVISIONS OF REGULATION S (ss.230.901 THROUGH ss.230.905,
AND PRELIMINARY NOTES). HEDGING TRANSACTIONS INVOLVING THE
SHARES REPRESENTED BY THIS
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CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH
THE ACT.
At the expiration of such "one year distribution compliance period," the Company
shall permit the Holder of such Security to exchange such Security for a new
Security which does not bear the Reg. S Legend.
(c) If any mutilated Security is surrendered to the Company, the Company
shall execute and deliver a new Security of like aggregate Principal Amount.
If there is delivered to the Company:
(i) evidence to its reasonable satisfaction of the destruction, loss
or theft of any Security; and
(ii) such security or indemnity as may be reasonably satisfactory to
the Company to save it harmless,
then, in the absence of actual notice to the Company that such Security has been
acquired by a bona fide purchaser, the Company shall execute and deliver, in
lieu of any such destroyed, lost or stolen Security, a new Security of like
aggregate Principal Amount.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company, in its discretion, but
subject to conversion rights, may, instead of issuing a new Security, pay such
Security, upon satisfaction of the conditions set forth in the preceding
paragraph.
11. AMENDMENTS AND WAIVERS
(a) Any term, covenant, agreement or condition of the Securities may, with
the consent of the Company, be amended, or compliance therewith may be waived
(either generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Holders of at least a majority in aggregate Principal Amount of
the Securities at the time outstanding (excluding Securities at the time owned
by the Company and its Affiliates); provided that, without the consent of each
Holder affected, no such amendment or waiver, including a waiver pursuant to
paragraph 9(d) hereof, shall:
(i) make any change in the Principal Amount of Securities whose
Holders must consent to an amendment or waiver;
(ii) make any change to the manner or rate of accrual in connection
with Original Issue Discount, reduce the interest rate referred to in
paragraph 1 of the Securities, reduce the rate of interest referred to in
paragraph 12 of the Securities upon the occurrence of a Tax Event or extend
the time for payment of accrued Original Issue Discount or interest, if
any, on any Security;
(iii) reduce the Principal Amount or the Issue Price of or extend the
Stated Maturity of any Security;
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(iv) reduce the Redemption Price, Purchase Price, Company Change of
Control Purchase Price or Elan Change of Control Purchase Price or extend
the date on which the Redemption Price, Purchase Price, Company Change of
Control Purchase Price or Elan Change of Control Purchase Price of any
Security is payable;
(v) make any Security payable in money or securities other than that
stated in the Securities;
(vi) make any change in paragraph 9(d) hereof or this paragraph 11(a),
except to increase any percentage referred to, or make any change in
paragraph 9(e) hereof;
(vii) make any change that adversely affects the right to convert any
Security (including the right to receive cash in lieu of fractional
shares);
(viii) make any change that adversely affects the right to require the
Company to purchase Securities in accordance with their terms; or
(ix) impair the right to institute suit for the enforcement of any
payment with respect to, or conversion of, the Securities.
(b) No waiver shall extend to or affect any obligation not expressly waived
or impair any right consequent thereto.
(c) The Company will not solicit, request or negotiate for or with respect
to any proposed amendment or waiver of any provisions of any Security unless
each Holder of Securities (irrespective of the amount of Securities then owned
by it) shall be informed thereof by the Company and shall be afforded the
opportunity of considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with respect
thereto; provided, however, that preliminary discussions with one or more
Holders regarding any such proposed amendment shall not constitute any such
solicitation, request or negotiation. Executed or true copies of any amendment
or waiver effected pursuant to this paragraph 11 shall be delivered by the
Company to each Holder of Securities, by first class mail, postage prepaid, at
its address appearing on the register maintained by the Company, forthwith
following the date on which the same shall have been executed and delivered by
the Holder or Holders of the requisite amount of outstanding Securities. The
Company will not, directly or indirectly, pay or cause to be paid, remuneration,
whether by way of fees or otherwise, to any Holder of Securities as
consideration for or as an inducement to the entering into by such Holder of any
amendment or waiver unless such remuneration is concurrently paid, on the same
terms, ratably to the Holders of all Securities then outstanding.
(d) Any amendment or waiver pursuant to this paragraph 11 shall (except as
provided in paragraph 11(a)(i) through (ix) above) apply equally to all Holders
and shall be binding upon them, upon each future Holder and upon the Company.
(e) In determining whether the Holders of the requisite amount of
outstanding Securities have given any authorization, consent or waiver under
this paragraph 11, Securities owned by the Company or any of its Affiliates
shall be disregarded and deemed not to be outstanding.
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12. TAX EVENT CONVERSION
(a) From and after the date (the "Tax Event Date") of the occurrence of a
Tax Event, at the option of the Company, interest in lieu of future Original
Issue Discount shall accrue at 8.0% per annum on a principal amount per Security
(the "Restated Principal Amount") equal to the Issue Price plus accrued Original
Issue Discount to the date immediately prior to the Tax Event Date or the date
on which the Company exercises the option described in this paragraph 12(a),
whichever is later (such date, the "Option Exercise Date"). Such interest shall
accrue from the Option Exercise Date and shall be payable on November 9 and May
9 of each year (the "Interest Payment Date") to the Holders of record at the
close of business on October 25 and April 24 (each, a "Regular Record Date")
immediately preceding such Interest Payment Date. Interest will be computed on
the basis of a 360-day year consisting of twelve 30-day months and will accrue
from the most recent date on which interest has been paid or, if no interest has
been paid, from the Option Exercise Date. Within 15 days of the occurrence of a
Tax Event, the Company shall mail a written notice of such Tax Event to each
Holder, by first-class mail, postage prepaid, at its address appearing on the
register maintained by the Company.
(b) On each Interest Payment Date, concurrently with the payment of the
interest due and payable on such date, the Company shall issue and deliver to
each Holder of a Security to whom such interest is paid, an option (which option
shall be in the form of a written instrument duly executed by the Company (a
"Tax Event Option") to purchase a number of shares of Common Stock equal to the
quotient obtained by dividing (x) the aggregate amount of such interest due and
payable to such Holder on such Interest Payment Date in respect of such Security
by (y) the Conversion Price of such Security in effect on the Business Day
immediately prior to such Interest Payment Date. Such Tax Event Option shall be
exercisable, in whole at any time or in part from time to time, on or prior to
November 9, 2008. Each Tax Event Option shall include provisions substantially
similar to those set forth in paragraph 6(c), (d), (e), (f), (g), (h) and (i)
hereof. Each Tax Event Option shall be transferable by the holder thereof only
together with the Security in respect of which such Tax Event Option was issued,
subject to compliance with all applicable transfer restrictions of federal and
state securities laws.
(c) Interest on any Security that is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security is registered at the close of business on the Regular
Record Date for such interest. Each installment of interest on any Security
shall be paid by wire transfer in immediately available funds to an account
designated in writing by the payee at least 2 Business Days prior to the
Interest Payment Date applicable thereto.
(d) Subject to the foregoing provisions of this paragraph 12, each Security
upon registration of transfer, or in exchange for or in lieu of any other
Security, shall carry the rights to interest accrued and unpaid, and to accrue,
which were carried by such other Security.
13. MISCELLANEOUS
(a) Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally, sent by nationally
recognized overnight delivery
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service or facsimile (receipt confirmed) or mailed by first-class mail,
postage prepaid, addressed as follows:
(i) if to the Company, to:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 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, CA 92101-3532
Attn: Faye H. Russell, Esq.
Fax No.: (619) 234-3848
(ii) if to any Holder, at its address appearing in the register
maintained by the Company pursuant to paragraph 10(a) hereof
(iii) (x) on the date delivered, if delivered by facsimile or
personally, (y) 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 (z) three
Business Days after being mailed by first-class mail, postage prepaid. The
Company, by written notice to each of the Holders, may designate a
different address for subsequent notices or communications.
(b) All agreements of the Company in this Security shall bind its
successor.
(c) Each provision of this Security shall be considered separable and if
for any reason any provision which is not essential to the effectuation of the
basic purpose of this Security shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
(d) THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
(e) Upon conversion of this Security in accordance with the terms hereof,
the Holder will be entitled to the benefits of the Registration Rights Agreement
or the New Registration Rights Agreement, as the case may be, with respect to
the shares of Common Stock issuable to such Holder upon such conversion.
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14. DEFINITIONS
"Accrual Increase" has the meaning specified in paragraph 1(c) hereof.
"Additional Amounts" has the meaning specified in paragraph 7(g) hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of Voting Stock, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Business Day" means each day of the year on which banking institutions are
not required or authorized to close in The City of New York.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership interests or any other
participation, right or other interest in the nature of an equity interest in
such Person including, without limitation, common stock and preferred stock of
such Person, or any option, warrant or other security convertible into any of
the foregoing.
A "Change of Control" of any Person shall be deemed to have occurred at
such time as (i) any other 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 Stock of such specified Person, (ii) there
shall be consummated any consolidation or merger of such specified Person in
which such specified Person is not the continuing or surviving corporation or
pursuant to which the Voting Stock of such specified Person would be converted
into cash, securities or other property, other than a merger or consolidation of
such specified Person in which the holders of the Voting Stock of such specified
Person outstanding immediately prior to the consolidation or merger hold,
directly or indirectly, at least a majority of all Voting Stock of the
continuing or 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 such
specified Person (together with any new directors whose election by such board
of directors or whose nomination for election by the shareholders of such
specified Person 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 such specified Person.
"Close of Business" means, with respect to any date, 5:00 PM, San Diego
time, on such date, or such other city in which the Company's principal place of
business may then be located.
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"Closing Price" means, with respect to the Common Stock on any trading day,
the last reported per share sales price of the Common Stock on such trading day,
as reported by the Nasdaq National Market or, if the Common Stock is listed on a
United States securities exchange, the closing per share sales price, regular
way, on such trading day on the principal United States securities exchange on
which the Common Stock is traded or, if no such sale takes place on such trading
day, the average of the closing bid and asked prices on such day.
"Common Stock" means the common stock, par value $0.001 per share, of the
Company, as such class exists on the date of this Security as originally
executed or any other shares of Capital Stock into which such common stock shall
be reclassified or changed.
"Company" means Ligand Pharmaceuticals Incorporated, a Delaware
corporation.
"Company Change of Control Offer" has the meaning specified in paragraph
4(b) hereof.
"Company Change of Control Offer Notice" has the meaning specified in
paragraph 4(b)(i) hereof.
"Company Change of Control Payment Date" has the meaning specified in
paragraph 4(b)(i)(C) hereof.
"Company Change of Control Purchase Price" has the meaning specified in
paragraph 4(b) hereof.
"Company Notice" has the meaning specified in paragraph 4(a)(v) hereof.
"Company Notice Date" has the meaning referred to in paragraph 4(a)(v)
hereof.
"Conversion Date" has the meaning specified in paragraph 6(d) hereof.
"Conversion Notice" has the meaning specified in paragraph 6(d) hereof.
"Conversion Price" has the meaning specified in paragraph 6(b) hereof.
"Conversion Shares" has the meaning specified in the Purchase Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Distributed Securities" has the meaning specified in paragraph 6(i)(iv)
hereof.
"Elan" means Elan Corporation, plc, a public limited company organized and
existing under the laws of Ireland.
"Elan Change of Control Notice" has the meaning specified in the Purchase
Agreement.
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"Elan Change of Control Payment Date" has the meaning specified in
paragraph 5(b)(ii) hereof.
"Elan Change of Control Purchase" has the meaning specified in paragraph
5(a) hereof.
"Elan Change of Control Purchase Notice" has the meaning specified in
paragraph 5(b) hereof.
"Elan Change of Control Purchase Price" has the meaning specified in
paragraph 5(a) hereof.
"Event of Default" has the meaning specified in paragraph 10(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Extraordinary Cash Dividend" means cash dividends with respect to the
Common Stock the aggregate amount of which in any fiscal year exceeds the
greater of (i) 10% of the consolidated net income of the Company for the fiscal
year immediately preceding the payment of such dividend and (ii) $200,000.
"Holder" means a Person in whose name this Security is registered on the
books of the Company.
"Initial Shares" has the meaning specified in the Purchase Agreement.
"Interest Payment Date" has the meaning specified in paragraph 12(a)
hereof.
"Issue Date" of this Security means the date on which this Security was
originally issued or deemed issued as set forth on the face of this Security.
"Issue Price" of this Security means, in connection with the original
issuance of this Security, the initial issue price at which this Security is
issued as set forth on the face of this Security.
"Legend" has the meaning specified in paragraph 10(b) hereof.
"License Agreement" has the meaning specified in the Purchase Agreement.
"License Shares" has the meaning specified in the Purchase Agreement.
"Nasdaq National Market" means the electronic interdealer quotation system
operated by Nasdaq Stock Market, Inc., a subsidiary of the National Association
of Securities Dealers, Inc.
"New Registration Rights Agreement" has the meaning specified in the
Purchase Agreement.
"Officer" means the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company.
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<PAGE>
"Officers' Certificate" means a written certificate, signed in the name of
the Company by (i) its Chief Executive Officer, its President or any Vice
President and (ii) its Treasurer or its Secretary.
"Opinion of Counsel" means a written opinion from legal counsel. The
counsel may be an employee of, or counsel to, the Company or any Successor
Company.
"Option Exercise Date" has the meaning specified in paragraph 12(a) hereof.
"Original Issue Discount" of this Security means the difference between the
Issue Price and the Principal Amount of this Security as set forth on the face
of this Security. For purposes of this Security, accrual of Original Issue
Discount shall be calculated on a semi-annual bond equivalent basis using a 360
day year consisting of twelve 30-day months.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust, unincorporated
organization or government, or any agency or political subdivision thereof.
"Principal" or "Principal Amount" of this Security means the Principal
Amount as set forth on the face of this Security.
"Purchase Agreement" has the meaning specified on the face of this
Security.
"Purchase Date" has the meaning specified in paragraph 4(a) hereof.
"Purchase Notice" has the meaning specified in paragraph 4(a)(i) hereof.
"Purchase Price" has the meaning specified in paragraph 4(a) hereof.
"Purchase Request" has the meaning specified in the Purchase Agreement.
"Redemption Date" means a date specified for redemption of this Security in
accordance with the terms hereof.
"Redemption Price" has the meaning specified in paragraph 3(a) hereof.
"Registration Rights Agreement" has the meaning specified in the Purchase
Agreement.
"Registration Rights Default" has the meaning specified in paragraph 1(c)
hereof.
"Regular Record Date" has the meaning specified in paragraph 12(a) hereof.
"Restated Principal Amount" has the meaning specified in paragraph 12(a)
hereof.
"SEC" means the Securities and Exchange Commission.
"Securities" means any of the Company's Zero Coupon Convertible Senior
Notes due 2008, as amended and supplemented from time to time in accordance with
the terms hereof, issued pursuant to the Purchase Agreement.
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"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Shares" has the meaning specified in the Purchase Agreement.
"Stated Maturity" means November 9, 2008.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, limited liability company, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total voting power of the Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by such
specified Person or any of its Subsidiaries or (ii) in the case of a
partnership, joint venture, limited liability company, association or other
business entity, with respect to which such specified Person or any of its
Subsidiaries has the power to direct or cause the direction of the management
and policies of such entity by contract or otherwise.
"Successor Company" has the meaning specified in paragraph 8(a)(1) hereof.
"Tax Event" means that the Company shall have received an opinion from
independent tax counsel experienced in such matters to the effect that, on or
after the date of this Security, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United Sates or any political subdivision or taxing authority
thereof or therein or (b) any amendment to, or change in, an interpretation or
application of such laws or regulations by any legislative body, court,
governmental agency or regulatory authority, in each case, which amendment or
change is enacted, promulgated, issued or announced or which interpretation is
issued or announced or which action is taken, on or after the date of this
Security, there is more than an insubstantial risk that interest (including
Original Issue Discount) payable on the Securities either (i) would not be
deductible on a current accrual basis or (ii) would not be deductible under any
other method, in either case, in whole or in part, by the Company, by reason of
deferral, disallowance or otherwise) for United States federal income tax
purposes.
"Tax Event Date" has the meaning specified in paragraph 12(a) hereof.
"Tax Event Option" has the meaning specified in paragraph 12(b) hereof.
"Taxes" means any present or future tax, duty, levy, impost, assessment or
other government charge (including penalties, interest and any other liabilities
related thereto) imposed or levied by or on behalf of a any government or any
political subdivision or territory or possession of any government or any
authority or agency therein or thereof having power to tax.
"Transfer Restricted Security" has the meaning specified in paragraph 10(b)
hereof.
"Voting Stock" means stock of any class or classes, however designated,
having general voting power under ordinary circumstances to elect a majority of
the board of directors, managers or trustees of a Person, other than stock
having such power only by reason of the occurrence of a contingency.
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ANNEX A
FORM OF PURCHASE NOTICE
OF
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: General Counsel
1. Pursuant to the terms of the Zero Coupon Convertible Senior Note due
2008 (certificate no. [_____] in the Principal Amount of $[_____] (the
"Security"), the undersigned hereby elects to cause Ligand Pharmaceuticals
Incorporated (the "Company") to purchase $[_____] Principal Amount of the
Security at the Purchase Price set forth in the Security on [November 9, 2002]
[November 9, 2005], subject to the right of the undersigned to convert the
Security at any time prior to the close of business on the Purchase Date.
Capitalized terms used herein and not otherwise defined have the meanings
specified in the Security.
2. In the event that the Security is purchased in part, please execute and
deliver to the undersigned a new Security in a denomination equal in Principal
Amount to the unpurchased portion of the Security.
3. In the event that the Company has elected to pay the Purchase Price with
Common Stock (the "Shares") pursuant to paragraph 4(a)(iv) of the Security, the
undersigned confirms that:
(a) We understand that the Shares have not been registered
under the Securities Act and may not be offered or sold except as permitted in
the following sentence. We agree that if we should sell or otherwise transfer
the Shares, we will do so only (i) to the Company or its Subsidiaries, (ii)
inside the United States to an institutional "accredited investor" (as defined
below), (iii) outside the United States in accordance with Regulation S under
the Securities Act, (iv) pursuant to the exemption from registration provided by
Rule 144 under the Securities Act (if available) or (v) pursuant to an effective
registration statement under the Securities Act.
(b) We understand that the certificates representing the
Shares will, so long as appropriate, bear the following legends:
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.THE SHARES
Annex A-1
<PAGE>
REPRESENTED BY THIS CERTIFICATE MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF REGULATION S (ss.230.901
THROUGH ss.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 SECURITY EVIDENCED HEREBY IS SUBJECT TO
THE CONDITIONS SPECIFIED IN A SECURITIES PURCHASE AGREEMENT,
DATED AS OF NOVEMBER 6, 1998, BY AND AMONG THE COMPANY, ELAN
INTERNATIONAL SERVICES, LTD. AND ELAN CORPORATION, PLC, AND
THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH
SECURITY 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.
(c) We are acquiring the Shares for our own account and are
either (i) an institutional "accredited investor" (as defined in Rule 501(a)(1),
(2), (3)or (7) of Regulation D under the Securities Act) or (ii) a foreign
purchaser that is outside the United States (as such terms are used under
Regulations S under the Securities Act). We have such knowledge and experience
in financial and business matters to be capable of evaluating the merits and
risks of our investment in the Shares and we are able to bear the economic risk
of our investment for an indefinite period of time.
This certificate and the statements contained herein are made for the
benefit of the Company.
Signature of Holder
Date:
Annex A-2
<PAGE>
ANNEX B
CONVERSION NOTICE
OF
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: General Counsel
1. Pursuant to the terms of the Zero Coupon Convertible Senior Note due
2008 (certificate no. [_____] in the Principal Amount of $[_____] attached
hereto (the "Security"), the undersigned hereby elects to cause Ligand
Pharmaceuticals Incorporated (the "Company") to convert $[_____] Principal
Amount of the Security pursuant to paragraph 6 of the Security at the Conversion
Price. Capitalized terms used herein and not otherwise defined have the meanings
specified in the Security.
2. In the event that the undersigned has elected to convert the Security in
part, please execute and deliver to the undersigned a new Security in a
denomination equal in Principal Amount to the unconverted portion of the
Security.
3. In connection with the conversion of the Security, the undersigned
confirms that:
(a) We understand that the securities to be issued upon such
conversion have not been registered under the Securities Act and may not be
offered or sold except as permitted in the following sentence. We agree that if
we should sell or otherwise transfer such securities, we will do so only (i) to
the Company or its Subsidiaries, (ii) inside the United States to an
institutional "accredited investor" (as defined below), (iii) outside the United
States in accordance with Regulation S under the Securities Act, (iv) pursuant
to the exemption from registration provided by Rule 144 under the Securities Act
(if available) or (v) pursuant to an effective registration statement under the
Securities Act.
(b) We understand that the certificates representing such
securities will, so long as appropriate, bear the following legends:
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. THE SHARES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF
Annex B-1
<PAGE>
REGULATION S (ss.230.901 THROUGH ss.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 SECURITY EVIDENCED HEREBY IS SUBJECT TO
THE CONDITIONS SPECIFIED IN A SECURITIES PURCHASE AGREEMENT,
DATED AS OF NOVEMBER 6, 1998, BY AND AMONG THE COMPANY, ELAN
INTERNATIONAL SERVICES, LTD. AND ELAN CORPORATION, PLC, AND
THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH
SECURITY 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.
(c) We are acquiring the securities to be issued upon conversion of the
Security for our own account and are either (i) an institutional "accredited
investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under
the Securities Act) or (ii) a foreign purchaser that is outside the United
States. We have such knowledge and experience in financial and business matters
to be capable of evaluating the merits and risks of our investment in the
securities and we are able to bear the economic risk of our investment for an
indefinite period of time.
This certificate and the statements contained herein are made for the
benefit of the Company.
Signature of Holder
Date:
Annex B-2
<PAGE>
ANNEX C
FORM OF CERTIFICATE FOR
REGISTRATION OF TRANSFER
OR EXCHANGE OF
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: General Counsel
1. Reference is hereby made to the Zero Coupon Convertible Senior Note due
2008 (certificate no. [_____] in the Principal Amount of $[_____] attached
hereto (the "Security"). Capitalized terms used herein and not otherwise defined
have the meanings specified in the Security.
2. In connection with the registration of transfer or exchange of such
Security, the undersigned hereby certifies that:
CHECK ONE
________ The Security is being acquired for the undersigned's own
account, without transfer; or
________ The Security is being transferred to the Company; or
________ The Security is being transferred in a transaction permitted
by Rule 144 under the Securities Act; or
________ The Security is being transferred pursuant to an effective
registration statement; or
________ The Security is being transferred in a transaction permitted
by Rule 904 under the Securities Act; or
________ the Security is being transferred pursuant to an exemption
from the registration requirements of the Securities Act other than Rule
144 or Rule 904, and the undersigned hereby further certifies that the
Security is being transferred in compliance with the exemption claimed,
which certification is supported by an opinion of counsel, if required by
the Company, provided by the undersigned or the transferee (a copy of which
the undersigned has attached to this certification) in form reasonably
satisfactory to the Company, to the effect that such transfer is in
compliance with the Securities Act;
Annex C-1
<PAGE>
and the Security is being transferred in compliance with any applicable state
securities or "Blue Sky" laws of any state of the United States.
(3) This certificate and the statements contained herein are made for the
benefit of the Company.
Signature of Holder
Date:
Annex C-2
<PAGE>
ANNEX D
FORM OF UNRESTRICTED SECURITIES CERTIFICATE
OF
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: General Counsel
1. Reference is hereby made to the Zero Coupon Convertible Senior Note due
2008 (certificate no. [_____] in the Principal Amount of $[_____] attached
hereto (the "Security"). Capitalized terms used herein and not otherwise defined
have the meanings specified in the Security.
2. The undersigned, the registered owner of the Security, has requested
that the Security be exchanged for a new Security bearing no portion of the
Legend (excluding that portion of the Legend relating to transfer conditions set
forth in the Purchase Agreement). In connection with such exchange, the
undersigned hereby certifies that the exchange is occurring after a period of at
least two years has elapsed since the date the Security was acquired from the
Company or any affiliate (as such term is defined under Rule 144 under the
Securities Act) of the Company, whichever is later, and the undersigned is not,
and during the preceding three months has not been, an affiliate of the Company.
The undersigned also acknowledges that future transfers of the Security must
comply with all applicable state securities or "Blue Sky" laws.
3. This certificate and the statements contained herein are made for the
benefit of the Company.
Signature of Holder
Date:
Annex D-1
<PAGE>
EXHIBIT 10.11
THE SECURITY EVIDENCED HEREBY HAS 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 HAS BEEN SOLD IN RELIANCE ON THE
EXEMPTION FROM REGISTRATION PROVIDED BY REGULATION S UNDER THE ACT ("REGULATION
S"). THE SECURITY EVIDENCED HEREBY MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S (ss.230.901
THROUGH ss.230.905, AND PRELIMINARY NOTES).
THE TRANSFER OF THE SECURITY EVIDENCED HEREBY IS SUBJECT TO THE CONDITIONS
SPECIFIED IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF NOVEMBER 6, 1998, BY
AND AMONG THE COMPANY, ELAN INTERNATIONAL SERVICES, LTD. AND ELAN CORPORATION,
PLC, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITY
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.
LIGAND PHARMACEUTICALS INCORPORATED
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
No. R-4
Issue Date: August 31, 1999
Issue Price: $20,000,000
($486.17 for each $1,000 Principal Amount)
Original Issue Discount: $21,137,581
($513.83 for each $1,000 Principal Amount)
Ligand Pharmaceuticals Incorporated, a Delaware corporation, promises to
pay to Monksland Holdings, B.V. or registered assigns, on November 9, 2008, the
Principal Amount of Forty-one Million, One Hundred and Thirty-seven Thousand,
Five Hundred and Eighty-one Dollars ($41,137,581) or such Principal Amount as
may result from an Accrual Increase as specified on the other side of this
Security.
This Security shall not bear interest except as specified on the other side
of this Security. Original Issue Discount will accrue as specified on the other
side of this Security. This Security is convertible into Common Stock as
specified on the other side of this Security.
Additional provisions of this Security are set forth on the other side of
this Security.
<PAGE>
This Security is one of the Zero Coupon Convertible Senior Notes due 2008
issued pursuant to the Securities Purchase Agreement, dated as of November 6,
1998, by and among Ligand Pharmaceuticals Incorporated, Elan International
Services, Ltd. and Elan Corporation, plc (the "Purchase Agreement").
IN WITNESS WHEREOF, Ligand Pharmaceuticals Incorporated has caused this
instrument to be duly executed.
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ David E. Robinson
Name: David E. Robinson
Title: President and Chief Executive Officer
Attest
By: /s/ William L. Respess
Name: William L. Respess
Title: Senior Vice President, General Counsel,
Government Affairs and Secretary
Dated: August 31, 1999
2
<PAGE>
LIGAND PHARMACEUTICALS INCORPORATED
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
I. INTEREST
(a) This Security shall not bear interest, except as specified in this
paragraph or in paragraph 12 hereof. If the Principal Amount hereof or any
portion of such Principal Amount is not paid when due (whether upon acceleration
pursuant to paragraph 9 hereof, upon the date set for payment of the Redemption
Price pursuant to paragraph 3 hereof, upon the date set for payment of a
Purchase Price or a Company Change of Control Purchase Price pursuant to
paragraph 4 hereof, upon the date set for payment of the Elan Change of Control
Purchase Price pursuant to paragraph 5 hereof or upon the Stated Maturity of
this Security) or if shares of Common Stock (and cash in lieu of fractional
shares) in respect of a conversion of this Security in accordance with paragraph
6 hereof are not delivered when due, then, in each such case, the overdue amount
shall bear interest at the rate of 10.0% per annum, compounded semiannually (to
the extent that the payment of such interest shall be legally enforceable),
which interest shall accrue from the date such overdue amount was due to the
date payment of such amount, including interest thereon, has been made. All such
interest shall be payable on demand. The accrual of such interest on overdue
amounts shall be in lieu of, and not in addition to, the continued accrual of
Original Issue Discount.
(b) Original Issue Discount (the difference between the Issue Price and the
Principal Amount of a Security) in the period during which a Security remains
outstanding shall accrue at 8.0% per annum, on a semiannual bond equivalent
basis using a 360-day year consisting of twelve 30-day months, commencing on the
Issue Date of this Security, and shall cease to accrue on the earlier of (i) the
date on which the Principal Amount hereof or any portion of such Principal
Amount becomes due and payable and (ii) any Redemption Date, Purchase Date,
Company Change of Control Payment Date, Elan Change of Control Payment Date or
Conversion Date.
(c) In the event that the Company defaults in the performance or observance
of any agreement, covenant, term or condition contained in the Registration
Rights Agreement or the New Registration Rights Agreement, as the case may be,
and such default continues for a period of 30 days after receipt by the Company
of notice thereof (provided that, if such default is not cured on or prior to
the last day of such 30 day period and such breach is then capable of being
cured and the Company is then working in good faith to cure such default, such
30 day period shall be extended by an additional 20 days from the last day of
such 30 day period) (a "Registration Rights Default"), the Company acknowledges
that the Holders of the Securities will suffer damages and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees that, as liquidated damages, the rate at which Original Issue
Discount or interest pursuant to paragraph 1(a) or 12 hereof, if any, accrues
shall be increased over and above the rate stated in paragraph 1(b), 1(a) and
12(a), respectively (an "Accrual Increase"), by an additional 50 basis points
for each 90-day period in which a Registration Rights Default continues;
provided that the aggregate of such Accrual Increase shall not exceed 200 basis
points over and above the rate set forth in paragraph 1(b), 1(a) and 12(a)
1
<PAGE>
hereof, as the case may be; provided, further, that any Accrual Increase shall
immediately cease upon the cure of any such Registration Rights Default.
Whenever, in this Security, there is mentioned, in any context, Principal
Amount, Original Issue Discount or interest, or any other amount payable under
or with respect to this Security, including the Redemption Price, the Purchase
Price, the Company Change of Control Purchase Price and the Elan Change of
Control Purchase Price, such mention shall be deemed to include mention of an
Accrual Increase to the extent that, in such context, such Accrual Increase is,
was or would be in effect.
2. METHOD OF PAYMENT
Holders must surrender Securities to the Company to collect payments in
respect of the Securities. The Company will pay cash amounts in money of the
United States that at the time of payment is legal tender for payment of public
and private debts (and all references in the Securities to "$" or "dollars"
shall refer to such currency) by wire transfer in immediately available funds,
to an account or accounts designated in writing by each Holder not less than 5
Business Days prior to the date of the applicable payment.
3. REDEMPTION AT THE OPTION OF THE COMPANY
(a) No sinking fund is provided for the Securities. The Securities are
redeemable as a whole at any time, or in part from time to time, at the option
of the Company, at the redemption prices (each, a "Redemption Price") set forth
in paragraph 3(b) hereof; provided that the Securities are not redeemable prior
to November 9, 2001.
(b) The table below shows the Redemption Prices of a Security per $1,000
Principal Amount on the dates shown below and at Stated Maturity, which prices
reflect accrued Original Issue Discount calculated to each such date. The
Redemption Price of a Security redeemed between such dates would include an
additional amount reflecting the additional Original Issue Discount accrued
since the next preceding date in the table to the actual Redemption Date.
<TABLE>
<CAPTION>
(2)
----------------------
(1) Accrued (3)
Security Original Redemption
Issue Issue Price
Redemption Date Price Discount (1) + (2)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
November 9, 2001....... $486.17 $91.31 $577.48
November 9, 2002....... $486.17 138.43 624.60
November 9, 2003....... $486.17 189.39 675.56
November 9, 2004....... $486.17 244.52 730.69
November 9, 2005....... $486.17 304.14 790.31
November 9, 2006....... $486.17 368.63 854.80
November 9, 2007....... $486.17 438.39 924.56
At maturity............ $486.17 513.83 1,000.00
</TABLE>
2
<PAGE>
If converted to a semiannual coupon note following the occurrence of a Tax
Event, the Securities will be redeemable at the Restated Principal Amount plus
interest accrued and unpaid from, and including, the date of such conversion to,
but excluding, the Redemption Date.
(c)......If less than all of the Securities are to be redeemed, the Company
shall select the Securities to be redeemed pro rata. If any Security selected
for redemption is thereafter surrendered for conversion in part, the converted
portion of such Security shall be deemed (so far as may be), solely for purposes
of determining the aggregate Principal Amount of Securities to be redeemed by
the Company, the portion selected for redemption. Nothing in this paragraph 3
shall affect the right of any Holder to convert any Security pursuant to
paragraph 6 hereof.
(d)......Provisions of this Security that apply to the redemption of all of
a Security also apply to the redemption of any portion of such Security.
(e)......At least 30 days but not more than 60 days before a Redemption
Date, the Company shall cause notice of redemption to be mailed, by first-class
mail, postage prepaid, to each Holder of Securities at such Holder's address
appearing on the register maintained by the Company. Such notice shall identify
the Securities to be redeemed and shall state:
(i)......the Redemption Date;
(ii) the Redemption Price;
(iii) the Conversion Price in effect on the date of such notice;
(iv) that Securities called for redemption may be converted at any
time prior to the close of business on the Redemption Date;
(v) that Securities called for redemption must be surrendered to the
Company to collect the Redemption Price and the procedures to be followed
to so surrender such Securities;
(vi) if fewer than all the outstanding Securities are to be redeemed,
the identification and Principal Amounts of the particular Securities to be
redeemed;
(vii) that, unless the Company defaults in payment of the Redemption
Price, Original Issue Discount on the Securities called for redemption and
interest, if any, will cease to accrue on and after the Redemption Date;
(viii) that Holders whose Securities are being redeemed only in part
will, without charge, be issued a new Security equal in Principal Amount to
the unredeemed portion of the Securities; and
(ix) that the Redemption Price for any Security called for redemption
will be paid one Business Day following the later of (x) the Redemption
Date and (y) the date such Security is surrendered to the Company.
3
<PAGE>
(f) Once notice of redemption is given, Securities called for redemption
shall become due and payable on the Redemption Date and at the Redemption Price
stated in such notice, except for Securities that are converted. The Redemption
Price for the Securities called for redemption shall be paid one Business Day
following the later of (x) the Redemption Date and (y) the date such Securities
are surrendered to the Company.
(g) Receipt by the Company of the Securities called for redemption prior
to, on or after the Redemption Date shall be a condition to the receipt by the
Holder of the Redemption Price therefor.
(h) Upon surrender of a Security that is redeemed in part, the Company
shall, without charge, execute and deliver to the Holder a new Security equal in
Principal Amount to the unredeemed portion of such Security.
4. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER
(a) Purchase at the Option of the Holder. The Company shall be obligated to
purchase, at the option of the Holder, the Securities held by such Holder on the
following purchase dates (each, a "Purchase Date") and at the following purchase
prices per $1,000 Principal Amount (each, a "Purchase Price"), which Purchase
Prices reflect accrued Original Issue Discount to each such date. Such Purchase
Prices may be paid, at the option of the Company, in cash or by the issuance and
delivery of shares of Common Stock, subject to the conditions set forth in
paragraph 4(a)(iv) hereof.
<TABLE>
<CAPTION>
(2)
----------------------
Accrued
(1) Original (3)
Security Issue Purchase
Issue Discount Price
Purchase Date Price At 8.0% (1) + (2)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
November 9, 2002......... $486.17 138.43 624.60
November 9, 2005......... $486.17 304.14 790.31
</TABLE>
If, prior to the Purchase Date, the Securities have been converted to a
semiannual coupon note following the occurrence of a Tax Event, the Purchase
Price will be equal to the Restated Principal Amount plus interest accrued and
unpaid from, and including, the date of such conversion to, but excluding, the
Purchase Date.
(i) In order to have Securities purchased pursuant to this paragraph
4(a), the Holder shall (x) deliver to the Company (for each Security or
portion thereof to be purchased) a written notice of purchase in the form
attached to this Security as Annex A (a "Purchase Notice") at any time on
or prior to the close of business on such Purchase Date and (y) surrender
such Securities to the Company prior to, on or after the Purchase Date,
such surrender being a condition to receipt by the Holder of the Purchase
Price therefor.
4
<PAGE>
Provisions of this Security that apply to the purchase of all of a
Security also apply to the purchase of any portion of such Security.
Subject to the right of a Holder to convert Securities as to which a
Purchase Notice has been delivered into Common Stock at any time prior to
the close of business on the Purchase Date, such Holder may not withdraw
such Purchase Notice.
Any purchase of Securities contemplated pursuant to this paragraph
4(a) shall be consummated by the delivery of the Purchase Price to be
received by the Holder (in cash or Common Stock, as the case may be) one
Business Day following the later of (x) the Purchase Date and (y) the date
such Securities are surrendered to the Company.
(ii) The Securities to be purchased pursuant to this paragraph 4(a)
may be paid for, at the option of the Company, in cash or Common Stock,
subject to the conditions set forth in paragraph 4(a)(iv) hereof. The
Company shall designate, in the Company Notice (as defined below) delivered
pursuant to paragraph 4(a)(v) hereof, whether the Company will purchase the
Securities for cash or Common Stock; provided that the Company will pay
cash for fractional shares of Common Stock pursuant to paragraph
4(a)(iv)(A) hereof. The Company may not change its election with respect to
the consideration to be paid once the Company has given the Company Notice,
except pursuant to paragraph 4(a)(iv)(B) hereof.
(iii) On each Purchase Date, if the Company Notice shall state that
the Company will purchase Securities for cash, the Securities in respect of
which a Purchase Notice has been given shall be purchased by the Company
with cash in an amount equal to the aggregate Purchase Price of such
Securities.
(iv) On each Purchase Date, if the Company Notice shall state that the
Company will purchase Securities for Common Stock, the Securities in
respect of which a Purchase Notice has been given shall be purchased by the
Company by the issuance of a number of whole shares of Common Stock equal
to the quotient obtained by dividing (x) the amount of cash to which the
Holder would have been entitled had the Company elected to pay the Purchase
Price of such Securities in cash by (y) the average of the Closing Prices
of the Common Stock for the 20 consecutive trading days ending on and
including the second trading day immediately preceding the Purchase Date,
subject to paragraph 4(a)(iv)(A) hereof.
(A) The Company will not issue a fractional share of Common Stock
in payment of the Purchase Price. Instead, the Company will pay cash
in an amount equal to the current market value of the fractional
share. The current market value of a fraction of a share of Common
Stock shall be determined by multiplying the average of the Closing
Prices of the Common Stock for the 20 consecutive trading days ending
on and including the second trading day immediately preceding the
Purchase Date by such fraction and rounding to the nearest whole cent,
with one-half cent being rounded upward. It is understood that if a
Holder elects to have more than one Security purchased, the number of
5
<PAGE>
whole shares of Common Stock shall be based on the aggregate amount of
Securities to be purchased.
(B) The Company's right to elect to purchase the Securities of
any Holder through the issuance of shares of Common Stock shall be
conditioned upon the following: (x) assuming compliance with all
applicable state securities or "Blue Sky" laws, and assuming the
accuracy of the statements of such Holder set forth in the Purchase
Notice, the issuance of such shares of Common Stock shall be exempt
from the registration requirements of Section 5 of the Securities Act,
(y) no consent, approval, authorization or order of any court or
governmental agency or body or third party shall be required for the
issuance by the Company of such shares of Common Stock and (z) such
Holder shall have received an Opinion of Counsel (which shall be
included with the Company Notice) stating that the terms of the
issuance of such Common Stock are in conformity with this paragraph
4(a), that such Common Stock has been duly authorized and, upon
issuance, will be validly issued, nonassessable and fully paid, will
not be issued in violation of any preemptive or similar rights and
will be free of any liens, encumbrances or restrictions on transfer
imposed by the Company other than those imposed by the Securities Act
and applicable state securities or "Blue Sky" laws (provided that such
Opinion of Counsel may state that, insofar as it relates to the
absence of preemptive or similar rights, it is given upon the best
knowledge of such counsel) and that clause (x) of this paragraph
4(a)(iv)(B) has been satisfied.
(C) If the conditions set forth in paragraph 4(a)(iv)(B) hereof
are not satisfied as of the Purchase Date, and the Company shall have
elected to purchase the Securities through the issuance of shares of
Common Stock, the Company shall, without further notice, pay the
Purchase Price in cash.
(v) The Company shall cause a notice of its election to pay the
Purchase Price with cash or Common Stock (the "Company Notice") to be sent
by first-class mail, postage prepaid, to the Holders at their addresses
appearing in the register maintained by the Company. The Company Notice
shall be sent to Holders on a date not less than 20 Business Days prior to
the Purchase Date (such date being herein referred to as the "Company
Notice Date"); provided that, in the event that the Company shall not have
delivered the Company Notice on or prior to the Company Notice Date, the
Company shall be deemed to have irrevocably elected to pay the Purchase
Price in cash. The Company Notice shall state the manner of payment elected
and shall contain the following information:
In the event that the Company has elected to pay the Purchase Price
with Common Stock, the Company Notice shall state that each Holder will
receive Common Stock (except for any cash amount to be paid in lieu of
fractional shares) in accordance with this paragraph 4(a) and shall be
accompanied by the Opinion of Counsel described in paragraph 4(a)(iv)(B)
hereof.
In any case, each Company Notice will include the Purchase Notice to
be completed by the Holder and shall state:
6
<PAGE>
(A) the Purchase Price on such Purchase Date and the Conversion
Price in effect on the date of the Company Notice;
(B) that Securities must be surrendered to the Company to collect
payment and any procedures to be followed in so surrendering the
Securities;
(C) that Securities as to which a Purchase Notice has been given
may be converted at any time prior to the close of business on the
applicable Purchase Date;
(D) that, unless the Company defaults in the payment of the
Purchase Price, Original Issue Discount on all Securities in respect
of which a Purchase Notice has been delivered or interest, if any,
will cease to accrue on and after the Purchase Date;
(E) that Holders whose Securities are being purchased only in
part will, without charge, be issued a new Security equal in Principal
Amount to the unpurchased portion of the Securities; and
(F) that the Purchase Price for any Security as to which a
Purchase Notice has been given will be paid one Business Day following
the later of (x) the Purchase Date and (y) the date such Security is
surrendered to the Company.
(vi) All shares of Common Stock delivered upon purchase of the
Securities shall be newly issued shares or treasury shares, shall be duly
and validly issued, fully paid and nonassessable, shall not be issued in
violation of any preemptive or similar rights and shall be free of any
liens, encumbrances or restrictions on transfer other than those imposed by
the Securities Act and applicable state securities or "Blue Sky" laws.
(vii) Receipt of such Security by the Company prior to, on or after
the Purchase Date shall be a condition to the receipt by the Holder of the
Purchase Price therefor.
(viii) On the Business Date immediately following the later of (x) the
Purchase Date and (y) the date on which such Securities are surrendered to
the Company, the Company shall deliver to each Holder entitled to receive
Common Stock a certificate for the number of full shares of Common Stock
issuable in payment of the Purchase Price and cash in lieu of any
fractional shares.
(ix) If a Holder is paid in Common Stock, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on such issuance of
Common Stock.
(x) Upon surrender of a Security that is to be purchased only in part,
the Company shall, without charge, execute and deliver to the Holder a new
Security equal in Principal Amount to the unpurchased portion of such
Security.
(b) Purchase at the Option of the Holder upon Company Change of Control.
Upon a Change of Control of the Company, the Company shall be obligated to make
an offer to purchase
7
<PAGE>
all outstanding Securities (the "Company Change of Control Offer") at a
purchase price per $1,000 Principal Amount (the "Company Change of Control
Purchase Price") equal to the sum of (x) the Issue Price plus (y) accrued
Original Issue Discount to the Company Change of Control Payment Date. If, prior
to the Company Change of Control Payment Date, the Securities have been
converted to a semiannual coupon note following the occurrence of a Tax Event,
the Company Change of Control Purchase Price will be equal to the Restated
Principal Amount plus interest accrued and unpaid from, and including, the date
of such conversion to, but excluding, the Company Change of Control Payment
Date.
(i) Within 10 days after the occurrence of a Change of Control of the
Company, the Company shall cause a notice of the Company Change of Control
Offer (the "Company Change of Control Offer Notice") to be sent by
first-class mail, postage prepaid, to the Holders at their addresses
appearing in the register maintained by the Company, stating:
(A) the event or events causing such Change of Control of the
Company and the date such Change of Control occurred;
(B) that the Company Change of Control Offer is being made
pursuant to this paragraph 4(b);
(C) the Company Change of Control Purchase Price and the purchase
date (which shall be a Business Day no earlier than 10 days nor later
than 30 days from the date such notice is mailed (the "Company Change
of Control Payment Date"));
(D) that a Company Change of Control Purchase Notice (as defined
below) must be delivered to the Company on or prior to the close of
business on the Company Change of Control Payment Date and that
Securities must be surrendered to the Company prior to, on or after
the Company Change of Control Payment Date to collect payment,
including any procedures to be followed in so surrendering the
Securities;
(E) that any Security as to which a Company Change of Control
Purchase Notice has not been delivered will continue to accrue
Original Issue Discount or interest, if any;
(F) the Conversion Price in effect on the date of the Company
Change of Control Offer Notice and any adjustments thereto resulting
from such Change of Control;
(G) that the Securities as to which a Company Change of Control
Purchase Notice has been given may be converted into Common Stock at
any time prior to the close of business on the Company Change of
Control Payment Date;
(H) that, unless the Company defaults in the payment of the
Company Change of Control Payment, Original Issue Discount on all
Securities as to which
8
<PAGE>
a Company Change of Control Purchase Notice has been delivered or
interest, if any, will cease to accrue on and after the Company Change
of Control Payment Date;
(I) that Holders whose Securities are being purchased only in
part will, without charge, be issued a new Security equal in Principal
Amount to the unpurchased portion of the Securities; and
(J) that the Company Change of Control Purchase Price for any
Security as to which a Company Change of Control Purchase Notice has
been given will be paid one Business Day following the later of (x)
the Company Change of Control Payment Date and (y) the date such
Security is surrendered to the Company.
(ii) A Holder may elect to have its Securities purchased pursuant to a
Company Change of Control Offer upon delivery of a written notice of
purchase (the "Company Change of Control Purchase Notice") to the Company
at any time prior to the close of business on the Company Change of Control
Payment Date, stating:
(A) the certificate number of each Security which the Holder will
deliver to be purchased; and
(B) the portion of the Principal Amount of such Security which
the Holder has elected to have purchased.
(iii) Receipt of such Security by the Company prior to, on or after
the Company Change of Control Payment Date shall be a condition to the
receipt by the Holder of the Company Change of Control Purchase Price
therefor.
(iv) Provisions of this Security that apply to the purchase of all of
a Security also apply to the purchase of any portion of such Security. (v)
Any purchase of Securities contemplated pursuant to this paragraph 4(b)
shall be consummated by the delivery of the Company Change of Control
Purchase Price to be received by the Holder one Business Day following the
later of (x) the Company Change of Control Payment Date and (y) the date
such Securities are surrendered to the Company.
(vi) If any Security is to be purchased only in part, the Company
shall, without charge, issue to the Holder a new Security equal in
Principal Amount to the unpurchased portion of such Security.
(vii) The Company will comply with the requirements of Section 14(e)
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of the Securities pursuant to a Company
Change of Control Offer. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this
paragraph 4(b), the Company shall comply with the applicable securities
laws and
9
<PAGE>
regulations and shall not be deemed to have breached its obligations
under this paragraph 4(b) by virtue thereof.
5. PURCHASE AT THE OPTION OF THE COMPANY UPON ELAN CHANGE OF CONTROL
(a) Upon a Change of Control of Elan occurring prior to November 9, 2001,
the Company may, at its option, repurchase (the "Elan Change of Control
Purchase") the Securities held by Elan or any of its Affiliates on the date of
such Change of Control, in whole but not in part, at a cash purchase price per
$1,000 Principal Amount (the "Elan Change of Control Purchase Price") equal to
the greater of (i) the sum of (A) the Issue Price plus (B) accrued Original
Issue Discount to the Elan Change of Control Payment Date (provided that if,
prior to the Elan Change of Control Payment Date, the Securities have been
converted to a semiannual coupon note following the occurrence of a Tax Event,
the sum set forth in this clause (i) shall be the Restated Principal Amount plus
interest accrued and unpaid from, and including, the date of such conversion to,
but excluding, the Elan Change of Control Payment Date) and (ii) the product of
(a) the number of shares of Common Stock into which the Securities to be
redeemed may be converted pursuant to paragraph 6 hereof on the day immediately
preceding the Elan Change of Control Payment Date and (b) the average of the
Closing Prices of the Common Stock for the 20 consecutive trading days ending on
and including the second trading day immediately prior to the Elan Change of
Control Payment Date (as defined below); provided that, as a condition to any
such repurchase, the Company shall repurchase all, but not less than all, of the
Initial Shares, the Shares, the Conversion Shares and the License Shares, in
each case, held by Elan and its Affiliates on the date of such Change of
Control, pursuant to and in accordance with the terms of the Purchase Agreement.
(b) If an Elan Change of Control Purchase is to be made by the Company, the
Company shall, on or prior to the 10th day following receipt of an Elan Change
of Control Notice, cause an irrevocable notice of the Elan Change of Control
Purchase (the "Elan Change of Control Purchase Notice") to be sent by
first-class mail, postage prepaid, to Elan stating:
(i) that the Elan Change of Control Purchase is being made pursuant to
this paragraph 5;
(ii) the Elan Change of Control Purchase Price and the purchase date
(which shall be a Business Day no earlier than 10 days nor later than 20
days from the date of the Elan Change of Control Purchase Notice (the "Elan
Change of Control Payment Date"));
(iii) that the Elan Change of Control Purchase Price for any Security
as to which the Elan Change of Control Purchase Notice relates will be paid
on the Business Day following the later of (x) the Elan Change of Control
Payment Date and (y) the date such Security is surrendered to the Company;
(iv) that Elan shall, and shall cause its Affiliates to, surrender to
the Company on or prior to the Elan Change of Control Payment Date all
Securities owned by any of them on the date of the Change of Control of
Elan and the procedures to be followed in so surrendering such Securities;
and
10
<PAGE>
(v) that, unless the Company defaults in the payment of the Elan
Change of Control Purchase Price, Original Issue Discount on all such
Securities or interest, if any, will cease to accrue on and after the Elan
Change of Control Payment Date and, effective upon the date of the Change
of Control of Elan, such Securities shall cease to be convertible.
(c) In the event that the Company fails to deliver the Elan Change of
Control Purchase Notice on or prior to the 10th day following receipt of an Elan
Change of Control Notice pursuant to paragraph 5(b) hereof, such failure shall
be deemed to be a waiver by the Company of its right to repurchase the
Securities pursuant to this paragraph 5.
(d) Upon the giving of the Elan Change of Control Purchase Notice pursuant
to this paragraph 5, such notice may not be revoked by the Company and all
Securities as to which such Elan Change of Control Purchase Notice relates shall
become due and payable in accordance with this paragraph 5 at the Elan Change of
Control Purchase Price.
(e) Receipt of such Securities by the Company prior to, on or after the
Elan Change of Control Payment Date shall be a condition to the receipt by the
Holder of the Elan Change of Control Purchase Price therefor.
6. CONVERSION
(a) A Holder of a Security may, on or prior to November 9, 2008, convert in
whole at any time or in part from time to time such Security into Common Stock;
provided, however, that if a Security is called for redemption, the Holder may
convert it at any time before the Redemption Date. A Security in respect of
which the Holder has delivered a Purchase Notice or a Company Change of Control
Purchase Notice exercising the option of such Holder to require the Company to
purchase such Security may, notwithstanding such notice, convert the Security in
accordance with this paragraph 6 until the close of business on the Payment Date
or the Company Change of Control Payment Date, as the case may be. Upon the
occurrence of a Change of Control of Elan, the Securities then held by Elan and
its Affiliates may not be converted on or prior to the 10th day following the
giving of an Elan Change of Control Notice; provided that, if an Elan Change of
Control Purchase Notice is given by the Company pursuant to paragraph 5(b)
hereof, the Securities may not be converted unless the Company defaults in the
payment of the Elan Change of Control Purchase Price for all Securities as to
which such Elan Change of Control Purchase Notice relates. Notwithstanding the
foregoing, neither Elan nor any of its Affiliates may convert any Security held
by it if, at the time of such conversion, Elan is in violation of Section 14(c)
of the Purchase Agreement.
(b) This Security shall be convertible into a number shares of Common Stock
equal to (x) the Issue Price plus all accrued Original Issue Discount to the
applicable Conversion Date (as defined below) (provided that if, prior to the
applicable Conversion Date, the Securities have been converted to a semiannual
coupon note following the occurrence of a Tax Event, this clause (x) shall be
the Restated Principal Amount plus interest accrued and unpaid from, and
including, the date of such conversion to, but excluding, such Conversion Date)
divided by (y) $9.15, as adjusted to the Conversion Date (the "Conversion
Price"). Provisions of this Security that apply to conversion of all of a
Security also apply to conversion of a portion of such Security.
11
<PAGE>
(c) The shares of Common Stock issuable upon conversion of this Security
shall, to the extent required, bear the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND 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. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
THE PROVISIONS OF REGULATION S (ss.230.901 THROUGH ss.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 SECURITIES PURCHASE AGREEMENT, DATED
AS OF NOVEMBER 6, 1998, BY AND AMONG THE COMPANY, ELAN INTERNATIONAL
SERVICES, LTD. AND ELAN CORPORATION, PLC, 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.
(d) To convert this Security a Holder must (i) complete and duly sign a
conversion notice in the form attached hereto as Annex B (the "Conversion
Notice") and deliver such notice to the Company and (ii) surrender this Security
to the Company. The date on which a Holder of Securities satisfies all the
foregoing requirements is the conversion date (the "Conversion Date"). Not more
than three Business Days after the Conversion Date, the Company shall deliver to
the Holder a certificate for the number of full shares of Common Stock issuable
upon such conversion and cash in lieu of any fractional share. The Person in
whose name the certificate is registered shall be treated as a stockholder of
record on and after the Conversion Date; provided, however, that no surrender of
a Security on any date when the stock transfer books of the Company shall be
closed shall be effective to constitute the Person or Persons entitled to
receive the shares of Common Stock upon such conversion as the record holder or
holders of such shares of Common Stock on such date, but such surrender shall be
effective to constitute the Person or Persons entitled to receive such shares of
Common Stock as the record holder or holders thereof for all purposes at the
close of business on the next succeeding day on which such stock transfer books
are open; such conversion shall be at the Conversion Price in effect on the date
that such Security shall have been surrendered for conversion, as if the stock
transfer books of the Company had not been closed. Upon conversion of a
Security, such Person shall no longer be a Holder of such Security. Any Security
for which a Conversion Notice is delivered on any Business Day shall be deemed
to be converted simultaneously with all other Securities for which
12
<PAGE>
a Conversion Notice is delivered on such Business Day, subject to the
surrender of such Securities to the Company pursuant to this paragraph 6.
(e) If a Holder converts more than one Security at the same time, the
number of shares of Common Stock issuable upon such conversion shall be based on
the sum of (x) the aggregate Issue Price plus (y) the aggregate accrued Original
Issue Discount, in each case, of the Securities converted; provided that if,
prior to the applicable Conversion Date, the Securities have been converted to a
semiannual coupon note following the occurrence of a Tax Event, such conversion
shall be based on the sum of (x) the aggregate Restated Principal Amount plus
(y) the aggregate interest accrued and unpaid from, and including, the date of
such conversion to, but excluding, such Conversion Date. Upon surrender of a
Security that is converted in part, the Company shall execute and deliver to the
Holder a new Security in a denomination equal in Principal Amount to the
unconverted portion of the Security surrendered. If the last day on which a
Security may be converted is not a Business Day, such Security may be
surrendered to the Company on the next succeeding Business Day.
(f) The Company shall not issue a fractional share of Common Stock upon
conversion of a Security. Instead, the Company shall deliver cash in an amount
equal to the current market value of the fractional share. The current market
value of a fraction of a share shall be determined to the nearest 1/10,000th of
a share by multiplying the average of the Closing Prices of the Common Stock for
the 20 consecutive trading days immediately prior to the applicable Conversion
Date by such fraction and rounding to the nearest whole cent, with one-half cent
being rounded upward.
(g) If a Holder converts a Security, the Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon such conversion.
(h) The Company shall reserve out of its authorized but unissued Common
Stock a sufficient number of shares of Common Stock to permit the conversion of
the Securities. All shares of Common Stock delivered upon conversion of the
Securities shall be newly issued shares or treasury shares, shall be validly
issued, nonassessable and fully paid, shall not be issued in violation of any
preemptive or similar rights and shall be free of any liens, encumbrances or
restrictions on transfer imposed by the Company other than those imposed by the
Securities Act and applicable state securities or "Blue Sky" laws. The Company
shall cause all such reserved shares of Common Stock to be listed on the Nasdaq
National Market or any other United States securities exchange or market where
the Common Stock is principally traded.
(i) The Conversion Price shall be adjusted from time to time by the Company
as follows:
(i) In case the Company shall, at any time or from time to time on or
after the Issue Date, (A) pay a dividend or make a distribution on its
Common Stock in shares of Common Stock, (B) subdivide its outstanding
Common Stock into a greater number of shares, (B) combine its outstanding
Common Stock into a smaller number of shares or (D) issue by
reclassification of its Common Stock any other shares of its Capital Stock,
then, in each such case, the Conversion Price in effect immediately prior
to such action
13
<PAGE>
shall be adjusted so that the Holder of any Security thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock or other Capital Stock of the Company which such
Holder would have owned or have been entitled to receive after the
happening of any of the events described above had such Security been
converted immediately prior to the happening of such event. If any dividend
or distribution of the type described in clause (A) above is not so paid or
made, the Conversion Price shall again be adjusted to the Conversion Price
which would then be in effect if such dividend or distribution had not been
declared. An adjustment made pursuant to this paragraph 6(i)(i) shall
become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of subdivision, combination or reclassification.
If, after an adjustment made pursuant to this paragraph 6(i)(i), the Holder
of any Security thereafter converted shall become entitled to receive
shares of two or more classes of Capital Stock of the Company, the board of
directors of the Company shall determine the allocation of the adjusted
Conversion Price between or among such classes of Capital Stock, which
determination shall be final and binding on all Holders. After such
allocation, the Conversion Price of each class of Capital Stock of the
Company shall thereafter be subject to adjustment on terms comparable to
those applicable to Common Stock in this paragraph 6(i).
(ii) If, at any time or from time to time on or after the Issue Date,
the Company issues or sells any Common Stock for consideration in an amount
per share less than the average of the Closing Prices of the Common Stock
for the 20 consecutive trading days ending on and including the second
trading day immediately prior to such issuance or sale, the Conversion
Price shall be adjusted in accordance with the following formula:
P
-
E' = E x O + M
-----
A
where:
E' = the adjusted Conversion Price.
E = the then current Conversion Price.
O = the number of shares of Common stock outstanding
immediately prior to the issuance or sale of such
additional shares of Common Stock.
P = the aggregate consideration received for the issuance
or sale of such additional shares of Common Stock.
M = the average Closing Prices of the Common Stock for
the 20 consecutive trading days ending on and including
the second trading day immediately prior to the date of
the issuance or sale of such additional shares of
Common Stock.
14
<PAGE>
A = the number of shares of Common Stock outstanding
immediately after the issuance or sale of such
additional shares of Common Stock.
The adjustments shall be made successively whenever any such
issuance or sale is made, and shall become effective immediately
after such issuance or sale.
This paragraph 6(i)(ii) does not apply to:
(A) the issuance of the License Shares pursuant to and
in accordance with the License Agreement and the Purchase
Agreement;
(B) the conversion of the Securities or the conversion,
exercise or exchange of any other securities convertible
into, or exercisable or exchangeable for, Common Stock;
(C) the issuance of Common Stock pursuant to a valid
and binding written agreement with any Person, the terms of
which provide that such Common Stock is to be issued on a
date after the execution of such agreement and upon the
occurrence of specified events (other than solely the
passage of time);
(D) the issuance Common Stock to the shareholders of
any Person which mergers into the Company or any Subsidiary
of the Company in proportion to such shareholders' ownership
of the securities of such Person, upon such merger; or
(E) Common Stock issued in a bona fide public offering
pursuant to a firm commitment or "best efforts"
underwriting.
(iii) If, at any time or from time to time on or after the Issue Date,
the Company shall issue rights, options or warrants to all holders of its
Common Stock entitling them (for a period expiring within 60 days after the
record date mentioned below) to subscribe for or purchase shares of Common
Stock at a price per share less than the greater of (x) the average of the
Closing Prices of the Common Stock for the 20 consecutive trading days
ending on and including the second trading day immediately prior to the
record date and (y) the then current Conversion Price, the Conversion Price
shall be adjusted in accordance with the following formula:
N x P
E' = E x O + M
------
O + N
where:
E' = the adjusted Conversion Price.
E = the then current Conversion Price.
15
<PAGE>
O = the number of shares of Common Stock outstanding on
the record date fixed for determination of stockholders
entitled to participate in such issuance.
N = the number of additional shares of Common Stock
offered pursuant to such issuance.
P = the offering price per share of such additional
shares of Common Stock.
M = the greater of (x) the average of the Closing Prices
of the Common Stock for the 20 consecutive trading days
ending on and including the second trading day
immediately prior to the record date and (y) the then
current Conversion Price.
The adjustment shall be made successively whenever any such issuance
is made and shall become effective immediately after the record date fixed
for the determination of stockholders entitled to participate in such
issuance.
To the extent that shares of Common Stock are not delivered after the
expiration of such rights, options or warrants, the Conversion Price shall
be readjusted to the Conversion Price which would then be in effect had the
adjustments made upon the issuance of such rights, options or warrants been
made on the basis of delivery of only the number of shares of Common Stock
actually delivered. If such rights, options or warrants are not so issued,
the Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if the record date for the determination of
stockholders entitled to participate in such distribution had not been
fixed. In determining whether any rights, options or warrants entitle the
Holders to subscribe for or purchase shares of Common Stock at a price per
share less than the average of the Closing Prices of the Common Stock for
the 20 consecutive trading days ending on and including the second trading
day immediately preceding the record date, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken into
account any consideration received by the Company for such rights, options
or warrants, the value of such consideration, if other than cash, to be
determined in good faith by the board of directors of the Company
(irrespective of the accounting treatment thereof), which determination
shall be final and binding on all Holders. Such determination shall be
described in a board resolution. Notwithstanding the foregoing provisions
of this paragraph 6(i)(iii), an event which would otherwise give rise to an
adjustment under this paragraph 6(i)(iii) shall not give rise to such an
adjustment if the Company includes the Holders in such distribution on a
pro rata basis as if each such Holder held the number of shares of Common
Stock into which such Holder's Securities are convertible on the record
date fixed for determination of the stockholders entitled to participate in
such distribution and with the same notice as is provided to such
stockholders.
This paragraph 6(i)(iii) does not apply to transactions described in
paragraph 6(i)(iv).
16
<PAGE>
(iv) If, at any time or from time to time on or after the Issue Date,
the Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock any class of Capital Stock of the Company (other than
Common Stock) or evidences of its indebtedness or assets (excluding cash
dividends or other cash distributions from current or retained earnings
other than any Extraordinary Cash Dividend) or rights, options or warrants
to subscribe for or purchase any of the foregoing, the Conversion Price
shall be adjusted in accordance with the following formula:
E' = E x M - F
-----
M
where
E' = the adjusted Conversion Price.
E = the then current Conversion Price.
M = the greater of (x) the average of the Closing Prices
of the Common Stock for the 20 consecutive trading days
ending on and including the second trading day
immediately prior to the record date mentioned below
and (y) the then current Conversion Price.
F = the fair market value on the record date fixed for
determination of the stockholders entitled to
participate in such distribution of the assets,
securities, rights, options or warrants applicable to
one share of Common stock. The board of directors shall
determine such fair market value in good faith
(irrespective of the accounting treatment thereof),
which determination shall be final and binding on the
Holders. Such determination shall be described in a
board resolution.
The adjustment shall be made successively whenever any such
distribution is made and shall become effective immediately after the
record date fixed for the determination of stockholders entitled to receive
such distribution. To the extent that shares of Common Stock are not so
delivered after the expiration of such rights, options, or warrants, the
Conversion Price shall be readjusted to the Conversion Price which would
then be in effect had the adjustment made upon the issuance of such rights,
options or warrants been made on the basis of the delivery of only the
number of shares of Common Stock actually delivered. Notwithstanding the
foregoing provisions of this paragraph 6(i)(iv), an event which would
otherwise give rise to an adjustment under this paragraph 6(i)(iv) shall
not give rise to such an adjustment if the Company includes the Holders in
such distribution on a pro rata basis as if each such Holder held the
number of shares of Common Stock into which such Holder's Securities are
convertible on the record date fixed for determination of the stockholders
entitled to participate in such distribution and with the same notice as is
provided to such stockholders.
This paragraph 6(i)(iv) does not apply to any transaction described in
paragraph 6(i)(iii) hereof.
17
<PAGE>
(v) If, at any time or from time to time on or after the Issue Date,
the Company shall (x) enter into any valid and binding written agreement
with any Person to issue or sell Common Stock on a date after the execution
of such agreement and upon the occurrence of specified events (other than
solely the passage of time) or (y) issue or sell any securities convertible
into, or exercisable or exchangeable for, Common Stock, in each case, for
consideration per share of Common Stock less than the average of the
Closing Prices of the Common Stock for the 20 consecutive trading days
ending on and including the second trading day immediately prior to, in the
case of clause (x), the date of execution of such agreement, and, in the
case of clause (y), the date of such issuance or sale, the Conversion Price
shall be adjusted in accordance with the following formula:
P
-
E' = E x O + M
-----
O + D
where:
E' = the adjusted Conversion Price.
E = the then current Conversion Price.
O = the number of shares of Common Stock outstanding
immediately prior to, in the case of clause (x) above,
the date of execution of such agreement, and, in the
case of clause (y) above, the issuance or sale of such
securities.
P = (a) in the case of clause (x) above, the minimum
aggregate amount of consideration payable to the
Company upon the issuance or sale of such Common Stock
(including the minimum aggregate amount of cash
payments to be made by the Company to the other Person
or Persons party to such agreement in lieu of which
such Common Stock may be issued) and (b) in the case of
clause (y) above, the aggregate consideration received
for the issuance or sale of such securities plus the
minimum aggregate amount of additional consideration,
other than the surrender of such securities, payable to
the Company upon conversion, exercise or exchange of
such securities.
M = the Closing Prices of the Common stock for the 20
consecutive trading days ending on and including the
second trading day immediately prior to, in the case of
clause (x) above, the date of execution of such
agreement, and, in the case of clause (y) above, the
date of such issuance or sale.
D = the maximum stated number of shares deliverable
pursuant to such agreement or upon conversion, exercise
or exchange of such securities, as the case may be.
The adjustment shall be made successively whenever any such agreement
is executed or such issuance or sale is made, and shall become effective
immediately after the execution of such agreement or such issuance or sale.
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If all of the Common Stock deliverable pursuant to any such agreement
or upon conversion, exercise or exchange of such securities have not been
issued upon the expiration or termination of such agreement or when such
securities are no longer outstanding, as the case may be, then the
Conversion Price shall be readjusted to the Conversion Price which would
then be in effect had the adjustment made upon the execution of such
agreement or the issuance or sale of such securities been made on the basis
of the actual number of shares of Common Stock issued pursuant to such
agreement or upon conversion, exercise or exchange of such securities.
This paragraph 6(i)(v) does not apply to:
(A) any stock options issued to employees and consultants (other
than officers or directors) of the Company pursuant to any employee
stock option or purchase plan or program approved by the board of
directors of the Company;
(B) the issuance of the Securities; or
(C) any transaction described in paragraph 6(i)(iii) or (iv).
In the event of any change in the number of shares of Common Stock
deliverable, or in the consideration payable to the Company, pursuant to
any such agreement or upon the conversion, exercise or exchange of such
securities, including, but not limited to, a change resulting from any
anti-dilution provisions thereof, the Conversion Price shall, on the date
of such change, be recomputed to reflect such change.
(vi) For purposes of any computation respecting consideration received
pursuant to paragraph 6(i)(ii) and (v) hereof, the following shall apply:
(A) in the case of the issuance or sale of shares of Common Stock
for cash, the consideration shall be the amount of such cash; provided
that in no event shall any deduction be made for any commissions,
discounts or other expenses incurred by the Company in connection
therewith;
(B) in the case of the issuance or sale of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair market
value thereof as determined in good faith by the board of directors of
the Company (irrespective of the accounting treatment thereof), which
determination shall be final and binding on the Holders. Such
determination shall be described in a board resolution; and
(C) in the case of any agreement referred to in clause (x) of
paragraph 6(i)(v) hereof or the issuance or sale of securities
referred to in clause (y) of paragraph 6(i)(v) hereof, the
consideration, if any, to be received by the Company for the issuance
or sale of Common Stock pursuant to such agreement or upon the
conversion, exercise or exchange of such securities shall determined
in the same manner as provided in clauses (A) and (B) of this
paragraph 6(i)(vi).
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(vii) No adjustment in the Conversion Price need be made unless the
adjustment would require a decrease of at least 1% in the Conversion Price
then in effect; provided that any adjustment that would otherwise be
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this paragraph 6(i) shall be
made to the nearest cent or to the nearest 1/10,000th of a share, as the
case may be.
(viii) No adjustment need be made for rights to purchase Common Stock
pursuant to a Company plan for reinvestment of dividends or interest. No
adjustment need be made for a change in the par value or no par value of
the Common Stock. To the extent that the Securities become convertible into
cash, no adjustment need by made thereafter as to the amount of cash into
which such Securities are convertible. Neither Original Issue Discount nor
interest will accrue on cash.
(ix) Whenever the Conversion Price is adjusted, the Company shall
promptly mail to each Holder, by first-class mail, postage prepaid, at its
address appearing on the register maintained by the Company, a notice of
the adjustment.
(x) In case:
(A) the Company shall take any action that would require an
adjustment in the Conversion Price pursuant to paragraph 6(i)(i),
(ii), (iii), (iv) or (v) hereof;
(B) of any event described in paragraph 6(i)(xi) hereof; or
(C) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company shall cause to be mailed to each Holder, by first-class
mail, postage prepaid, at its address appearing on the register maintained
by the Company, as promptly as possible but in any event at least 15 days
prior to the applicable date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of any dividend
or distribution or (y) the date on which any reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding-up is expected to become effective or occur. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of
such dividend, distribution, reclassification, consolidation, merger, sale,
transfer, dissolution, liquidation or winding-up.
(xi) In the event of: (a) any reclassification or change of
outstanding shares of Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination), (b) any consolidation or
amalgamation with, or merger with or into, another Person as a result of
which holders of Common Stock shall be entitled to receive cash, securities
or other property with respect to or in exchange for such Common Stock or
(c) any sale, transfer, assignment, lease, conveyance or other disposition
of all or substantially all of the assets of the Company (in one
transaction or series of related transactions) to any other Person as a
result of which holders of Common Stock shall be entitled to receive cash,
securities
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or other property with respect to or in exchange for such Common
Stock, then the Company or the Person (if other than the Company) formed by
such consolidation or amalgamation or into which the Company is merged or
to which the properties and assets are sold, assigned, transferred, leased,
conveyed or otherwise disposed of, as the case may be, shall expressly
agree in writing, in form and substance satisfactory to a majority of
Holders of Securities then outstanding (excluding Securities then held by
the Company or any of its Affiliates), that each Security shall be
convertible into the kind and amount of securities, cash or other assets
which the Holder of such Security would have owned immediately after such
reclassification, change, consolidation, amalgamation, merger, sale,
transfer, assignment, lease, conveyance or other disposition if such Holder
had exercised such Security immediately before the record date or effective
date, as the case may be, of the transaction. Such written agreement shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this paragraph 6(i).
The Company shall cause notice of the execution of such written
agreement to be mailed to each Holder, by first-class mail, postage
prepaid, at its address appearing on the register maintained by the
Company, within 20 days after execution thereof. Failure to deliver such
notice shall not affect the legality or validity of such agreement.
The above provisions of this paragraph 7(i)(xi) shall similarly apply
to successive reclassifications, changes, consolidations, amalgamations,
mergers, sales, transfers, assignments, leases, conveyances or other
dispositions.
If this paragraph 6(i)(ix) applies to any event or occurrence,
paragraph 6(i)(i), (ii), (iii), (iv) and (v) hereof shall not apply.
(xii) Rights or warrants distributed by the Company to all holders of
Common Stock entitling the holders thereof to subscribe for or purchase
shares of the Company's Capital Stock (either initially or under certain
circumstances), which rights or warrants, until the occurrence of a
specified event or events (each, a "Trigger Event"): (i) are deemed to be
transferred with such shares of Common Stock, (ii) are not exercisable and
(iii) are also issued in respect of future issuances of Common Stock, shall
be deemed not to have been distributed for purposes of this paragraph 6(i)
(and no adjustment to the Conversion Price under this paragraph 6(i) will
be required) until the occurrence of the earliest Trigger Event, whereupon
such rights and warrants shall be deemed to have been distributed and an
appropriate adjustment (if any is required) to the Conversion Price shall
be made under this paragraph 6(i). If any such right or warrant, including
any such existing rights or warrants distributed prior to the Issue Date,
are subject to events, upon the occurrence of which such rights or warrants
become exercisable to purchase different securities, evidences of
indebtedness or other assets, then the date of the occurrence of any and
each such event shall be deemed to be the date of distribution with respect
to new rights or warrants with such rights (and a termination or expiration
of the existing rights or warrants without exercise by any of the holders
thereof). In addition, in the event of any distribution (or deemed
distribution) of rights or warrants, or any Trigger Event or other event
(of the type described in the preceding sentence) with respect thereto that
was counted for purposes of calculating a distribution amount for which an
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adjustment to the Conversion Price under this paragraph 6(i) was made, (A)
in the case of any such rights or warrants which shall have been redeemed
or repurchased without exercise by any holders thereof, the Conversion
Price shall be readjusted upon such final redemption or repurchase to give
effect to such distribution or Trigger Event, as the case may be, as though
it were a cash distribution, equal to the per share redemption or
repurchase price received by a holder or holders of Common Stock with
respect to such rights or warrants (assuming such holder had retained such
rights or warrants), made to all holders of Common Stock as of the date of
such redemption or repurchase and (B) in the case of such rights or
warrants which shall have expired or been terminated without exercise by
any holders thereof, the Conversion Price shall be readjusted as if such
rights and warrants had not been issued. Notwithstanding the foregoing, no
Holder shall be entitled to any adjustment in the Conversion Price of the
Notes held by such Holder pursuant to this paragraph 6(i) if the applicable
Trigger Event shall have been caused by the acquisition of securities of
the Company by such Holder or any of its Affiliates.
(j) After an adjustment to the Conversion Price under paragraph 6(i), (ii),
(iii), (iv) or (v) hereof, any subsequent event requiring an adjustment shall
cause an adjustment to the Conversion Price as so adjusted.
(k) No adjustment shall be made pursuant to paragraph 6(i)(i), (ii), (iii),
(iv) or (v) hereof if, as a result thereof, the Conversion Price would be
increased.
7. COVENANTS
(a) Payment of Securities. The Company shall promptly make all payments in
respect of the Securities on the dates and in the manner provided herein.
The Company shall, to the extent permitted by law, pay interest on overdue
amounts at the rate set forth in paragraph 1 of the Securities, which interest
on overdue amounts (to the extent that the payment of such interest shall be
legally enforceable) shall accrue from the date such amounts became overdue.
(b) SEC Reports. The Company shall deliver to each Holder, by first-class
mail, postage prepaid, at its address appearing on the register maintained by
the Company, at the time the Company distributes them to the holders of its
Common Stock, copies of its annual reports to shareholders and its proxy
statements. In addition, the Company shall deliver to Elan, by first-class mail,
postage prepaid, at its address appearing on the register maintained by the
Company, within 30 days after the Company files them with the SEC, copies of all
other information, documents and reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) which the
Company is required to file with the SEC pursuant to Section 13 or 15(d) of the
Exchange Act (or any successor provision thereof). In the event that the Company
is at any time no longer subject to the reporting requirements of the Exchange
Act (or any such successor provision), it shall deliver to each Holder, by
first-class mail, postage prepaid, at its address appearing on the register
maintained by the Company, reports containing substantially the same information
as would have been required to be filed with the SEC had the Company continued
to have been subject to such reporting requirements, including, with respect to
annual information only, a report thereon by the Company's certified independent
public
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accountants as such would be required in such reports to the SEC and, in
each case, together with a management's discussion and analysis of financial
condition and results of operations as such would be so required. In such event,
such reports shall be so delivered at the time the Company would have been
required to provide such reports had it continued to have been subject to such
reporting requirements.
(c) Compliance Certificates; Notice of Defaults.
(i) The Company shall deliver to each Holder, within 90 days after the
end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries during such fiscal year
has been made under the supervision of the signing Officers with a view to
determining whether the Company has kept, observed, performed and fulfilled
its obligations under the Securities, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge,
the Company has kept, observed, performed and fulfilled each and every
covenant contained in the Securities and is not in default in the
performance or observance of any of the terms, provisions and conditions
contained in the Securities (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default of which
he or she may have knowledge and what action the Company is taking or
proposes to take with respect thereto).
(ii) The Company shall, so long as any of the Securities are
outstanding, deliver to each Holder, forthwith upon any Officer becoming
aware of any Default or Event of Default, an Officers' Certificate
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
(d) Further Instruments and Acts. Upon request of the Holders of at least a
majority in the aggregate Principal Amount of the outstanding Securities
(excluding Securities at the time owed by the Company and its Affiliates), the
Company will execute and deliver such further instruments and do such further
acts as may be reasonably necessary or proper to carry out more effectively the
provisions of the Securities.
(e) Taxes. The Company shall, and shall cause each of its Subsidiaries to,
pay prior to delinquency all material taxes, assessments and governmental
levies, except as contested in good faith and by appropriate proceedings.
(f) Legal Existence. Subject to paragraph 8 hereof, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its legal existence, and the corporate, partnership or other existence of
each of its Subsidiaries, in accordance with their respective organizational
documents (as the same may be amended from time to time) and the rights (charter
and statutory), licenses and franchises of the Company and its Subsidiaries;
provided that the Company shall not be required to preserve any such right,
license or franchise, or the corporate, partnership or other existence of any of
its Subsidiaries if the board of directors of the Company shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and its Subsidiaries, taken as a whole.
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(g) Withholding Taxes. All transfers of Securities by the Holders thereof
and all payments made by the Company under or with respect to the Securities
(including the issuance of securities upon the conversion of the Securities)
shall be made free and clear of and without withholding or deduction for or on
account of any present or future Taxes, unless the Company is required to
withhold or deduct Taxes by law or by the interpretation or administration
thereof. If the Company is required by law or by the interpretation or
administration thereof to withhold or deduct any amount of Taxes in connection
with the Securities, such amount shall be withheld and deducted by the Company
without alteration of or increase in its obligations under the Securities;
provided, however, that, if the Holder thereof has delivered to the Company a
complete, manually-signed copy of Internal Revenue Service Form 1001 (or any
successor form) or Internal Revenue Service Form 4224 (or any successor form)
properly certifying to such Holder's entitlement to a complete exemption from
U.S. withholding Tax with respect to such payment under applicable United States
Treasury Regulations, such payment shall be made free and clear of and without
withholding or deduction for or on account of any Taxes. In connection with any
payment made by the Company under any Security which is made in whole or in part
through the delivery of shares of Common Stock of the Company (including upon
the conversion of the Securities), the amount required to be withheld or
deducted shall first be withheld or deducted from the amount of cash (up to the
total amount thereof) which would otherwise be paid at such time. Any additional
amount required to be withheld or deducted, unless otherwise agreed by the
Company and the Holder of a Security, shall be withheld and deducted by reducing
the number of shares of Common Stock to be delivered by that number of shares of
Common Stock equal to the remaining amount required to be withheld or deducted
divided by the Conversion Price in effect on the date of such payment.
(h) Line of Business. The Company and its Subsidiaries will not engage in
any businesses other than the business of researching, developing, marketing,
selling, manufacturing, distributing or licensing pharmaceutical, medical,
biologic, genetic or related products and services and financing activities
related solely thereto, including the businesses in which the Company and its
Subsidiaries are engaged on the Issue Date.
(i) Use of Proceeds. The Company will use the gross proceeds from the
issuance of any Additional Notes in accordance with Section 1(b) of the Purchase
Agreement and otherwise in accordance with the Purchase Request related thereto.
(j) Maintenance of Properties; Insurance; Books and Records; Compliance
with Law.
(i) The Company shall, and shall cause each of its Subsidiaries to, at
all times cause all material properties used or useful in the conduct of
its business to be maintained and kept in good condition, repair and
working order (reasonable wear and tear excepted) and supplied with all
necessary equipment, and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereto; provided
that, subject to the other provisions of the Securities, nothing in this
paragraph -------- 7(j)(i) shall prevent the Company or any of its
Subsidiaries from selling, abandoning or otherwise disposing of any
property (including any lease of property) if in the judgment of the
Company the same is no longer useful in the business of the Company or such
Subsidiary, as the case may be.
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(ii) The Company shall maintain, and shall cause to be maintained for
each of its Subsidiaries, insurance covering such risks as are usually and
customarily insured against by corporations similarly situated, in such
amounts as shall be customary for corporations similarly situated and with
such deductibles and by such methods as shall be customary and reasonably
consistent with past practice.
(iii) The Company shall, and shall cause each of its Subsidiaries to,
keep proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of
the Company and each Subsidiary of the Company, in accordance with U.S.
generally accepted accounting principles consistently applied to the
Company and its Subsidiaries, taken as a whole.
(iv) The Company shall, and shall cause each of its Subsidiaries to,
comply with all statutes, laws, ordinances or government rules and
regulations to which they are subject, non-compliance with which would
materially adversely affect the business, prospects, earnings, properties,
assets or financial condition of the Company and its Subsidiaries, taken as
a whole.
8. SUCCESSOR CORPORATION
(a) The Company shall not consolidate with, amalgamate with, merge with or
into, or sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets (as an entirety or substantially as an entirety
in one transaction or a series of related transactions), to any Person unless:
(i) (x) the Company shall be the continuing Person, or (y) the Person
(if other than the Company) formed by such consolidation or amalgamation or
into which the Company is merged or to which the properties and assets of
the Company are sold, assigned, transferred, leased, conveyed or otherwise
disposed of (in any case, the "Successor Company") shall be a corporation
organized and existing under the laws of the United States or any State
thereof or the District of Columbia and the Successor Company shall
expressly affirm, in writing, the due and punctual performance of all of
the terms, covenants, agreements and conditions of the Securities to be
performed or observed by the Company, and such obligations shall remain in
full force and effect; and
(ii) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing.
(b) In connection with any consolidation, amalgamation, merger or sale,
assignment, transfer, lease, conveyance or other disposition of assets
contemplated by this paragraph 8, prior to the consummation of such transaction
or transactions the Company shall deliver, or cause to be delivered, to each
Holder, by first-class mail, postage prepaid, at its address appearing in the
register maintained by the Company, an Opinion of Counsel stating that (i) such
consolidation, amalgamation, merger or sale, assignment, transfer, lease,
conveyance or other disposition of assets complies with this paragraph 8, (ii)
all conditions precedent herein provided for relating to such transaction or
transactions have been complied with and (iii) the affirmation provided for in
this paragraph 8 has been duly authorized, executed and delivered by the
Successor Company
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and the Securities are valid and legally binding obligations of the
Successor Company enforceable against it in accordance with their terms (subject
to bankruptcy, insolvency, reorganization and similar laws affecting the rights
and remedies of creditors generally and general equitable principles).
(c) For purposes of paragraph 8(a) and (b) hereof, the transfer (by sale,
assignment, lease, conveyance or other disposition, in a single transaction or
series of related transactions) of all or substantially all of the properties or
assets of one or more Subsidiaries of the Company, the Capital Stock of which
constitutes all or substantially all of the properties and assets of the
Company, shall be deemed to be the transfer of all or substantially all of the
properties and assets of the Company.
(d) Upon any consolidation, amalgamation or merger, or any sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the assets of the Company in accordance with this paragraph
8, the Successor Company shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under the Securities with the
same effect as if such Successor Company had been named as the Company in the
Securities, and thereafter the predecessor corporation shall be relieved of all
obligations and covenants under the Securities.
9. DEFAULTS AND REMEDIES
(a) An "Event of Default" occurs if:
(i) after exercise of its option pursuant to paragraph 12 hereof
following a Tax Event, the Company defaults in the payment of interest upon
any Security or delivery of any Tax Event Option related thereto, when such
interest becomes due and payable, and such default continues for a period
of 30 days;
(ii) the Company defaults in the payment of the Principal Amount,
Issue Price, accrued Original Issue Discount, Redemption Price, Purchase
Price, Company Change of Control Purchase Price or Elan Change of Control
Purchase Price on any Security when the same becomes due and payable at its
Stated Maturity, upon redemption, upon declaration, when due for purchase
by the Company or otherwise;
(iii) the Company defaults in the observance or performance of any
agreement, covenant, term or condition contained in any Security (other
than those referred to in clause (i) and (ii) above) and such failure
continues for 30 days after receipt by the Company of notice thereof
(except in the case of a failure or default with respect to paragraph 8
hereof, which shall constitute an Event of Default with such notice
requirement but without such passage of time requirement);
(iv) the Company defaults in any payment of principal of or interest
on any other obligation for money borrowed or the Company fails to perform
or observe any other agreement, covenant, term or condition contained in
any agreement under which any such obligation is created and the effect of
such default or failure is to cause, or the holder or holders of such
obligation (or a trustee on behalf of such holder or holders), as a
consequence of such default or failure shall take action to cause, such
obligation to
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become due prior to any stated maturity thereof; provided that the
aggregate amount of all obligations as to which such acceleration shall
occur is equal to or greater than $4.0 million;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $4.0 million (in excess of amounts
covered by insurance and as to which the insurer has acknowledged coverage)
shall be rendered against the Company or any Subsidiary thereof, and shall
not be discharged for any period of 60 consecutive days during which a stay
of enforcement shall not be in effect;
(vi) the Company or any Subsidiary thereof pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an
involuntary case,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(D) makes a general assignment for the benefit of its creditors,
or
(E) generally is not paying its debts as they become due;
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against either of the Company or any Subsidiary
thereof in an involuntary case,
(B) appoints a Custodian of either of the Company or any
Subsidiary thereof or for all or substantially all of the property of
either of the Company or any Subsidiary thereof, or
(C) orders the liquidation of either of the Company or any
Subsidiary thereof, and the order or decree remains unstayed and in
effect for 60 days; or
(viii) the Company fails to deliver shares of Common Stock (or cash in
lieu of fractional shares) when such Common Stock (or cash in lieu of
fractional shares) is required to be delivered, upon conversion of a
Security and such failure is not remedied for a period of 10 days.
(b) If an Event of Default (other than an Event of Default specified in
paragraph 9(a)(vi) or (vii) hereof occurs and is continuing, the Holders of at
least 25% in aggregate Principal Amount of the Securities at the time
outstanding (excluding Securities at the time owned by the Company and its
Affiliates) by notice to the Company, may declare the Issue Price and accrued
Original Issue Discount (or, if the Securities have been converted to a
semiannual
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coupon note following a Tax Event, the Restated Principal Amount and
accrued and unpaid interest) through the date of declaration on all the
Securities to be immediately due and payable. Upon such a declaration, such
Issue Price and accrued Original Issue Discount (or, if the Securities have been
converted to a semiannual coupon note following a Tax Event, the Restated
Principal Amount and accrued and unpaid interest) shall become and be due and
payable immediately. If an Event of Default specified in paragraph 9(a)(vi) or
(vii) hereof occurs and is continuing, the Issue Price and accrued Original
Issue Discount (or, if the Securities have been converted to a semiannual coupon
note following a Tax Event, the Restated Principal Amount and accrued and unpaid
interest) on all the Securities shall become and be immediately due and payable
without any declaration or other act on the part of any Holders. The Holders of
a majority in aggregate Principal Amount of the Securities at the time
outstanding (excluding Securities at the time owned by the Company and its
Affiliates), by notice to the Company (and without notice to any other Holder),
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of the Issue Price and accrued Original
Issue Discount (or accrued and unpaid interest) that have become due solely as a
result of acceleration. No such rescission shall affect any subsequent or other
Default or Event of Default or impair any consequent right.
(c) If an Event of Default occurs and is continuing, any Holder may pursue
any available remedy to collect the payment of the Issue Price and accrued
Original Issue Discount (or, if the Securities have been converted to a
semiannual coupon note following a Tax Event, the Restated Principal Amount and
accrued and unpaid interest) on the Securities or to enforce the performance of
any provision of the Securities.
A delay or omission by any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of, or acquiescence in, the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
(d) The Holders of a majority in aggregate Principal Amount of the
Securities at the time outstanding (excluding Securities at the time owned by
the Company and its Affiliates), by notice to the Company (and without notice to
any other Holder), may waive an existing Default or Event of Default and its
consequences except (i) an Event of Default described in paragraph 9(a)(i), (ii)
or (viii) hereof or (ii) a Default in respect of a provision that under
paragraph 11 hereof cannot be amended without the consent of each Holder
affected. When a Default or Event of Default is waived, it is deemed cured, but
no such waiver shall extend to any subsequent or other Default or Event of
Default or impair any consequent right.
(e) Notwithstanding any other provision of the Securities, the right of any
Holder to receive payment of the Principal Amount, Issue Price, accrued Original
Issue Discount, Redemption Price, Purchase Price, Company Change of Control
Purchase Price, Elan Change of Control Purchase Price or interest, if any, in
respect of the Securities held by such Holder, on or after the respective due
dates expressed in the Securities and to convert the Securities in accordance
with paragraph 6 hereof, or to bring suit for the enforcement of any such
payment on or after such respective dates or the right to convert the
Securities, shall not be impaired or affected adversely without the consent of
each such Holder.
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(f) The Company covenants (to the extent it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury or
other law wherever enacted, now or at any time hereafter in force, which would
prohibit or forgive the Company from paying all or any portion of the Principal
Amount, Issue Price plus accrued Original Issue Discount, Redemption Price,
Purchase Price, Company Change of Control Purchase Price or Elan Change of
Control Purchase Price, in each case, in respect of Securities, or any interest
on such amounts, as contemplated herein, or which may affect the covenants or
the performance of the Securities; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Holders, but will suffer and permit the execution of
every power as though no such law had been enacted.
10. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE
(a) The Company shall cause to be kept at its offices a register in which
the Company shall provide for the registration of Securities and of transfers of
Securities. Upon surrender for registration of transfer of any Security, the
Company shall execute, in the name of the designated transferee or transferees,
one or more Securities of a like aggregate Principal Amount and bearing such
restrictive legends as may be required by the terms of the Securities.
At the option of the Holder, and subject to the other provisions of the
Securities, Securities may be exchanged for other Securities of a like aggregate
Principal Amount, upon surrender of the Securities to be exchanged to the
Company. Whenever any Securities are so surrendered for exchange, and subject to
the other provisions of the Securities, the Company shall execute and deliver
the Securities which the Holder making the exchange is entitled to receive.
Every Security presented for registration of transfer or exchange shall be
accompanied by the written instrument of transfer in the form attached hereto as
Annex C, duly executed by the Holder thereof.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and subject to the same provisions as the Securities surrendered upon such
registration of transfer or exchange.
Subject to paragraph 7(g) hereof and notwithstanding any other provision of
this Section 10(a), no transfer of any Security shall be permitted, and no
registration of transfer shall be effected unless, prior to the time of such
transfer or registration of transfer, the Holder has made arrangements
reasonably satisfactory to the Company for payment or reimbursement of any and
all Taxes which would, in the absence of payment by the transferor, be required
to be paid by the Company as a result of such transfer. No service charge shall
be made for any registration of transfer or exchange. The Company acknowledges
that Treasury Regulation Section 1.441-2(b)(3) (effective January 1, 1999) is
not applicable to any Security issued prior to January 1, 1999.
In the event of a redemption of the Securities, the Company will not be
required (i) to register the transfer of or exchange Securities for a period of
5 days immediately preceding
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<PAGE>
the date notice of any redemption is given pursuant to paragraph 3(e)
hereof or (ii) to register the transfer of or exchange any Security, or portion
thereof, called for redemption.
(b) Except as permitted by this paragraph (b), each Security (and all
Securities issued in exchange therefor or substitution thereof) shall, so long
as appropriate, bear a legend (the "Legend") to substantially the following
effect (each, a "Transferred Restricted Security"):
THE SECURITY EVIDENCED HEREBY HAS 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.
THE TRANSFER OF THE SECURITY EVIDENCED HEREBY IS SUBJECT TO THE
CONDITIONS SPECIFIED IN A SECURITIES PURCHASE AGREEMENT, DATED AS OF
NOVEMBER 6, 1998, BY AND AMONG THE COMPANY, ELAN INTERNATIONAL
SERVICES, LTD. AND ELAN CORPORATION, PLC, AND THE COMPANY RESERVES THE
RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITY 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.
At such time as any Transfer Restricted Security may be freely transferred
without registration under the Securities Act and without being subject to
transfer restrictions pursuant to the Securities Act, the Company shall permit
the Holder of such Transfer Restricted Security to exchange such Transfer
Restricted Security for a new Security which does not bear the applicable
portion of the Legend upon receipt of certification from such Holder
substantially in the form attached hereto as Annex D and, at the request of the
Company, upon receipt of an opinion of counsel addressed to the Company that the
transfer restrictions contained in the Legend are no longer applicable. In
addition, at such time as such Security is no longer subject to the transfer
conditions set forth in the Purchase Agreement, the Company shall permit the
Holder of such Security to exchange such Security for a new Security which does
not bear the portion of the Legend referring to such transfer conditions.
In addition to the Legend, until the expiration of the "one-year
distribution compliance period" within the meaning of Rule 903 of Regulation S
under the Securities Act, each Security (and all Securities issued in exchange
therefor or substitution thereof) shall bear a legend (the "Reg. S Legend") to
substantially the following effect:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED
OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S (ss.230.901 THROUGH ss.230.905, AND PRELIMINARY NOTES).
HEDGING TRANSACTIONS INVOLVING THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE ACT.
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<PAGE>
At the expiration of such "one-year distribution compliance period," the
Company shall permit the Holder of such Security to exchange such Security for a
new Security which does not bear the Reg. S Legend.
(c) If any mutilated Security is surrendered to the Company, the Company
shall execute and deliver a new Security of like aggregate Principal Amount.
If there is delivered to the Company:
(i) evidence to its reasonable satisfaction of the destruction, loss
or theft of any Security; and
(ii) such security or indemnity as may be reasonably satisfactory to
the Company to save it harmless, then, in the absence of actual notice to
the Company that such Security has been acquired by a bona fide purchaser,
the Company shall execute and deliver, in lieu of any such destroyed, lost
or stolen Security, a new Security of like aggregate Principal Amount.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company, in its discretion, but
subject to conversion rights, may, instead of issuing a new Security, pay such
Security, upon satisfaction of the conditions set forth in the preceding
paragraph.
11. AMENDMENTS AND WAIVERS
(a) Any term, covenant, agreement or condition of the Securities may, with
the consent of the Company, be amended, or compliance therewith may be waived
(either generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
signed by the Holders of at least a majority in aggregate Principal Amount of
the Securities at the time outstanding (excluding Securities at the time owned
by the Company and its Affiliates); provided that, without the consent of each
Holder affected, no such amendment or waiver, including a waiver pursuant to
paragraph 9(d) hereof, shall:
(i) make any change in the Principal Amount of Securities whose
Holders must consent to an amendment or waiver;
(ii) make any change to the manner or rate of accrual in connection
with Original Issue Discount, reduce the interest rate referred to in
paragraph 1 of the Securities, reduce the rate of interest referred to in
paragraph 12 of the Securities upon the occurrence of a Tax Event or extend
the time for payment of accrued Original Issue Discount or interest, if
any, on any Security;
(iii) reduce the Principal Amount or the Issue Price of or extend the
Stated Maturity of any Security;
(iv) reduce the Redemption Price, Purchase Price, Company Change of
Control Purchase Price or Elan Change of Control Purchase Price or extend
the date on
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which the Redemption Price, Purchase Price, Company Change of Control
Purchase Price or Elan Change of Control Purchase Price of any Security is
payable;
(v) make any Security payable in money or securities other than that
stated in the Securities;
(vi) make any change in paragraph 9(d) hereof or this paragraph 11(a),
except to increase any percentage referred to, or make any change in
paragraph 9(e) hereof;
(vii) make any change that adversely affects the right to convert any
Security (including the right to receive cash in lieu of fractional
shares);
(viii) make any change that adversely affects the right to require the
Company to purchase Securities in accordance with their terms; or
(ix) impair the right to institute suit for the enforcement of any
payment with respect to, or conversion of, the Securities.
(b) No waiver shall extend to or affect any obligation not expressly waived
or impair any right consequent thereto.
(c) The Company will not solicit, request or negotiate for or with respect
to any proposed amendment or waiver of any provisions of any Security unless
each Holder of Securities (irrespective of the amount of Securities then owned
by it) shall be informed thereof by the Company and shall be afforded the
opportunity of considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with respect
thereto; provided, however, that preliminary discussions with one or more
Holders regarding any such proposed amendment shall not constitute any such
solicitation, request or negotiation. Executed or true copies of any amendment
or waiver effected pursuant to this paragraph 11 shall be delivered by the
Company to each Holder of Securities, by first class mail, postage prepaid, at
its address appearing on the register maintained by the Company, forthwith
following the date on which the same shall have been executed and delivered by
the Holder or Holders of the requisite amount of outstanding Securities. The
Company will not, directly or indirectly, pay or cause to be paid, remuneration,
whether by way of fees or otherwise, to any Holder of Securities as
consideration for or as an inducement to the entering into by such Holder of any
amendment or waiver unless such remuneration is concurrently paid, on the same
terms, ratably to the Holders of all Securities then outstanding.
(d) Any amendment or waiver pursuant to this paragraph 11 shall (except as
provided in paragraph 11(a)(i) through (ix) above) apply equally to all Holders
and shall be binding upon them, upon each future Holder and upon the Company.
(e) In determining whether the Holders of the requisite amount of
outstanding Securities have given any authorization, consent or waiver under
this paragraph 11, Securities owned by the Company or any of its Affiliates
shall be disregarded and deemed not to be outstanding.
12. TAX EVENT CONVERSION
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(a) From and after the date (the "Tax Event Date") of the occurrence of a
Tax Event, at the option of the Company, interest in lieu of future Original
Issue Discount shall accrue at 8.0% per annum on a principal amount per Security
(the "Restated Principal Amount") equal to the Issue Price plus accrued Original
Issue Discount to the date immediately prior to the Tax Event Date or the date
on which the Company exercises the option described in this paragraph 12(a),
whichever is later (such date, the "Option Exercise Date"). Such interest shall
accrue from the Option Exercise Date and shall be payable on November 9 and May
9 of each year (the "Interest Payment Date") to the Holders of record at the
close of business on October 25 and April 24 (each, a "Regular Record Date")
immediately preceding such Interest Payment Date. Interest will be computed on
the basis of a 360-day year consisting of twelve 30-day months and will accrue
from the most recent date on which interest has been paid or, if no interest has
been paid, from the Option Exercise Date. Within 15 days of the occurrence of a
Tax Event, the Company shall mail a written notice of such Tax Event to each
Holder, by first-class mail, postage prepaid, at its address appearing on the
register maintained by the Company.
(b) On each Interest Payment Date, concurrently with the payment of the
interest due and payable on such date, the Company shall issue and deliver to
each Holder of a Security to whom such interest is paid, an option (which option
shall be in the form of a written instrument duly executed by the Company (a
"Tax Event Option") to purchase a number of shares of Common Stock equal to the
quotient obtained by dividing (x) the aggregate amount of such interest due and
payable to such Holder on such Interest Payment Date in respect of such Security
by (y) the Conversion Price of such Security in effect on the Business Day
immediately prior to such Interest Payment Date. Such Tax Event Option shall be
exercisable, in whole at any time or in part from time to time, on or prior to
November 9, 2008. Each Tax Event Option shall include provisions substantially
similar to those set forth in paragraph 6(c), (d), (e), (f), (g), (h) and (i)
hereof. Each Tax Event Option shall be transferable by the holder thereof only
together with the Security in respect of which such Tax Event Option was issued,
subject to compliance with all applicable transfer restrictions of federal and
state securities laws.
(c) Interest on any Security that is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the person in
whose name that Security is registered at the close of business on the Regular
Record Date for such interest. Each installment of interest on any Security
shall be paid by wire transfer in immediately - available funds to an account
designated in writing by the payee at least 2 Business Days prior to the
Interest Payment Date applicable thereto.
(d) Subject to the foregoing provisions of this paragraph 12, each Security
upon registration of transfer, or in exchange for or in lieu of any other
Security, shall carry the rights to interest accrued and unpaid, and to accrue,
which were carried by such other Security.
13. MISCELLANEOUS
(a) Any notices or other communications required or permitted hereunder
shall be sufficiently given if delivered personally, sent by nationally
recognized overnight delivery service or facsimile (receipt confirmed) or mailed
by first-class mail, postage prepaid, addressed as follows:
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<PAGE>
(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 any Holder, at its address appearing in the register
maintained by the Company pursuant to paragraph 10(a) hereof
(iii) (x) on the date delivered, if delivered by facsimile or
personally, (y) 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 (z) three
Business Days after being mailed by first-class mail, postage prepaid. The
Company, by written notice to each of the Holders, may designate a
different address for subsequent notices or communications.
(b) All agreements of the Company in this Security shall bind its
successor.
(c) Each provision of this Security shall be considered separable and if
for any reason any provision which is not essential to the effectuation of the
basic purpose of this Security shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
(d) THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN
THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF
LAW TO THE EXTENT THAT THE APPLICATION OF LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
(e) Upon conversion of this Security in accordance with the terms hereof,
the Holder will be entitled to the benefits of the Registration Rights Agreement
or the New Registration Rights Agreement, as the case may be, with respect to
the shares of Common Stock issuable to such Holder upon such conversion.
14. DEFINITIONS
"Accrual Increase" has the meaning specified in paragraph 1(c) hereof.
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"Additional Amounts" has the meaning specified in paragraph 7(g) hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of Voting Stock, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Business Day" means each day of the year on which banking institutions are
not required or authorized to close in The City of New York.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated and whether
or not voting) of corporate stock, partnership interests or any other
participation, right or other interest in the nature of an equity interest in
such Person including, without limitation, common stock and preferred stock of
such Person, or any option, warrant or other security convertible into any of
the foregoing.
A "Change of Control" of any Person shall be deemed to have occurred at
such time as (i) any other 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 Stock of such specified Person, (ii) there
shall be consummated any consolidation or merger of such specified Person in
which such specified Person is not the continuing or surviving corporation or
pursuant to which the Voting Stock of such specified Person would be converted
into cash, securities or other property, other than a merger or consolidation of
such specified Person in which the holders of the Voting Stock of such specified
Person outstanding immediately prior to the consolidation or merger hold,
directly or indirectly, at least a majority of all Voting Stock of the
continuing or 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 such
specified Person (together with any new directors whose election by such board
of directors or whose nomination for election by the shareholders of such
specified Person 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 such specified Person.
"Close of business" means, with respect to any date, 5:00 PM, San Diego
time, on such date, or such other city in which the Company's principal place of
business may then be located.
"Closing Price" means, with respect to the Common Stock on any trading day,
the last reported per share sales price of the Common Stock on such trading day,
as reported by the
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Nasdaq National Market or, if the Common Stock is listed on a United States
securities exchange, the closing per share sales price, regular way, on such
trading day on the principal United States securities exchange on which the
Common Stock is traded or, if no such sale takes place on such trading day, the
average of the closing bid and asked prices on such day.
"Common Stock" means the common stock, par value $0.001 per share, of the
Company, as such class exists on the date of this Security as originally
executed or any other shares of Capital Stock into which such common stock shall
be reclassified or changed.
"Company" means Ligand Pharmaceuticals Incorporated, a Delaware
corporation.
"Company Change of Control Offer" has the meaning specified in paragraph
4(b) hereof.
"Company Change of Control Offer Notice" has the meaning specified in
paragraph 4(b)(i) hereof.
"Company Change of Control Payment Date" has the meaning specified in
paragraph 4(b)(i)(C) hereof.
"Company Change of Control Purchase Price" has the meaning specified in
paragraph 4(b) hereof.
"Company Notice" has the meaning specified in paragraph 4(a)(v) hereof.
"Company Notice Date" has the meaning referred to in paragraph 4(a)(v)
hereof.
"Conversion Date" has the meaning specified in paragraph 6(d) hereof.
"Conversion Notice" has the meaning specified in paragraph 6(d) hereof.
"Conversion Price" has the meaning specified in paragraph 6(b) hereof.
"Conversion Shares" has the meaning specified in the Purchase Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Distributed Securities" has the meaning specified in paragraph 6(i)(iv)
hereof.
"Elan" means Elan Corporation, plc, a public limited Company organized and
existing under the laws of Ireland.
"Elan Change of Control Notice" has the meaning specified in the Purchase
Agreement.
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<PAGE>
"Elan Change of Control Payment Date" has the meaning specified in
paragraph 5(b)(ii) hereof.
"Elan Change of Control Purchase" has the meaning specified in paragraph
5(a) hereof.
"Elan Change of Control Purchase Notice" has the meaning specified in
paragraph 5(b) hereof.
"Elan Change of Control Purchase Price" has the meaning specified in
paragraph 5(a) hereof.
"Event of Default" has the meaning specified in paragraph 10(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
"Extraordinary Cash Dividend" means cash dividends with respect to the
Common Stock the aggregate amount of which in any fiscal year exceeds the
greater of (i) 10% of the consolidated net income of the Company for the fiscal
year immediately preceding the payment of such dividend and (ii) $200,000.
"Holder" means a Person in whose name this Security is registered on the
books of the Company.
"Initial Shares" has the meaning specified in the Purchase Agreement.
"Interest Payment Date" has the meaning specified in paragraph 12(a)
hereof.
"Issue Date" of this Security means the date on which this Security was
originally issued or deemed issued as set forth on the face of this Security.
"Issue Price" of this Security means, in connection with the original
issuance of this Security, the initial issue price at which this Security is
issued as set forth on the face of this Security.
"Legend" has the meaning specified in paragraph 10(b) hereof.
"License Agreement" has the meaning specified in the Purchase Agreement.
"License Shares" has the meaning specified in the Purchase Agreement.
"Nasdaq National Market" means the electronic interdealer quotation system
operated by Nasdaq Stock Market, Inc., a subsidiary of the National Association
of Securities Dealers, Inc.
"New Registration Rights Agreement" has the meaning specified in the
Purchase Agreement.
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<PAGE>
"Officer" means the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company.
"Officers' Certificate" means a written certificate, signed in the name of
the Company by (i) its Chief Executive Officer, its President or any Vice
President and (ii) its Treasurer or its Secretary.
"Opinion of Counsel" means a written opinion from legal counsel. The
counsel may be an employee of, or counsel to, the Company or any Successor
Company.
"Option Exercise Date" has the meaning specified in paragraph 12(a) hereof.
"Original Issue Discount" of this Security means the difference between the
Issue Price and the Principal Amount of this Security as set forth on the face
of this Security. For purposes of this Security, accrual of Original Issue
Discount shall be calculated on a semi-annual bond equivalent basis using a 360
day year consisting of twelve 30-day months.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government, or any agency or political subdivision thereof.
"Principal" or "Principal Amount" of this Security means the Principal
Amount as set forth on the face of this Security.
"Purchase Agreement" has the meaning specified on the face of this
Security.
"Purchase Date" has the meaning specified in paragraph 4(a) hereof.
"Purchase Notice" has the meaning specified in paragraph 4(a)(i) hereof.
"Purchase Price" has the meaning specified in paragraph 4(a) hereof.
"Purchase Request" has the meaning specified in the Purchase Agreement.
"Redemption Date" means a date specified for redemption of this Security in
accordance with the terms hereof.
"Redemption Price" has the meaning specified in paragraph 3(a) hereof.
"Registration Rights Agreement" has the meaning specified in the Purchase
Agreement.
"Registration Rights Default" has the meaning specified in paragraph 1(c)
hereof.
"Regular Record Date" has the meaning specified in paragraph 12(a) hereof.
"Restated Principal Amount" has the meaning specified in paragraph 12(a)
hereof.
"SEC" means the Securities and Exchange Commission.
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"Securities" means any of the Company's Zero Coupon Convertible Senior
Notes due 2008, as amended and supplemented from time to time in accordance with
the terms hereof, issued pursuant to the Purchase Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Shares" has the meaning specified in the Purchase Agreement.
"Stated Maturity" means November 9, 2008.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, limited liability company, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total voting power of the Capital
Stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by such
specified Person or any of its Subsidiaries or (ii) in the case of a
partnership, joint venture, limited liability company, association or other
business entity, with respect to which such specified Person or any of its
Subsidiaries has the power to direct or cause the direction of the management
and policies of such entity by contract or otherwise.
"Successor Company" has the meaning specified in paragraph 8(a)(1) hereof.
"Tax Event" means that the Company shall have received an opinion from
independent tax counsel experienced in such matters to the effect that, on or
after the date of this Security, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws (or any regulations
thereunder) of the United Sates or any political subdivision or taxing authority
thereof or therein or (b) any amendment to, or change in, an interpretation or
application of such laws or regulations by any legislative body, court,
governmental agency or regulatory authority, in each case, which amendment or
change is enacted, promulgated, issued or announced or which interpretation is
issued or announced or which action is taken, on or after the date of this
Security, there is more than an insubstantial risk that interest (including
Original Issue Discount) payable on the Securities either (i) would not be
deductible on a current accrual basis or (ii) would not be deductible under any
other method, in either case, in whole or in part, by the Company, by reason of
deferral, disallowance or otherwise) for United States federal income tax
purposes.
"Tax Event Date" has the meaning specified in paragraph 12(a) hereof.
"Tax Event Option" has the meaning specified in paragraph 12(b) hereof.
"Taxes" means any present or future tax, duty, levy, impost, assessment or
other government charge (including penalties, interest and any other liabilities
related thereto) imposed or levied by or on behalf of a any government or any
political subdivision or territory or possession of any government or any
authority or agency therein or thereof having power to tax.
"Transfer Restricted Security" has the meaning specified in paragraph 10(b)
hereof.
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"Voting Stock" means stock of any class or classes, however designated,
having general voting power under ordinary circumstances to elect a majority of
the board of directors, managers or trustees of a Person, other than stock
having such power only by reason of the occurrence of a contingency.
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ANNEX A
FORM OF PURCHASE NOTICE
OF
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attention: General Counsel
1. Pursuant to the terms of the Zero Coupon Convertible Senior Note due
2008 (certificate no. [ ] in the Principal Amount of $[ ] (the "Security"), the
undersigned hereby elects to cause Ligand Pharmaceuticals Incorporated (the
"Company") to purchase $[________] Principal Amount of the Security at the
Purchase Price set forth in the Security on [November 9, 2002] [November 9,
2005], subject to the right of the undersigned to convert the Security at any
time prior to the close of business on the Purchase Date. Capitalized terms used
herein and not otherwise defined have the meanings specified in the Security.
2. In the event that the Security is purchased in part, please execute and
deliver to the undersigned a new Security in a denomination equal in Principal
Amount to the unpurchased portion of the Security.
3. In the event that the Company has elected to pay the Purchase Price with
Common Stock (the "Shares") pursuant to paragraph 4(a)(iv) of the Security, the
undersigned confirms that:
(a) We understand that the Shares have not been registered under the
Securities Act and may not be offered or sold except as permitted in the
following sentence. We agree that if we should sell or otherwise transfer
the Shares, we will do so only (i) to the Company or its Subsidiaries, (ii)
inside the United States to an institutional "accredited investor" (as
defined below), (iii) outside the United States in accordance with
Regulation S under the Securities Act, (iv) pursuant to the exemption from
registration provided by Rule 144 under the Securities Act (if available)
or (v) pursuant to an effective registration statement under the Securities
Act.
(b) We understand that the certificates representing the Shares will,
so long as appropriate, bear the following legends:
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
A-1
<PAGE>
STATEMENT UNDER THE ACT OR PURSUANT TO A VALID
EXEMPTION THEREFROM. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S (ss.230.901 THROUGH ss.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 SECURITY EVIDENCED HEREBY IS
SUBJECT TO THE CONDITIONS SPECIFIED IN A SECURITIES PURCHASE
AGREEMENT, DATED AS OF NOVEMBER 6, 1998, BY AND AMONG THE
COMPANY, ELAN INTERNATIONAL SERVICES, LTD. AND ELAN
CORPORATION, PLC, AND THE COMPANY RESERVES THE RIGHT TO
REFUSE THE TRANSFER OF SUCH SECURITY 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.
(c) We are acquiring the Shares for our own account and are either (i)
an institutional "accredited investor" (as defined in Rule 501(a)(1), (2),
(3) or (7) of Regulation D under the Securities Act) or (ii) a foreign
purchaser that is outside the United States (as such terms are used under
Regulations S under the Securities Act). We have such knowledge and
experience in financial and business matters to be capable of evaluating
the merits and risks of our investment in the Shares and we are able to
bear the economic risk of our investment for an indefinite period of time.
A-2
<PAGE>
This certificate and the statements contained herein are made for the
benefit of the Company.
Signature of Holder
Date:
A-3
<PAGE>
ANNEX B
CONVERSION NOTICE
OF
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attention: General Counsel
1. Pursuant to the terms of the Zero Coupon Convertible Senior Note due
2008 (certificate no. [__________] in the Principal Amount of $[________]
attached hereto (the "Security"), the undersigned hereby elects to cause Ligand
Pharmaceuticals Incorporated (the "Company") to convert $[________] Principal
Amount of the Security pursuant to paragraph 6 of the Security at the Conversion
Price. Capitalized terms used herein and not otherwise defined have the meanings
specified in the Security.
2. In the event that the undersigned has elected to convert the Security in
part, please execute and deliver to the undersigned a new Security in a
denomination equal in Principal Amount to the unconverted portion of the
Security.
3. In connection with the conversion of the Security, the undersigned
confirms that:
(a) We understand that the securities to be issued upon such
conversion have not been registered under the Securities Act and may not be
offered or sold except as permitted in the following sentence. We agree
that if we should sell or otherwise transfer such securities, we will do so
only (i) to the Company or its Subsidiaries, (ii) inside the United States
to an institutional "accredited investor" (as defined below), (iii) outside
the United States in accordance with Regulation S under the Securities Act,
(iv) pursuant to the exemption from registration provided by Rule 144 under
the Securities Act (if available) or (v) pursuant to an effective
registration statement under the Securities Act.
(b) We understand that the certificates representing such securities
will, so long as appropriate, bear the following legends:
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. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
B-1
<PAGE>
EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION
S (ss.230.901 THROUGH ss.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 SECURITY EVIDENCED HEREBY IS
SUBJECT TO THE CONDITIONS SPECIFIED IN A SECURITIES PURCHASE
AGREEMENT, DATED AS OF NOVEMBER 6, 1998, BY AND AMONG THE
COMPANY, ELAN INTERNATIONAL SERVICES, LTD. AND ELAN
CORPORATION, PLC, AND THE COMPANY RESERVES THE RIGHT TO
REFUSE THE TRANSFER OF SUCH SECURITY 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.
(c) We are acquiring the securities to be issued upon conversion of
the Security for our own account and are either (i) an institutional
"accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act) or (ii) a foreign purchaser that is
outside the United States. We have such knowledge and experience in
financial and business matters to be capable of evaluating the merits and
risks of our investment in the securities and we are able to bear the
economic risk of our investment for an indefinite period of time.
This certificate and the statements contained herein are made for the
benefit of the Company.
Signature of Holder
Date:
B-2
<PAGE>
ANNEX C
FORM OF CERTIFICATE FOR
REGISTRATION OF TRANSFER OR EXCHANGE
OF
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attention: General Counsel
1. Reference is hereby made to the Zero Coupon Convertible Senior Note due
2008 (certificate no. [_________] in the Principal Amount of $[________]
attached hereto (the "Security"). Capitalized terms used herein and not
otherwise defined have the meanings specified in the Security.
2. In connection with the registration of transfer or exchange of such
Security, the undersigned hereby certifies that:
CHECK ONE
________ The Security is being acquired for the undersigned's own
account, without transfer; or
________ The Security is being transferred to the Company; or
________ The Security is being transferred in a transaction permitted
by Rule 144 under the Securities Act; or
________ The Security is being transferred pursuant to an effective
registration statement; or
________ The Security is being transferred in a transaction permitted
by Rule 904 under the Securities Act; or
________ the Security is being transferred pursuant to an exemption
from the registration requirements of the Securities Act other
than Rule 144 or Rule 904, and the undersigned hereby further
certifies that the Security is being transferred in compliance
with the exemption claimed, which certification is supported by
an opinion of counsel, if required by the Company, provided by
the undersigned or the transferee (a copy of which the
undersigned has attached to this certification) in form
reasonably satisfactory to the Company, to the effect that such
transfer is in compliance with the Securities Act;
and the Security is being transferred in compliance with any applicable
state securities or "Blue Sky" laws of any state of the United States.
C-1
<PAGE>
3. This certificate and the statements contained herein are made for the
benefit of the Company.
Signature of Holder
Date:
C-2
<PAGE>
ANNEX D
FORM OF UNRESTRICTED SECURITIES CERTIFICATE
OF
ZERO COUPON CONVERTIBLE SENIOR NOTE DUE 2008
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attention: General Counsel
1. Reference is hereby made to the Zero Coupon Convertible Senior Note due
2008 (certificate no. [________] in the Principal Amount of $[_______] attached
hereto (the "Security"). Capitalized terms used herein and not otherwise defined
have the meanings specified in the Security.
2. The undersigned, the registered owner of the Security, has requested
that the Security be exchanged for a new Security bearing no portion of the
Legend (excluding that portion of the Legend relating to transfer conditions set
forth in the Purchase Agreement). In connection with such exchange, the
undersigned hereby certifies that the exchange is occurring after a period of at
least two years has elapsed since the date the Security was acquired from the
Company or any affiliate (as such term is defined under Rule 144 under the
Securities Act) of the Company, whichever is later, and the undersigned is not,
and during the preceding three months has not been, an affiliate of the Company.
The undersigned also acknowledges that future transfers of the Security must
comply with all applicable state securities or "Blue Sky" laws.
3. This certificate and the statements contained herein are made for the
benefit of the Company.
Signature of Holder
Date:
D-1
<PAGE>
EXHIBIT 10.13
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 30th day of September,
1999, by and between Ligand Pharmaceuticals Incorporated, a Delaware corporation
(the "Company"), and Elan International Services, Ltd., a Bermuda corporation
("Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Shares.
1.1 Issuance and Sale of Shares. Subject to the terms and conditions of
this Agreement, Investor agrees to pay an aggregate of $455,063.25 (the
"Purchase Price") to the Company at the Closing and the Company agrees to sell
and issue to Investor at the Closing 52,742 shares (the "Shares") of the
Company's common stock, par value $.001 per share ("Common Stock"), at a per
share purchase price of $8.6281.
1.2 Closing. The closing for the purchase and sale of the Shares shall take
place at the offices of Brobeck, Phleger & Harrison LLP, 550 West "C" Street,
Suite 1200, San Diego, California, on September 30, 1999, or at such other time
and place as the Company and Investor mutually agree upon orally or in writing
(which shall be designated as the "Closing"). At the Closing, the Company shall
deliver to Investor a certificate representing the Shares (free and clear of all
liens, claims and other encumbrances except as otherwise provided herein and in
the Registration Rights Agreement (as defined below)). In consideration of such
delivery, Investor shall make payment for the Shares by delivery to the Company
of the Purchase Price. All such payments by Investor at the Closing shall be in
immediately available funds in the form of certified or cashier's check payable
to the Company's order or by wire transfer of funds to the Company's designated
bank account.
2. Representations and Warranties of the Company. Except as otherwise set
forth on the Schedule of Exceptions attached as Schedule A, the Company hereby
represents and warrants to Investor that:
2.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would be reasonably expected to have a material adverse
effect on the business, operations, properties, assets, or condition (financial
or otherwise) of the Company (a "Material Adverse Effect"). Except as disclosed
in the Form 10-K (as defined herein), the Company has no subsidiaries.
2.2 Authorization. The Company has all requisite corporate power and
authority (i) to execute, deliver and perform its obligations under this
Agreement and the Registration Rights Agreement (as defined below), (ii) to
issue the Shares in the manner and for the purpose contemplated by this
Agreement and (iii) to execute, deliver and perform its
<PAGE>
obligations under all other agreements and instruments executed and
delivered by it pursuant to or in connection with this Agreement and the
Registration Rights Agreement. All corporate action on the part of the Company,
its officers, directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Fourteenth Addendum to the
Amended Registration Rights Agreement of even date herewith, which makes
Investor a party to the Amended Registration Rights Agreement between the
Company and certain of its stockholders (collectively, the "Registration Rights
Agreement"), the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance (or reservation for issuance) and
delivery of the Shares being sold hereunder has been taken or will be taken
prior to the Closing, and this Agreement and the Registration Rights Agreement
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
2.3 Valid Issuance of Shares. The Shares which are being purchased
hereunder, when issued, sold and delivered in accordance with the terms hereof
for the consideration expressed herein, will be duly and validly issued, fully
paid and nonassessable, free and clear of all liens and encumbrances and
restrictions other than as set forth in this Agreement or other than imposed by
applicable law or regulation and, based in part upon the representations of
Investor in this Agreement, the Shares will be issued in compliance with all
applicable federal and state securities laws.
2.4 SEC Reports. The Company has heretofore filed with the Securities and
Exchange Commission (the "SEC") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), all reports and other documents required to be
filed, including an Annual Report on Form 10-K for the year ended December 31,
1998 (the "Form 10-K"). None of such reports, or any other reports, documents,
registration statements, definitive proxy materials and other filings required
to be filed with the SEC under the rules and regulations of the SEC ("SEC
Filings") contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to make the
statements made, at the time and in light of the circumstances under which they
were made, not misleading. Since December 31, 1998, the Company has timely filed
with the SEC all SEC Filings and all such SEC Filings complied with all
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, as applicable and the rules thereunder.
The audited financial statements of the Company included or incorporated by
reference in the 1998 Annual Report and the unaudited financial statements
contained in the quarterly reports on Form 10-Q filed since December 31, 1998
each have been prepared in accordance with such acts and rules and with United
States generally accepted accounting principles applied on a consistent basis
throughout the periods indicated therein and with each other, except as may be
indicated therein or in the notes thereto and except that the unaudited interim
financial statements may not contain all footnotes and adjustments required by
United States generally accepted accounting principles, and fairly present the
financial condition of the Company as at the dates thereof and the results of
its operations and statements of cash flows for the periods then ended, subject,
in the case of unaudited interim financial statements, to normal year-end
adjustments. Except as reflected in such financial statements, the Company has
no material liabilities, absolute or
2
<PAGE>
contingent, other than ordinary course liabilities incurred since the date
of the last such financial statements in connection with the conduct of the
business of the Company. Since December 31, 1998, and except as described in the
Company's SEC Filings since December 31, 1998, there has been no:
(a) change in the assets, liabilities, financial condition or operating
results of the Company from that reflected in the 1998 Annual Report, except
changes in the ordinary course of business that have not, individually or in the
aggregate, resulted in and are not reasonably expected to result in a Material
Adverse Effect (and except that the Company expects to continue to incur
substantial operating losses, which may be material);
(b) damage, destruction or loss, whether or not covered by insurance,
materially and adversely affecting the business, properties or financial
condition of the Company (and except that the Company expects to continue to
incur substantial operating losses, which may be material);
(c) waiver or compromise by the Company of a material right or of a
material debt owed to it;
(d) satisfaction or discharge of any lien, claim or encumbrance by the
Company, except in the ordinary course of business and which is not material to
the business, properties or financial condition of the Company (as such business
is presently conducted);
(e) material change to a material contract or arrangement by which the
Company or any of its assets is bound or subject;
(f) sale, assignment or transfer to a third party that is not an Affiliate
(as hereafter defined) of any material patents, trademarks, copyrights, trade
secrets or other intangible assets for compensation which is less than fair
value;
(g) mortgage, pledge, transfer of a security interest in, or lien, created
by the Company, with respect to any of its material properties or assets, except
liens for taxes not yet due or payable;
(h) declaration, setting aside or payment or other distribution in respect
of any of the Company's capital stock, except any direct or indirect redemption,
purchase or other acquisition of any such stock by the Company; or
(i) event or condition of any type that has had or is reasonably expected
to have a Material Adverse Effect.
For purposes of this Section 2.4 of this Agreement, the term "Affiliate"
means any individual or entity directly or indirectly controlling, controlled by
or under common control with, a party to this Agreement. Without limiting the
foregoing, the direct or indirect ownership of 30% or more of the outstanding
voting securities of any entity, or the right to receive 30% or more of the
profits or earnings of an entity, shall be deemed to constitute control.
3
<PAGE>
2.5 Contracts. With respect to each of the material contracts, commitments
and agreements of the Company, the Company is not, and has no actual knowledge
that any other party is, in default under or in respect of any such material
contract, commitment or agreement, the result of which default would have a
Material Adverse Effect. No party to any such material contract, commitment or
agreement, would be authorized or permitted to terminate its obligations
thereunder by reason of the execution and delivery of this Agreement or any of
the transactions contemplated herein.
2.6 Compliance. The Company has complied with, and is not in default under
or in violation of its Certificate of Incorporation, Bylaws or any and all laws,
ordinances and regulations or other governmental restrictions, orders, judgments
or decrees, applicable to the Company's business as presently conducted,
including individual products marketed by it, where any such default or
violation would have a Material Adverse Effect. The Company has not received
notice of any possible or actual violation of any applicable law, ordinance,
regulation, or order, the result of which violation would be reasonably expected
to have a Material Adverse Effect. The Company is not a party to any agreement
or instrument, or subject to any charter or other corporate restriction, or any
judgment, order, decree, law, ordinance, regulation or other governmental
restriction which would prevent or impede, or be breached or violated by, or
would result in the creation of any lien or encumbrance upon any assets of the
Company by, the transactions contemplated in this Agreement or the execution,
delivery or performance of the Registration Rights Agreement, 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.
2.7 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement and of the transactions contemplated hereby will
not result in any violation of or constitute, with or without the passage of
time and the giving of notice, either a default under any provision of its
Certificate of Incorporation or Bylaws.
2.8 Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority is required on the part of the
Company in connection with the Company's valid execution, delivery and
performance of this Agreement or the Registration Rights Agreement or the
consummation of any transaction contemplated hereby or thereby, except for any
filings under any applicable state securities laws and except for any filing
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended. The
filings under state securities laws, if any, will be effected by the Company at
its cost within the applicable stipulated statutory period.
2.9 Litigation. There is no action, suit, proceeding or investigation
pending or currently threatened against the Company or its properties before any
court or governmental agency arising out of this Agreement or the Registration
Rights Agreement or the right of the Company to enter into such instruments or
to consummate the transactions contemplated hereby or thereby. Other than Sergio
M. Oliver et al. v. Boston University et al., C.A. No 16570-NC in the Delaware
Court of Chancery, there is no action, suit, proceeding or investigation pending
or currently threatened against the Company, which singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would materially
adversely affect the business,
4
<PAGE>
properties, operations, financial condition, income or business prospects
or equity ownership of the Company or would result in any material liability on
the part of the Company.
2.10 Permits. Except as disclosed in SEC Filings (including, inter alia,
the lack of FDA approvals for the commercial sale of many of the Company's
product candidates), the Company has all governmental franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it or as proposed to be conducted by it, the lack of
which could have a Material Adverse Effect. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
2.11 Taxes. The Company has filed all federal, state and other tax returns
which are required to be filed and has heretofore paid all taxes which have
become due and payable, except where the failure to file or pay would not be
reasonably expected to have a Material Adverse Effect. The provision for taxes
on the balance sheet as of December 31, 1998 is sufficient for the payment of
all accrued and unpaid taxes of the Company with respect to the period then
ended.
2.12 Title. The Company has good and marketable title to all material
property and assets reflected in the financial statements to the 1998 Annual
Report (or as described in the SEC Filings). Except where the failure to do so
would not have a Material Adverse Effect, the Company occupies its leased
properties under valid and binding leases conforming to the description thereof
set forth in the SEC Filings.
2.13 Intellectual Property. Except as disclosed in the SEC Filings, the
Company owns, or possesses adequate rights to use, all of its patents, patent
rights, trade secrets, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names and copyrights described or
referred to in the SEC Filings or owned or used by it or which is necessary for
the conduct of its business as presently conducted, except where the failure to
own or possess such patents, patent rights, trade secrets, know-how, proprietary
techniques, including processes and substances, trademarks, service marks, trade
names and copyrights would not have a Material Adverse Effect. Except as
disclosed in the SEC Filings, the Company has not received any notice of
infringement of or conflict with asserted rights of others with respect to any
patents, patent rights, trade secrets, know-how, proprietary techniques,
including processes and substances, trademarks, service marks, trade names and
copyrights which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would be reasonably expected to have a Material
Adverse Effect.
2.14 Capitalization; Options and Warrants. The authorized capital stock of
the Company consists of eighty five million (85,000,000) shares of which eighty
million (80,000,000) shares are Common Stock, par value $.001 per share, and
five million (5,000,000) shares are Preferred Stock, par value $.001 per share.
Except as disclosed in the SEC Filings, the Company has not granted any option
(except for stock options and purchase rights granted under the Company's stock
option and employee stock purchase plans), warrants, rights (including
conversion or preemptive rights, except for stock purchased under the Company's
employee stock purchase plans), or similar rights to any person or entity to
purchase or acquire any rights with respect to any shares of capital stock of
the Company.
5
<PAGE>
2.15 Nasdaq National Market Designation. The Common Stock is currently
included in the Nasdaq National Market of the Nasdaq Stock Market and the
Company knows of no reason or set of facts which is likely to result in the
termination of inclusion of the Common Stock in the Nasdaq National Market or
the inability of such stock to continue to be included in the Nasdaq National
Market. The Company shall use all commercially reasonable efforts to maintain
the Non-Quantitative Designation Criteria contained in Section 5 of Part III of
Schedule D of the NASD's Bylaws to the extent such criteria are within the
control of the Company. Nothing in this Section shall be interpreted to preclude
the Company from listing its Common stock on a national securities exchange in
lieu of the Nasdaq National Market.
2.16 Registration Rights. Except as set forth in the Registration Rights
Agreement, the Company is not under any obligation to register any of its
presently outstanding securities or any of its securities that may hereafter
issue.
2.17 Offering. The offer, sale and issuance of the Shares to be issued in
conformity with the terms of this Agreement constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act").
2.18 Accuracy of Representations and Warranties. No representation or
warranty by the Company contained in this Agreement, and no statement contained
in this Agreement or any exhibit, schedule, disclosure, certificate, list or
other instrument delivered or to be delivered to the Investor pursuant hereto or
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make the statements contained herein or therein not misleading.
3. Representations and Warranties of Investor. Investor hereby represents
and warrants that:
3.1 Organization, Good Standing and Qualification. Investor is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted.
3.2 Authorization. All corporate action on the part of Investor, its
officers and directors necessary for the authorization, execution and delivery
of this Agreement and the Registration Rights Agreement, the performance of all
obligations of Investor hereunder and thereunder has been taken or will be taken
prior to the Closing, and this Agreement and the Registration Rights Agreement
constitute valid and legally binding obligations of Investor enforceable in
accordance with their respective terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting the enforcement of creditors' rights generally, or (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies.
3.3 Purchase Entirely for Own Account. This Agreement is made with Investor
in reliance upon Investor's representation to the Company, which by Investor's
execution of this Agreement Investor hereby confirms, that the Shares to be
received by Investor
6
<PAGE>
will be acquired for investment for Investor's own account, not as a
nominee or agent, and not with a view to the resale or distribution of any part
thereof, and that Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same in violation of the
Securities Act or the California Corporate Securities Law of 1968. By executing
this Agreement, Investor further represents that Investor does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares. Investor represents that it has full power and
authority to enter into this Agreement.
3.4 Investment Experience. Investor acknowledges that it is able to fend
for itself, can bear the economic risk of its investment and has such knowledge
and experience in financial or business matters that it is capable of evaluating
the merits and risks of the investment in the Shares. Investor also represents
it has not been organized for the purpose of acquiring the Shares.
3.5 Accredited Investor. Investor is an "accredited investor" within the
meaning of SEC Rule 501 of Regulation D, as presently in effect.
3.6 Restricted Securities. Investor understands that the Shares it is
purchasing are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such Shares may be resold without registration under the
Securities Act, only in certain limited circumstances. In this connection,
Investor represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the
Securities Act.
3.7 Further Limitations on Disposition. Without in any way limiting the
representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Shares unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by Sections 3.7
and 6.1 (except that Section 6.1 shall not apply to a transferee in a registered
public offering or a sale under Rule 144) of this Agreement and the Registration
Rights Agreement, if applicable, and:
(a) There is then in effect a Registration Statement under the Securities
Act covering such proposed disposition and such disposition is made in
accordance with such Registration Statement; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a reasonably detailed
statement of the circumstances surrounding the proposed disposition (for
purposes of securities law compliance), and (ii) if reasonably requested by the
Company, such Investor shall have furnished the Company with an opinion of
counsel (which may be Investor's inside counsel), in form and substance
reasonably satisfactory to the Company, that such disposition will not require
registration of such shares under the Securities Act. It is agreed that the
Company will not require opinions of counsel for transactions made pursuant to
Rule 144 except in unusual circumstances.
7
<PAGE>
3.8 Legends. It is understood that the certificates evidencing the Shares
may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities Act of
1933. They may not be sold, offered for sale, pledged or hypothecated in the
absence of a registration statement in effect with respect to the securities
under such Act or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144 of such Act."
(b) "These securities are subject to certain transfer restrictions
contained in a certain Stock Purchase Agreement dated as of September 30, 1999
as amended from time to time, a copy of which may be obtained from the
corporation without charge."
To the extent that such legends are no longer applicable, the Company shall
cause its transfer agent to remove the legends upon a permitted transfer by
Investor.
3.9 Governmental Consents. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority is required on the part of
Investor in connection with Investor's valid execution, delivery and performance
of this Agreement or the Registration Rights Agreement or the issuance of the
Shares, except for any filings under any applicable state securities laws and
except for any filing under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 as amended.
4. Conditions of Investor's Obligations at Closing. The obligations of
Investor under subsection 1.1 of this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, the waiver of
which shall not be effective without the consent of Investor thereto:
4.1 Representations and Warranties. The representations and warranties of
the Company contained in Section 2 shall be true and correct on and as of the
Closing with the same force and effect as though such representations and
warranties had been made on and as of the date of such Closing.
4.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing, all
corporate or other proceedings in connection with the transactions contemplated
at the Closing and all documents incident thereto shall be reasonably
satisfactory in form and in substance to Investor.
4.3 Compliance Certificate. An officer of the Company shall have delivered
to Investor a certificate certifying that (a) the conditions specified in
Sections 4.1 and 4.2 have been fulfilled, and (b) the Company has not filed a
petition in bankruptcy or insolvency or for reorganization or for an arrangement
or for the appointment of a receiver or trustee of its assets, nor is the
Company aware of any events or action that would make any such filing or
arrangement imminent.
8
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4.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to
Investor and it shall have received all such counterpart original and certified
or other copies of such documents as they may reasonably request.
4.5 Blue Sky. The Company shall have obtained all necessary Blue Sky law
permits and qualifications, or secured an exemption therefrom, required by any
state for the offer and sale of the Shares.
4.6 Shares. The Company shall have delivered to Investor the Shares.
4.7 Registration Rights Agreement. The Company shall have entered into the
Registration Rights Agreement.
4.8 Opinion of Company Counsel. Investor shall have received an opinion
from the Company's securities counsel, dated as of the Closing, in the form
attached hereto as Schedule B.
5. Conditions of the Company's Obligations at Closing. The obligations of
the Company to Investor under this Agreement are subject to the fulfillment on
or before the Closing of each of the following conditions by Investor:
5.1 Representations and Warranties. The representations and warranties of
Investor contained in Section 3 shall be true on and as of the Closing with the
same effect as though such representations and warranties had been made on and
as of the Closing.
5.2 Performance. Investor shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing, all
corporate or other proceedings in connection with the transactions contemplated
at the Closing and all documents incident thereto shall be reasonably
satisfactory in form and in substance to the Company.
5.3 Compliance Certificate. An officer of Investor shall have delivered to
the Company a certificate certifying that the conditions specified in Sections
5.1 and 5.2 have been fulfilled.
5.4 Payment of Purchase Price. Investor shall have delivered the purchase
price specified in Section 1.1.
5.5 Registration Rights Agreement. The Investor shall have entered into the
Registration Rights Agreement.
6. Covenants of Investor.
6.1 Transfer Restriction. Notwithstanding any rights under the Registration
Rights Agreement, Investor hereby agrees that during the time period commencing
as of the
9
<PAGE>
Closing and ending on *** (with the time period being referred to as the
"Restricted Period"), without the prior written consent of the Company (which
may be withheld in its sole discretion), neither it nor any affiliate (as
defined in Rule 144 of the Act promulgated by the SEC ("Affiliate")) shall,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any of the
Shares ("Restricted Securities"). Notwithstanding the foregoing, transfers
solely among Investor Affiliates shall not be subject to the transfer
restrictions set forth in this Section 6.1 provided the Affiliate transferee
agrees in writing to be bound by this Section 6.1. In order to enforce the
foregoing covenant, the Company may impose legends and/or stop-transfer
instructions with respect to the Restricted Securities held by Investor or any
Affiliate (and the Restricted Securities of every other person subject to the
foregoing restriction) until the end of such period.
7. Miscellaneous.
7.1 Survival of Warranties. The warranties, representations and covenants
of the Company and Investor contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investor or the Company.
7.2 Successors and Assigns. Except as otherwise provided herein, the terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the respective successors and assigns of the parties (including transferees
of any of the Shares sold hereunder). Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
7.3 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.
7.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Titles and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.6 Notices. Unless otherwise provided, any notice required or permitted
under this Agreement shall be given in writing by facsimile or personal delivery
to the party to be notified or by Federal Express or other overnight package
delivery service or registered or certified mail, postage prepaid and addressed
to the party to be notified at the following addresses, or at such other address
as such party may designate by five (5) days' advance written notice to the
other parties (with notice deemed given upon receipt):
- -----------------
*** Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.
10
<PAGE>
If to the Company:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, California 92121
Attn: William L. Respess, Esq.
Fax No: (858) 550-1825
with a copy to:
Brobeck, Phleger & Harrison LLP
555 West C Street, Suite 1300
San Diego, California 92101
Attn: Faye H. Russell, Esq.
Fax No.: (619) 234-3848
If to Investor:
Elan International Services, Ltd.
102 St. James Court
Flatts Smiths Parish
Bermuda, FL 04
Attn: Kevin Insley
Fax No: (441) 292-2224
with copies to:
Elan Corporation, plc
Lincoln House
Lincoln Place
Dublin 2, Ireland
Attn: William F. Daniel
Fax No: 353-1-662-4950
and
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attn: William M. Harnett, Esq.
Fax No: (212) 269-5420
7.7 Finder's Fee. Each party represents that it neither is nor will be
obligated for any finders' fee or commission in connection with this
transaction. Each party agrees to indemnify and to hold harmless the other from
any liability for any commission or compensation
11
<PAGE>
in the nature of a finders' fee (and the costs and expenses of defending
against such liability or asserted liability) for which the indemnifying party
or any of its officers, partners, employees, or representatives is responsible.
7.8 Expenses. Irrespective of whether the Closing is effected, each party
shall pay all costs and expenses that it incurs with respect to the negotiation,
execution, delivery and performance of this Agreement. Notwithstanding the
foregoing, the Company shall pay any and all stamp, transfer and other similar
taxes payable or determined to be payable in connection with the execution and
delivery of this Agreement or the original issuance of the Shares, and shall
save and hold the Investor harmless from and against any and all liabilities
with respect to or resulting from any delay in paying, or omission to pay, such
taxes.
7.9 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and Investor. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any securities purchased under this Agreement at the time outstanding, each
future holder of all such securities, and the Company.
7.10 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
7.11 Entire Agreement. This Agreement and the documents referred to herein
constitute the entire agreement among the parties and no party shall be liable
or bound to any other party in any manner by any warranties, representations, or
covenants except as specifically set forth herein or therein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
INVESTOR:
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
Kevin Insley
President and Chief Financial Officer
THE COMPANY:
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ William L. Respess
William L. Respess
Senior Vice President, General Counsel
and Secretary
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
<PAGE>
SCHEDULE A
SCHEDULE OF EXCEPTIONS
This Schedule of Exceptions is made and given pursuant to Section 2 of the
Stock Purchase Agreement dated as of September 30, 1999 (the "Agreement"). The
section numbers in this Schedule of Exceptions correspond to the section numbers
in the Agreement; however, any information disclosed herein under any section
number shall be deemed to be disclosed and incorporated into any other section
number under the Agreement where such disclosure would otherwise be appropriate.
Any terms defined in the Agreement shall have the same meaning when used in this
Schedule of Exceptions as when used in the Agreement unless the context
otherwise requires.
Nothing herein constitutes an admission of any liability or obligation of
the Company nor an admission against the Company's interest. The inclusion of
any agreement or other matter herein or any exhibit hereto should not be
interpreted as indicating that the Company has determined that such an agreement
or other matter is necessarily material to the Company. Investor acknowledges
that certain information contained in this schedule may constitute material
confidential information relating to the Company which may not be used for any
purpose other than in connection with Investor's decision to purchase certain
securities of the Company pursuant to the Agreement.
Section 2.1 - Organization, Good Standing and Qualification
In addition to the subsidiaries disclosed in the Form 10-K, the Company has
the following subsidiaries: Ligand JVR, Inc., Ligand Pharmaceuticals
International, Inc., Ligand Pharmaceuticals UK Limited and Marathon
Biopharmaceuticals, Inc.
Section 2.2 - Authorization
None
Section 2.3 - Valid Issuance of Shares
None
Section 2.4 - SEC Reports
2.4(e) On November 9, 1998, the Company and Elan Corporation, plc made an
agreement under which Ligand acquired certain rights to market Morphelan(TM), a
sustained release morpholine formulation. Under that agreement, Ligand agreed to
pay Elan certain consideration if milestones were met with respect to its
development and to undertake a limited commitment to conduct clinical trials for
Morphelan(TM). On August 20, 1999, the Company and Elan agreed to amend the
agreement relating to the payment of milestones and Ligand's commitment to
conduct clinical trials. The result of these amendments is that, if new
milestones are met, Ligand may owe Elan up to an additional $2,000,000 more than
would have been required under the original agreement.
Schedule A-1
<PAGE>
Section 2.5 - Contracts
None
Section 2.6 - Compliance
None
Section 2.7 - Compliance with Other Instruments
None
Section 2.8 - Governmental Consents
None
Section 2.9 - Litigation
Seragen, Inc., a subsidiary of the Company, and the Company, are parties to
Sergio M. Oliver, et al. v. Boston University, et al., a putative shareholder
class action filed in the Court of Chancery in the State of Delaware in and for
New Castle County, C.A. No. 16570NC, by Sergio M. Oliver and others against
Boston University and others, including Seragen and its subsidiary Seragen
Technology, Inc. The initial complaint was brought as a direct shareholder
action and set forth causes of action related to alleged self-dealing
transactions involving Seragen and certain of its shareholders and directors,
and did not name the Company as a defendant. The complaint sought unspecified
damages and equitable relief to enjoin the holding of the meeting of Seragen's
shareholders scheduled for August 12, 1998, for the purpose of considering and
approving the transactions contemplated by the Agreement and Plan of
Reorganization among the Company, Seragen and Knight Acquisition Corp. (the
"Merger Agreement"), and other matters. In order to permit a timely decision
with respect to their request that the court enjoin the holding of the August
12, 1998 shareholders meeting, the plaintiffs sought expedited proceedings.
Following briefing by defendants and plaintiffs with respect to the plaintiffs'
request for expedited proceedings, the Vice Chancellor on August 7, 1998 entered
an order denying plaintiffs' motion for expedited proceedings, thereby
effectively denying plaintiffs' request to preliminarily enjoin the August 12,
1998 shareholders meeting. On August 12, 1998, the Company and Seragen announced
the closing under the Merger Agreement, whereby a wholly-owned subsidiary of the
Company was merged with Seragen. Plaintiffs subsequently amended the complaint
to recast their suit as a class action, and to add the Company as a defendant.
The amended complaint alleged that the Company aided and abetted purported
breaches of fiduciary duty by the Seragen related defendants in connection with
the merger and made certain misrepresentations in related proxy materials.
Defendants thereafter filed motions to dismiss all claims. Rather than oppose
the motion, plaintiffs sought and obtained permission to file a second amended
complaint asserting essentially the same claims with a shorter class period. On
August 23, 1999, defendants again filed motions to dismiss all claims of the
second amended complaint. The motions are now pending before the Court of
Chancery while briefing is completed.
Schedule A-2
<PAGE>
Section 2.10 - Permits
None
Section 2.11 - Taxes
None
Section 2.12 - Title
None
Section 2.13 - Intellectual Property
The Company has become aware that a United States patent has been issued
to, and foreign counterparts have been filed by, Hoffman LaRoche ("LaRoche")
which covers pharmaceutical uses of 9-cis-retinoic acid (LGD1057) which may
conflict with the Company's right under the patent applications. The U.S. Patent
and Trademark Office ("PTO") has informed the Company that the overlapping
claims are patentable to the Company and has initiated an interference
proceeding to determine whether the Company or LaRoche 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 which may impact the outcome. In addition, the
interference proceeding may delay the decision of the PTO regarding the
Company's application for the current formulations of Oral and Topical Panretin
(LGD1057) products. The LaRoche patent does not cover the use of the current
formulations of Oral and Topical Panretin (LGD1057) 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
LaRoche patent might block the Company's use of Oral Panretin (LGD1057) in
certain cancers, and the Company may not be able to obtain patent protection for
the Oral and Topical Panretin (LGD1057) products.
The Company has received notice from Oncogene Science, Inc. ("OSI") stating
that the activities of the Company's STATs program may infringe one or more
patents issued to OSI. The Company believes a number of companies in the
biotechnology industry received similar letters. The Company has received a
preliminary opinion of its outside patent counsel that its activities do not
infringe OSI's patents.
Section 2.14 - Capitalization; Options and Warrants
None
Section 2.15 - Nasdaq National Market Designation
None
Section 2.16 - Registration Rights
None
Schedule A-3
<PAGE>
Section 2.17 - Offering
None
Section 2.18 - Accuracy of Representations and Warranties
None
Schedule A-4
<PAGE>
EXHIBIT 10.14
FOURTEENTH ADDENDUM TO AMENDED REGISTRATION RIGHTS AGREEMENT
This Fourteenth 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, 1999.
RECITALS
A. The Company has issued 52,742 shares of the Company's Common Stock to
Investor pursuant to that certain Stock Purchase Agreement dated as of the date
hereof (the "Stock Purchase Agreement").
B. This Addendum serves to include any shares of the Company's Common Stock
issued to Investor within the definition of "Registrable Securities" under the
Registration Rights Agreement and to provide that Schedule A to the Registration
Rights Agreement shall be further updated to include any 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
"S.R. One Notes") issued pursuant to the Stock and Note Purchase
<PAGE>
Agreement (and upon such conversion of the S.R. One 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 "SmithKline 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 SmithKline 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 Elan International Services, Ltd. pursuant to the
Stock Purchase Agreement dated September 30, 1998, which shares are
reflected on Schedule A attached to the Tenth Addendum to this Agreement,
(vii) the 437,768 shares of Common Stock (or that number of shares of such
other class of stock into which the Common Stock is converted) issued to
Elan International Services, Ltd. pursuant to the Securities Purchase
Agreement, dated November 6, 1998 (the "Elan Securities Purchase
Agreement"), which shares are reflected on Schedule A attached to the
Eleventh Addendum to this Agreement, (viii) 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 the Zero Coupon Convertible Senior
Notes due 2008 (the "Elan Notes") issued pursuant to the Elan Securities
Purchase Agreement (and upon such conversion of the Elan Notes, Schedule A
shall be updated to include such shares), (viii) the 429,185 shares of
Common Stock (or the shares of such other class of stock into which the
Common Stock is converted) issued to Elan Corporation, plc pursuant to the
Development, License and Supply Agreement dated November 9, 1998 (the "Elan
License Agreement"), which shares are reflected on Schedule A attached to
the Eleventh Addendum to this Agreement, (ix) the shares of Common Stock
that may be issued to Elan Corporation, plc pursuant to the Elan License
Agreement (and upon each such issuance, Schedule A shall be updated to
include such shares), (x) the shares of Common Stock (or the shares of such
other class of stock into which the Common Stock is converted) issuable to
Elan International Services, Ltd. upon exercise of that certain Warrant
(the "EIS Warrant") dated August 4, 1999 (and upon such exercise of the EIS
Warrant, Schedule A shall be updated to include such shares), (xi) the
289,750 shares of Common Stock (or the shares of such other class of stock
into which the Common Stock is converted) issued to Warner Lambert Company
pursuant to the Purchase Agreement dated September 1, 1999, which shares
are reflected on Schedule A attached to the Thirteenth Addendum to this
Agreement, (xii) the shares of Common Stock (or the shares of such other
class of stock into which the Common Stock is converted) issued to Investor
pursuant to the Stock Purchase Agreement, which shares are reflected on
Schedule A attached to this Addendum, and (xiii) 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
2
<PAGE>
distribution with respect to, or in exchange for or in replacement of the
shares referenced in (i), (ii), (iii), (iv), (v), (vi), (vii), (viii),
(ix), (x), (xi) and (xii) 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, 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]
3
<PAGE>
[SIGNATURE PAGE TO FOURTEENTH ADDENDUM
TO AMENDED REGISTRATION RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
first above written.
ELAN INTERNATIONAL SERVICES, LTD. LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ Kevin Insley By: /s/ William L. Respess
Kevin Insley William L. Respess
President and Senior Vice President,
Chief Financial Officer General Counsel and Secretary
<PAGE>
SCHEDULE A
to
Fourteenth 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 Corporation, plc 429,185
Elan International Services, Ltd. 1,769,480
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
Warner Lambert Company 289,750
Windsor Venture Lease Partners Ltd., Inc. 283
Total: 4,108,918
- --------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
EXHIBIT 10.15
No. X-1
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT WITH RESPECT TO THE SECURITIES OR UNLESS
LIGAND PHARMACEUTICALS INCORPORATED RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THIS WARRANT SATISFACTORY TO LIGAND PHARMACEUTICALS INCORPORATED,
STATING THAT SUCH OFFER, SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
THIS WARRANT IS VOID AFTER 5:00 P.M., SAN DIEGO TIME, ON AUGUST 3, 2004.
LIGAND PHARMACEUTICALS INCORPORATED
SERIES X WARRANT
FOR THE PURCHASE OF
91,406 SHARES OF COMMON STOCK
IN CONSIDERATION OF the payment by the initial holder hereof (the "Initial
Holder") to LIGAND PHARMACEUTICALS INCORPORATED, a Delaware corporation
("LIGAND"), of Three Hundred Eighty-Three Thousand Nine Hundred Five Dollars and
Twenty Cents ($383,905.20), LIGAND hereby certifies that
ELAN INTERNATIONAL SERVICES, LTD.
or any registered assignee of the Initial Holder (each of the Initial Holder and
any such registered assignee being hereinafter referred to as the "Holder") is
entitled, subject to the provisions of this Warrant, to purchase from LIGAND, at
any time or from time to time on or after the earlier of (i) August 4, 2000 (the
"Exercise Date") or (ii) the date which is ten (10) days prior to the
Acceleration Date (as hereinafter defined) and before 5:00 p.m. San Diego time,
on August 3, 2004 (the "Exercise Period"), Ninety-One Thousand Four Hundred Six
(91,406) fully paid and nonassessable shares of Common Stock, $.001 par value,
of LIGAND. The term "Common Stock" shall mean the aforementioned Common Stock of
LIGAND together with any other equity securities that may be issued by LIGAND in
connection therewith or in substitution therefor as provided herein. The
purchase price per share for such shares of Common Stock shall be equal to
$13.80 as appropriately adjusted pursuant to Section 9 and Section 10 hereof
(the "Exercise Price").
<PAGE>
For purposes of this Warrant, (a) "Acceleration Event" means the occurrence
of any of the following events: (i) LIGAND shall, or shall agree to, merge or
consolidate with any other corporation as a result of which the stockholders of
LIGAND own less than a majority of the voting stock of the surviving corporation
immediately following such consolidation or merger; (ii) LIGAND shall, or shall
agree to, be acquired (by merger or otherwise) by any unaffiliated person
(including any individual, partnership, joint venture, corporation, trust or
group thereof); (iii) LIGAND shall, or shall agree to, sell, lease, transfer or
otherwise dispose of all or substantially all of its assets to any unaffiliated
person; or (iv) any "person" or "group" (within the meaning of Section 13(d) and
Section 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), shall announce the commencement of a bona fide tender offer or exchange
offer in accordance with the rules and regulations of the Exchange Act to
purchase or acquire securities in LIGAND, such that after such purchase or
acquisition, the acquiror "beneficially owns" or would "beneficially own" (as
defined in Rule 13d-3 under the Exchange Act) securities of LIGAND representing
30% or more of the combined voting power of LIGAND's then outstanding securities
having power to vote in the election of directors; (b) "Acceleration Date" means
the first date upon which an Acceleration Event occurs, provided that, if
approval of the shareholders of LIGAND is required in connection with such
Acceleration Event, Acceleration Date means the date of such shareholder
approval; and (c) "Closing Price" means the closing price per share of the
Common Stock on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, if not listed or traded on any such
exchange, on the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") National Market System ("Nasdaq National Market"), or if not
listed or traded on any such exchange or system, the average of the last bid and
offer price per share on the Nasdaq over-the-counter system or, if such
quotations are not available, the fair market value as reasonably determined by
the Board of Directors of LIGAND or any committee of such Board. Other
capitalized terms used herein but not defined herein shall have the meanings
given such terms in the Purchase Agreement.
The number of shares of Common Stock to be received upon the exercise of
this Warrant and the Exercise Price are subject to adjustment from time to time
as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, as adjusted from time to time, are hereinafter sometimes referred to
as "Warrant Shares."
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in increments of one hundred
(100) shares, at any time or from time to time, during the Exercise Period by
presentation and surrender thereof to LIGAND, at its offices designated in
Section 17 hereof, with the Purchase Form attached hereto duly executed and
accompanied by cash or a certified or official bank check drawn to the order of
"LIGAND PHARMACEUTICALS INCORPORATED" in the amount of the Exercise Price
multiplied by the number of Warrant Shares specified in such form. If this
Warrant should be exercised in part only, LIGAND shall, upon surrender of this
Warrant, execute and deliver a new Warrant evidencing the rights of the Holder
thereof to purchase the balance of the Warrant Shares purchasable hereunder.
Upon receipt by LIGAND during the Exercise Period of this Warrant and such
Purchase Form, in proper form for exercise, together with proper payment of the
Exercise Price, at such office, the Holder shall be deemed to be the
2
<PAGE>
holder of record of the number of Warrant Shares specified in such form,
provided, however, that if the date of such receipt by LIGAND is a date on which
the stock transfer books of LIGAND are closed, such person shall be deemed to
have become the record holder of such shares on the next succeeding business day
on which the stock transfer books of LIGAND are open. LIGAND shall pay any and
all documentary, stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of such Warrant Shares. Any new or substitute Warrant
issued under this Section 1 or any other provision of this Warrant shall be
dated the date of this Warrant.
(b) Each certificate representing any Warrant Shares issued upon exercise
of this Warrant (unless such Warrant Shares have been registered pursuant to the
Twelfth Addendum to Registration Rights Agreement by and among LIGAND and the
other parties named therein, as amended from time to time (the "Rights
Agreement")) shall be endorsed with a legend in substantially the following
form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT WITH RESPECT TO THE SECURITIES OR UNLESS
LIGAND PHARMACEUTICALS INCORPORATED RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF SUCH SECURITIES SATISFACTORY TO LIGAND PHARMACEUTICALS, INCORPORATED
STATING THAT SUCH OFFER, SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
2. Right To Exchange Warrant.
(a) The Holder shall have the right to require LIGAND to exchange this
Warrant (the "Exchange Right") (subject to the availability of such Exchange
Right pursuant to the Securities Act of 1933, as amended (the "Act") and the
rules and regulations thereunder), in whole or in increments of one hundred
(100) shares, at any time during the Exercise Period, for shares of Common Stock
as provided for in this Section 2. Upon exercise of the Exchange Right, LIGAND
shall deliver to the Holder (without payment by the Holder of any Exercise
Price) the number of shares of Common Stock calculated as follows:
X = Y(A-B)
------
A
Where:
X = the number of shares of Common Stock to be issued to the Holder
upon the exercise of the Exchange Right.
Y = the number of Warrant Shares for which exchange has been
requested.
A = the Closing Price for the trading day immediately preceding the
receipt of the Warrant and the Purchase Form as provided in
Section 2(b).
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B = the Exercise Price for the Warrant Shares in effect immediately
prior to the exercise of the Exchange Right.
(b) The Exchange Right may be exercised by the Holder, at any time or from
time to time, on any Business Day by delivering this Warrant and the Purchase
Form attached hereto to LIGAND at its offices designated in Section 17 hereof,
and specifying that the Holder is exercising the Exchange Right to acquire the
number of shares of Common Stock then issuable upon such exchange pursuant to
Section 2(a). If this Warrant should be exchanged in part only, LIGAND shall,
upon surrender of this Warrant, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable hereunder. Upon receipt by LIGAND during the Exercise Period of this
Warrant and such Purchase Form, in proper form for exercise, at such office, the
Holder shall be deemed to be the holder of record of the number of Warrant
Shares issuable upon exercise of the Exchange Right as calculated pursuant to
Section 2(a), provided, however, that if the date of such receipt by LIGAND is a
date on which the stock transfer books of LIGAND are closed, such person shall
be deemed to have become the record holder of such shares on the next succeeding
Business Day on which the stock transfer books of LIGAND are open. LIGAND shall
pay any and all documentary, stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of such Warrant Shares.
(c) No fractional shares of Common Stock shall be issued to the Holder in
connection with the exchange of this Warrant pursuant to this Section 2. Instead
of any fractional shares of Common Stock that would otherwise be issuable to the
Holder, LIGAND shall pay to the Holder a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest multiplied by
the Closing Price for the trading day immediately preceding the receipt of this
Warrant and the Purchase Form as provided in Section 2(b).
3. Warrant Register. This Warrant shall be registered in a register (the
"Warrant Register") to be maintained by LIGAND at its offices in the name of the
record holder set forth above. LIGAND may deem and treat the registered Holder
of this Warrant as the absolute owner thereof (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof or any distribution to the Holder hereof and for all other
purposes, and LIGAND shall not be affected by any notice to the contrary.
4. Reservation of Shares. LIGAND hereby agrees that at all times there
shall be reserved for issuance and delivery upon exercise of this Warrant all
shares of its Common Stock or other shares of capital stock of LIGAND from time
to time issuable upon exercise of this Warrant. All such shares shall be duly
authorized and when issued upon such exercise shall be validly issued, fully
paid and nonassessable, free and clear of all liens, security interests, charges
and other encumbrances or restrictions on sale granted by LIGAND and free and
clear of all preemptive rights granted by LIGAND.
Before taking any action that would cause a reduction pursuant to the
provisions hereof of the Exercise Price below the then par value (if any) of the
Warrant Shares issuable upon exercise of this Warrant, LIGAND shall take any
corporate action that may, in the opinion of its
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counsel, be necessary in order that LIGAND may validly and legally issue
fully paid and nonassessable Warrant Shares at the initial Exercise Price as so
adjusted.
5. Transfer of the Warrant and Warrant Shares.
(a) Neither this Warrant nor any of the Warrant Shares nor any interest in
either may be offered, sold, assigned, pledged, hypothecated, encumbered or in
any other manner transferred or disposed of, in whole or in part, except in
accordance with Section 6 hereof and in compliance with applicable United States
federal and state securities laws, the securities laws of other applicable
jurisdictions, and the terms and conditions of the Purchase Agreement and
hereof. Except as provided below, each Warrant shall bear the following legend:
NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE HEREUNDER HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED,
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT WITH RESPECT TO THE SECURITIES OR UNLESS
LIGAND PHARMACEUTICALS INCORPORATED RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THIS WARRANT SATISFACTORY TO LIGAND PHARMACEUTICALS INCORPORATED,
STATING THAT SUCH OFFER, SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT.
Notwithstanding the foregoing, the Holder may require LIGAND to issue a Warrant
without the legend set forth above in substitution for a legended Warrant if
either (i) the sale, transfer or other disposition of such Warrant is registered
under the Act and applicable securities laws or (ii) the Holder has received an
opinion of counsel satisfactory to LIGAND that such registration is not required
with respect to such Warrant. The provisions of this Section 5 shall be binding
upon all subsequent holders of this Warrant. No transfer or assignment of this
Warrant may be made except in accordance with the provisions of Section 6
hereof.
(b) The original offering and sale of this Warrant was intended to be
exempt from registration under the Act by virtue of Section 4(2) of the Act and
the provisions of Regulation D promulgated under the Act. LIGAND is not under
any obligation to register this Warrant or the Warrant Shares other than as
provided in the Rights Agreement.
(c) This Warrant and the Warrant Shares may not be sold, transferred or
otherwise disposed of unless (i) the sale, transfer or other disposition of this
Warrant or the Warrant Shares, as the case may be, are registered under the Act
and applicable securities laws or (ii) in the opinion of counsel satisfactory to
LIGAND, an exemption from the registration requirements of the Act and such
securities laws is available, and in the absence of an effective registration
statement covering such securities or an available exemption from registration
under the Act, this Warrant and the Warrant Shares must be held indefinitely.
6. Exchange, Transfer or Assignment of Warrant.
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<PAGE>
(a) Subject to the provisions of Section 5 hereof, this Warrant may be
assigned or transferred, at the option of the Holder but only to an accredited
investor within the meaning of Rule 501(a) of Regulation D, upon surrender of
this Warrant to LIGAND, with the Warrant Assignment Form attached hereto duly
executed and information in such form as reasonably requested by LIGAND
substantiating such assignee's status as an accredited investor accompanied by
funds sufficient to pay any transfer tax. LIGAND shall execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment, and
this Warrant shall promptly be canceled. LIGAND shall not be required to issue
any Warrant to any assignee other than an accredited investor.
(b) This Warrant may not be divided or exchanged for other Warrants of
denominations exercisable for less than one hundred (100) Warrant Shares.
(c) Any transfer or assignment of this Warrant shall be without charge
(other than the cost of any transfer tax) to the Holder and any new Warrant
issued pursuant to this Section 6 shall be dated the date hereof. The term
"Warrant" as used herein includes any new Warrant issued pursuant to this
Section or Sections 1, 2, 5 or 7 hereof.
7. Lost, Mutilated or Missing Warrant. Upon receipt by LIGAND of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of satisfactory
indemnification, and upon surrender and cancellation of this Warrant, if
mutilated, LIGAND shall authenticate and deliver a new Warrant of like tenor and
date.
8. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in LIGAND, either at law or in equity,
and the rights of the Holder are limited to those expressed in this Warrant.
9. Anti-Dilution Provision. The Exercise Price and the number of Warrant
Shares that may be purchased upon the exercise hereof shall be subject to change
or adjustment as follows:
(a) Stock Dividends and Stock Splits. If at any time after the date hereof
and before 5:00 p.m., San Diego time, on the last day of the Exercise Period,
(i) LIGAND shall fix a record date for the issuance of any stock dividend
payable in shares of Common Stock or (ii) the number of shares of Common Stock
shall have been increased by a subdivision or split-up of shares of Common
Stock, then, on the record date fixed for the determination of holders of Common
Stock entitled to receive such dividend or immediately after the effective date
of such subdivision or split-up, as the case may be, the number of shares to be
delivered upon exercise of this Warrant shall be appropriately increased so that
the Holder thereafter shall be entitled to receive the number of shares of
Common Stock that the Holder would have owned immediately following such action
had this Warrant been exercised immediately prior thereto, and the Exercise
Price shall be appropriately decreased.
(b) Combination of Stock. If at any time after the date hereof and before
5:00 p.m., San Diego time, on the last day of the Exercise Period, the number of
shares of
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<PAGE>
Common Stock outstanding shall have been decreased by a combination of
the outstanding shares of Common Stock, then, immediately after the effective
date of such combination, the number of shares of Common Stock to be delivered
upon exercise of this Warrant shall be appropriately decreased so that the
Holder thereafter shall be entitled to receive the number of shares of Common
Stock that the Holder would have owned immediately following such action had
this Warrant been exercised immediately prior thereto, and the Exercise Price
shall be appropriately increased.
(c) Reorganization, etc. If at any time after the date hereof and before
5:00 p.m., San Diego time, on the last day of the Exercise Period, any capital
reorganization of LIGAND, or any reclassification of the Common Stock, or any
consolidation of LIGAND with or merger of LIGAND with or into any other person
or entity or any sale, lease or other transfer of all or substantially all of
the assets of LIGAND to any other person or entity shall be effected in such a
way that upon consummation of such transaction, the holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for Common Stock, then, upon exercise of this Warrant in accordance
with Section 1 hereof, the Holder shall have the right to receive the kind and
amount of stock, securities or assets receivable upon such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer by a
holder of the number of shares of Common Stock that the Holder would have been
entitled to receive upon exercise of this Warrant pursuant to Section 1 hereof
had this Warrant been exercised immediately before such reorganization,
reclassification, consolidation, merger or sale, lease or other transfer,
subject to adjustments that shall be as nearly equivalent as may be practicable
to the adjustments provided for in this Section 9.
(d) Rights Offering. If LIGAND at any time after the date of issuance
hereof and before 5:00 p.m., San Diego time, on the last day of the Exercise
Period, shall issue or sell or fix a record date for the issuance of rights,
options, warrants or convertible or exchangeable securities to all holders of
Common Stock entitling them to subscribe for or purchase Common Stock or
securities convertible into Common Stock, in any such case, at a price per share
(or having a conversion price per share) that, together with the value (if for
consideration other than cash, as determined in good faith by the Board of
Directors of LIGAND) of any consideration paid for any such rights, options,
warrants, or convertible or exchangeable securities, is greater than the
Exercise Price and less than the Closing Price on the date of such issuance or
sale or on such a record date then, immediately after the date of such issuance
or sale, or on such record date, the number of shares to be delivered upon
exercise of this Warrant shall be appropriately increased so that the Holder
thereafter, during the Exercise Period, will be entitled to receive the number
of shares of Common Stock determined by multiplying the number of shares the
Holder would have been entitled to receive immediately before the date of such
issuance or sale or such record date by a fraction, the denominator of which
will be the number shares of Common Stock outstanding on such date plus the
number of shares of Common Stock that the aggregate offering price of the total
number of shares so offered for subscription or purchase (or the aggregate
initial conversion price of the convertible securities so offered) would
purchase at such Closing Price, and the numerator of which will be the number of
shares of Common Stock outstanding on such date plus the number of shares of
Common Stock offered for subscription or purchase (or into which the convertible
securities so offered are initially convertible), and the exercise price shall
be appropriately adjusted. The time of occurrence of an event giving rise to an
adjustment
7
<PAGE>
pursuant to this Section 9(d) shall, in the case of a dividend, be
the record date and shall, in the case of an issuance or sale, be the date of
such issuance or sale.
(e) Special Dividends. If LIGAND at any time after the date of issuance of
this Warrant and before 5:00 p.m., San Diego time, on the last day of the
Exercise Period shall distribute to all holders of its Common Stock cash, debt
securities or other assets (including evidences of indebtedness), except to the
extent paid out of retained or accumulated earnings, the Exercise Price will be
adjusted so that immediately following the date fixed by LIGAND as the record
date in respect of such issuance it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the close of
business on the record date for the determination of the shareholders entitled
to receive such dividend by a fraction, the numerator of which shall be the
Closing Price on such record date less the then fair market value as determined
by the Board of Directors of LIGAND, whose determination shall be conclusive, of
the portion of the securities or assets distributed applicable to one share of
Common Stock and the denominator of which shall be such Closing Price. Such
adjustment shall become effective on such record date.
(f) No Adjustments to Exercise Price. No adjustment in the Exercise Price
in accordance with the provisions of subsections 10(a), (b), (c), (d) or (e)
above need be made if such adjustment would amount to a change in such Exercise
Price of less than $0.01; provided, however, that the amount by which any
adjustment is not made by reason of the provisions of this section shall be
carried forward and taken into account at the time of any subsequent adjustment
in the Exercise Price.
(g) Fractional Shares. No fractional shares of Common Stock or scrip shall
be issued to the Holder in connection with the exercise of this Warrant. Instead
of any fractional shares of Common Stock that would otherwise be issuable to the
Holder, LIGAND shall pay to the Holder a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest multiplied by
the Closing Price on the date of exercise.
(h) Definition of Common Stock. For purposes of this Section 9, the term
"Common Stock" shall mean (i) the class of stock designated as the Common Stock
of LIGAND on the date hereof, or (ii) any other classes of stock resulting from
successive changes or reclassifications of such shares consisting solely of
changes in par value or from par value to no par value, or from no par value to
par value.
10. Notices of Certain Events.
(a) If at any time after the date hereof and before the expiration of the
Exercise Period:
(i) LIGAND authorizes the issuance to all holders of its Common Stock of
rights, options or warrants to subscribe for or purchase shares of its Common
Stock or any other subscription rights, options or warrants; or
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<PAGE>
(ii) LIGAND authorizes the distribution to all holders of its Common Stock
of evidences of its indebtedness or assets (other than cash dividends or
distributions payable out of retained earnings or stock dividends); or
(iii) there shall be any capital reorganization of LIGAND or
reclassification of the Common Stock (other than a change in par value of the
Common Stock or an increase in the authorized capital stock of LIGAND not
involving the issuance of any shares thereof) or any consolidation or merger to
which LIGAND is a party (other than a consolidation or merger in which LIGAND is
the continuing corporation and that does not result in any reclassification or
change in the Common Stock outstanding) or a conveyance, lease or transfer of
all or substantially all of the properties and assets of LIGAND (other than the
granting of a security interest); or
(iv) there shall be any voluntary or involuntary dissolution, liquidation
or winding-up of LIGAND; or
(v) there shall be any other event that would result in an adjustment
pursuant to Section 9 hereof in the Exercise Price or the number of Warrant
Shares that may be purchased upon the exercise hereof;
LIGAND shall cause to be mailed or delivered to the Holder, (A) at least twenty
(20) days (or ten (10) days in any case specified in clauses (i) or (ii) above)
before the applicable record or effective date hereinafter specified or (B) on
the date on which any case specified in clauses (i) through (v) above is
publicly announced, whichever is later, a notice stating (A) the date as of
which the holders of Common Stock of record entitled to receive any such rights,
options, warrants or distributions is to be determined, or (B) the date on which
any such reorganization, reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, transfer, dissolution,
liquidation or winding-up.
(b) LIGAND shall (i) at least twenty (20) days before the occurrence of any
Acceleration Event (unless the occurrence of that Acceleration Event is beyond
its control, in which case, LIGAND shall as soon as practicable) or (ii) on the
date on which any such Acceleration Event is publicly announced, whichever is
later, cause to be mailed or delivered to the Holder a notice describing in
reasonable detail such Acceleration Event and informing the Holder that Warrant
may be exercised by the Holder thereof.
(c) Any failure by LIGAND to provide notice to the Holder in accordance
with this Section 10 shall not affect the legality or validity of any such
distribution, right, option, warrant, consolidation, merger, conveyance, lease,
transfer, dissolution, liquidation or winding-up or the vote upon any such
action.
11. Officer's Certificate. Whenever the number of Warrant Shares that may
be purchased upon exercise of this Warrant is adjusted as required by the
provisions of this Warrant,
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<PAGE>
LIGAND shall forthwith file in the custody of its Secretary or an Assistant
Secretary an officer's certificate showing the adjusted number of Warrant Shares
that may be purchased on exercise of this Warrant and the adjusted Exercise
Price, determined as herein provided, setting forth in reasonable detail the
facts requiring such adjustment and the manner of computing such adjustment.
Each such officer's certificate shall be made available at all reasonable times
for inspection by the Holder. LIGAND shall, forthwith after each such
adjustment, cause a copy of such certificate to be mailed to the Holder.
12. Listing of Warrant Shares. The Warrant Shares, when registered pursuant
to the Rights Agreement or otherwise tradeable under Rule 144 of the Act, shall
be listed or admitted to trading on either a national securities exchange or the
Nasdaq National Market consistent with the shares of Common Stock then
outstanding at the time of issuance of the Warrant Shares.
13. Representations of Holder.
The Holder hereby represents, covenants and acknowledges to LIGAND that:
(a) this Warrant and the Warrant Shares are "restricted securities" as such
term is used in the rules and regulations under the Act and that such securities
have not been and will not be registered under the Act or any state securities
law (unless such Warrant Shares have been registered pursuant to the Rights
Agreement), and that such securities must be held indefinitely unless a transfer
can be made pursuant to appropriate exemptions;
(b) the Holder has read, and fully understands, the terms of this Warrant
set forth on its face and the attachments hereto, including the restrictions on
transfer contained herein;
(c) the Holder is purchasing for investment for its own account and not
with a view to or for sale in connection with any distribution of this Warrant
or the Warrant Shares and it has no intention of selling such securities in a
public distribution in violation of the federal securities laws or any
applicable state securities laws; provided that nothing contained herein will
prevent Holder from transferring such securities in compliance with the terms of
this Warrant and the applicable federal and state securities laws; and
(d) the Holder is an "accredited investor" within the meaning of paragraph
(a) of Rule 501 of Regulation D promulgated by the Securities and Exchange
Commission (the "Commission") and an "excluded purchaser" within the meaning of
Section 25102(f) of the California Corporate Securities Law of 1968.
14. Successors. All the provisions of this Warrant by or for the benefit of
LIGAND or the Holder shall bind and inure to the benefit of their respective
successors, assignees, heirs and personal representatives.
15. Headings. The headings of sections of this Warrant have been inserted
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms or provisions hereof.
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<PAGE>
16. Amendments. This Warrant may be amended by the written consent of
LIGAND and the Holder hereof.
17. Notices. All notices, requests and other communications to LIGAND or
Holder hereunder shall be in writing (including telecopy or similar electronic
transmissions), shall refer specifically to this Warrant and shall be personally
delivered or sent by telecopy or other electronic facsimile transmission, by
overnight delivery with a nationally recognized overnight delivery service or by
registered mail or certified mail, return receipt requested, postage prepaid, in
each case to the respective address specified below (or to such address as may
be specified in writing to the other party hereto):
(a) If to LIGAND, to:
Ligand Pharmaceuticals Incorporated
10275 Science Center Drive
San Diego, CA 92121
Attention: President
with a copy to the attention of General Counsel
(b) If to HOLDER, to the address set forth in the Warrant
Register that shall be maintained by LIGAND in accordance with Section 3 hereof.
Any notice or communication given in conformity with this Section 17 shall be
deemed to be effective when received by the addressee, if delivered by hand, one
(1) day after deposit with a nationally recognized overnight delivery service
and three (3) days after mailing, if mailed.
18. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, as applied to contracts
made and performed entirely within the State of California.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, LIGAND has duly caused this Warrant to be signed and
attested by its duly authorized officers and to be dated as of August 4, 1999.
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/ Paul Maier
Title: Senior Vice President & CFO
Attest: /s/ William L. Respess
By: William L. Respess
Title: Senior Vice President
General Counsel, Gov't Affairs
ACCEPTED AND AGREED TO BY:
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
Title: /s/ President & CFO
[SIGNATURE PAGE TO SERIES X WARRANT]
<PAGE>
PURCHASE FORM
Dated:______________
The undersigned hereby irrevocably exercises the attached Warrant to
purchase __________________ shares of LIGAND Common Stock and (i) herewith
either (a) makes payment of $___________ in payment of the Exercise Price
thereof on the terms and conditions specified in the attached Warrant
Certificate or (b) if the undersigned elects pursuant to Section 2 of the
attached Warrant to convert such Warrant into LIGAND Common Stock, the
undersigned exercises the attached Warrant by exchange under the terms of
Section 2, (ii) surrenders the attached Warrant Certificate and all right, title
and interest therein to LIGAND and (iii) directs that the Warrant Shares
deliverable upon the exercise of such Warrant and cash payment in respect of
fractional Warrant Shares, if any, and any unexercised Warrant be registered (in
the case of such Warrants and Warrant Shares) in the name and at the address
specified below and delivered thereto.
Signature:
Name:
(Please Print)
Address:
City, Sate and Zip Code:
Taxpayer Identification or Social Security Number:
Any unexercised Warrant Shares evidenced by the attached Warrant
Certificate are to be issued to:
Name:
(Please Print)
Address:
City, Sate and Zip Code:
Taxpayer Identification or Social Security Number:
NOTE: THE ABOVE SIGNATURE MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE ATTACHED WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER.
<PAGE>
WARRANT ASSIGNMENT FORM
FOR VALUE RECEIVED and in compliance with the provisions of Sections 5 and
6 of the attached Warrant, __________________________ hereby sells, assigns and
transfers to:
Name:
(Please Print)
Address:
City, Sate and Zip Code:
Taxpayer Identification or Social Security Number:
its right to purchase up to _______ Warrant Shares represented by the attached
Warrant and does hereby irrevocably constitute and appoint
________________________________ attorney to transfer said Warrant on the books
of LIGAND, with full power of substitution in the premises.
Dated:__________________ ______________________________
Signature of registered holder
NOTE: THE ABOVE SIGNATURE MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE ATTACHED WARRANT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER.
<PAGE>
EXHIBIT 10.16
TWELFTH ADDENDUM TO AMENDED REGISTRATION RIGHTS AGREEMENT
This Twelfth 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. ("EIS") is effective as of August 4, 1999.
RECITALS
A. The Company has issued a warrant to purchase up to 91,406 shares of the
Company's Common Stock with an exercise price equal to $13.80 per share (the
"EIS Warrant") to EIS.
B. This Addendum serves to include any shares of the Company's Common Stock
issuable upon the exercise of the EIS Warrant within the definition of
"Registrable Securities" under the Registration Rights Agreement and to provide
that Schedule A to the Registration Rights Agreement shall be further updated to
include any shares issued upon the exercise of the EIS Warrant, 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
<PAGE>
Unsecured Convertible Promissory Notes dated October 30, 1997 (the
"S.R. One Notes") issued pursuant to the Stock and Note Purchase Agreement
(and upon such conversion of the S.R. One 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 "SmithKline 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 SmithKline 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 Elan International Services, Ltd. pursuant to the
Stock Purchase Agreement dated September 30, 1998, which shares are
reflected on Schedule A attached to the Tenth Addendum to this Agreement,
(vii) the 437,768 shares of Common Stock (or that number of shares of such
other class of stock into which the Common Stock is converted) issued to
Elan International Services, Ltd. pursuant to the Securities Purchase
Agreement, dated November 6, 1998 (the "Elan Securities Purchase
Agreement"), which shares are reflected on Schedule A attached to the
Eleventh Addendum to this Agreement, (viii) 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 the Zero Coupon Convertible Senior
Notes due 2008 (the "Elan Notes") issued pursuant to the Elan Securities
Purchase Agreement (and upon such conversion of the Elan Notes, Schedule A
shall be updated to include such shares), (viii) the 429,185 shares of
Common Stock (or the shares of such other class of stock into which the
Common Stock is converted) issued to Elan Corporation, plc pursuant to the
Development, Licence and Supply Agreement dated November 9, 1998 (the "Elan
License Agreement"), which shares are reflected on Schedule A attached to
the Eleventh Addendum to this Agreement, (ix) the shares of Common Stock
that may be issued to Elan Corporation, plc pursuant to the Elan License
Agreement (and upon each such issuance, Schedule A shall be updated to
include such shares), (x) the shares of Common Stock (or the shares of such
other class of stock into which the Common Stock is converted) issuable to
Elan International Services, Ltd. upon exercise of that certain Warrant
(the "EIS Warrant") dated August 4, 1999 (and upon such exercise of the EIS
Warrant, Schedule A shall be updated to include such shares) and (xi) 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), (vi),
(vii), (viii), (ix) and (x) 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."
<PAGE>
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, EIS, 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]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Addendum as of the date
first above written.
ELAN INTERNATIONAL SERVICES, LIGAND PHARMACEUTICALS
LTD. INCORPORATED
By: /s/ Kevin Insley By: /s/ Paul Maier
Title: President & CFO Title: /s/ Senior Vice President & CEO
[SIGNATURE PAGE TO TWELFTH ADDENDUM TO
AMENDED REGISTRATION RIGHTS AGREEMENT]
<PAGE>
SCHEDULE A
to
Twelfth 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 Corporation, plc 429,185
Elan International Services, Ltd. 1,716,738
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: 3,766,426
- --------------------------------------------------------------------
A-1
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q FOR THE THREE MONTHS ENDED SEPTMEBER 30, 1999 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-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 26,733
<SECURITIES> 21,156<F4>
<RECEIVABLES> 2,748
<ALLOWANCES> (483)
<INVENTORY> 5,764
<CURRENT-ASSETS> 782
<PP&E> 43,631
<DEPRECIATION> 21,886
<TOTAL-ASSETS> 131,713
<CURRENT-LIABILITIES> 19,174
<BONDS> 158,332<F1>
0
0
<COMMON> 48
<OTHER-SE> (42,419)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 131,713
<SALES> 2,830
<TOTAL-REVENUES> 9,765
<CGS> 1,027
<TOTAL-COSTS> 3,163<F3>
<OTHER-EXPENSES> 15,717
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,551
<INCOME-PRETAX> (18,306)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,306)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,306)
<EPS-BASIC> (.39)
<EPS-DILUTED> (.39)
<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>
