THE WITHIN NOTE AND THE SHARES OF COMMON STOCK OF THE COMPANY ISSUABLE UPON
CONVERSION THEREOF ("CONVERSION STOCK") HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE AND THE TRANSFER OF THE WITHIN NOTE AND THE
CONVERSION STOCK IS SUBJECT TO THE RESTRICTIONS SPECIFIED IN SECTION 3 OF THE
WITHIN NOTE. BY PURCHASING OR OTHERWISE ACQUIRING AN INTEREST IN THE WITHIN NOTE
OR THE CONVERSION STOCK, EACH HOLDER HEREOF OR THEREOF AGREES TO BECOME BOUND BY
SUCH RESTRICTIONS ON TRANSFER AND NO TRANSFER OF THIS NOTE AND SUCH CONVERSION
STOCK SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS OF
SAID SECTION 3 HAVE BEEN COMPLIED WITH.
HOUSTON BIOTECHNOLOGY INCORPORATED
Convertible Note
$500,000.00 Houston, Texas
December 18, 1996
HOUSTON BIOTECHNOLOGY INCORPORATED (the "Company"), a Delaware
corporation, for value received, hereby promises to pay to Medarex, Inc.
("Medarex") or order, the principal amount of $500,000.00, with interest
(computed on the basis of a 365 or 366 day year and actual number of days
elapsed) on the unpaid balance of such principal amount at the 90-day U.S.
Treasury Bill rate as of the date hereof from December 9, 1996, payable all as
more fully set forth herein. This Convertible Note (the "Note") is issued in
connection with that certain Agreement and Plan of Merger dated the date hereof
among Medarex, Medarex Acquisition Corp. and the Company (the "Merger
Agreement") and amends and restates in its entirety the Convertible Note dated
December 9, 1996 issued by the Company in favor of Medarex which such
Convertible Note is cancelled as of the date hereof.
1. PAYMENT OF NOTE
1.1 Prepayments Generally. The unpaid principal amount of the
Note shall be subject to prepayment in whole or in part without penalty. The
Company shall give five (5) days notice to Medarex prior to any prepayment of
this Note to allow Medarex the opportunity to convert the Note prior to such
prepayment.
1.2 Payments of Principal and Interest. The principal amount of
and interest on the Note shall be due and payable as follows:
(a) If the Merger Agreement is terminated pursuant to
Section 6.1(b) thereof, then the principal of and accrued interest on the Note
shall become due and payable in full on the date which is 60 days following the
date of such termination.
(b) If the Merger Agreement is terminated pursuant to
Section 6.1(c), 6.1(d) or 6.1(e) thereof, then the principal of and interest on
the Note shall be automatically converted into Common Stock all as of the date
of such termination in accordance with the terms of Section 2 hereof.
(c) If the Merger Agreement is terminated pursuant to
Section 6.1(f) thereof, then the principal of and accrued interest on the Note
shall become due and payable in full on the date which is 120 days following the
date of such termination; provided, however, that if the provisions of Section
6.3(a)(i) of the Merger Agreement also apply, then the principal of and accrued
interest on the Note shall become due and payable in full on the date the
Company is required to make the cash payment as specified in Section 6.3(b) of
the Merger Agreement.
(d) If the Merger Agreement is terminated pursuant to
Section 6.1(g) thereof, then the principal of and accrued interest on the Note
shall become due and payable in full on the date the Company is required to make
the cash payment as specified in Section 6.3(b) of the Merger Agreement.
(e) If the Merger Agreement is terminated pursuant to
Section 6.1(h), then the principal of and accrued interest on the Note shall be
automatically converted into Common Stock all as of the date of such termination
in accordance with the terms of Section 2 hereof.
2. CONVERSION OF NOTE
2.1 Right to Convert. Subject to and upon compliance with the
provisions hereof, the holder of the Note shall have the right, at such holder's
option to convert all, but not a part of the unpaid principal amount of and
accrued interest on the Note into Common Stock of the Company at a price per
share initially equal to $1.00 (herein called the "Initial Conversion Price",
provided, however, that if the conversion is pursuant to Section 1.2(e) above,
then such Initial Conversion Price shall be $0.9375 share), or, if an adjustment
of such price has taken place pursuant to the further provisions of this Section
2, then at the price as last adjusted and in effect on the date the Note is
surrendered for conversion (the Initial Conversion Price or such price as last
adjusted, as the case may be, being referred to herein as the "Conversion
Price"). In order to exercise such conversion privilege, the holder hereof shall
surrender the Note to the Company at its office in Houston, Texas (or such other
office or agency of the Company as the Company may designate by notice in
writing to the holder of the Note).
2.2 Issue of Common Stock; Continuing Obligation. As promptly as
practicable after surrender of the Note as aforesaid, the Company shall issue
and deliver to the holder hereof (hereafter in this section the term "holder"
shall include the nominee or designee of any holder), registered in the name of
such holder, a certificate or certificates for the number
2
of full shares of Conversion Stock, bearing the restrictive legend required by
Section 3 hereof. To the extent permitted by law, such conversion shall be
deemed to have been effected and the Conversion Price shall be determined as of
the close of business on the date on which the Note shall have been surrendered
as aforesaid, and at such time the rights of the holder of the Note as such
holder shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Conversion Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby. The shares of Conversion Stock issued
on any such conversion shall rank pari passu with all outstanding shares of
Common Stock and, in particular, will be entitled to participate in all
dividends and distributions in respect of such outstanding Common Stock, which
were declared for payment to holders of Common Stock of record as of a date
occurring after (but not before) such conversion takes place.
2.3 Fractional Shares; Dividends and Interest. The Company shall
not be required to issue fractional shares upon conversion of the Note and no
payment or adjustment shall be made upon any conversion on account of any cash
dividends on the Conversion Stock issued. In the event any fractional interest
in a share of Common Stock would be deliverable upon any conversion of the Note,
the Company may, at its option, in lieu of delivering such fractional interest,
pay a cash adjustment in respect of such fractional interest in an amount equal
to the market value of such fractional interest. In such event, the market value
of a share of Conversion Stock shall be deemed to be the Conversion Price. If
the Company shall not elect to pay such cash adjustment, the person entitled to
such fractional interest may elect to purchase the additional fractional
interest required to make up a full share of Conversion Stock or to sell the
fractional interest to which the person is entitled, in accordance with
procedures established by the Company's Board of Directors.
2.4 Anti-Dilution Provisions. The Conversion Price shall be
subject to adjustment from time to time as follows:
(a) If the Company shall at any time or from time to time
pay a dividend or other distribution on its outstanding shares of Common Stock
in shares of Common Stock, sub-divide its outstanding shares of Common Stock
into a larger number of shares or combine its outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price in effect immediately
prior to the record date for such dividend or the effective date for such
subdivision or combination shall be adjusted so that each Note shall thereafter
be convertible into the number of shares of Common Stock which the holder of a
Note would have been entitled to receive after the happening of any of the
events described above had such Note been converted immediately prior to the
happening of such event. An adjustment made pursuant to this subparagraph (a)
shall become effective immediately after the close of business on such a record
date in the case of a dividend and shall become effective on the close of
business on the day immediately prior to the effective date in the case of a
sub-division or combination.
(b) If the Company shall issue rights or warrants to all
holders of Common Stock (expiring within 45 days after the record date for
determining stockholders
3
entitled to receive them) for the purpose of entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the average of
the Closing Prices (as defined in Section 7 hereof) per share for the 30
consecutive Trading Days (as defined in Section 7 hereof) ending on the record
date for the determination of the stockholders entitled to receive such rights
or warrants, then at the discretion of the Board of Directors, either (i) the
Company shall make a like issue at the same time to the holder of the Note as if
its conversion rights had been exercisable in full on the record date for such
issue on the basis of the Conversion Price; or (ii) the number of shares of
Common Stock into which the Note shall thereafter be convertible shall be
adjusted by multiplying the number of shares of Common Stock into which the Note
was convertible on the day immediately preceding such record date by a fraction
the numerator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of Common
Stock so offered for subscription or purchase, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding on such
record date and the number of shares of Common Stock which the aggregate
offering price of the total number of shares so offered would purchase at such
average of the Closing Prices for such 30 Trading Days. Such adjustment shall
become effective immediately after the close of business on such record date.
Notwithstanding anything in the foregoing to the contrary, no such issue or
adjustment shall be made in respect of the shares of Common Stock issuable upon
exercise of any stock options granted pursuant to the Company's stock option
plans approved by shareholders (provided that option exercise price shall not be
less than the market value of the Common Stock on the date of grant of the
options).
(c) If the Company makes any offer or invitation by way of
rights or otherwise (not being an offer or invitation to which the provisions of
Section 2.4(b) apply) to all the stockholders of the Company, the Company shall
make or, so far as it is able, cause that there be made a like offer at the same
time to the holder of the Note as if its conversion rights had been exercisable
and had been exercised in full on the record date for such offer or invitation
on the basis of the Conversion Price.
(d) If the Company shall distribute to all holders of
Common Stock any assets (other than any ordinary dividend payable solely in cash
in an amount not excessive in comparison to its current earnings), any rights to
subscribe (other than those referred to in Section 2.4(b) above) or any evidence
of indebtedness or other securities (other than Common Stock or securities which
are subordinated in right of payment to the Note), then in each such case the
number of shares of Common Stock into which the Note shall thereafter be
convertible shall be adjusted by multiplying the number of shares of Common
Stock into which the Note was convertible on the date immediately preceding the
record date for the determination of the stockholders entitled to receive such
distribution by a fraction the numerator of which shall be the average of the
Closing Prices per share of Common Stock for the thirty (30) consecutive Trading
Days ending on such record date and the denominator of which shall be such
average of the Closing Prices per share less the then fair market value (as
determined in a resolution adopted by the Board and reviewed and approved by the
Company's auditors for the time being) of the portion of the assets or evidences
of indebtedness or securities so distributed or of such
4
subscription rights applicable to one share of Common Stock. Such adjustment
shall become effective immediately after the close of business on such record
date.
(e) Whenever the Conversion Price is adjusted as herein
provided, the Company shall forthwith note in its books and records the adjusted
Conversion Price determined as provided in this Section 2.4. Such notation shall
show in detail the facts requiring such adjustment. Whenever the Conversion
Price is adjusted, the Company will forthwith cause a notice stating the
adjustment and the resulting Conversion Price to be mailed to the holder of the
Note.
(f) No adjustment shall be made hereunder unless by reason
of the happening of any one or more of the events herein specified, the
Conversion Price then in effect would be changed by 1% or more, but any
adjustment of less than 1% that would otherwise be required to be made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment which, together with any adjustment or adjustments so
carried forward, amounts to 1% or more, provided that such adjustment shall be
made in any case (regardless of whether or not the amount thereof or the
cumulative amount thereof amounts to 1% or more) upon the happening of one or
more of the events specified in Section 2.5 hereof.
2.5 Effect of Reorganization and Asset Sales. If any capital
reorganization or reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its assets to another person, shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger, or
sale, lawful and adequate provision shall be made whereby the holder of the Note
shall thereafter have the right to receive, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of the Common Stock of
the Company immediately theretofore receivable upon the conversion of the Note,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore so
receivable had such reorganization, reclassification, consolidation, merger or
sale not taken place, and in any such case appropriate provision shall be made
with respect to the rights and interests of such holder to the end that the
provisions hereof (including without limitation, provisions for adjustment of
the Conversion Price and of the number of shares issuable upon conversion) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise of such
conversion rights. The Company shall not effect any such consolidation, merger
or sale unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the person purchasing such assets shall assume by
written instrument executed and mailed or delivered to the holder of the Note,
the obligation to deliver to such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to receive, and containing the express assumption of such successor
corporation of the due and punctual performance and observance of every
provision of this Note to be
5
performed and observed by the Company and of all the liabilities and obligations
of the Company hereunder.
2.6 Notice of Certain Events. In case at any time:
(1) the Company shall pay any dividend payable in stock upon
the Common Stock to the holders of the Common Stock;
(2) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or
consolidation or merger of the Company with another corporation,
or sale of all or substantially all of its assets to another
person; or
(3) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give written notice to
the holder of the Note of the date on which (a) the books of the Company shall
close or a record shall be taken for such dividend, or (b) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of Common Stock of record shall participate in
such dividend, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such written notice shall be given not less
than thirty (30) and not more than sixty (60) days prior to the action in
question and not less than thirty (30) and not more than sixty (60) days prior
to the record date or the date on which the Company's transfer books are to be
closed in respect thereto and such notice may state that the record date is
subject to the effectiveness of a registration statement under the Act, if any
is required.
2.7 Definition of Common Stock. For the purposes of this Note,
the term "Common Stock" shall mean and include the Company's authorized common
stock, $.01 per value per share, as constituted on the date hereof, and shall
also include any capital stock of any class of the Company hereafter authorized
resulting from any reclassification or reclassifications thereof which are not
limited to any such fixed sum or percentage of par value and are not subject to
redemption by the Company.
2.8 Shares Issuable Upon Conversion. The Company covenants and
agrees that all shares of Common Stock which may be issued upon the conversion
of the Note in accordance with the terms hereof will, upon issuance, be duly and
validly issued and fully paid and nonassessable and free from all taxes, liens
and charges with respect to the issue thereof. The Company further covenants
and agrees that it will at all times have authorized, and reserved and keep
available solely for the purpose of issue upon the conversion of the Note as
6
herein provided, a sufficient number of shares of its Common Stock as shall then
be issuable upon the conversion of the outstanding Note.
2.9 Issuance Tax and Expenses. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
execution and delivery of certificates for Common Stock issuable upon conversion
of the Note, except that, in case any such certificate shall be registered in
name or names other than the name of the holder of the Note, funds sufficient to
pay all stock transfer or other taxes, duties or charges which shall be payable
upon the execution and delivery of such certificate shall be paid by such holder
to the Company at the time of the surrender of such Note for conversion.
2.10 Demand Registration. (a) The Company agrees that the
holders of outstanding shares of Conversion Stock (hereinafter "Conversion
Stockholders") shall have two demand rights to require that the Company prepare
and promptly file a registration statement, as may be required under the Act, in
connection with the public offering, on a time-to-time basis or otherwise (as
long as the Common Stock is registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended), of no less than 25% of the then outstanding
shares of Conversion Stock, such rights to be exercisable only upon written
notice to the Company; provided that the Conversion Stockholders shall pay one
half of the reasonable expenses incurred by the Company in connection with the
preparation and filing of any such registration statement. Such demand
registration rights shall run from the date hereof until the Conversion Stock is
first transferable without registration under the Act pursuant to Rule 144 or
any comparable rule then in effect. In connection therewith, the Company shall
be obligated to prepare and file such registration statement within sixty (60)
days of receipt of any such initial notice, unless legally precluded from doing
so, and shall be further obligated to use its reasonable best efforts, including
the filing of any amendments or supplements thereto, to have any such
registration statement declared effective under the Act and the rules and
regulations promulgated thereunder as soon as practicable after the filing date
thereof. The Company shall also use its best efforts to keep any such
registration statement, and the accompanying prospectus, effective and current
under the Act at its expense until such Stock can be freely sold under the Act
or has been disposed of in accordance with the intended method of disposition
but in no event no longer than (i) nine months, or (ii) if such registration
statement is on Form S-3 or its equivalent, two years.
(b) "Piggyback" Registration. If at any time the Company
proposes to register any of its Common Stock under the Act for sale to the
public (such sale being hereinafter referred to as a "Public Offering"), except
with respect to registration statements on Forms S-4, S-8 or their then
equivalents, each such time it will give written notice to the Conversion
Stockholders of its intention so to do. Upon the written request of a Conversion
Stockholder, received by the Company within 30 days after the giving of any such
notice by the Company, to include in such Public Offering any of its Conversion
Stock (which request shall state the intended method of disposition thereof),
the Company will use its reasonable best efforts to cause the Conversion Stock
to be included in the securities to be sold in such Public Offering, all to the
extent requisite to permit the sale or other disposition by such Conversion
7
Stockholder (in accordance with its written request) of such Conversion Stock.
If the Public Offering is an underwritten public offering and the managing
underwriter determines in good faith and advises in writing that the number of
shares of Common Stock which the Company proposes to offer under such
registration statement, together with the number of shares of Conversion Stock
and other shares of Common Stock requested to be included in such registration
statement by the holders of securities having registration rights similar to
those of this Section 2.10(b), exceeds the number of shares of equity securities
it is advisable to offer and sell at such time, then the number of shares to be
sold by the Company, the Conversion Stockholders and such other shareholders
after such reduction shall be allocated among the Company, the Conversion
Stockholders and such other shareholders such that the Company shall have the
right to have offered no less than 75% of the original number of shares proposed
or requested by the Company to be registered. Notwithstanding the foregoing
provisions, the Company may withdraw any registration statement referred to in
this Section 2.10(b) without thereby incurring any liability to the Conversion
Stockholders.
(c) As a condition to the inclusion of shares of Conversion
Stock in any registration statement, the Conversion Stockholders will furnish to
the Company such information with respect to them and their plan of distribution
of such shares as is required to be disclosed in the registration statement (and
the prospectus and all amendments thereto included therein) by the applicable
rules, regulations and guidelines of the Securities and Exchange Commission
("Commission").
(d) In connection with the Company's obligation to use its
reasonable best efforts to effect the registration of shares of Conversion Stock
under the Act, the Company shall:
(i) prepare and file with the Commission such amendments
and supplements (including post-effective amendments and
supplements) to the registration statement covering such
Conversion Stock and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective
and to comply with any applicable provisions of the Act with
respect to the disposition of all such Conversion Stock covered
by such registration statement until such time as all of such
Conversion Stock registered thereunder has been disposed of in
accordance with the intended method of disposition of the
Conversion Stockholders set forth therein or until such
Conversion Stock can be freely sold under the Act, but in no case
longer than 270 days;
(ii) furnish to the Conversion Stockholders such number of
copies of a prospectus and preliminary prospectus in conformity
with the requirements of the Act, and such other documents as the
Conversion Stockholders may reasonably request, in order to
facilitate the public sale or other disposition of such
Conversion Stock;
8
(iii) notify the Conversion Stockholders if, at any time
when a prospectus relating to such Conversion Stock is required
to be delivered under the Act, any event shall have occurred as a
result of which the prospectus then in use with respect to such
Conversion Stock includes an untrue statement of a material fact
or omits to state a material fact necessary to make the
statements made therein, in light of the circumstances under
which they were made, not misleading, or for any other reason it
shall be necessary to amend or supplement such prospectus in
order to comply with the Act, and prepare and furnish to the
Conversion Stockholders a reasonable number of copies of a
supplement to or an amendment of such prospectus which will
correct such statement or omission or effect such compliance;
(iv) use its reasonable best efforts to register or qualify
such Conversion Stock under such other securities or blue sky
laws of such jurisdictions as the Conversion Stockholders shall
reasonably request and do any and all other acts and things which
may be necessary or desirable to enable the Conversion
Stockholders to consummate the public sale or other disposition
in each such jurisdiction of such Conversion Stock owned by them;
provided, however, that the Company shall not be required to
consent to the general service of process or to qualify to do
business in any jurisdiction where it is not then qualified;
(v) use its reasonable best efforts to keep the Conversion
Stockholders informed of the Company's best estimate of the
earliest date on which such registration statement or any post-
effective amendment or supplement thereto will become effective
and will promptly after receipt of such information notify the
Conversion Stockholders of the following: (A) when such
registration statement or any post-effective amendment or
supplement thereto becomes effective or is approved; (B) of the
issuance by any competent authority of any stop order suspending
the effectiveness or qualification of such registration statement
or the prospectus then in use or the initiation or threat of any
proceeding for that purpose; and (C) of the suspension of the
qualification of any such Conversion Stock included in such
registration statement for sale in any jurisdiction;
(vi) use its reasonable best efforts to furnish on the date
that Conversion Stock is delivered to the underwriters for sale
pursuant to such registration: (i) copies of an opinion dated
such date of counsel representing the Company for the purposes of
such registration, addressed to the underwriters, and (ii) copies
of letters from the independent public accountants who have
certified the Company's financial statements included in the
registration statement, addressed to the underwriters, in
9
either case delivered in connection with the closing under the
underwriting agreement for such underwritten offering;
(vii) make available for inspection by the Conversion
Stockholders, and any attorney, accountant or other agent
retained by the Conversion Stockholders, all financial and other
records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by the
Conversion Stockholders, or any attorney, accountant or agent in
connection with such registration statement; and
(viii) except as otherwise stated herein, pay all costs and
expenses incident to the performance and compliance by the
Company of this Section 2.10, including, without limitation, (1)
all registration and filing fees; (2) all printing expenses; (3)
all fees and disbursements of counsel and independent public
accountants for the Company; (4) all blue sky fees and expenses
(including fees and expenses of counsel for the Company in
connection with blue sky surveys); and (5) the entire expense of
any special audits required by the rules and regulations of the
Commission; provided, however, that the Company shall have no
obligation to pay or otherwise bear any portion of the fees and
disbursements of counsel and accountants for the Conversion
Stockholders and the underwriters' fees, out-of-pocket costs,
commissions or discounts attributable to the Conversion Stock
being offered and sold by the Conversion Stockholders, all of
which shall be paid or otherwise borne by the Conversion
Stockholders.
(e) The Company and the Conversion Stockholders agree, if a
registered offering is to be underwritten, to enter into a written
agreement with the managing underwriter in such form and containing
such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's
size and investment stature and their shareholders.
(f) (i) The Company will indemnify and hold harmless the
Conversion Stockholders and each other person, if any who controls the
Conversion Stockholders within the meaning of the Act from and against
any and all losses, claims, damages, liabilities and legal and other
expenses including costs of investigation caused by any untrue
statement or alleged untrue statement of a material fact contained in
any registration statement under which the Conversion Stock was
registered under the Act, any prospectus or preliminary prospectus
contained therein or any amendment, post-effective amendment or
supplement thereto, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not
10
misleading, in light of the circumstances then existing, except
insofar as such losses, claims, damages, liabilities or expenses are
caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to the
Conversion Stockholders and furnished to the Company in writing by the
Conversion Stockholders expressly for use therein.
(ii) It shall be a condition to the obligation of the Company to
effect a registration of the Conversion Stock under the Act pursuant
hereto, that the Conversion Stockholders jointly and severally
indemnify and hold harmless the Company and, in connection with an
underwritten public offering, each underwriter and each person, if
any, who controls the Company or the underwriter, within the meaning
of the Act, to the same extent as the indemnity from the Company in
the foregoing paragraph, but only with reference to information
relating to the Conversion Stockholders furnished to the Company or
the underwriter in writing by the Conversion Stockholders expressly
for use in the registration statement, any prospectus or preliminary
prospectus contained therein or any amendment, post-effective
amendment or supplement thereto.
(iii) In case any claim shall be made or any proceeding
(including any governmental investigation) shall be instituted
involving any indemnified party in respect of which indemnity may be
sought pursuant to this Section 2.10(f), such indemnified party shall
promptly notify the indemnifying party in writing of the same;
provided that failure to notify the indemnifying party shall not
relieve it from any liability it may have to an indemnified party
otherwise than under this Section 2.10(f). The indemnifying party,
upon request of the indemnified party, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party in such proceeding and shall pay the fees and disbursements of
such counsel. In any such proceeding, any indemnified party shall
have the right to retain its own counsel, but the fees and
disbursements of such counsel shall be at the expense of such
indemnified party unless (A) the indemnifying party shall have failed
to retain counsel for the indemnified party as aforesaid, (B) the
indemnifying party and such indemnified party shall have mutually
agreed to the retention of such counsel or (C) representation of such
indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to differing interests between such
indemnified party and any other party represented by such counsel in
such proceeding; provided that the Company shall not be liable for the
fees and disbursements of more than one additional counsel for all
indemnified parties. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of
such settlement or judgment.
11
3. RESTRICTIONS ON CONVERSION AND TRANSFER.
3.1 Legend. Each certificate for Conversion Stock actually
issued pursuant to Section 2 shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or the securities laws of any states of the United States
of America and may not be sold or otherwise transferred in the
absence of such registration or an exemption therefrom under the
Act and under any such applicable state law."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby pursuant to the Act) shall also bear such legend unless in
the opinion of counsel for the Company and the holder thereof, the securities
represented thereby need no longer be subject to the restrictions contained in
this Section 3. The provisions of this Section 3 shall be binding upon all
subsequent holders of certificates bearing the above legend, and shall also be
applicable to all subsequent holders of the Note.
3.2 Restrictions on Transfer. The Note and the Conversion Stock
(collectively, the "Securities") shall not be transferable except upon the
conditions specified in this Section 3. The holder of any Note or certificate
for Conversion Stock bearing the aforesaid legend, by acceptance thereof,
agrees, prior to any transfer of such Securities, to give written notice to the
Company expressing such holder's intention to effect such transfer and
describing briefly the manner of the proposed transfer (and the intended method
thereof), together with an opinion of such holder's counsel satisfactory to the
Company and its counsel that the proposed transfer of such Securities may be
effected without registration of such Securities under the Act, otherwise the
holder hereof shall not transfer the same except pursuant to a definitive
prospectus included in a registration statement under the Act covering such
Securities.
4. AMENDMENTS AND WAIVERS. This Note may only be amended or any of
the restrictions or provisions may only be waived with the written consent of
the Company and the holder of the Note.
5. EVENTS OF DEFAULT AND REMEDIES.
5.1 Events of Default. If one or more of the events described
in this Section 5.1 shall happen and be continuing, each of such events being
herein termed an "Event of Default," that is to say:
(a) default shall be made in the payment of principal under
any Note when and as the same shall become due and payable; or
12
(b) default shall be made by the Company in the payment of
interest on any Note after the same shall become due and payable; or
(c) default shall be made by the Company in the performance
of any other obligation hereunder and such default shall continue for
a period of sixty (60) days after written notice of such default to
the Company; or
(d) the Company shall (i) apply for or consent to the
appointment of a receiver, trustee, or liquidator of the Company or
any of its assets, (ii) make a general assignment for the benefit of
creditors, (iii) be adjudicated a bankrupt or insolvent or (iv) file a
voluntary petition in bankruptcy, or a petition or answer seeking
reorganization or an arrangement with creditors to take advantage of
any bankruptcy, reorganization, insolvency, readjustment of debt,
moratorium, dissolution, liquidation, or debtor relief law, or any
chapter of any such law, or an answer admitting the material
allegations of a petition filed against it in any proceeding under any
such law or chapter, or corporate action shall be taken by the Company
for the purpose of effecting any of the foregoing or an order,
judgment, or decree shall be entered, without the application,
approval, or consent of the Company, by any court or competent
jurisdiction, which is not stayed within 120 days, approving a
petition seeking liquidation or reorganization of the Company or of
all or a substantial part of the assets of the Company.
then the entire unpaid principal balance of the Note and all accrued unpaid
interest hereon thereupon at once shall mature and become due and payable
without presentment, demand, protest or notice of any kind (including, but not
limited to, notice of intention to accelerate or notice of acceleration), all of
which hereby are expressly waived by the Company;
5.2 Costs of Collection. If any Event of Default occurs
hereunder (whether or not suit is filed), or if the Notes are collected by suit
or legal proceedings or through the probate court or bankruptcy proceedings, the
Company agrees to pay all reasonable attorneys' fees and all expenses of
collection and costs of court.
5.3 Security for Payment of Note. As security for the payment of
the principal amount of and accrued interest on the Note, the Company and
Medarex have entered into that certain License Agreement dated the date hereof
(the "License Agreement"). The License Agreement shall be held in escrow
pursuant to that certain Escrow Agreement dated the date hereof among Medarex,
the Company and Satterlee Stephens Burke & Burke LLP and shall be subject to
disbursement in accordance with the terms of such escrow agreement.
6. REPORTS. So long as the Note is outstanding:
6.1 Financial Statements, etc. The Company will delivery to the
holder hereof as soon as practicable after the close of each fiscal year of the
Company, a copy of (1) the consolidated balance sheet of the Company and its
subsidiaries as of the end of such fiscal
13
year, (2) consolidated statements of operations of the Company and its
subsidiaries for such fiscal year, and (3) consolidated statements of changes in
financial position of the Company and its subsidiaries for such fiscal year,
setting forth in each case in comparative form the corresponding figures for the
previous fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles.
7. DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, the following terms shall have the following respective meanings:
"Business Day" shall mean any day when commercial banks in New
York, New York are not required or permitted by law to close.
"Closing Price" of a security on any day means the last sales
price, regular way, per share of such security on such day as reported
in the principal consolidated reporting system with respect to such
security listed on the principal stock exchange on which such security
was listed for trading or, if the shares of such security are not
listed or admitted to trading on a stock exchange, the last sales
price as reported, in the National Market System ("NMS") of the
National Association of Securities Dealers Inc. Automated Quotation
System ("NASDAQ"), or if the shares of such security are not listed or
admitted to trading in NMS, the average of the high bid and low asked
prices in the over-the-counter market as reported by NASDAQ, or if the
bid and asked prices on each such day shall not have been reported
through NASDAQ, the average of the bid and asked prices for such day
as furnished by any stock exchange member firm regularly making a
market in such security selected for such purpose by the Board of
Directors or a committee thereof on each Trading Day or, if the shares
of such security are not regularly traded then the price determined by
the Board of Directors or a committee thereof in good faith.
"Indebtedness" shall mean and include, as to a particular
person, (i) all items which in accordance with generally accepted
accounting principles would be included in determining total
liabilities as shown on the liability side of a balance sheet as of
the date at which Indebtedness is to be determined; (ii) indebtedness
secured by any mortgage, security interest, pledge or lien whether or
not the indebtedness secured thereby shall have been assumed; and
(iii) guarantees, enforcements and other contingent obligations in
respect of indebtedness of others.
"person" shall include an individual, a corporation, association,
partnership, trust or other entity, or a government, foreign or
domestic, or any agency or political subdivision thereof.
"subsidiary" shall mean any corporation organized under the laws
of any state of the United States or the District of Columbia, which
conducts the major
14
portion of its is business in the United States and in which at least
50% of all of the stock of each class having ordinary voting power
shall, at the time as of which any determination is being made, be
owned by the Company.
"Trading Day" shall mean a day on which the market used for
calculating the Closing Price is open for the transaction of business
or, if the shares of such security are not so listed or admitted to
trading, a Business Day.
8. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered, or mailed,
by telecopy(with a copy also sent by hand delivery or air courier, which shall
not alter the time at which the telecopier notice is deemed received), hand
delivery, air courier service, registered mail, postage prepaid, (a) if to the
holder hereof, addressed to such address as may have been furnished to the
Company by the holder in writing, or (b) if to any other holder of a Note or any
Conversion Stock, to such address as may have been furnished to the Company in
writing by such holder, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Note or
Conversion Stock who has so furnished an address to the Company, or (c) if to
the Company, to it at 3608 Research Forest Drive, The Woodlands, Texas 77381,
Attention: J. Russell Denson-President, or at such other address as may have
been furnished to the holder hereof by the Company in writing. Notice shall be
deemed given when received.
9. LAW GOVERNING. This Note shall be construed in accordance with
and governed by the laws of the State of New Jersey regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
10. HEADINGS. The headings in this Note are inserted for convenience
purposes only and shall not affect the interpretation or enforcement hereof.
IN WITNESS WHEREOF, the Company has executed this Note as of the date
first above written
[Corporate Seal]
HOUSTON BIOTECHNOLOGY INCORPORATED
Attest:
DONALD S. CLARK, Ph.D. By: /S/ J. RUSSELL DENSON
- ----------------------------- ---------------------------------
J. Russell Denson - President
15