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Exhibit 10.11
EXECUTION COPY
THIS EXCHANGEABLE PROMISSORY NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY SECURITIES LAWS OF A STATE
OR OTHER JURSDICTION AND MAY NOT UNDER ANY CIRCUMSTANCES BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF (OTHER THAN TO AN AFFILIATE OR AS OTHERWISE PERMITTED BY
THIS NOTE PURSUANT TO WHICH THEY WERE ISSUED) EXCEPT PURSUANT TO (I) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES OR BLUE SKYLAWS, OR (II) TO THE EXTENT APPLICABLE, RULE 144
UNDER THE SECURITIES ACT (OR ANY SIMILAR RULE UNDER THE SECURITIES ACT RELATING
TO THE DISPOSITION OF SECURITIES) TOGETHER WITH AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR
APPLICABLE STATE SECURITIES LAWS.
DOV PHARMACEUTICAL, INC.
CONVERTIBLE EXCHANGEABLE PROMISSORY NOTE
U.S. $8,010,000 JANUARY 21, 1999
NEW YORK, NEW YORK
The undersigned, DOV PHARMACEUTICAL, INC., a New Jersey corporation with
offices at One Parker Plaza, Fort Lee, New Jersey 07024 ("DOV"), unconditionally
promises to pay to ELAN INTERNATIONAL SERVICES, LTD., a Bermuda corporation
("EIS"), or its permitted assigns, transferees and successors as provided herein
(collectively, the "HOLDER"), on January 21, 2005 (the "MATURITY DATE"), at such
place as may be designated by the Holder to DOV, the principal amount
outstanding hereunder (not to exceed U.S.$8,010,000), together with interest
thereon accrued at a rate PER ANNUM equal to the lesser of (x) 7% and (y) the
maximum rate of interest permitted by applicable law, from and after the date of
the that date hereof (the "ORIGINAL ISSUE DATE"), compounded on a semi-annual
basis, the initial such compounding to commence on the date that is six months
from and after the Original Issue Date (each such date, a "COMPOUNDING DATE").
The entire principal amount of this Note shall be disbursed by EIS to DOV on the
date hereof.
SECTION 1. SECURITIES PURCHASE AGREEMENT AND JOINT DEVELOPMENT AND
OPERATING AGREEMENT.
This Note is issued pursuant to a Securities Purchase Agreement dated as
of the date hereof by and between DOV and EIS (as amended at any time, the
"SECURITIES PURCHASE AGREEMENT"), and is intended to be afforded the benefits
thereof, including the representations and warranties set forth therein. DOV
shall use the proceeds of the issuance and sale of this Note solely in
accordance with the provisions set forth therein and in a certain Joint
Development and Operating Agreement, dated as of the date hereof (as amended at
any time, the "JOINT
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DEVELOPMENT AND OPERATING AGREEMENT"), by and among Elan Corporation, plc, an
Irish public limited company and the parent corporation of EIS, EIS, DOV, DOV
Newco, Ltd., a Bermuda exempted limited company ("BERMUDA NEWCO"), and Nascime
Limited, an Irish private limited company ("IRELAND NEWCO"), and as described in
Section 5 below.
SECTION 2. PAYMENTS AND COVENANTS.
(a) Unless earlier converted in accordance with the terms of Section 3
below, exchanged in accordance with Section 4 below, or prepaid in accordance
with the terms hereof, the entire outstanding principal amount of this Note,
together with any accrued and unpaid interest thereon, shall be due and payable
on the Maturity Date.
(b) Accrued interest hereon shall not be paid is cash, but shall be
capitalized and added to principal amount outstanding hereunder on each
Compounding Date.
(c) This Note may not be prepaid by DOV without EIS's prior written
consent.
(d) During the time that this Note remains outstanding, DOV shall not,
without the prior written consent of the Holder, (i) incur or permit to exist
any indebtedness by DOV or any of DOV's subsidiaries senior or pari passu with
to the indebtedness represented by this Note; provided, that DOV may incur (A)
senior indebtedness in the form of working capital lines of credit and financing
or similar leasing arrangements up to $1 million (including the aggregate
available amount of any undrawn lines or similar credit financings) and (B)
senior indebtedness, without limit on a PARI PASSU basis, funded by banks, bank
holding companies, insurance companies and other investors customarily defined
as institutional investors, it being understood that the amounts described in
clauses (A) and (B) shall be additive.
SECTION 3. CONVERSION.
(a) CONVERSION RIGHT. (i) From and after the date that is two years after
the Original Issue Date and until this Note is repaid in full, the Holder shall
have the right from time to time, in its sole discretion, to convert the
outstanding principal amount and accrued and unpaid interest then-outstanding
hereunder into such number of shares of the common stock of DOV, par value
$.0001 per share (the "DOV COMMON STOCK"), that shall be obtained by dividing
the sum of the outstanding principal amount of this Note and all accrued
interest thereon by the price (the "BENCHMARK PRICE") equal to the lesser of (A)
U.S.$ 6.44 and (B) the product of (x) 1.75 and (y) the per share price, in the
case of DOV Common Stock, or the initial per share conversion price, in the case
of equity securities convertible, exchangeable or exercisable for or into shares
of DOV Common Stock, in each case, in the next BONA FIDE financing that is
consummated by DOV or its affiliates after the Original Issue Date and within 18
months thereof; provided, that if a transaction giving rise to the calculation
in (B) shall not have occurred, then, in such event, the Benchmark Price shall
be the amount set forth in (A). In the event that, within 18 months of the
Original Issue Closing Date and after conversion i in whole or part of this
Note, DOV issues, any equity securities, or rights, options, warrants or other
securities-exchangeable; convertible or exercisable for or into equity
securities) at an effective price per share that is less than the Benchmark
Price, DOV shall have the obligation (to be
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implemented upon the request of EIS at any time thereafter during the tern of
this Note), from and after the date that is the date of closing of such
offering, to issue to EIS; for no additional consideration, pro-rata additional
shares of voting and non-voting DOV Common Stock so that such additional shares,
when added to the DOV Common Stock issued upon such conversion, causes the
aggregate number of shares of such DOV Common Stock issued upon such conversion
to be issued as if the denominator in such formula were the Benchmark Price.
Such additional issuance shall be applicable with respect to accrued and unpaid
interest if EIS has exercised the Exchange Right (as defined below).
(ii) EIS shall notify DOV in writing of its intention to exercise the
conversion. Upon 10 days of receipt of the notice, DOV shall issue stock
certificates to EIS representing the aggregate number of shares of DOV Common
Stock EIS shall own after the conversion. Upon such exercise, EIS shall, if
necessary, exchange with DOV, the DOV Common Stock certificates currently in its
possession for the DOV Common Stock certificates which reflect the aggregate
number of shares of DOV Common Stock transferable to EIS after EIS exercises the
conversion.
(b) RECLASSIFICATION. ETC. In case of any reclassification,
reorganization, change or conversion of securities of the class issuable upon
conversion of the outstanding principal amount and accrued and unpaid interest
then-outstanding hereunder (other than a change in par value, or from par value
to no par value), or (ii) any consolidation of DOV with or into another entity
(other than a merger or consolidation with another entity in which DOV is the
acquiring and the surviving entity and that does not result in any
reclassification or change of outstanding securities issuable upon the
conversion of the outstanding principal amount and accrued and unpaid interest
then-outstanding hereunder), or (iii) any sale of all or substantially all the
assets of DOV, then DOV, or such successor or purchasing entity, as the case may
be, shall duly execute and deliver to the Holder a new Note or a supplement
hereto (in form and substance reasonably satisfactory to the Holder), so that
the Holder shall have the right to receive, at a total purchase price not to
exceed that payable upon the conversion of the outstanding principal amount and
accrued and unpaid interest then-outstanding hereunder, and in lieu of the
shares of Common Stock theretofore issuable upon the conversion the outstanding
principal amount and accrued and unpaid interest then-outstanding hereunder, the
kind and amount of shares of stock and other securities, receivable upon such
reclassification, reorganization, change or conversion by a holder of the number
of shares of Common Stock then issuable under this Note. Such new Note shall
provide for adjustments that shall be as nearly equivalent as may be practicable
to the justments provided for in this Section 3. The provisions of this Section
3(b) shall similarly attach to successive reclassifications, reorganizations,
changes, and conversions.
(c) SUBDIVISION OR COMBINATION OF SHARES. If DOV at any time during which
there is any outstanding principal amount and accrued and unpaid interest
then-outstanding hereunder shall subdivide or combine its Common Stock, (i) in
the case of a subdivision, the Benchmark Price shall be proportionately
decreased and the number of Shares issuable hereunder shall be proportionately
increased, and (ii) in the case of a combination, the Benchmark Price shall be
proportionately increased and the number of Shares issuable hereunder shall be
proportionately decreased.
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(d) NO IMPAIRMENT. DOV will not, by amendment of its certificate of
incorporation or bylaws or through any, reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by DOV,
but will at all times in good faith assist in the carrying out of all the
provisions of this Section 3 and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of EIS against
impairment.
(e) NOTICE OF ADJUSTMENTS. Whenever the Benchmark Price or the number of
Shares issuable hereunder shall be adjusted pursuant to this Section 3, DOV
shall prepare a certificate setting forth, in reasonable detail, the event
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated. Such certificate shall be signed by its chief
financial officer and shall be delivered to EIS.
(f) FRACTIONAL SHARES. No fractional shares of Common Stock will be issued
in connection with any exercise hereunder, but in lieu of such fractional shares
DOV shall make a cash payment therefor based on the fair market value of the
Common Stock on the date of exercise as reasonably determined in good faith by
DOV's Board of Directors.
(g) CUMULATIVE ADJUSTMENTS. No adjustment in the Benchmark Price shall be
required under this Section 3 until cumulative adjustments result in a
concomitant change of 1% or more of the Benchmark Price or in the number of
shares of Common Stock issuable upon conversion of the outstanding principal
amount and accrued and unpaid interest then-outstanding hereunder, as in effect
prior to the last such adjustment; provided, however, that any adjustments which
by reason of this Section 3 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 3 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(h) NOTICE OF CONVERSION. The Holder shall be entitled to exercise the
rights of conversion as described in this Section 3 upon 30 days' notice to DOV,
such notice to be in the form attached hereto as EXHIBIT B.
SECTION 4. EXCHANGE RIGHT.
(a) If no portion of the original principal amount hereof (as opposed to
accrued interest) has been converted, this Note shall be exchangeable (the
"NEWCO EXCHANGE RIGHT") at any time during the term for a number of additional
"B" Shares of Bermuda Newco par value $1.00 per share (together with the "A"
Shares the "NEWCO COMMON STOCK") so that the aggregate number of B Shares of
Bermuda Newco originally issued to EIS on the Original Issue Date and the shares
issued or transferred to EIS in connection with such exchange shall be equal to
the aggregate number of "A" Shares in Bermuda Newco originally issued to and
subscribed for by DOV on the Original Issue Date less the number of "B" Shares,
if any, transferred to EIS by DOV in connection with the exercise of the Newco
Exchange Right. The parties shall make appropriate arithmetic adjustments to any
share issuance to give effect to the foregoing in the cases of issuance of new
shares of Bermuda Newco rather than transfers by DOV or its affiliates of
existing shares to EIS. In the event of the exercise of the Newco Exchange Right
(x) the
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outstanding principal amount of this Note shall be cancelled, and shall no
longer be entitled to any exchange right for shares of DOV Common Stock and (y)
the accrued interest on this Note shall continue to carry the rights
attributable thereto (including conversion into DOV Common Stock), other than
the Newco Exchange Right. As provided in the Joint Development and Operating
Agreement prior to and upon any such exchange, EIS shall have a like interest
(proportionate to its then shareholding interest) in any additional or other
capital in Bermuda Newco.
(b) EIS shall notify DOV and Bermuda Newco in writing of its intention to
exercise the Newco Exchange Right. Upon 10 days of receipt of the notice,
Bermuda Newco shall issue new stock certificates to EIS representing the
aggregate number of shares of Newco Common Stock EIS shall own after the
exercise of the Newco Exchange Right. Upon such exercise, EIS shall, if
necessary, exchange with Bermuda Newco, the Newco Common Stock certificates
currently in its possession for the Newco Common Stock certificates which
reflect the aggregate number of shares of Newco Common Stock transferable or
issuable to EIS after EIS exercises the Newco Exchange Right.
(c) In the event that EIS exercises the Newco Exchange Right, EIS shall,
within 10 days of the date of the consummation of such transaction, cause to be
paid to or as directed by DOV an amount equal to the excess of (A) the
percentage of Bermuda Newco then owned by EIS (assuming such exchange) but not
in excess of 50%, of the aggregate amount of development and related funding
contributed or paid to Bermuda Newco by DOV and EIS (or their respective
affiliates) from and after the Original Issue Date over (B) the amount described
in (A) above that was paid by EIS and its affiliates; together with interest
thereon at a rate PER ANNUM equal to the lesser of (x) 7% and (y) the maximum
rate of interest permitted by applicable law from and after the Original Issue
Date, compounded on a semi-annual basis.
(d) In no event shall the amount determined in accordance with subsection
(a) above exceed the aggregate principal amount issued hereunder and accrued
interest thereon.
SECTION 5. USE OF PROCEEDS.
DOV shall use the proceeds of this Note solely in accordance with the
Joint Development and Operating Agreement.
SECTION 6. EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an event of
default (an "EVENT OF DEFAULT"):
(a) a default in the payment of the principal amount of this Note,
when and as the same shall become due and payable;
(b) a default in the payment of any accrued and unpaid interest on
this Note, when and as the same shall become due and payable;
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(c) a default in the performance, or a breach of any other covenant or
agreement of DOV contained in this Note, and continuance of such default or
breach for a period of 10 days after the Holder has notified DOV of its
occurrence;
(d) a default or breach in any covenant of DOV contained in this Note, or
any other Transaction Document (as defined in the Securities Purchase Agreement)
and continuance of such default or breach for a period of 10 business days after
the Holder has notified DOV of its occurrence;
(e) any representation, warranty, covenant or certification made by DOV
pursuant to this Note, or any other Transaction Document shall prove to have
been false or misleading as of the date made in any material respect and EIS has
rightfully submitted a claim for indemnity in respect thereof in accordance with
the Securities Purchase Agreement;
(f) (i) the entry of a decree or order by a court having jurisdiction
adjudging DOV bankrupt or insolvent, or approving a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of DOV,
under United States bankruptcy or insolvency law, as now or hereafter
constituted, and the continuance of any such decree or order unstayed and in
effect for a period of 120 days; (ii) the commencement by DOV of a voluntary
case under United States bankruptcy law, as now or hereafter constituted, or the
consent by DOV to the institution of bankruptcy or insolvency proceedings
against it; (iii) the filing by DOV of a petition or answer or consent seeking
reorganization or relief under United States bankruptcy law; (v) the appointment
of a receiver, liquidator, assignee, trustee, or similar official of DOV or of
any substantial part of its property that is not discharged within 120 days;
(vi) the making by DOV of an assignment for the benefit of creditors, or the
admission by it in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by DOV in furtherance of any such
action; or
(g) a material default by DOV under any of the Transaction Documents and
continuance of such default for a period of 30 days after the Holder has
notified DOV of its occurrence.
SECTION 7. REMEDIES IN THE EVENT OF DEFAULT.
(a) In the case of any Event of Default by DOV, the Holder, may in its
sole discretion, demand that the aggregate amount of funds advanced to DOV under
this Note and outstanding hereunder and accrued and unpaid interest thereon
shall, in addition to all other rights and remedies of the Holder hereunder and
under applicable law, be and become immediately due and payable upon written
notice delivered by the Holder to DOV. Notwithstanding the preceding sentence,
the rights of the Holder as set forth in Sections 3 and 4 hereunder shall
survive.
(b) DOV hereby waives demand and presentment for payment, notice of
nonpayment, protest and notice of protest, diligence, filing suit, and all other
notice and promises to pay the Holder its costs of collection of all amounts due
hereunder, including reasonable attorneys' fees.
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(c) In the case of any Event of Default or breach of this Note by DOV this
Note shall continue to bear interest after such default or breach at the
interest rate otherwise in effect hereunder plus 3% PER ANNUM (but in any event
not in excess of the maximum rate of interest permitted by applicable law).
SECTION 8. SENIORITY.
Subject to Section 2(d), this Note shall constitute senior indebtedness of
DOV.
SECTION 9. MISCELLANEOUS.
(a) This Note may be transferred or assigned, in whole or in part, (a) by
EIS to its affiliates and/or subsidiaries or other entities in which EIS or its
affiliates may have an interest, by contract, ownership of securities or
otherwise, and that are in the nature of financing vehicles or similar entities
for EIS or its affiliates or (b) by DOV to its affiliates and/or subsidiaries;
provided, that in each case, the transferor shall continue to be liable and
obligated for its obligations hereunder. Subject to the foregoing, this Note and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. Other
than as set forth above, this Note may not be transferred or assigned by either
party without the prior written consent of the other party.
(b) All notices, demands and requests of any kind to be delivered to any
party in connection with this Agreement shall be in writing and shall be deemed
to have been duly given if personally delivered or if sent by
nationally-recognized overnight courier or by registered or certified airmail,
return receipt requested and postage prepaid, addressed as follows:
(i) if to DOV:
DOV Pharmaceutical Inc.
One Parker Plaza
Fort Lee, New Jersey 07024
Attn: Dr. Arnold Lippa
if to Bermuda Newco:
DOV Newco, Ltd.
Clarendon House
2 Church Street
Hamilton
Bermuda
Attn: President
with a copy to:
Friedman Siegelbaum LLP
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399 Park Avenue
20th Floor
New York, New York 10022
Attention: J. Robert Horton, Esq.
(ii) if to EIS, to:
Elan International Services, Ltd.
102 St. James Court
Flatts, Smiths Parish
Bermuda SL04
Attention: Director
with a copy to:
Brock Silverstein McAuliffe LLC
153 East 53rd Street
New York, New York 10022
Attention: David Robbins, Esq.
Each party, by written notice given to the other in accordance with this
Section 10(b) may change the address to which notices, other communication or
documents are to be sent to such party. All notices, other communications or
documents shall be deemed to have been duly given when received. Any such notice
or communication shall be deemed to have been received (iv) in the case of
personal delivery, on the date of such delivery, (v) in the case of
nationally-recognized overnight courier, on the second business day after the
date when sent and (vi) in the case of mailing, on the fifth business day
following that day on which the piece of mail containing such communication is
posted. Notice hereunder may be given on behalf of the Parties by their
respective attorneys.
(c) This Note may not be modified or amended, or any of the provisions
hereof waived, except by written agreement of DOV and EIS.
(d) This Note shall be governed by and construed in accordance with the
substantive (as opposed to procedural) laws of the State of New York, without
giving effect to the principles thereof relating to conflicts of laws.
(e) This Note may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute one note. The Note may be signed and
delivered to the other party by a facsimile transmission; such transmission
shall be deemed a valid signature.
(f) Each of the parties shall be responsible for its own costs and
expenses incurred in connection with the transactions contemplated hereby.
[Signature page follows]
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IN WITNESS WHEREOF, DOV and EIS have executed this Note on the date first
above written.
DOV PHARMACEUTICAL, INC.
By: /s/ Arnold Lippa
-------------------------------
Name: Arnold Lippa
Title: CEO
ELAN INTERNATIONAL SERVICES, LTD.
By:_________________________________
Name:
Title:
For purposes of Section 4:
DOV NEWCO, LTD.
By: /s/ Arnold Lippa
-------------------------------
Name: Arnold Lippa
Title: President
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IN WITNESS WHEREOF, DOV and EIS have executed this Note on the date first
above written.
DOV PHARMACEUTICAL, INC.
By:________________________________
Name:
Title:
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/ Kevin Insley
----------------------------
Name: Kevin Insley
Title: President and Chief Financial Officer
For purposes of Section 4:
DOV NEWCO, LTD.
By:_______________________
Name:
Title:
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EXHIBIT A
NOTICE OF ELECTION TO EXERCISE THE CONVERSION RIGHT
Date:
To: DOV Pharmaceutical, Inc.
From: Elan International Services, Ltd.
Re: Exercise of the Conversion Right
- ------------------------------------------------------------------------------
Pursuant to the terms of the Exchangeable Promissory Note (the "Note")
issued by DOV Pharmaceutical, Inc. ("DOV") to Elan International Services, Ltd.
("EIS"), dated January ___, 1999, specifically Section 3 thereof, EIS hereby
notifies DOV of its intention to exercise its right of conversion.
Pursuant to Section 3 of the Note, EIS hereby elects to convert the
principal and all accrued and unpaid interest on the Note for shares of the
common stock of DOV, par value $.0001 per share, or such portion thereof
exercised below, based upon a conversion rate of U.S. $6.44 per share.
We have instructed our attorneys to contact DOV to discuss the timing and
documentation of the conversion.
Sincerely,
ELAN INTERNATIONAL SERVICES, LTD.
By:___________________________________
Name:
Title:
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