Exhibit 4.2
THIS CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND NO
INTEREST THEREIN MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS (1) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES SHALL BE EFFECTIVE UNDER
THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR (2) SUCH SECURITIES ARE
TRANSFERRED PURSUANT TO RULE 144 PROMULGATED UNDER THE ACT (OR ANY SUCCESSOR
RULE) OR (3) CURIS, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL FOR THE
HOLDER OF THIS CONVERTIBLE PROMISSORY NOTE SATISFACTORY TO CURIS, INC. THAT NO
VIOLATION OF THE ACT OR SIMILAR STATE SECURITIES LAWS WILL BE INVOLVED IN SUCH
TRANSFER. THE TRANSFER OF THIS CONVERTIBLE PROMISSORY NOTE AND THE SHARES OF
COMMON STOCK ISSUABLE UPON CONVERSION HEREOF IS ALSO SUBJECT TO THE RIGHTS AND
OBLIGATIONS CONTAINED IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF
JULY 18, 2001, BY AND AMONG CURIS, INC., ELAN INTERNATIONAL SERVICES, LTD. AND
ELAN PHARMA INTERNATIONAL LIMITED.
CURIS, INC.
CONVERTIBLE PROMISSORY NOTE
U.S.$8,010,000 (excluding capitalized interest) July 18, 2001
The undersigned, Curis, Inc., a Delaware corporation with offices at 61 Moulton
Street, Cambridge, Massachusetts 02138-1118 (the "Company"), unconditionally
promises to pay to Elan Pharma International Limited, an Irish private limited
liability company ("EPIL"), or its permitted assigns, transferees and successors
as provided herein (collectively with EPIL, the "Holder"), on July 18, 2007 (the
"Maturity Date"), at such place as may be designated by the Holder to the
Company, the principal amount outstanding hereunder (not to exceed
U.S.$8,010,000 (excluding capitalized interest)), or such lesser amount as shall
then be payable pursuant to the terms of Section 3 hereof, together with
interest thereon accrued at a rate per annum set forth in Section 2 hereof from
and after the date of the initial disbursement of funds hereunder (the "Original
Issue Date"), compounded on a semi-annual basis, the initial such compounding to
commence on the date that is the 180th day from and after the Original Issue
Date and thereafter on each one-year anniversary of the Original Issue Date and
180 days thereafter (each such date, a "Compounding Date").
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SECTION 1. SECURITIES PURCHASE AGREEMENT.
(a) This Note is issued pursuant to a Securities Purchase Agreement
dated as of the date hereof, by and among the Company, Elan International
Services, Ltd., a Bermuda exempted limited liability company and an affiliate of
EPIL ("EIS"), and EPIL (as amended at any time, the "Securities Purchase
Agreement"), and the Holder hereof is intended to be afforded the benefits
thereof, including the representations and warranties set forth therein. The
Company shall use the proceeds of the issuance and sale of this Note solely in
accordance with the provisions set forth therein and as required therein.
Capitalized terms used but not otherwise defined herein shall, unless otherwise
indicated, have the meanings given such terms in the Securities Purchase
Agreement.
(b) Certain terms and conditions of the disbursements by EPIL to the
Company hereunder are set forth in Section 1(e) of the Securities Purchase
Agreement.
SECTION 2. PAYMENTS OF PRINCIPAL AND INTEREST.
(a) Unless earlier (i) converted in accordance with the terms of
Section 4 below, (ii) repaid in accordance with the terms hereof or (iii)
reduced pursuant to Section 3 below, the entire outstanding principal amount of
this Note (including capitalized interest, if any), together with any accrued
interest thereon (the "Outstanding Amount"), shall be due and payable on the
Maturity Date, at the option of the Company, in cash or, subject to applicable
regulatory approvals, by the issuance of such number of shares of Common Stock
equal to the Outstanding Amount divided by the Fair Market Value per share of
Common Stock.
The "Fair Market Value" of one share of Common Stock shall be deemed
to be the average of the closing sale prices for the Common Stock over the 30
trading day period ending one trading day prior to the date of conversion or the
Maturity Date, as the case may be.
(b) Accrued interest hereon shall not be paid in cash, but shall be
capitalized and added to the principal amount outstanding hereunder on each
Compounding Date. Accrued interest hereon shall be due and payable in arrears on
each Compounding Date. Interest shall accrue on this Note at a rate per annum of
(i) 8%, from and after the Original Issue Date through the fourth anniversary of
the Initial Closing Date, and (ii) 6%, thereafter.
SECTION 3. REDUCTION OF AMOUNTS PAYABLE HEREUNDER.
If EIS shall have exercised its Exchange Right (as such term is
defined in the Certificate of Designations relating to the Series A Preferred
Stock), then, (a) unless EIS, pursuant to Section 5(b) of the Securities
Purchase Agreement, shall have paid to the Company within 30 days of such
exercise an amount equal to: (x) 30.1% of the aggregate amount of the
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Development Funding (but not including any capitalized or accrued and unpaid
interest on this Note) provided to Newco (by or on behalf of the Company and EIS
and their respective affiliates and subsidiaries), (y) plus such amount, if any,
of the Development Funding contributed to Newco by the Company as a result of a
failure by EIS to provide its pro rata share of the Development Funding and (z)
less such amount, if any, of the Development Funding contributed to Newco by EIS
as a result of a failure by the Company to provide its pro rata share of the
Development Funding (the sum of (x), (y) and (z) as a percentage of the
Development Funding contributed to Newco, the "Make-Whole Percentage"), in each
case, from and after the Initial Closing Date and immediately prior to such
exercise (the "Make-Whole Amount"), (b) the Holder shall surrender to the
Company for cancellation all or a portion of this Note and/or, as appropriate,
all or a portion of the shares of the Common Stock into which all or a portion
of this Note may have been converted, with an aggregate principal amount equal
to the Make-Whole Percentage of the aggregate amount of Development Funding (but
not including any capitalized or accrued and unpaid interest on this Note)
provided to Newco (by or on behalf of the Company and EIS and their respective
affiliates and subsidiaries) from and after the Initial Closing Date and
immediately prior to such exercise, less such amount, if any EIS shall have paid
to the Company pursuant to clause (a) above.
If the payment of the Make-Whole Amount, or any portion of the
Make-Whole Amount, is effected or offset against this Note, such reduction shall
be evidenced in writing by an appropriate notation hereon or such other
documentation as shall be agreed to in writing by the Company and the holder
hereof, which agreement shall not be unreasonably withheld or delayed.
SECTION 4. CONVERSION.
(a) Conversion Right.
(i) Until this Note is repaid in full, the Holder shall have the
right, at any time after the second anniversary of the Initial Closing Date, in
its sole discretion, to convert all or any portion of the Outstanding Amount
(the "Conversion Right") into such number of shares of Common Stock that shall
be obtained by dividing the Outstanding Amount by U.S.$8.63 per share (subject
to adjustment as provided below in this Section 4, the "Conversion Price").
Notwithstanding the above, in the event that there shall occur any
consolidation, merger or reorganization of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization, in
which the holders of the outstanding voting securities of the Company
immediately prior to such consolidation, merger or reorganization, own 50% or
less of the outstanding voting securities of the survivor corporation (or the
parent company of the survivor corporation) or resulting entity immediately
after such consolidation, merger or reorganization, then the Outstanding Amount
shall, immediately prior to the consummation thereof, at the option of the
Holder and subject to applicable regulatory approvals, be converted into the
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same number of shares of Common Stock into which such shares are convertible
pursuant to the immediately preceding sentence (a "Significant Transaction
Conversion").
(ii) The Holder shall be entitled to exercise the Conversion Right
from time to time as to the unconverted portion of this Note upon at least 10
days' prior written notice to the Company, such notice to be in the form
attached hereto as Annex I. Within 10 days of the conversion date specified in
such notice, or within 10 days of the election by the Holder to compel a
Significant Transaction Conversion, the Company shall issue appropriate stock
certificates to the Holder (or such affiliate designated by the Holder)
representing the aggregate number of shares of Common Stock due to the Holder as
a result of such conversion. The Holder and the Company shall take all other
necessary or appropriate actions in connection with or to effect such
conversion.
(b) Certain Adjustments.
(i) Adjustment for Common Stock Dividends and Distributions. If, at
any time after the Initial Closing Date, the Company makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of Common Stock or
Common Stock Equivalents, in each such event the Conversion Price that is then
in effect shall be decreased as of the time of such issuance or, in the event
such record date is fixed, as of the close of business on such record date, by
multiplying the Conversion Price then in effect by a fraction (i) the numerator
of which is the total number of shares of Common Stock and Common Stock
Equivalents issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and (ii) the denominator
of which is the total number of shares of Common Stock and Common Stock
Equivalents issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock or Common Stock Equivalents issuable in payment of such dividend
or distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price shall
be adjusted pursuant to this Section 4(b)(i) to reflect the actual payment of
such dividend or distribution.
A "Common Stock Equivalent" shall mean each share of Common Stock
into which securities or property or rights are convertible, exchangeable or
exercisable for or into shares of Common Stock, or otherwise entitle the holder
thereof to receive directly or indirectly, any of the foregoing.
(ii) Adjustments for Stock Splits, Stock Subdivisions and
Combinations. If, at any time after the Initial Closing Date, the Company
subdivides or combines the Common Stock, (A) in the case of a subdivision
(including a stock split), the Conversion Price in effect immediately prior to
such event shall be proportionately decreased and the number of shares of Common
Stock purchasable thereunder shall be proportionately increased, and (B) in the
case of a combination (including a reverse stock split), the Conversion Price in
effect
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immediately prior to such event shall be proportionately increased and the
number of shares of Common Stock purchasable thereunder shall be proportionately
decreased. Any adjustment under this Section 4(b)(ii) shall become effective at
the close of business on the date the subdivision or combination becomes
effective.
(iii) Adjustments for Reclassification, Reorganization and
Consolidation. In case of (A) any reclassification, reorganization, change or
conversion of securities of the Common Stock (other than a change in par value,
or from par value to no par value) into other shares or securities of the
Company, or (B) any merger or consolidation of the Company with or into another
entity (other than a merger or consolidation with another entity in which the
Company is the acquiring and the surviving entity and that does not result in
any reclassification or change of the Common Stock), or (C) any sale of all or
substantially all the assets of the Company, the Holder shall have the right to
receive, in lieu of the shares of Common Stock into which this Note is
convertible, the kind and amount of shares of stock and other securities, money
and property receivable upon such reclassification, reorganization, change,
merger or consolidation upon conversion by the Holder of the maximum number of
shares of Common Stock into which this Note could have been converted
immediately prior to such reclassification, reorganization, change, merger or
consolidation, all subject to further adjustment as provided herein or with
respect to such other securities or property by the terms thereof. The
provisions of this clause (iii) shall similarly attach to successive
reclassifications, reorganizations, changes, mergers or consolidations.
(c) Other Distributions. In the event the Company provides the
holders of its Common Stock with consideration that is not otherwise addressed
in this Section 4 (including, without limitation, declaring a distribution
payable in securities, assets, cash or evidences of indebtedness issued by other
persons or the Company (excluding cash dividends declared and paid by the
Company out of retained earnings), then, in each such case, the Holder shall be
entitled to a pro rata share of any such distribution as though the Holder was a
holder of the number of shares of Common Stock of the Company as though this
Note had been converted in whole as of the record date fixed for the
determination of the holders of Common Stock of the Company entitled to receive
such distribution.
(d) Recapitalizations. If at any time there occurs a
recapitalization of the Common Stock (other than a subdivision, combination, or
merger or sale of assets provided for in Section 4), the Holder shall be
entitled to receive upon conversion of this Note the number of shares of capital
stock or other securities or property of the Company or otherwise, to which a
holder of the Common Stock deliverable upon conversion would have been entitled
on such recapitalization. In any such case, appropriate adjustment shall be made
in the application of the
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provisions of this Section 4 with respect to the rights of the Holder after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the Conversion Price then in effect and the number of shares
purchasable upon conversion of this Note) shall be applicable after that event
as nearly equivalent as may be practicable.
(e) No Impairment. The Company shall 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 the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of the Holder against impairment.
(f) Notice of Adjustments. Whenever the consideration issuable upon
a conversion hereunder shall be changed pursuant to this Section 4, the Company
shall prepare a certificate setting forth, in reasonable detail, the event
requiring the change and the kind and amount of shares of stock and other
securities, money and property subsequently issuable upon a conversion hereof.
Such certificate shall be signed by its chief financial officer and shall be
delivered to the Holder or such other person as the Holder or any successor
notice recipient may designate.
(g) Fractional Shares; Rounding. No fractional shares of Common
Stock will be issued in connection with any conversion hereunder. All shares of
Common Stock (including fractions thereof) issuable upon conversion of this Note
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction of a
share of Common Stock, the Company shall, in lieu of issuing any fractional
share, pay the Holder otherwise entitled to such fraction a sum in cash equal to
the closing price of the Company's Common Stock on the Nasdaq National Market
(or any other national securities exchange on which the Common Stock is then
traded) on the day immediately preceding the conversion. All calculations under
this Section 4 shall be made to the nearest cent or to the nearest share, as the
case may be.
SECTION 5. 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;
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(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;
(c) a breach by the Company of its obligations under any of the
Transaction Documents, which breach remains uncured at the conclusion of
the cure period specified within the relevant Transaction Documents
(provided that, for the purposes of this clause (c), to the extent such
relevant Transaction Document does not specify a cure period, the Company
shall have a 45-day cure period), after written notice thereof by the
Holder; provided that such breach has had or could reasonably be expected
to have a material adverse effects on the rights of EIS or its affiliates
or their respective transferees under the Transaction Documents; provided,
further, that (i) if the Company has proposed a course of action to
rectify the breach and (x) the Company is acting in good faith to rectify
the breach by the end of the applicable cure period (or the 45-day period
set forth above) and (y) the party whose rights were breached under the
applicable Transaction Document has acknowledged its consent in writing to
such proposed course of action, then such period shall be extended as is
reasonably necessary to permit such breach to be rectified, and (ii) if
such default involves a good faith dispute regarding the amount of any
required payment, provided that any undisputed amount is paid and any
disputed amount in excess of U.S.$1,000,000 is placed in an escrow account
pending resolution of the determination of such disputed amount, such
default shall be stayed for a reasonable period during which a good faith
resolution of the amount owed is being pursued;
(d) a distress, execution, sequestration or other process is levied
or enforced upon the Company or sued out against, in each case, a material
part of its property which is not discharged or challenged within 60 days;
(e) the Company is unable to generally pay its debts and continue
its day-to-day operations in the normal course of business;
(f) the Company ceases wholly or substantially to carry on its
business (other than (x) as a result of the merger or consolidation of the
Company with another entity or (y) changes in the nature of its business
to a related business), without the prior written consent of the Holder
(such consent not to be unreasonably withheld);
(g) the Company shall make a general assignment for the benefit of
creditors, or admit in writing its general inability to pay or generally
fail to pay its debts as they mature or become due and such failure
continues or shall have been uncured for a period of 60 days, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of the Company or of any substantial part of the
assets of the Company or shall commence any case or other proceeding
relating to the Company under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or
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liquidation or similar law of any jurisdiction, now or hereafter in
effect, or shall take any action to authorize or in furtherance of any of
the foregoing, or if any such petition or application shall be filed or
any such case or other proceeding shall be commenced against the Company
and any such person shall indicate in writing its approval thereof,
consent thereto or acquiescence therein or such petition or application
shall not have been dismissed or stayed within sixty (60) days following
the filing thereof;
(h) a decree or order is entered appointing any such trustee,
custodian, liquidator or receiver or adjudicating the Company bankrupt or
insolvent, or approving a petition in any such case or other proceeding,
or a decree or order for relief is entered in respect of the Company in an
involuntary case under federal bankruptcy laws as now or hereafter
constituted;
(i) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than sixty (60) days, whether or not consecutive, any
final judgment against the Company that, with other outstanding final
judgments, undischarged, against the Company exceeds in the aggregate
U.S.$1,000,000;
(j) the pledge of the Exchange Shares pursuant to Section 6 of the
Securities Purchase Agreement shall not be in full force and effect; or
(k) any other termination of the JDOA, other than a termination by
the Company pursuant to Clause 19 of the JDOA.
SECTION 6. REMEDIES IN THE EVENT OF DEFAULT.
(a) In the case of any Event of Default by the Company, the Holder
may in its sole discretion demand that the Outstanding Amount shall, in addition
to all other rights and remedies of the Holder hereunder and under applicable
law, be and become immediately due and payable in cash upon written notice
delivered by the Holder to the Company; provided that, in the event of any Event
of Default specified in Section 5(g) or 5(h), all such amounts shall become
immediately due and payable automatically and without any requirement of demand
from or by the Holder. Notwithstanding the preceding sentence, the rights of the
Holder as set forth in Sections 4 and 5 hereunder shall survive any such
acceleration and payment.
(b) The Company 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.
(c) In the case of any Event of Default under this Note by the
Company, this Note shall continue to bear interest after such default at the
interest rate otherwise in effect
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hereunder plus 3% per annum (but in any event not in excess of the maximum rate
of interest permitted by applicable law).
SECTION 7. VOTING RIGHTS.
This Note shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company prior to its conversion.
SECTION 8. COVENANTS OF THE COMPANY.
(a) The Company shall not use the funds advanced by the Holder to
the Company as evidenced by this Note for any use other than the Development
Funding.
(b) The Company shall not (i) incur any indebtedness for money
borrowed which shall rank senior to this Note as to priority of payment
(provided that the foregoing shall not restrict the Company's ability to incur
indebtedness for money borrowed which shall (x) rank pari passu or subordinated
to this Note as to priority of payment and/or (y) other than set forth in clause
(ii) below, be secured) or (ii) grant, or permit to occur without the prior
written consent of EIS, any security interest, lien or other encumbrance against
any of the Exchange Shares pledged to EIS pursuant to Section 6 of the
Securities Purchase Agreement so long as the Exchange Right shall remain in full
force and effect.
SECTION 9. MISCELLANEOUS.
(a) This Note and all of the provisions hereof shall be binding upon
and inure to the benefit of the Company, the Holder and their respective
successors and permitted assigns. All or any part of this Note may be assigned
or transferred by the Holder and its permitted assigns and transferees to their
respective affiliates and subsidiaries, as well as any special purpose financing
or similar vehicle established by the Holder or its affiliates. Other than as
set forth above, no party shall assign or transfer all or any part of this Note,
or any interest therein, 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 Note shall be in writing and shall be deemed
to have been duly given if personally or hand delivered or if sent by an
internationally-recognized overnight delivery courier or by registered or
certified mail, return receipt requested and postage prepaid, or by facsimile
transmission, in each case, addressed as follows:
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(i) if to the Company, to:
Curis, Inc.
61 Moulton Street
Cambridge, Massachusetts 02138-1118
Attention: Doros Platika, M.D., President and Chief
Executive Officer
Facsimile: (617) 503-6501
with a copy to:
Cooley Godward LLP
4635 Executive Drive
San Diego, California 92121
Attention: L. Kay Chandler, Esq.
Facsimile: (858) 453-3555
(ii) if to the Holder, to:
Elan Pharma International Limited
Wil House
Shannon Business Park
Shannon
Co. Clare, Ireland
Attention: Secretary
Facsimile: 011-353-61-362097
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Attention: William M. Hartnett, Esq.
Facsimile: (212) 269-5420
or to such other address as the party to whom notice is to be given may have
furnished to the other party hereto in writing in accordance with provisions of
this Section 9. Any such notice or communication shall be deemed to have been
effectively given (i) in the case of personal or hand delivery, on the date of
such delivery, (ii) in the case of an internationally-recognized overnight
delivery courier, on the second business day after the date when sent, (iii) in
the case of mailing, on the fifth business day following that day on which the
piece of mail containing such
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communication is posted and (iv) in the case of facsimile transmission, the date
of telephone confirmation of receipt.
(c) This Note may not be modified or amended, or any of the
provisions hereof waived, except by written agreement of the Company and the
Holder dated after the date hereof.
(d) This Note shall be governed by and construed in accordance with
the internal laws of the State of New York, without giving effect to principles
of conflicts of laws. Any dispute under this Note that is not settled by mutual
consent shall be finally adjudicated by any federal or state court sitting in
the City, County and State of New York, and the Company consents to the
exclusive jurisdiction of such courts (or any appellate court therefrom) over
any such dispute.
[Signature page follows]
IN WITNESS WHEREOF, the Company has executed and delivered this Note
on the date first above written.
CURIS, INC.
By: /s/ Doros Platika, M.D.
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Name: Doros Platika, M.D.
Title: President and Chief Executive
Officer
ANNEX I
FORM OF NOTICE OF ELECTION TO EXERCISE A CONVERSION RIGHT
Date:
To: Curis, Inc.
From:
Re: Exercise of a Conversion Right
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Pursuant to the terms of the Convertible Promissory Note (the
"Note") issued by Curis, Inc. (the "Company") to Elan Pharma International
Limited, dated July 18, 2001, specifically Section 4 thereof, [ ], the holder of
the conversion rights under the Note (the "Holder"), hereby notifies the Company
of its intention to exercise a right of conversion.
Pursuant to Section 4 of the Note, the Holder hereby elects to
convert U.S.$__________ in aggregate principal amount and all accrued and unpaid
interest thereon for shares of the Company's Common Stock, par value U.S.$0.01
per share, effective __________, 200_.
We have instructed our attorneys to contact the Company to discuss
the timing and documentation of the conversion.
Sincerely,
[HOLDER]
By:
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Name:
Title: