[*] indicates that a confidential portion of the text of this agreement has been
omitted and filed separately with the Securities and Exchange Commission
SECOND AMENDMENT
TO
CONVERTIBLE SUBORDINATED NOTE AGREEMENT
April 14, 1999
This amendment (this "Second Amendment") is made and entered
into as of the date first written above by and between Genentech, Inc., a
Delaware corporation having its principal executive office at 1 DNA Way, South
San Francisco, California 94080 ("Genentech"), and XOMA Ltd., a Bermuda company
having its principal office at 2910 Seventh Street, Berkeley, California 94710
("XOMA"), to amend that certain Convertible Subordinated Note Agreement, dated
as of April 22, 1996 (the "Note Agreement"), by and between Genentech and XOMA,
as amended by that certain amendment, dated June 13, 1996 (the "First
Amendment"), to the Note Agreement.
Genentech and XOMA agree to amend the Note Agreement as
follows:
1. To replace Schedule A attached thereto with Schedule A
attached hereto.
2. To add the following sentence to the end of Section
1(c):
"In addition, as a condition to the Lender's obligation
to extend to the Company the first additional loan
after April 14, 1999 pursuant to Section 7.2 of the
Collaboration Agreement, the Lender shall have received
an opinion dated as of the Closing Date of such loan,
in form and substance reasonably satisfactory to the
Lender, from Conyers Dill & Pearman, Bermuda counsel to
the Company, covering the topics covered in paragraphs
1 (with reference to Bermuda law and the business of
the Company as described in its most recent Annual
Report on Form 10-K), 2 (other than the provisions
thereof relating to enforceability), 3 (with reference
to the current capitalization of the Company), 5, 6, 7
(with reference to Bermuda law) and 8 (with reference
to Bermuda law) of the previously delivered opinion of
Cahill Gordon & Reindel dated April 22, 1996.
3. To delete Section 1(h), which was added by the
First Amendment, and replace it with a new Section 1(h) that reads in full as
follows:
"(h) Conversion of Excess Borrowings. In the event
that the Lender's Ownership Interest on any particular
date exceeds the Threshold Percentage of the Company's
Market Capitalization on such date, an amount of the
Company's borrowings (together with accrued and unpaid
interest) under this Note equal to such excess (any
such amount is referred to herein as "Excess
Borrowings") shall, at the option of the Lender, be
converted into Series B Preference Shares pursuant to
the conversion procedures and other
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provisions of Section 4 hereof, such option to be
exercisable by prior written notice to the Company
delivered not more than 15 trading days after such
date. The following terms as used in this Note shall
have the following meanings:
"Ownership Interest" means, on a particular date,
the sum of the principal amount of the Company's
borrowings outstanding under this Note, plus all
accrued and unpaid interest, plus the aggregate Market
Value of that number, up to 50,000 shares, of Common
Shares of the Company owned by the Lender on such date.
"Threshold Percentage" means [*] percent
([*] %), or such lower percentage as may be required
in order for the Lender to comply with the test for
loan impairment under U.S. generally accepted
accounting principles (as applied by the Lender) as
in effect from time to time.
"Market Capitalization" means on a
particular date, the sum of (i) the product of (A)
the per share Market Value of the Company's voting
Common Shares multiplied by (B) the sum of (1) the
number (to be provided by the Company upon request of
the Lender) of the Company's voting Common Shares
then outstanding plus (2) the number (to be provided
by the Company upon the request of the Lender) of
voting Common Shares issuable upon the exercise of
outstanding options issued by the Company for the
purchase thereof to the extent that the exercise
price thereof is at or below the per share Market
Value of the Common Shares on such date plus (3) the
number (to be provided by the Company upon the
request of the Lender) of voting Common Shares
issuable upon conversion on such date of any
outstanding Series B Preference Shares, Series C
Preference Shares and other Convertible Securities,
plus (ii) the entire principal amount of the
Company's borrowings outstanding under this Note,
together with all accrued and unpaid interest. For
purposes of this definition, no security of the
Company will be counted more than once.
"Market Value" means, on a particular date,
with respect to the Company's Common Shares, the
average of the closing sale prices for the Company's
Common Shares on the principal exchange or market on
which such shares are registered, listed or admitted
for trading, as reported in The Wall Street Journal
(Western Edition), for the immediately preceding
fifteen (15) trading days.
"Convertible Securities" means any other
securities of the Company that are, by their terms as
in effect on such date, directly or indirectly
convertible into voting Common Shares of the Company;
provided that the per share conversion price of such
securities is at or below the current Market Value of
the Common Shares into which such securities are
convertible on such date."
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4. To reverse the amendment to Section 3(d) made by the
First Amendment, and return to the original language of the Note Agreement.
5. To reverse the amendment to Section 4(a) made by the
First Amendment, and to return to the original language of the Note Agreement as
amended by this Second Amendment.
6. To insert, after clause (iii) of the first sentence of
Section 4(a) (but before the defined term at the end thereof), a new clause (iv)
that reads in full as follows:
"(iv) with respect to any Excess Borrowings, as
determined pursuant to Section 1(h) of this Note (but
only with respect to such Excess Borrowings), upon
receipt by the Company of the notice provided for in
Section 1(h)."
7. To insert into the third sentence (after giving effect
to this Second Amendment) of Section 4(a) the words "or any Excess Borrowings"
and a comma after each of the three occurrences of the words "or the applicable
Tranche," and before each of the three occurrences of the words "as the case may
be", such that the sentence reads as follows:
"The number of Series B Preference Shares into which
this Note or the applicable Tranche, or any Excess
Borrowing, as the case may be, shall be converted (the
"Conversion Shares") shall be determined by dividing
the sum of the aggregate unpaid principal amount of
this Note or the applicable Tranche, or any Excess
Borrowings, as the case may be, and the unpaid accrued
interest on this Note or the applicable Tranche, or any
Excess Borrowings, as the case may be, by the
Conversion Price (as defined below) and rounding the
result to the nearest whole integer."
8. To add two new sentences to the end of Section 4(a)
that read in full as follows:
"The conversion of any Excess Borrowings hereunder
shall first be applied against the most recently
extended Tranche, and then against each preceding
Tranche through to Tranche A. Each such conversion and
the reduction in the amounts of each Tranche shall be
recorded on Schedule B attached hereto at the time of
such conversion."
9. To insert the parenthetical words "(or any portion
thereof)" immediately after each of the three occurrences of the word "Tranche"
in Section 4(b).
10. To replace the notice provisions with respect to
Genentech and XOMA in Section 7(a) in their entirety with the following:
"If to the Lender, to:
Genentech, Inc.
1 DNA Way
South San Francisco, CA 94080-4990
Telephone: (650) 225-1000
Facsimile: (650) 952-9881
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Attention: Corporate Secretary
If to the Company, addressed to:
XOMA Ltd.
2910 7th Street
Berkeley, CA 94710
Telephone: (510) 644-1170
Facsimile: (510) 649-7571
Attention: Corporate Secretary"
11. To replace all references to "XOMA Corporation" with
references to "XOMA Ltd.", which is a Bermuda company that is the successor in
interest to XOMA Corporation, a Delaware company.
12. To replace all references to "Series E Preferred Stock"
with references to "Series B Preference Shares."
13. To replace all references to "Common Stock" with
references to "Common Shares."
All other terms and conditions of the Note Agreement and the
First Amendment shall remain unchanged by this Second Amendment. The parties
have agreed that this Second Amendment will be governed by and construed in
accordance with the laws of the State of Delaware.
This Note Agreement may be executed in two counterparts, each
of which will be deemed an original, but both of which together will constitute
one and the same instrument.
[signature page follows]
IN WITNESS WHEREOF, this Note Agreement has been executed and
delivered on the date first written above by duly authorized representatives of
the parties hereto.
GENENTECH INC. XOMA LTD.
By: /s/ Louis J. Lavigne, Jr. By: /s/ Christopher J. Margolin
-------------------------- ---------------------------
Name: Louis J. Lavigne, Jr. Name: Christopher J. Margolin
Title: Executive Vice President and Title: Vice President,
Chief Financial Officer General Counsel and
Secretary