Document:

Exhibit 4.1

 

Confidential Treatment
Requested. Confidential portions of this document have been redacted and have
been separately filed with the Commission.

 

THIS SECURITY AND THE SECURITIES ISSUABLE UPON ITS
CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS.  THEY MAY NOT
BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS
OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION
AND, IF REQUESTED BY THE COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.  THE TRANSFER OF THIS SECURITY AND THE
SECURITIES ISSUABLE UPON ITS CONVERSION ARE ALSO SUBJECT TO CERTAIN TRANSFER
RESTRICTIONS CONTAINED IN THAT CERTAIN NOTE PURCHASE AGREEMENT, DATED AS OF NOVEMBER 18,
2005, BETWEEN THE COMPANY AND THE HOLDER.

 

INCYTE CORPORATION

 

CONVERTIBLE SUBORDINATED
PROMISSORY NOTE

 

	
  $10,000,000

  	
   

  	
  Wilmington, Delaware

  
	
   

  	
   

  	
  [                            ]

  

 

INCYTE CORPORATION, a Delaware corporation (the “Company”),
for value received, hereby promises to pay to the order of Pfizer Overseas
Pharmaceuticals (the “Holder”), or its permitted assigns, the principal sum of
Ten Million dollars ($10,000,000), on [                                     ]
(the “Maturity Date”), subject to prior prepayment in accordance with the
provisions hereof.  The Company will not
pay interest on the principal amount of this Note.  Payment for all amounts due under this Note
shall be made upon the surrender of this Note to the Company at its principal
executive offices (or such other office within the United States as shall be
designated by the Company to the Holder), in such coin or currency of the
United States of America as at the time of payment shall be legal tender for
the payment of public and private debts. 
All amounts payable in cash with respect to this Note shall be made by
wire transfer to the Holder; provided that if the Holder shall not have
furnished wire instructions in writing to the Company on or prior to the third
Business Day immediately prior to the date on which the Company shall make such
payment, such payment may be made by U.S. dollar check mailed to the address of
the Holder as such address shall appear in the Company’s note register.  This Note is issued pursuant to that certain
Note Purchase Agreement between the Company and the Holder, dated as of November 18,
2005 (the “Purchase Agreement”) and in connection with a Collaborative Research and License
Agreement dated as of November 18, 2005 by and between the Company and Pfizer Inc. (the “License Agreement”).  The Holder of this Note is entitled to the
benefits of the registration rights provisions set forth in the Purchase Agreement.

 

 

The following is a statement of the rights of the
Holder of this Note and the conditions to which this Note is subject, and to
which the Holder hereof, by the acceptance of this Note, agrees:

 

1.                                       Definitions.  As used in this Note, the following terms,
unless the context otherwise requires, have the following meanings:

 

(a)                                  “Adjustment
Event” has the meaning specified in Section 5.5(k).

 

(b)                                 “Affiliate”
of any specified Person means any other Person that controls, is controlled by
or is under common control with such specified Person.  For the purposes of this definition, “control”,
when used with respect to any specified Person, means the actual power, either
directly or indirectly through one or more intermediaries, to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise, and the terms “controlled
by” and “under common control with” have meanings correlative to the foregoing.

 

(c)                                  “Board
of Directors” means the Board of Directors of the Company or a committee of
such Board duly authorized to act for it hereunder.

 

(d)                                 “Business
Day” means  any day except a Saturday,
Sunday or legal holiday on which banking institutions in The City of New York
are authorized or obligated by law, regulation or executive order to close.

 

(e)                                  “Closing
Sale Price” of the shares of Common Stock or other equity securities on any
date means the closing sale price per share (or, if no closing sale price is
reported, the average of the closing bid and ask prices or, if more than one in
either case, the average of the average closing bid and the average closing ask
prices) on such date as reported in composite transactions for the principal
United States securities exchange on which shares of Common Stock or other
equity securities are traded or, if the shares of Common Stock or other equity
securities are not listed on a United States national or regional securities
exchange, as reported by the Nasdaq or by the National Quotation Bureau
Incorporated. In the absence of such quotations, the Company shall be entitled
to determine the Closing Sale Price on the basis it considers appropriate,
which pricing shall be consistent with any price determined under the
outstanding 31⁄2% Convertible Subordinated Notes due 2011 of the Company and in
any case shall be determined by a method approved by the Holder (which approval
shall not be unreasonably withheld). The Closing Sale Price shall be determined
without reference to extended or after hours trading.

 

(f)                                    “Commission”
means the United States Securities and Exchange Commission or any successor
agency.

 

(g)                                 “Company”
includes any corporation that shall succeed to or assume the obligations of the
Company under this Note.

 

(h)                                 “Common
Stock” means any stock of any class of the Company that has no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and that is
not subject to 

 

 

*** Confidential material redacted and filed
separately with the Commission.

 

redemption by the Company.  Subject to the provisions of Section 5.6,
however, shares issuable on conversion of Notes shall include only shares of
the class designated as common stock of the Company at the date of the Purchase
Agreement (namely, the Common Stock, $.001 par value) or shares of any class or
classes resulting from any reclassification or reclassifications thereof and
that have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and that are not subject to redemption by the Company; provided, that if at any time there shall be more than one
such resulting class, the shares of each such class then so issuable on
conversion shall be substantially in the proportion that the total number of
shares of such class resulting from all such reclassifications bears to the
total number of shares of all such classes resulting from all such
reclassifications.

 

(i)                                     “Conversion
Notice” has the meaning specified in Section 5.2.

 

(j)                                     “Conversion
Price” has the meaning specified in Section 5.4.

 

(k)                                  “Current
Market Price” has the meaning specified in Section 5.5(g).

 

(l)                                     “Designated
Event” means that any of the following has occurred:

 

(i)                                     any
Person or group that is a *** becomes the beneficial owner, directly or
indirectly, of fifty percent (50%) or more of the outstanding Voting Securities
or voting power over Voting Securities of (x) the Company or (y) any one or
more Persons which are direct or indirect parent holding companies of the
Company or  Affiliates controlling the
Company (the Company, together with the Persons described in clause (y), each
hereinafter referred to, individually, as an “Incyte Group Company” and,
collectively, as the “Incyte Group Companies”); or

 

(ii)                                  any
Incyte Group Company enters into an agreement with any Person or group that is
a *** providing for the sale or disposition of all or substantially all of the
assets of the Incyte Group Companies, on a consolidated basis; or

 

(iii)                               any Incyte Group Company enters
into an agreement with any Person or group providing for a merger,
reorganization, consolidation or other similar transaction (or series of
related transactions) of any Incyte Group Company with such Person or any
Affiliate of such Person, in each case, that is a *** (other than with any of
the Incyte Group Company’s Wholly-Owned Subsidiaries) or with such group that
contains a ***, that results in the stockholders of the applicable Incyte Group
Company immediately before the occurrence of such transaction (or series of
transactions) beneficially owning less than a majority of the outstanding
Voting Securities or voting power over Voting Securities of the surviving or
newly-created entity in such transaction (or series of transactions); or

 

(iv)                              any Incyte Group Company, or any Subsidiary
thereof or Affiliate controlling any Incyte Group Company, purchases, repays,
redeems or otherwise acquires, in each case for cash, at any time or from time
to time on or after the date of the Purchase Agreement, beneficial ownership (or
enters into any agreement to do the same) of any Indebtedness (other than (x)
the 5.5% Convertible Subordinated Notes Due 2007 

 

3

 

*** Confidential material
redacted and filed separately with the Commission.

 

of the Company currently outstanding or (y) Senior Indebtedness)
in an aggregate cumulative principal amount equal to or greater than
$188,000,000; or

 

(v)                                 any Incyte Group Company enters
into an agreement with any Person providing for the matters described in subsection (i) or
(ii) above; or

 

(vi)                              the Common Stock (or other common stock
into which this Note is then convertible) is neither listed for trading on a
United States national or regional securities exchange nor approved for trading
on the Nasdaq National Market.

 

For purposes of this Section 1(l)
only: (A) references to any Incyte Group Company shall be deemed to
include all successors in any merger, consolidation, reorganization or similar
transaction (or series of related transactions) preceding any transaction (or
series of related transactions) described above; (B) ”beneficial ownership”
(and other correlative terms) means beneficial ownership as defined in Rule 13d-3
under the United States Securities and Exchange Act of 1934, as amended; it
being understood and agreed that “beneficial ownership” shall also include any
securities which any Person or any of such Person’s Affiliates has the right to
acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding, or
upon the exercise of conversion rights, exchange rights, rights, warrants or
options, or otherwise; (C) ”group” means group as defined in the
Securities Exchange Act of 1934, as amended, and the rules of the
Securities and Exchange Commission thereunder as in effect on the date hereof; (D) ”control”
(including, with correlative meanings, “controlled by”, “controlling” and “under
common control with”) of an entity means possession, direct or indirect,
of  (I) the power to direct or cause
direction of the management and policies of such entity (whether through
ownership of securities or partnership or other ownership interests, by
contract or otherwise), or (II) at least fifty percent (50%) of the Voting Securities
(whether directly or pursuant to any option, warrant or other similar
arrangement) or other comparable equity interests of such entity; and (E) ”***”
means (x) any *** that had ***, (y) any one or more Persons that are direct or
indirect parent holding companies of subsidiaries of the *** described in
clause (x) above, or (z) any Affiliate of the *** described in clause (x) above.

 

(m)                               “Designated
Event Expiration Time” has the meaning specified in Section 4.3(b).

 

(n)                                 “Designated
Event Notice” has the meaning specified in Section 4.3(b).

 

(o)                                 “Designated
Event Prepayment Amount” has the meaning specified in Section 4.3(a).

 

(p)                                 “Designated
Event Prepayment Date” has the meaning specified in Section 4.3(a).

 

(q)                                 “Designated
Event Prepayment Notice” has the meaning specified in Section 4.3(a).

 

(r)                                    “Determination
Date” has the meaning specified in Section 5.5(k)

 

4

 

(s)                                  “Distributed
Property” has the meaning specified in Section 5.5(d).

 

(t)                                    “Ex-Dividend
Date” has the meaning specified in Section 5.5(d).

 

(u)                                 “Expiration
Time” has the meaning specified in Section 5.5(f).

 

(v)                                 “Fair
Market Value” has the meaning specified in Section 5.5(g).

 

(w)                               “FTC”
has the meaning specified in Section 5.10.

 

(x)                                   “Governmental
Authority” means any court, agency, department or other instrumentality of any
foreign, federal, state, county, city or other political subdivision.

 

(y)                                 “HSR
Act” has the meaning specified in Section 5.10.

 

(z)                                   “Holder”
has the meaning specified in the preamble of this Note.

 

(aa)                            “Indebtedness”
means, with respect to any Person, and without duplication, (i) all indebtedness,
obligations and other liabilities (contingent or otherwise) of such Person for
borrowed money (including obligations of the Person in respect of overdrafts,
foreign exchange contracts, commodity contracts, currency exchange agreements,
interest rate protection agreements and any loans or advances from banks,
whether or not evidenced by notes or similar instruments) or evidenced by
bonds, debentures, notes or similar instruments (whether or not the recourse of
the lender is to the whole of the assets of such Person or to only a portion
thereof), other than any account payable or other accrued current liability or
obligation incurred in the ordinary course of business in connection with the
obtaining of materials or services; (ii) all reimbursement obligations and
other liabilities (contingent or otherwise) of such Person with respect to
letters of credit, bank guarantees or bankers’ acceptances; (iii) all
obligations and liabilities (contingent or otherwise) in respect of leases of
such Person required, in conformity with generally accepted accounting
principles, to be accounted for as capital lease obligations on the balance
sheet of such Person and all obligations and other liabilities (contingent or
otherwise) under any lease or related document (including a purchase agreement)
in connection with the lease of real property or personal property or assets
which provides that such Person is contractually obligated to purchase or cause
a third party to purchase the leased property or assets and thereby guarantee a
minimum residual value of the leased property or assets to the lessor and the
obligations of such Person under such lease or related document to purchase or
to cause a third party to purchase such leased property or assets; (iv) all
obligations of such Person (contingent or otherwise) with respect to an
interest rate or other swap, cap or collar agreement or other similar
instrument or agreement or foreign currency hedge, exchange, purchase or
similar instrument or agreement; (v) all direct or indirect guarantees or
similar agreements by such Person in respect of, and obligations or liabilities
(contingent or otherwise) of such Person to purchase or otherwise acquire or
otherwise assure a creditor against loss in respect of, indebtedness, obligations
or liabilities of another Person of the kind described in clauses (i) through
(iv); (vi) any indebtedness or other obligations described in clauses (i) through
(v) secured by any mortgage, pledge, lien or other encumbrance existing on
property that is owned or held by such Person, regardless of whether the
indebtedness or other obligation secured thereby shall have been assumed by
such Person; and (vii) any and all deferrals, renewals, 

 

5

 

extensions and refundings of, or amendments,
modifications or supplements to, any indebtedness, obligation or liability of
the kind or type described in clauses (i) through (vi).

 

(bb)                          “Maturity
Date” has the meaning specified in the preamble of this Note.

 

(cc)                            “Non-Payment
Default” has the meaning specified in Section 3.2(a).

 

(dd)                          “Notes”
means this Note and any other note issued pursuant to the Purchase Agreement
and held by the Holder or one of its Affiliates or permitted assignees
thereunder.

 

(ee)                            “Payment
Blockage Notice” has the meaning specified in Section 3.2(a).

 

(ff)                                “Payment
Default” has the meaning specified in Section 3.2(a).

 

(gg)                          “Person”
means a corporation, an association, a partnership, a limited liability
company, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a government or an agency or a political
subdivision thereof.

 

(hh)                          “Prepayment
Election Amount” has the meaning specified in Section 4.2.

 

(ii)                                  “Prepayment
Election Date” has the meaning specified in Section 4.2.

 

(jj)                                  “Prepayment
Election Notice” has the meaning specified in Section 4.2.

 

(kk)                            “Purchase
Agreement” has the meaning specified in the preamble of this Note.

 

(ll)                                  “Purchased
Shares” has the meaning specified in Section 5.5(f).

 

(mm)                      “Record
Date” has the meaning specified in Section 5.5(g).

 

(nn)                          “Representative”
means (i) the indenture trustee or other trustee, agent or representative
for holders of Senior Indebtedness or (ii) with respect to any Senior
Indebtedness that does not have any such trustee, agent or other
representative, (A) in the case of such Senior Indebtedness issued
pursuant to an agreement providing for voting arrangements as among the holders
or owners of such Senior Indebtedness, any holder or owner of such Senior
Indebtedness acting with the consent of the required persons necessary to bind
such holders or owners of such Senior Indebtedness and (B) in the case of
all other such Senior Indebtedness, the holder or owner of such Senior
Indebtedness.

 

(oo)                          “Rights”
has the meaning specified in Section 5.5(d).

 

(pp)                          “Rights
Plan” has the meaning specified in Section 5.5(d).

 

(qq)                          “Senior
Indebtedness” means (i) the principal of, premium, if any, interest
(including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding), and rent payable on
or in connection with, and all fees, costs, enforcement expenses, collateral
protection expenses and other reimbursement or indemnity obligations in respect
of all of the Indebtedness or obligations of the Company to any Person for
money 

 

6

 

borrowed that is evidenced by a note, bond, debenture,
loan agreement, or similar instrument or agreement; (ii) commitment or
standby fees due and payable to lending institutions with respect to credit
facilities available to the Company; (iii) all of the Company’s
noncontingent obligations (A) for the reimbursement of any obligator on
any letter of credit, banker’s acceptance, or similar credit transaction, (B) under
interest rate swaps, caps, collars, options and similar arrangements, and (C) under
any foreign exchange contract, currency swap arrangement, futures contract,
currency option contract, or other foreign currency hedge; (iv) all of the
obligations of the Company for the payment of money relating to capital lease
obligations; (v) any liabilities of others described in clauses (i) through
(iv) that the Company has guaranteed or which are otherwise the Company’s
legal liability; and (vi) renewals, extensions, refundings, refinancings,
restructurings, amendments, and modifications of any such indebtedness or
guarantee, other than indebtedness or other obligation of the Company that by
its terms is not superior in rights to the payment to this Note; provided that
Senior Indebtedness shall not include (1) the Notes, (2) any
Indebtedness the instrument creating or evidencing the same or the assumption
or guarantee thereof expressly provides that such Indebtedness is “pari passu” with or “junior” to the Notes, (3) any
obligation of the Company to any Subsidiary, (4) the outstanding 5.5%
Convertible Subordinated Notes Due 2007 of the Company and all obligations
thereunder, and (5) the outstanding 31⁄2% Convertible Subordinated Notes due
2011 of the Company and all obligations thereunder.

 

(rr)                                “Subsidiary”
means, with respect to any Person, (i) any corporation, association or
other business entity of which more than 50% of the total voting power of
shares of capital stock or other equity interest entitled (without regard to
the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or indirectly,
by such Person or one or more of the other subsidiaries of that Person (or a
combination thereof) and (ii) any partnership (A) the sole general
partner or managing general partner of which is such Person or a subsidiary of
such Person or (B) the only general partners of which are such Person or
of one or more subsidiaries of such Person (or any combination thereof).

 

(ss)                            “Trading
Day” has the meaning specified in Section 5.5(g).

 

(tt)                                “Trigger
Event” has the meaning specified in Section 5.5(d).

 

(uu)                          “Voting
Securities” means securities
of any class or series of a corporation, association or other entity, the
holders of which are ordinarily, in the absence of contingencies, entitled to
vote generally in matters put before the shareholders or members of such
corporation, association or other entity.

 

(vv)                          “Wholly-Owned
Subsidiary” means, with respect to
any entity, a Subsidiary, all of the outstanding Voting Securities of which are
owned, directly or indirectly, by such entity.

 

7

 

2.                                       Default
and Remedies.  

 

2.1                                 Events
of Default.  An “Event of Default”
shall occur if one of the following shall have occurred and be continuing:

 

(a)                                  default
in the payment of the principal of this Note when the same shall become due and
payable (either at maturity or in connection with any prepayment, by
acceleration or otherwise), whether or not such payment is permitted under Section 3;
or

 

(b)                                 default
in the payment of the principal of any other Note when the same shall become
due and payable (either at maturity or in connection with any prepayment, by
acceleration or otherwise), whether or not such payment is permitted under Section 3;
or

 

(c)                                  subject
to Section 2.2(a), failure on the part of the Company to comply with any
of its obligations in this Note or any other Note, in each case other than any
obligation a default in whose performance or breach is elsewhere in this Section 2.1
specifically dealt with; or

 

(d)                                 subject
to Section 2.2(b), failure on the part of the Company to comply (i) in
any material respect under the Purchase Agreement, (ii) in any material
respect under the License Agreement, or (iii) in any material respect
under the Security Agreement; or

 

(e)                                  default
in the Company’s obligation to provide a Designated Event Notice upon a
Designated Event as provided in Section 4.3(b) or failure by the
Company to deliver shares of Common Stock upon conversion of this Note within
the time period specified in Section 5.2, and such failure continues for a
period of five (5) days; or

 

(f)                                    default
in payments or default in other obligations causing acceleration of
Indebtedness (including without limitation the outstanding 5.5% Convertible
Subordinated Notes Due 2007 of the Company and the outstanding 31⁄2% Convertible Subordinated
Notes due 2011  of the Company) prior to
maturity, where the aggregate amount of principal, premium, if any, and accrued
interest subject to such default is $10 million or more, unless such
Indebtedness is discharged or such acceleration is withdrawn, cancelled or
annulled within 10 days of such acceleration; or

 

(g)                                 the
Company shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to the Company or its
debts under any bankruptcy, insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator, custodian
or other similar official of the Company or any substantial part of the
property of the Company, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against the Company, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due; or

 

(h)                                 an
involuntary case or other proceeding shall be commenced against the Company
seeking liquidation, reorganization or other relief with respect to the Company
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of the Company 

 

8

 

or any substantial part of the property of the
Company, and such involuntary case or other proceeding shall remain undismissed
and unstayed for a period of sixty (60) consecutive days.

 

2.2                                 Notice
and Cure.  

 

(a)                                  A
default under Section 2.1(c) above is not an Event of Default until
the Holder notifies the Company in writing of the default and the Company does
not cure the default within sixty (60) days after receipt of such notice.  The notice given pursuant to this Section 2.2
must specify the default, demand that it be remedied and state that the notice
is a “Notice of Default.”

 

(b)                                 A
default under Section 2.1(d) above is not an Event of Default until
the Holder notifies the Company in writing of the default and the Company does
not cure the default within thirty (30) days (or such other time period
specifically provided for in the applicable agreement) after receipt of such
notice.  The notice given pursuant to
this Section 2.2 must specify the default, demand that it be remedied and
state that the notice is a “Notice of Default.”

 

(c)                                  The
Company shall promptly notify Holder upon becoming aware of any Event of
Default.

 

2.3                                 Acceleration.  If an Event of Default (other than an Event
of Default specified in Section 2.1(g) or (h)) occurs and is
continuing, the Holder may, by notice in writing to the Company, declare all unpaid
principal to the date of acceleration on this Note then outstanding (if not
then due and payable) to be due and payable upon any such declaration, and the
same shall become and be immediately due and payable.  If an Event of Default specified in Section 2.1(g) or
(h) occurs, all unpaid principal of this Note then outstanding shall be
immediately and automatically due and payable without necessity of further
action.  The Holder may at any time, by
notice to the Company, rescind an acceleration and its consequences.  No such rescission shall affect any
subsequent default or impair any right consequent thereto.

 

2.4                                 Other
Remedies.

 

(a)                                  Available
Remedies.  If an Event of Default
occurs and is continuing, the Holder may, but shall not be obligated to, pursue
any available remedy by proceeding at law or in equity to collect the payment
of the principal on this Note or to enforce the performance of any provision of
this Note.

 

(b)                                 Remedies
Not Exclusive.  A delay or omission
by the Holder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default.  No
remedy is exclusive of any other remedy. 
All available remedies are cumulative to the extent permitted by law.

 

3.                                       Subordination.

 

3.1                                 Agreement
of Subordination.

 

(a)                                  The
Company covenants and agrees, and the Holder by its acceptance thereof likewise
covenants and agrees, that this Note shall be issued subject to the provisions
of this 

 

9

 

Section 3, and each Person holding this Note,
whether upon original issue or upon registration of transfer, assignment or
exchange thereof, accepts and agrees to be bound by such provisions.

 

(b)                                 The
payment of the principal of this Note (including, but not limited to, the Prepayment Election Amount or the
Designated Event Prepayment Amount) shall, to the extent and in the manner
hereinafter set forth, be subordinated and subject in right of payment to the
prior payment in full of all Senior Indebtedness, whether outstanding at the
date of this Note or thereafter incurred.

 

(c)                                  No
provision of this Section 3 shall prevent the occurrence of any default or
Event of Default hereunder or have any effect on the rights of the Holder to
accelerate the maturity of this Note. 
Notwithstanding anything to the contrary contained herein, the
provisions of this Section 3 shall only apply with respect to principal
payments under this Note and, for the avoidance of doubt, shall not apply in
any respect to any other payments by the Company or its Affiliates in any other
manner or circumstance (whether under the License Agreement or otherwise).

 

3.2                                 No
Payments to the Holder Upon Defaults Relating to Senior Indebtedness.

 

(a)                                  No
payment shall be made with respect to the principal of this Note (including,
but not limited to, the Prepayment
Election Amount or the Designated Event Prepayment Amount or any other
payment payable in respect of this Note), if:

 

(i)                                     a default in the
payment of principal (including any letter of credit reimbursement
obligations), premium, if any, interest, rent, commissions or other obligations
in respect of Senior Indebtedness occurs and
is continuing (or, in the case of Senior Indebtedness for which there is a period
of grace, in the event of such a default that continues beyond the period of
grace, if any, specified in the instrument or lease evidencing such Senior
Indebtedness) (a “Payment Default”);
or

 

(ii)                                  a default, other than
a Payment Default, on any Senior Indebtedness occurs and is continuing that
permits holders of such Senior
Indebtedness to accelerate its maturity without further notice (except such
notice as may be required to effect such acceleration) (or in the case of any
lease that is Senior Indebtedness, a default occurs and is continuing that
permits the lessor to either terminate the lease or require the Company to make
an irrevocable offer to terminate the lease following an event of default
thereunder) and the Holder receives a notice of the default (a “Payment Blockage Notice”) from a
holder of Senior Indebtedness or a Representative of Senior Indebtedness (a “Non-Payment Default”).

 

If the Holder
receives any Payment Blockage Notice pursuant to clause (ii) above, no
subsequent Payment Blockage Notice shall be effective for purposes of this Section 3.2
unless and until at least 365 days shall have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice.  No Non-Payment Default that existed 

 

10

 

or was continuing on the date of delivery of any Payment Blockage
Notice to the Holder shall be, or be made, the basis for a subsequent Payment
Blockage Notice.

 

(b)                                 The
Company may and shall resume payments on and distributions in respect of this
Note (including, but not limited to, the Prepayment
Election Amount or the Designated Event Prepayment Amount):

 

(i)                                     in
the case of a Payment Default, the date upon which any such Payment Default is
cured or waived or ceases to exist, or

 

(ii)                                  in
the case of a Non-Payment Default, the earlier of (A) the date upon which
such default is cured or waived or ceases to exist or (B) 179 days after
the applicable Payment Blockage Notice is received by the Holder if the
maturity of such Senior Indebtedness has not been accelerated and there is no
Payment Default (or in the case of any lease, 179 days after notice is received
if the Company and the Holder have not received notice that the lessor under
such lease has exercised its right to terminate the lease or require the
Company to make an irrevocable offer to terminate the lease following an event
of default thereunder and there is no Payment Default), unless this Section 3
otherwise prohibits the payment or distribution at the time of such payment or
distribution.

 

3.3                                 Payments
Over To Senior Indebtedness Upon Dissolution.  Upon any payment by the Company, or
distribution of assets of the Company of any kind or character, whether in
cash, property or securities, to creditors upon any dissolution or winding up
or liquidation or reorganization of the Company, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings,
all amounts due or to become due upon all Senior Indebtedness shall first be
paid in full before any payment is made on account of the principal of  this Note, and upon any such dissolution or
winding up or liquidation or reorganization of the Company or bankruptcy,
insolvency, receivership or other similar proceeding, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the Holder would be entitled
in respect of the principal of this Note, except for the provisions of this Section 3,
shall (except as aforesaid) be paid by the Company or by any receiver, trustee
in bankruptcy, liquidating trustee, agent or other Person making such payment
or distribution, or by the Holder if received by it, directly to the holders of
Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders, or as otherwise required
by law or a court order) or their Representative or Representatives, as their
respective interests may appear, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment
or distribution is made to the Holder.

 

For purposes of this Section 3, the words, “Cash, Property or Securities” shall not
be deemed to include shares of Common Stock of the Company as reorganized or readjusted, or securities of
the Company or any other corporation provided for by a plan of reorganization
or readjustment, the payment of which is subordinated at least to the extent
provided in this Section 3 with respect to this Note to the payment of all
Senior Indebtedness which may at the time be outstanding; provided that (i) the Senior
Indebtedness is assumed by the new corporation, if any, 

 

11

 

resulting from any
reorganization or readjustment, and (ii) the rights of the holders of
Senior Indebtedness (other than leases which are not assumed by the Company or
the new corporation, as the case may be) are not, without the consent of such
holders, altered by such reorganization or readjustment. The consolidation of
the Company with, or the merger of the Company into, another corporation or the
liquidation or dissolution of the Company following the conveyance or transfer
of its property as an entirety, or substantially as an entirety, to another
Person upon the terms and conditions provided for in Section 6 shall not
be deemed a dissolution, winding-up, liquidation or reorganization for the
purposes of this Section 3.3 if such other Person shall, as a part of such
consolidation, merger, conveyance or transfer, comply with the conditions
stated in Section 6.

 

3.4                                 Prior
Payment of Senior Indebtedness Upon Acceleration of Notes.  If the maturity of this Note has been
accelerated because of an Event of Default, no payment or distribution shall be
made to the Holder in respect of the principal of this Note (including, but not
limited to, the Prepayment Election Amount or the Designated Event Prepayment
Amount), until all Senior Indebtedness has been paid in full or such
acceleration is rescinded in accordance with the terms of this Note.  If payment of this Note is accelerated
because of an Event of Default, the Company shall promptly notify holders of
Senior Indebtedness of the acceleration. 
The Company shall promptly notify the Holder of notice of acceleration
received in respect of the repayment of any Senior Indebtedness or any other
Indebtedness.

 

3.5                                 Payment
Over To Senior Indebtedness.  In the
event that, notwithstanding Sections 3.2, 3.3 or 3.4, any payment or
distribution of assets of the Company of any kind or character in respect of
the principal of this Note, whether in cash, property or securities (including,
without limitation, by way of setoff or otherwise), prohibited by Section 3.2,
3.3 or 3.4 shall be received by the Holder before all Senior Indebtedness is
paid in full or provision is made for such payment thereof in accordance with
its terms to the extent that the Holder has acquired notice, by whatever means,
that all Senior Indebtedness has not been paid in full, such payment or
distribution shall be held in trust for the benefit of and shall be paid over
or delivered to the holders of Senior Indebtedness or their Representative or
Representatives, as their respective interests may appear, as calculated by the
Company, for application to the payment of any Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in full after
giving effect to any concurrent payment or distribution to or for the holders
of such Senior Indebtedness.

 

3.6                                 Subrogation.  Subject to the payment in full of all Senior
Indebtedness, the rights of the Holder with respect to principal payments under
this Note shall be subrogated to the extent of the payments or distributions
made to the holders of such Senior Indebtedness pursuant to the provisions of
this Section 3 (equally and ratably with the holders of all Indebtedness
of the Company which by its express terms is subordinated to other Indebtedness
of the Company to substantially the same extent as the Note is subordinated and
is entitled to like rights of subrogation) to the rights of the holders of
Senior Indebtedness to receive payments or distributions of cash, property or
securities of the Company applicable to the Senior Indebtedness until the
principal of this Note shall be paid in full, and, for the purposes of such
subrogation, no payments or distributions to the holders of the Senior
Indebtedness of any cash, property or securities to which the Holder would be
entitled except for the provisions of this Section 3, and no payment
pursuant to the provisions of this Section 3, to or for the benefit of the
holders of

 

12

 

Senior Indebtedness by
Holder, shall, as among the Company, its creditors other than holders of Senior
Indebtedness, and the Holder, be deemed to be a payment by the Company to or on
account of the Senior Indebtedness, and no payments or distributions of cash,
property or securities to or for the benefit of the Holder pursuant to the
subrogation provisions of this Section 3, which would otherwise have been
paid to the holders of Senior Indebtedness, shall, as among the Company and its
creditors other than the Holder, be deemed to be a payment by the Company to or
for the account of the Note. It is understood that the provisions of this Section 3
are intended solely for the purposes of defining the relative rights of the
Holder, on the one hand, and the holders of the Senior Indebtedness, on the
other hand.  

 

3.7                                 Payment
Obligations Unconditional.  Nothing
contained in this Section 3 or
elsewhere in this Note is intended to or shall impair, as among the Company,
its creditors other than the holders of
Senior Indebtedness, and the Holder, the obligation of the Company, which is
absolute and unconditional, to pay to the Holder the principal of this Note as
and when the same shall become due and payable in accordance with its terms, or
is intended to or shall affect the relative rights of the Holder and creditors
of the Company other than the holders of the Senior Indebtedness, nor shall
anything herein prevent the Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Note, subject to the
rights, if any, under this Section 3 of the holders of Senior Indebtedness in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.

 

3.8                                 No
Impairment of Subordination.  No
right of any present or future holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance
by the Company with the terms, provisions and covenants of this Note,
regardless of any knowledge thereof which any such holder may have or otherwise
be charged with.  Senior Indebtedness may
be created, renewed or extended and holders of Senior Indebtedness may exercise
any rights under any instrument creating or evidencing such Senior
Indebtedness, including, without limitation, any waiver of default thereunder,
without any notice to or consent from the Holder.  No compromise, alteration, amendment,
modification, extension, renewal or other change of, or waiver, consent or
other action in respect of, any liability or obligation under or in respect of
the Senior Indebtedness or any terms or conditions of any instrument creating or
evidencing such Senior Indebtedness shall in any way alter or affect any of the
provisions of this Section 3 or the subordination of the Note provided
hereby.

 

3.9                                 Certain
Conversions Not Deemed Payment.  For
the purposes of this Section 3 only, (a) the issuance and delivery of
Junior Securities upon conversion of this Note in accordance with Section 5
and (b) the payment, issuance or delivery of cash, property or securities
upon conversion of this Note as a result of any transaction specified in Section 5.6
shall not be deemed to constitute a payment or distribution on account of the
principal of this Note.  For the purposes
of this Section 3.9, the term “Junior
Securities” means (a) Common Stock of the Company or (b) securities
of the Company that are subordinated in right of payment to all Senior
Indebtedness that may be outstanding at the time of issuance or delivery of
such securities to substantially the same extent as, or to a greater extent
than, this Note is so subordinated as provided in this Section 3. Nothing
contained in this Section 3 or elsewhere in this Note is intended to or
shall impair, as among the Company, its creditors (other than holders 

 

13

 

of Senior Indebtedness)
and the Holder, the right, which is absolute and unconditional, of the Holder
to convert this Note in accordance with Section 5.

 

3.10                           Senior Indebtedness
Entitled to Rely.  The holders of
Senior Indebtedness shall have the right to rely upon the provisions of this Section 3,
and no amendment or modification of the provisions contained herein shall
diminish the rights of such holders
unless such holders shall have agreed in writing thereto.

 

3.11                           Reliance
on Judicial Order or Certificate of Liquidating Agent.  Upon any payment or distribution of assets of
the Company referred to in this Section 3, the Holder shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, liquidating trustee, custodian,
receiver, assignee for the benefit of creditors, agent or other Person making
such payment or distribution, delivered to the Holder, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section 3.

 

4.                                       Prepayment.

 

4.1                                 Prepayment
at Option of the Company.  The
Company may not prepay this Note prior to [                               ].  At any time on or after [                               ]
and prior to maturity, this Note may be prepaid at the option of the Company,
in whole or in part (in increments of at least $500,000 and multiples of
$10,000 thereafter in any one payment (or, if the principal amount of this Note
then outstanding is less than $500,000, such principal amount then outstanding)),
at any time and from time to time, upon notice as set forth in Section 4.2
at a price equal to 100% of the principal amount thereof.

 

4.2                                 Notice
of Prepayment.  In case the Company
shall desire to exercise the right to prepay all or, as the case may be, any
part of this Note pursuant to Section 4.1, it shall fix a date for
prepayment  (the “Prepayment Election
Date”) and it shall mail or cause to be mailed a notice of such prepayment (a “Prepayment
Election Notice”) not fewer than twenty (20) nor more than sixty (60) days
prior to the Prepayment Election Date to the Holder.  Such mailing shall be by first class mail or
overnight courier service.  The
Prepayment Election Notice shall state:

 

(i)                                     the
Prepayment Election Date;

 

(ii)                                  the
amount of the prepayment (the “Prepayment Election Amount”);

 

(iii)                               that
payment will be made upon presentation and surrender of this Note;

 

(iv)                              the
current Conversion Price;

 

(v)                                 the
date on which the right to convert this Note into Common Stock will expire;

 

14

 

(vi)                              in
case this Note is to be prepaid in part only, that, on and after the Prepayment
Election Date, upon surrender of this Note, a new Note in principal amount
equal to the portion of this Note not prepaid will be issued; and

 

(vii)                           that,
unless the Company defaults in paying the Prepayment Election Amount on the
Prepayment Election Date, the only remaining right of the Holder in respect of
the Prepayment Election Amount shall be to receive payment of the Prepayment
Election Amount.

 

4.3                                 Prepayment
at Option of Holder Upon a Designated Event.

 

(a)                                  If
there shall occur a Designated Event at any time prior to maturity of this
Note, then the Holder shall have the right, at the Holder’s option, to require
the Company to prepay this Note, or any portion thereof that is at least $500,000
and multiples of $10,000 thereafter (or, if the principal amount of this Note
then outstanding is less than $500,000, such principal amount then outstanding)
(such amount to be prepaid, the “Designated Event Prepayment Amount”), on the
date (the “Designated Event Prepayment Date”) specified by the Company that is
not less than twenty (20) Business Days and not more than thirty-five (35)
Business Days after the date of the Designated Event Notice (as defined in Section 4.3(b))
of such Designated Event at a price equal to 100% of the principal amount
thereof.  Prepayment of this Note under
this Section 4.3 shall be made, at the option of the Holder, upon:

 

(i)                                     delivery
to the Company by the Holder of a duly completed notice (the “Designated Event
Prepayment Notice”) in the form attached to this Note prior to the close of
business on the Designated Event Prepayment Date; and

 

(ii)                                  delivery
of this Note to the Company at any time after delivery of the Designated Event
Prepayment Notice, such delivery being a condition to receipt by the Holder of
the Designated Event Prepayment Amount therefor.

 

Notwithstanding anything
herein to the contrary, the Holder shall have the right to withdraw any
Designated Event Prepayment Notice at any time prior to the close of business
on the Designated Event Prepayment Date by delivery of a written notice of
withdrawal to the Company.

 

(b)                                 Within
ten (10) days after the occurrence of a Designated Event, the Company
shall mail or cause to be mailed to the Holder a notice (the “Designated Event
Notice”) of the occurrence of such Designated Event and of the prepayment right
at the option of the Holder arising as a result thereof.  Such mailing shall be by first class
mail.  The Designated Event Notice shall
state:

 

(i)                                     the
date of the Designated Event;

 

(ii)                                  the
circumstances constituting the Designated Event;

 

(iii)                               that
the Holder has the right, at the Holder’s option, to require the Company to
prepay this Note, or any portion thereof that is a minimum of $500,000 and
multiples of $10,000 thereafter (or, if the principal amount of this 

 

15

 

Note then
outstanding is less than $500,000, such principal amount then outstanding);

 

(iv)                              that
the Holder must exercise the prepayment right on or prior to the close of
business on the Designated Event Prepayment Date (the “Designated Event
Expiration Time”);

 

(v)                                 that
the holder shall have the right to withdraw any Designated Event Prepayment
Notice prior to the Designated Event Expiration Time;

 

(vi)                              a
description of the procedure which the Holder must follow to exercise such
prepayment right and to withdraw any Designated Event Prepayment Notice; and

 

(vii)                           the
place where the Holder is to surrender this Note and deliver its Designated
Event Prepayment Notice.

 

(c)                                  Upon
receipt by the Company of the Designated Event Prepayment Notice specified in Section 4.3(a),
the Holder shall (unless such Designated Event Prepayment Notice is withdrawn
as specified in this Section 4.3) thereafter be entitled to receive on the
Designated Event Prepayment Date the Designated Event Prepayment Amount with
respect to this Note.  Any principal
amount of this Note in respect of which a Designated Event Prepayment Notice
has been given by the Holder may not be converted into shares of Common Stock
pursuant to Section 5 on or after the date of the delivery of such
Designated Event Prepayment Notice unless such Designated Event Prepayment
Notice has first been validly withdrawn. 
No failure of the Company to give the foregoing notices and no defect
therein shall limit the Holder’s repurchase rights or affect the validity of the
proceedings for the repurchase of the Note pursuant to this Section 4.3.

 

5.                                       Conversion.

 

5.1                                 Right
To Convert.  Subject to and upon
compliance with the provisions of this Note, the Holder shall have the right,
at any time and from time to time prior to the Maturity Date, at the Holder’s
option, to convert the principal amount of this Note, or any portion of such
principal amount that is a multiple of $1,000, into
fully paid and non-assessable shares of Common Stock (as such shares shall then
be constituted) at the Conversion Price in effect at such time, by surrender of
this Note so converted in the manner provided in Section 5.2. 

 

If all or any part of this Note is to be prepaid
pursuant to Section 4.1, the conversion right specified in this Section 5.1
shall terminate as to the principal amount to be prepaid at the close of
business on the Business Day immediately preceding the Prepayment Election Date
(unless the Company shall default in paying the Prepayment Election Amount
specified in the Prepayment Election Notice with respect thereto when due, in
which case such conversion right shall terminate at the close of business on
the date such default is cured in full).

 

If the Holder elects to exercise its option to require
the Company to prepay this Note upon a Designated Event pursuant to Section 4.3,
this Note may be converted only if the Holder withdraws its election in
accordance with Section 4.3.  The
Holder shall not be entitled to any

 

16

 

rights of a holder of Common Stock until the Holder
has converted this Note into Common Stock, and only to the extent this Note is
deemed to have been converted into Common Stock under this Section 5.

 

5.2                                 Exercise
Of Conversion Right; Issuance Of Common Stock On Conversion.  In order to exercise the conversion right
with respect to this Note, the Company must receive this Note with the original
or facsimile of the form entitled “Conversion Notice” attached hereto, duly
completed and manually signed.  Such
notice shall also state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock that shall be
issuable on such conversion shall be issued, and shall be accompanied by
transfer or similar taxes, if required pursuant to Section 5.7. 

 

As promptly as
practicable after satisfaction of the requirements for conversion set forth
above, subject to compliance with any restrictions on transfer if shares
issuable on conversion are to be issued in a name other than that of the Holder
(as if such transfer were a transfer of this Note (or portion thereof so
converted)), the Company shall issue and shall deliver to the Holder a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Security or portion thereof as determined
by the Company in accordance with the provisions of this Section 5 and a
check or cash in respect of any fractional interest in respect of a share of
Common Stock arising upon such conversion, calculated by the Company as
provided in Section 5.3.  In case
this Note shall be surrendered for partial conversion, the Company shall
execute and deliver to the Holder a new note in an aggregate principal amount
equal to the unconverted portion of this Note.

 

Each
conversion shall be deemed to have been effected as to this Note (or portion
thereof) on the date on which the requirements set forth above in this Section 5.2
have been satisfied as to this Note (or portion thereof), and the Person in
whose name any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become on said date the
holder of record of the shares represented thereby; provided
that any surrender for conversion of this Note on any date when the stock
transfer books of the Company shall be closed shall constitute the Person in
whose name the certificates are to be issued as the record holder thereof for
all purposes on the next succeeding day on which such stock transfer books are
open, but such conversion shall be at the Conversion Price in effect on the
date upon which this Note shall be surrendered.

 

5.3                                 Cash
Payments in Lieu of Fractional Shares. 
No fractional shares of Common Stock or scrip certificates representing
fractional shares shall be issued upon conversion of this Note.   If more than one Note shall be surrendered
for conversion at one time by the Holder, the number of full shares that shall
be issuable upon conversion shall be computed on the basis of the aggregate
principal amount of the Notes (or specified portions thereof to the extent
permitted hereby) so surrendered.   If
any fractional share of stock would be issuable upon the conversion of this
Note, the Company shall make an adjustment and payment therefor in cash at the
current market price thereof to the Holder. 
For purposes of this Section 5.3 only, the current market price of
a share of Common Stock shall be the Closing Sale Price on the last Trading Day
immediately preceding the day on which this Note (or the specified portion
thereof) is deemed to have been converted.

 

17

 

5.4                                 Conversion
Price.  Subject to Section 5,
the price at which shares of Common Stock shall be delivered upon conversion of
this Note (the “Conversion Price”) shall be initially $[       ]per
share.  The Conversion Price shall be
adjusted in certain instances as provided in this Section 5.    Accordingly, subject to the provisions of
this Note, at any time prior to the Maturity Date, the Holder shall have the
right, at its option, to convert each $1,000 principal amount of this Note into
a number of shares of Common Stock equal to the quotient obtained by dividing (a) 1,000
by (b) the Conversion Price.

 

5.5                                 Adjustment
Of Conversion Price.  The Conversion
Price shall be adjusted from time to time by the Company as follows:  

 

(a)                                  In
case the Company shall hereafter pay a dividend or make a distribution to all
holders of the outstanding shares of Common Stock in shares of Common Stock,
the Conversion Price shall be reduced so that the same shall equal the price
determined by dividing the Conversion Price in effect at the opening of
business on the date following the Record Date for such dividend or
distribution by a fraction,

 

(i)                                     the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding at the close of business on such Record Date plus the total number
of shares of Common Stock constituting such dividend or other distribution; and

 

(ii)                                  the
denominator of which shall be the number of shares of Common Stock outstanding
at the close of business on such Record Date,

 

such
decrease to become effective immediately after the opening of business on the
day following such Record Date.  If any
dividend or distribution of the type described in this Section 5.5(a) is
declared but ultimately not so paid or made, the Conversion Price shall again
be adjusted to the Conversion Price that would then be in effect if such
dividend or distribution had not been declared.

 

(b)                                 In
case the Company shall issue rights or warrants to all holders of its
outstanding shares of Common Stock entitling them (for a period expiring within
forty-five (45) days after the Record Date for the issuance of such rights and
warrants) to subscribe for or purchase shares of Common Stock at a price per
share less than the average of the Closing Sale Prices of the Common Stock for
the ten (10) Trading Days immediately preceding the date such distribution
is first publicly announced by the Company (other than any rights or warrants
referred to in Section 5.5(d) or Rights (as defined in Section 5.5(d))
distributed pursuant to a Rights Plan (as defined in Section 5.5(d))), the
Conversion Price shall be reduced so that the same shall equal the price
determined by dividing the Conversion Price in effect immediately prior to such
Record Date by a fraction,

 

(i)                                     the
numerator of which shall be the number of shares of Common Stock outstanding on
such Record Date plus the total number of additional shares of Common Stock offered
for subscription or purchase, and

 

(ii)                                  the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding at the close of business on such Record Date plus 

 

18

 

the number of
shares that the aggregate offering price of the total number of shares so
offered would purchase at a price equal to the average of the Closing Sale
Prices of the Common Stock for the ten (10) Trading Days immediately
preceding the date such distribution is first publicly announced by the
Company.

 

Such adjustment
shall be successively made whenever any such rights or warrants are issued, and
shall become effective immediately after the opening of business on the day
following the Record Date for the issuance of such rights or warrants.  To the extent that shares of Common Stock
ultimately are not delivered after the expiration of such rights or warrants,
the Conversion Price shall be readjusted to the Conversion Price that would
then be in effect had the adjustments made upon the issuance of such rights or
warrants been made on the basis of delivery of only the number of shares of
Common Stock actually delivered.  If such
rights or warrants ultimately are not so issued, the Conversion Price shall
again be adjusted to be the Conversion Price that would then be in effect if
such Record Date had not been fixed.  In
determining whether any rights or warrants entitle the holders to subscribe for
or purchase shares of Common Stock at a price less than the average of the
Closing Sale Prices of the Common Stock for the ten (10) Trading Days
immediately preceding the date such distribution is first publicly announced by
the Company, and in determining the aggregate offering price of such shares of
Common Stock, there shall be taken into account any consideration received by
the Company for such rights or warrants and any amount payable on exercise or
conversion thereof, the value of such consideration, if other than cash, to be
determined by the Board of Directors with the consent of the Holder (not to be
unreasonably withheld).

 

(c)                                  In
case outstanding shares of Common Stock shall be subdivided into a greater
number of shares of Common Stock, the Conversion Price in effect at the opening
of business on the day following the day upon which such subdivision becomes
effective shall be proportionately reduced, and conversely, in case outstanding
shares of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of business on the
day following the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.

 

(d)                                 In
case the Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock shares of any class of capital stock of the Company or
evidences of its indebtedness or assets (including cash or securities, but
excluding any rights or warrants referred to in Section 5.5(b) and
also excluding the distribution of rights to all holders of Common Stock
pursuant to a Rights Plan (as defined below) adopted before or after the date
of this Note, and excluding any dividend or distribution (x) paid exclusively
in cash or (y) referred to in Section 5.5(a) (any of the foregoing
hereinafter in this Section 5.5(d) called the “Distributed Property”),
then, in each such case (unless the Company elects to reserve such Distributed
Property for distribution to the Holder upon the conversion of this Note so
that the Holder will receive upon conversion, in addition to the shares of
Common Stock to which the Holder is entitled, the amount and kind of such
Distributed Property which the Holder would have received if the Holder had
converted this Note into Common Stock immediately prior to the Record Date for 

 

19

 

such distribution of the Distributed Property) the
Conversion Price shall be reduced so that the same shall be equal to the price
determined by dividing the Conversion Price in effect on the Record Date with
respect to such distribution by a fraction,

 

(i)                                     the
numerator of which shall be the Current Market Price on such Record Date; and

 

(ii)                                  the
denominator of which shall be the Current Market Price on such Record Date less
the Fair Market Value (in each case, for purposes of this Note, as determined
by the Board of Directors with the consent of the Holder (which shall not be
unreasonably withheld), whose determination in the case of the Company shall be
described in a resolution of the Board of Directors) on such Record Date of the
portion of the Distributed Property so distributed applicable to one share of
Common Stock,

 

such
adjustment to become effective immediately prior to the opening of business on
the day following such Record Date; provided that
if the then Fair Market Value (as so determined) of the portion of the Distributed
Property so distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price on such Record Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that the Holder shall
have the right to receive upon conversion the amount of Distributed Property
the Holder would have received had the Holder converted this Note on the Record
Date for such distribution.  If such
dividend or distribution ultimately is not so paid or made, the Conversion Price
shall again be adjusted to be the Conversion Price that would then be in effect
if such dividend or distribution had not been declared.  If the Board of Directors determines the Fair
Market Value of any distribution for purposes of this Section 5.5(d) by
reference to the actual or when issued trading market for any securities, it
must in doing so consider the prices in such market over the same period used
in computing the Current Market Price on the applicable Record Date for such
distribution.  Notwithstanding the
foregoing, if the Distributed Property distributed by the Company to all
holders of its Common Stock consist of capital stock of, or similar equity
interests in, a Subsidiary or other business unit of the Company or a
Subsidiary, the Conversion Price shall be reduced so that the same shall be
equal to the price determined by dividing the Conversion Price in effect on the
Record Date with respect to such distribution by a fraction,

 

(i) the numerator of which shall be the sum of (A) the
average of the Closing Sale Prices of the Common Stock for the ten (10) Trading
Days commencing on and including the fifth Trading Day after the date on which “ex-dividend
trading” commences for such dividend or distribution on the Nasdaq National
Market or such other national or regional exchange or market on which such
securities are then listed or quoted (the “Ex-Dividend Date”) plus (B) the
Fair Market Value of the securities distributed in respect of each share of
Common Stock for which this Section 5.5(d) applies, which shall equal
the number of securities distributed in respect of each share of Common Stock
multiplied by the average of the Closing Sale Prices of those securities
distributed 

 

20

 

for the ten (10) Trading Days commencing on and
including the fifth Trading Day after the Ex-Dividend Date; and

 

(ii) the denominator of which shall be the
average of the Closing Sale Prices of the Common Stock for the ten (10) Trading
Days commencing on and including the fifth Trading Day after the Ex-Dividend
Date,

 

such
adjustment to become effective immediately prior to the opening of business on
the day following such Record Date; provided that
the Company may in lieu of the foregoing adjustment make adequate provision so
that the Holder shall have the right to receive upon conversion the amount of
Distributed Property the Holder would have received had the Holder converted
this Note on the Record Date with respect to such distribution.

 

With respect to
any rights (the “Rights”) that may be issued or distributed pursuant to the
Company’s existing preferred stock rights plan and any similar rights plan that
the Company implements after the date of this Note (any existing or future
preferred shares rights plan or similar rights plan, a “Rights Plan”), upon
conversion of this Note into Common Stock, to the extent that such Rights Plan
has been implemented and is still in effect upon such conversion, the Holder
will receive, in addition to the Common Stock, the Rights described therein
(whether or not the Rights have separated from the Common Stock at the time of
conversion), subject to the limitations set forth in any such Rights Plan.  Any distribution of Rights pursuant to a
Rights Plan complying with the requirements set forth in the immediately
preceding sentence of this paragraph shall not constitute a distribution of
rights or warrants pursuant to this Section 5.5(d) but, if not so
compliant, shall constitute such a distribution.  Other than as specified in this paragraph,
there will not be any adjustment to the Conversion Price as the result of the
issuance of any Rights, the distribution of separate certificates representing
such Rights, the exercise or redemption of such Rights in accordance with any
Rights Plan or the termination or invalidation of any Rights.

 

Rights or warrants
(other than rights issued pursuant to a Rights Plan) distributed by the Company
to all holders of Common Stock entitling the holders thereof to subscribe for
or purchase shares of the Company’s capital stock (either initially or under
certain circumstances), which rights or warrants, until the occurrence of a
specified event or events (“Trigger Event”): (i) are deemed to be
transferred with such shares of Common Stock, (ii) are not exercisable,
and (iii) are also issued in respect of future issuances of Common Stock,
shall be deemed not to have been distributed for purposes of this Section 5.5
(and no adjustment to the Conversion Price under this Section 5.5 will be
required) until the occurrence of the earliest Trigger Event, whereupon such
rights and warrants shall be deemed to have been distributed and an appropriate
adjustment (if any is required) to the Conversion Price shall be made under
this Section 5.5(d).  If any such
right or warrant, including any such existing rights or warrants distributed
prior to the date of this Note, are subject to events, upon the occurrence of
which such rights or warrants become exercisable to purchase different
securities, evidences of indebtedness or other assets, then the date of the
occurrence of any and each such event shall be deemed to be the date of
distribution and Record Date with respect to new rights or warrants with such
rights (and a termination or expiration of the existing rights or warrants without
exercise by any of the holders thereof). 
In addition, in the event of any 

 

21

 

distribution (or deemed distribution) of rights or warrants, or any
Trigger Event or other event (of the type described in the preceding sentence)
with respect thereto that was counted for purposes of calculating a
distribution amount for which an adjustment to the Conversion Price under this Section 5.5
was made, (1) in the case of any such rights or warrants that shall all
have been redeemed or repurchased without exercise by any holders thereof, the
Conversion Price shall be readjusted upon such final redemption or repurchase
to give effect to such distribution or Trigger Event, as the case may be, as
though it were a cash distribution, equal to the per share redemption or
repurchase price received by a holder or holders of Common Stock with respect
to such rights or warrants (assuming such holder had retained such rights or
warrants), made to all holders of Common Stock as of the date of such
redemption or repurchase, and (2) in the case of such rights or warrants
that shall have expired or been terminated without exercise by any holders
thereof, the Conversion Price shall be readjusted as if such rights and
warrants had not been issued.

 

No adjustment of
the Conversion Price shall be made pursuant to this Section 5.5(d) in
respect of rights or warrants distributed or deemed distributed on any Trigger
Event to the extent that such rights or warrants are actually distributed or
reserved by the Company for distribution to the Holder upon conversion by the
Holder of this Note into Common Stock.

 

For purposes of
this Section 5.5(d) and Section 5.5(a) and (b), any
dividend or distribution to which this Section 5.5(d) is applicable
that also includes shares of Common Stock, or rights or warrants to subscribe
for or purchase shares of Common Stock (or both), shall be deemed instead to be
(1) a dividend or distribution of the evidences of indebtedness, assets or
shares of capital stock other than such shares of Common Stock or rights or
warrants (and any Conversion Price adjustment required by this Section 5.5(d) with
respect to such dividend or distribution shall then be made) immediately
followed by (2) a dividend or distribution of such shares of Common Stock
or such rights or warrants (and any further Conversion Price adjustment
required by Sections 5.5(a) and 5.5(b) with respect to such dividend
or distribution shall then be made), except any shares of Common Stock included
in such dividend or distribution shall not be deemed “outstanding at the close
of business on such Record Date” within the meaning of Section 5.5(a).

 

(e)                                  In
case the Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock cash (excluding any dividend or distribution in connection
with the liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary), then, in such case, the Conversion Price shall be
reduced so that the same shall equal the price determined by dividing the
Conversion Price in effect immediately prior to the close of business on the
Record Date for such dividend or distribution by a fraction,

 

(i)                                     the
numerator of which shall be the Current Market Price on such Record Date; and

 

22

 

(ii)                                  the
denominator of which shall be the Current Market Price on such Record Date less
the amount of cash so distributed applicable to one share of Common Stock,

 

such
adjustment to be effective immediately prior to the opening of business on the
day following such Record Date; 

provided
that if the portion of the cash so distributed applicable to one share of
Common Stock is equal to or greater than the Current Market Price on such
Record Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that the Holder shall have the right to receive upon conversion the
amount of cash the Holder would have received had the Holder converted this
Note on the Record Date.  If such
dividend or distribution is not so paid or made, such Conversion Price shall
again be adjusted to be the Conversion Price that would then be in effect if
such dividend or distribution had not been declared.

 

(f)                                    In
case a tender or exchange offer made by the Company or any Subsidiary for all
or any portion of the Common Stock shall expire and such tender or exchange
offer (as amended upon the expiration thereof) shall require the payment to
stockholders of consideration per share of Common Stock having a Fair Market
Value (as determined as aforesaid) that as of the last time (the “Expiration
Time”) tenders or exchanges may be made pursuant to such tender or exchange
offer (as it may be amended) exceeds the Closing Sale Price of a share of
Common Stock on the Trading Day next succeeding the Expiration Time, the
Conversion Price shall be reduced so that the same shall equal the price
determined by dividing the Conversion Price in effect immediately prior to the
Expiration Time by a fraction,

 

(i)                                     the
numerator of which shall be the sum of (x) the Fair Market Value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
acceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted up to any such maximum, being
referred to as the “Purchased Shares”) and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) at the Expiration
Time and the Closing Sale Price of a share of Common Stock on the Trading Day
next succeeding the Expiration Time, and

 

(ii)                                  the
denominator of which shall be the number of shares of Common Stock outstanding
(including any Purchased Shares) at the Expiration Time multiplied by the
Closing Sale Price of a share of Common Stock on the Trading Day next
succeeding the Expiration Time.

 

such
adjustment to become effective immediately prior to the opening of business on
the day following the Expiration Time.  If
the Company is obligated to purchase shares pursuant to any such tender or
exchange offer, but the Company is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price that would
then be in effect if such tender or exchange offer had not been made.

 

(g)                                 For
purposes of this Section 5.5, the following terms shall have the meaning
indicated:

 

23

 

(i)                                     “Current
Market Price” shall mean the average of the daily Closing Sale Prices per share
of Common Stock for the ten consecutive Trading Days ending not later than the
earlier of such date of determination and the day before the “ex” date with
respect to the issuance, distribution, subdivision or combination requiring
such computation immediately prior to the date in question.  For purposes of this paragraph, the term “ex”
date, (1) when used with respect to any issuance or distribution, means
the first date on which the Common Stock trades, regular way, on the relevant
exchange or in the relevant market from which the Closing Sale Price was
obtained without the right to receive such issuance or distribution, and (2) when
used with respect to any subdivision or combination of shares of Common Stock,
means the first date on which the Common Stock trades, regular way, on such
exchange or in such market after the time at which such subdivision or
combination becomes effective.

If another
issuance, distribution, subdivision or combination to which Section 5.5
applies occurs during the period applicable for calculating “Current Market
Price” pursuant to the definition in the preceding paragraph, “Current Market
Price” shall be calculated for such period in a manner determined by the Board
of Directors to reflect the impact of such issuance, distribution, subdivision
or combination on the Closing Sale Price of the Common Stock during such period
with the consent of the Holder (which shall not be unreasonably withheld).

 

(ii)                                  “Fair
Market Value” shall mean the amount which a willing buyer would pay a willing
seller in an arm’s-length transaction.

 

(iii)                               “Record
Date” shall mean, with respect to any dividend, distribution or other
transaction or event in which the holders of Common Stock have the right to
receive any cash, securities or other property or in which the Common Stock (or
other applicable security) is exchanged for or converted into any combination
of cash, securities or other property, the date fixed for determination of
stockholders entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by statute, contract
or otherwise).

 

(iv)                              “Trading
Day” shall mean (x) if the applicable security is quoted on The Nasdaq Stock
Market, a day on which trades may be made thereon or (y) if the applicable
security is listed or admitted for trading on the American Stock Exchange, New
York Stock Exchange or another national securities exchange, a day on which the
American Stock Exchange, New York Stock Exchange or another national securities
exchange is open for business or (z) if the applicable security is not so
listed, admitted for trading or quoted, any day other than a Saturday or Sunday
or a day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.

 

(h)                                 The
Company may make such reductions in the Conversion Price, in addition to those
required by Section 5.5(a), (b), (c), (d), (e) or (f) as the
Board of Directors considers to be advisable to avoid or diminish any income
tax to holders of Common Stock or rights to purchase 

 

24

 

Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes.

 

To the extent permitted by applicable law, the Company
from time to time may reduce the Conversion Price by any amount for any period
of time if the Board of Directors shall have made a determination that such decrease
would be in the best interests of the Company, which determination shall be
conclusive.  Whenever the Conversion
Price is reduced pursuant to the preceding sentence, the Company shall notify
the Holder of such reduction, and such notice shall state the reduced
Conversion Price and the period during which it will be in effect.

 

(i)                                     No
adjustment in the Conversion Price shall be required unless such adjustment
would require an increase or decrease of at least one percent (1%) in such
price; provided that any adjustments that by
reason of this Section 5.5(i) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.  All calculations under this Section 5
shall be made by the Company and shall be made to the nearest cent or to the
nearest one-ten thousandth (1/10,000) of a share, as the case may be.  No adjustment need be made for rights to
purchase Common Stock pursuant to a Company plan for reinvestment of dividends
or interest or for any issuance of Common Stock or convertible or exchangeable
securities or rights to purchase Common Stock or convertible or exchangeable
securities.  To the extent this Note
becomes convertible into cash, assets, property or securities (other than
capital stock of the Company), no adjustment need be made thereafter as to the
cash, assets, property or such securities. 
Interest will not accrue on any cash into which this Note is
convertible.

 

(j)                                     Whenever
the Conversion Price is adjusted as herein provided, the Company shall promptly
notify the Holder of the adjustment and provide the Holder with a notice
setting forth the Conversion Price after such adjustment, the date of such
adjustment, and a brief statement of the facts requiring such adjustment.  Failure to deliver such notice shall not
affect the legality or validity of any such adjustment.

 

(k)                                  In
any case in which this Section 5.5 provides that an adjustment shall
become effective immediately after (1) a Record Date for an event, (2) the
Record Date for a dividend or distribution described in Section 5.5(a), (3) the
Record Date for the issuance of rights or warrants as described in Section 5.5(b) or
(4) the Expiration Time for any tender or exchange offer pursuant to Section 5.5(f) (each
a “Determination Date”), the Company may elect to defer until the occurrence of
the applicable Adjustment Event (as hereinafter defined) (x) issuing to the
Holder if this Note is converted after such Determination Date and before the
occurrence of such Adjustment Event, the additional shares of Common Stock or
other securities issuable upon such conversion by reason of the adjustment
required by such Adjustment Event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (y) paying to the
Holder any amount in cash in lieu of any fraction pursuant to Section 5.3.  For purposes of this Section 5.5(k), the
term “Adjustment Event” shall mean:

 

(i)                                     in
any case referred to in clause (1) hereof, the occurrence of such event,

 

(ii)                                  in
any case referred to in clause (2) hereof, the date any such dividend or
distribution is paid or made,

 

25

 

(iii)                               in
any case referred to in clause (3) hereof, the date of expiration of such
rights or warrants, and

 

(iv)                              in
any case referred to in clause (4) hereof, the date a sale or exchange of
Common Stock pursuant to such tender or exchange offer is consummated and
becomes irrevocable.

 

(l)                                     For
purposes of this Section 5.5, the number of shares of Common Stock at any
time outstanding shall not include shares held in the treasury of the Company
but shall include shares issuable in respect of scrip certificates issued in
lieu of fractions of shares of Common Stock. 
The Company will not pay any dividend or make any distribution on shares
of Common Stock held in the treasury of the Company.

 

5.6                                 Effect
Of Reclassification, Consolidation, Merger or Sale.  If any of the following events occur, namely (i) any
reclassification or change of the outstanding shares of Common Stock (other
than a subdivision or combination to which Section 5.5(c) applies), (ii) any
consolidation, merger or combination of the Company with another Person as a
result of which holders of Common Stock shall be entitled to receive stock,
other securities or other property or assets (including cash) with respect to
or in exchange for such Common Stock, or (iii) any sale or conveyance of
all or substantially all of the properties and assets of the Company to any other
Person as a result of which holders of Common Stock shall be entitled to
receive stock, other securities or other property or assets (including cash)
with respect to or in exchange for such Common Stock, then the Company or the
successor or purchasing Person, as the case may be, shall execute and deliver
to the Holder a supplemental instrument providing that this Note shall be
convertible into the kind and amount of shares of stock, other securities or
other property or assets (including cash) receivable upon such
reclassification, change, consolidation, merger, combination, sale or
conveyance by a holder of a number of shares of Common Stock issuable upon
conversion of this Note (assuming, for such purposes, a sufficient number of
authorized shares of Common Stock are available to convert this Note)
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance assuming such holder of Common Stock did not
exercise his rights of election, if any, as to the kind or amount of stock,
other securities or other property or assets (including cash) receivable upon
such reclassification, change, consolidation, merger, combination, sale or
conveyance (provided that, if the kind or amount of
stock, other securities or other property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger, combination, sale or
conveyance is not the same for each share of Common Stock in respect of which
such rights of election shall not have been exercised (“non-electing share”),
then for the purposes of this Section 5.6 the kind and amount of stock,
other securities or other property or assets (including cash) receivable upon
such reclassification, change, consolidation, merger, combination, sale or conveyance
for each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares).  Such supplemental instrument shall provide
for adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 5.

 

The above provisions of this Section 5.6 shall
similarly apply to successive reclassifications, changes, consolidations,
mergers, combinations, sales and conveyances.

 

26

 

If this Section 5.6 applies to any event or
occurrence, Section 5.5 shall not apply.

 

5.7                                 Taxes
On Shares Issued.  The issuance of
stock certificates on conversion of this Note shall be made without charge to
the Holder for any documentary, stamp or similar issue or transfer tax in
respect of the issue thereof.  The
Company shall not, however, be required to pay any such tax which may be
payable in respect of any transfer involved in the issue and delivery of stock
in any name other than that of the Holder, and the Company shall not be
required to issue or deliver any such stock certificate unless and until the
Person or Persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.

 

5.8                                 Reservation
of Shares, Shares to Be Fully Paid; Compliance With Governmental Requirements;
Listing of Common Stock.  The Company
shall provide, free from preemptive rights, out of its authorized but unissued
shares or shares held in treasury, sufficient shares of Common Stock to provide
for the conversion of this Note from time to time.

 

Before taking any action that would cause an
adjustment reducing the Conversion Price to an amount below the then par value,
if any, of the shares of Common Stock issuable upon conversion of this Note,
the Company will take all corporate action that may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue shares
of such Common Stock at such adjusted Conversion Price.

 

The Company covenants that all shares of Common Stock
which may be issued upon conversion of this Note will be newly issued shares or
treasury shares and will upon issue be duly authorized, fully paid and
non-assessable by the Company and free from all pre-emptive rights, taxes,
adverse claims, liens and charges with respect to the issue thereof.

 

The Company covenants that, if any shares of Common
Stock to be provided for the purpose of conversion of this Note hereunder
require registration with or approval of any Governmental Authority before such
shares may be validly issued upon conversion, the Company will in good faith
and as expeditiously as possible, to the extent then permitted by the rules and
interpretations of the Commission (or any successor thereto), endeavor to
secure such registration or approval, as the case may be.

 

The Company covenants that, if at any time the Common
Stock shall be listed on The Nasdaq Stock Market or any other national
securities exchange or automated quotation system, the Company will, if
permitted by the rules of such exchange or automated quotation system,
list and keep listed, so long as the Common Stock shall be so listed on such
exchange or automated quotation system, all Common Stock issuable upon
conversion of this Note; provided that
if the rules of such exchange or automated quotation system permit the
Company to defer the listing of such Common Stock until the first conversion of
this Note into Common Stock in accordance with the provisions hereof, the
Company covenants to list such Common Stock issuable upon conversion of this
Note in accordance with the requirements of such exchange or automated
quotation system at such time.

 

27

 

5.9                                 Notice
To Holder Prior To Certain Actions. 
In case:

 

(a)                                  the
Company shall declare a dividend (or any other distribution) on its Common
Stock that would require an adjustment in the Conversion Price pursuant to Section 5.5;
or

 

(b)                                 the
Company shall authorize the granting to the holders of all or substantially all
of its Common Stock of rights or warrants to subscribe for or purchase any
share of any class or any other rights or warrants; or

 

(c)                                  of
any reclassification or reorganization of the Common Stock of the Company
(other than a subdivision or combination of its outstanding Common Stock, or a
change in par value, or from par value to no par value, or from no par value to
par value), or of any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is required, or of
the sale or transfer of all or substantially all of the assets of the Company;
or

 

(d)                                 of
the voluntary or involuntary dissolution, liquidation or winding up of the
Company;

 

the Company shall cause to be mailed to the Holder, as
promptly as possible but in any event at least ten (10) days prior to the
applicable date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or rights are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or winding up
is expected to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.  Failure to
give such notice, or any defect therein, shall not affect the legality or
validity of such dividend, distribution, reclassification, consolidation,
merger, sale, transfer, dissolution, liquidation or winding up.

 

5.10                           Requisite
Antitrust Approvals For Conversion.  In the event
that the conversion of this Security into shares of Common Stock would require
the Company and the Holder to file notification and report forms with the
Federal Trade Commission and Antitrust Division of the Department of Justice
(the “FTC”) pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the “HSR Act”), then the Holder and the Company agree (a) to
use their commercially reasonable efforts to complete promptly all applicable
filings and provide all necessary information as required pursuant to the HSR
Act, with each party bearing their own expenses in connection therewith, and (b) such
conversion of this Note into shares of Common Stock shall not occur until such
time as the required filings are made pursuant to the HSR Act and the required
waiting periods have expired or early termination notifications have been granted by the FTC.

 

6.                                       Consolidation,
Merger, Sale, Conveyance And Lease.

 

6.1                                 Company
May Consolidate On Certain Terms. 
Subject to the provisions of Section 6.2, the Company shall not
consolidate with or merge into any other Person or Persons (whether or not
affiliated with the Company), nor shall the Company or its successor or 

 

28

 

successors be a party or
parties to successive consolidations or mergers, nor shall the Company sell,
convey, transfer or lease all or substantially all of the property and assets
of the Company to any other Person (whether or not affiliated with the
Company), unless: (i) the Company is the surviving Person, or the
resulting, surviving or transferee Person is a corporation organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia; (ii) upon
any such consolidation, merger, sale, conveyance, transfer or lease, the due
and punctual payment of the principal of this Note, and the due and punctual
performance and observance of all of the covenants and conditions of this Note
to be performed by the Company, shall (unless the Company is the surviving
Person or unless the surviving Person is a successor to the Company’s
obligations hereunder and under this Note by operation of law) be expressly
assumed, by supplemental instrument reasonably satisfactory in form and
substance to the Holder, executed and delivered to the Holder by the Person
formed by such consolidation, or into which the Company shall have been merged,
or by the Person that shall have acquired or leased such property, and such
supplemental instrument shall provide for the applicable conversion rights set
forth in Section 5.6; and (iii) immediately after giving effect to
the transaction described above, no Event of Default, and no event which, after
notice or lapse of time or both, would become an Event of Default, shall have
happened and be continuing.

 

6.2                                 Successor
To Be Substituted.  In case of any
such consolidation, merger, sale, conveyance, transfer or lease and upon the
assumption by the successor Person, by supplemental instrument, executed and
delivered to the Holder and reasonably satisfactory in form to the Holder, of
the due and punctual payment of the principal of this Note and the due and
punctual performance of all of the covenants and conditions of this Note to be
performed by the Company, such successor Person shall succeed to and be
substituted for the Company, with the same effect as if it had been named
herein as the party of this first part. 
In the event of any such consolidation, merger, sale, conveyance,
transfer or lease, the Person named as the “Company” in the first paragraph of
this Note or any successor that shall thereafter have become such in the manner
prescribed in this Section 6 may be dissolved, wound up and liquidated at
any time thereafter and such Person shall be released from its liabilities as
obligor and maker of this Note and from its obligations under this Note.

 

7.                                       Miscellaneous.

 

7.1                                 General.  Unless otherwise specified, references in
this Note to any section are references to such section of this Note
and, unless otherwise specified, references in any section or definition
to any clause are references to such clause of such section or
definition.  Terms for which meanings are
defined in this Note shall apply equally to the singular and plural forms of
the terms defined.  Whenever the context
may permit or require, any pronoun shall include the corresponding masculine,
feminine and neuter forms.  The term “including”
means including, without limiting the generality of any description preceding
such term.  Each reference herein to any
Person shall include a reference to such Person’s successors and permitted
assigns.  Unless otherwise specified,
references to any agreement, instrument or other document in this Note refer to
such agreement, instrument or other document as originally executed or, if
subsequently varied, replaced or supplemented from time to time, as so varied,
replaced or supplemented and in effect at the relevant time of reference
thereto.

 

29

 

7.2                                 Amendment.  None of the terms or provisions of this Note
may be excluded, modified or amended except by a written instrument duly
executed by the Holder and the Company expressly referring to this Note and
setting forth the provision so excluded, modified or amended.

 

7.3                                 Headings.  The headings of the sections of this Note
have been inserted for convenience of reference only, are not intended to be
considered part hereof, and shall in no way modify or restrict any of the terms
or provisions hereof.

 

7.4                                 Notices.  All notices hereunder shall be given to a
party in writing and shall be deemed received by the other party hereto, in
each case in accordance with the terms of Section 7.4 of the Purchase
Agreement as if any such notice were a notice thereunder.  

 

7.5                                 Governing
Law.  This Note shall be deemed to be
a contract made under the laws of the State of New York, and for all purposes
shall be construed in accordance with the laws of the State of New York,
without regard to conflicts of laws principles thereof.

 

7.6                                 Transferability.  This Note may not be transferred or assigned
by the Holder except as permitted by Section 6.3 of the Purchase
Agreement.  Any such transfer may be made
upon surrender of this Note for transfer at the principal executive offices of
the Company duly endorsed by or accompanied by a written instrument of transfer
in form satisfactory to the Company and duly executed by the Holder and
thereupon a new note in the outstanding principal amount of the Note so
surrendered will be issued to the designated transferee or transferees.  No service charge will be made for any such
transfer or exchange, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection
therewith.  This Note is issuable only in
registered form. The shares of Common Stock issuable upon conversion of this
Note may not be transferred or assigned by the Holder except as permitted by
Sections 4.6 of the Purchase Agreement.  

 

7.7                                 Legal
Holidays.  In any case in which the
date of maturity of principal of this Note or the prepayment date of this Note
will not be a Business Day, then payment of such principal of this Note need
not be made on such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the date of maturity or the
prepayment date.

 

7.8                                 No
Security Interest Created.  Nothing
in this Note, expressed or implied, shall be construed to constitute a security
interest under the Uniform Commercial Code or similar legislation, as now or
hereafter enacted and in effect, in any jurisdiction in which property of the
Company or its subsidiaries is located.

 

7.9                                 This
Note Solely A Corporate Obligation; No Right of Set-Off.  No recourse for the payment of the principal
of this Note, or for any claim based hereon or otherwise in respect hereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in this Note or any instrument supplemental hereto, or because of the creation
of any indebtedness represented thereby, shall be had against any incorporator,
stockholder, employee, agent, officer or director or subsidiary, as such, past,
present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor corporation, whether by

 

30

 

virtue of any
constitution, statute or rule of law or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by acceptance
hereof and as part of the consideration for the issue hereof, expressly waived
and released. The Company hereby covenants and agrees that it shall not have
any right, whether at law or otherwise, to reduce or otherwise set-off (a) any
obligations that Holder or any Affiliate may owe to the Company or any
Affiliate, whether under the Purchase Agreement or the License Agreement or
otherwise, against (b) any amounts which the Company may owe under this
Note.

 

7.10                           No
Stockholder Rights.  Nothing
contained in this Note shall be construed as conferring upon the Holder or any
other person the right to vote or to consent or to receive notice as a
stockholder in respect of meetings of stockholders for the election of
directors of the Company or any other matters or any rights whatsoever as a
stockholder of the Company.

 

7.11                           Binding
Effect.  Subject to the restrictions
on transfer described in Section 7.6, the rights and obligations of the
Company and the Holder shall be binding upon and benefit the successors and
assigns of the parties.

 

IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by its
duly authorized officer as of the date first set forth above.

 

 

	
   

  	
  INCYTE CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  
					

 

31

 

CONVERSION NOTICE

 

TO:                            INCYTE
CORPORATION

 

The undersigned Holder of this Note hereby irrevocably
exercises the option to convert this Note, or the portion thereof (which is $1,000
or a multiple thereof) below designated, into shares of Common Stock of Incyte
Corporation in accordance with the terms of this Note, and directs that the
shares issuable and deliverable upon such conversion, together with any check
in payment for fractional shares and any Note representing any unconverted
principal amount hereof, be issued and delivered to the registered Holder
hereof unless a different name has been indicated below.  If shares or any portion of this Note not
converted are to be issued in the name of a person other than the undersigned,
the undersigned will provide the appropriate information below and pay all
transfer taxes payable with respect thereto.

 

Dated:                                        

 

Principal amount to be
converted (if less than all):  $                                        

 

 

	
   

  	
   

  	
   

  
	
   

  	
  (Print or Type
  Name of Holder)

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title

  	
   

  	
   

  
						

 

Complete the following if
shares of Common Stock and/or Note for any unconverted principal amount to be
issued and delivered to any Person other than in the name of the registered
Holder:

 

[   ] Please issue the certificate for shares of
Common Stock to and/or

[   ] Please issue the Note for any unconverted
principal amount to:

 

 

	
   

  	
   

  	
   

  	
   

  
	
  (Name)

  	
  Social Security
  or Other Taxpayer Identification No.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Street Address)

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (City, State and
  Zip Code)

  	
   

  

 

Signature(s) must be
guaranteed by an “eligible guarantor institution” meeting the requirements of
the Security Registrar, which requirements include membership or participation
in the Security Transfer Agent Medallion Program (“STAMP”) or such other “signature
guarantee program” as may be determined by the Company in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act of
1934, as amended.

 

	
   

  	
   

  
	
  Signature
  Guarantee

  

 

32

 

DESIGNATED EVENT REPURCHASE
NOTICE

 

TO:                            INCYTE
CORPORATION

 

The undersigned Holder of
this Note hereby irrevocably acknowledges receipt of a notice from Incyte
Corporation (the “Company”) regarding right of the Holder to elect to require
the Company to prepay this Note upon the occurrence of a Designated Event with
respect to the Company and requests and instructs the Company to prepay the
entire principal amount of this Note, or the portion thereof (which is at least
$500,000 and a multiple of $10,000 thereafter (or, if the principal amount of
this Note then outstanding is less than $500,000, such principal amount then
outstanding)) below designated, in accordance with the terms of this Note.

 

Dated:                                                    

 

Principal amount to be
prepaid (if less than all): $                                                   

 

 

	
   

  	
   

  
	
   

  	
  (Print or Type
  Name of Holder)

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  
	
   

  	
  Name

  	
   

  
	
   

  	
   

  
	
   

  	
  Title

  	
   

  
	
   

  	
   

  
	
   

  	
  NOTICE: The
  above signature(s) of the Holder must correspond with the name as written
  upon the first page of this Note in every particular without alteration
  or enlargement or any change whatever.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Taxpayer
  Identification Number

  
					

 

33Exhibit 10.1

 

NOTE PURCHASE AGREEMENT

 

THIS NOTE PURCHASE
AGREEMENT (the “Agreement”) is made as of the 18th day of November, 2005 by and
between INCYTE CORPORATION, a Delaware corporation (the “Company”), and PFIZER
OVERSEAS PHARMACEUTICALS, an Irish unlimited liability company and Wholly-Owned
Subsidiary of Pfizer Inc. (the “Investor”).

 

WHEREAS, the Company
and Pfizer Inc., the parent company of the Investor, are, simultaneously
herewith, entering into a Collaborative Research and License Agreement, of even
date herewith (the “License Agreement”), and, in connection with the
transactions contemplated thereby, the Company desires to issue and sell to the
Investor, and the Investor desires to purchase from the Company, convertible
subordinated promissory notes of the Company, upon the terms and subject to the
conditions set forth herein.

 

NOW, THEREFORE, the
parties hereby agree as follows:

 

1.                                       Definitions.  For purposes of this Agreement, the following
terms shall have the following respective meanings:

 

(a)                                  “Additional Note” has the meaning
specified in Section 2.1(b).

 

(b)                                 “Affiliate” means, with respect to any
entity, an affiliate of that entity as defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended to date.

 

(c)                                  “Business Day” means a day other than a Saturday, Sunday, bank or other
public holiday in the state of New York.

 

(d)                                 “Closing” has the meaning specified in Section 2.2(b).

 

(e)                                  “Common Stock” shall mean the common
stock, $.001 par value, of the Company.

 

(f)                                    “Company” has the meaning specified in
the preamble to this Agreement.

 

(g)                                 “Exchange Act” shall mean the Securities
Exchange Act of 1934, as amended.

 

(h)                                 “FDA” shall mean the United States Food
and Drug Administration or any successor federal agency thereto.

 

(i)                                     “5.5% Notes” has the meaning
specified in Section 3.3.

 

(j)                                     “Financial Statements” has the meaning
specified in Section 3.9.

 

(k)                                  “Form 10-K” has the meaning
specified in Section 3.8.

 

 

(l)                                     “Governmental Authority” means
any court, agency, department or other instrumentality of any foreign, federal,
state, county, city or other political subdivision.

 

(m)                               “HSR Act” means the United States
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

(n)                                 “Incyte Change in Control” means that
any of the following has occurred:

 

(i)                                     any Person or
group becomes the beneficial owner, directly or indirectly, of fifty percent
(50%) or more of the outstanding Voting Securities or voting power over Voting Securities
of (x) the Company or (y) any one or more Persons which are direct or indirect
parent holding companies of the Company or Affiliates controlling the Company (the
Company, together with the Persons described in clause (y), each hereinafter
referred to, individually, as an “Incyte Group Company” and, collectively, as
the “Incyte Group Companies”); or

 

(ii)                                  any Incyte Group Company enters into an
agreement with any Person or group providing for the sale or disposition of all
or substantially all of the assets of the Incyte Group Companies, on a
consolidated basis; or

 

(iii)                               any
Incyte Group Company enters into an agreement with any Person or group
providing for a merger, reorganization, consolidation or other similar
transaction (or series of related transactions) of any Incyte Group Company
with such Person or any Affiliate of such Person (other than with any of the
Incyte Group Company’s Wholly-Owned Subsidiaries), that results in the
shareholders of the applicable Incyte Group Company immediately before the
occurrence of such transaction (or series of transactions) beneficially owning
less than a majority of the outstanding Voting Securities or voting power over
Voting Securities of the surviving or newly-created entity in such transaction
(or series of transactions); or

 

(iv)                              a change in the board of directors of any
Incyte Group Company  in which the
individuals who constituted the board of directors of such Incyte Group Company
at the beginning of the two (2)-year period immediately preceding such change
(together with any other director whose election by the board of directors of
such Incyte Group Company or whose nomination for election by the stockholders
of such Incyte Group Company was approved by a vote of at least a majority of
the directors then in office either who were directors at the beginning of such
period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the directors then in office;
or

 

(v)                                 any
Incyte Group Company enters into an agreement with any Person providing for the
matters described in subsection (i), (ii) or (iv) above.

 

For purposes of this
definition of “Incyte Change in Control” only: (A) references to
any Incyte Group Company shall be deemed to include all successors in any
merger, consolidation, reorganization or similar transaction (or series of
related transactions) preceding any transaction (or series of related
transactions) described above; (B) “beneficial ownership” (and other
correlative terms) means beneficial ownership as defined in Rule 13d-3
under the Exchange Act; it being understood and agreed that “beneficial
ownership” shall also include any securities which any Person or any of such Person’s
Affiliates has the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,

 

2

 

arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, rights, warrants or options, or otherwise; (C) “group”
means group as defined in the Exchange Act and the rules of the SEC thereunder
as in effect on the date hereof; and (D) “control” (including, with
correlative meanings, “controlled by”, “controlling” and “under common control
with”) of an entity means possession, direct or indirect, of  (I) the power to direct or cause direction of
the management and policies of such entity (whether through ownership of
securities or partnership or other ownership interests, by contract or
otherwise), or (II) at least fifty percent (50%) of the voting securities
(whether directly or pursuant to any option, warrant or other similar
arrangement) or other comparable equity interests of such entity.

 

(o)                                 “Incyte Compound” has the meaning
specified in Section 1.25 of the License Agreement.

 

(p)                                 “IND” shall mean an Investigational New Drug
Application filed with the FDA or the analogous application or filing filed
with any analogous agency or Government Authority outside of the United States
(including any supra-national agency such as in the European Union) necessary
to Commence human clinical trials in such jurisdiction, and including all
regulations at 21 CFR § 312 et. seq. and analogous foreign
regulations.  For purposes of this
definition, “Commence” means the first dosing of the first patient for such
trial.

 

(q)                                 “Initial Closing Date” has the meaning
specified in Section 2.2(a).

 

(r)                                    “Initial Note” has the meaning specified
in Section 2.1(a).

 

(s)                                  “Investor” has the meaning specified in
the preamble to this Agreement.

 

(t)                                    “Law”
or “Laws” means all laws, statutes, rules, regulations, orders, judgments
and/or ordinances of any Governmental Authority.

 

(u)                                 “License Agreement” has the meaning
specified in the preamble of this Agreement.

 

(v)                                 “License Agreement Effective Date” shall
mean the date that the applicable waiting period under the HSR Act shall have
expired or been terminated with respect to the License Agreement.

 

(w)                               “Lien” means, with respect to any asset,
any mortgage, pledge, security interest, encumbrance, lien or charge of any kind
in respect of such asset.

 

(x)                                   “Material Adverse Effect” shall mean
individually or collectively, a material adverse effect on, or a material
adverse change in, or group of such effects on or changes in, (i) the
business, financial condition, results of operations, assets or liabilities of
the Company and its Subsidiaries, taken as a whole, or (ii) the ability of
the Company to perform its obligations under or with respect to this Agreement
or any Note.

 

(y)                                 “Note” or “Notes” shall mean, as the
context requires, the Initial Note and/or the Additional Note.

 

3

 

(z)                                   “Person”
means a corporation, an association, a partnership, a limited liability
company, an individual, a joint venture, a joint stock company, a trust, an
unincorporated organization or a Governmental Authority.

 

(aa)                            “Plans” has the meaning specified in Section 3.3.

 

(bb)                          “Preferred Stock” shall mean the
preferred stock, $.001 par value, of the Company.

 

(cc)                            “Purchase Price” has the meaning specified
in Section 2.1(a).

 

(dd)                          “Research Plan” shall have the meaning
set forth in the License Agreement.

 

(ee)                            “Restricted Securities” means (1) the
Shares and (2) any other securities of the Company issued as a dividend or
other distribution with respect to, or in exchange for or in replacement of,
such Shares.

 

(ff)                                “SEC” has the meaning specified in Section 3.8.

 

(gg)                          “Second Tranche Trigger Date” has the
meaning specified in Section 2.1(b).

 

(hh)                          “Securities Act” means the Securities
Act of 1933, as amended

 

(ii)                                  “Security Agreement” shall mean the
Security Agreement dated as of the date hereof by and between Pfizer Inc. and
the Company.

 

(jj)                                  “Shares” shall mean the Common Stock
issuable upon conversion of the Notes.

 

(kk)                            “Subsequent Closing” has the meaning
specified in Section 2.2(b).

 

(ll)                                  “Subsequent Closing Date” has the
meaning specified in Section 2.2(b).

 

(mm)                      “Subsidiary” means, with respect to any
entity, any other entity of which securities or other ownership interest having
ordinary voting power to elect a majority of the board of directors or other Persons
performing similar functions are owned directly or indirectly by such entity.

 

(nn)                          “31⁄2% Notes” has the meaning
specified in Section 3.3.

 

(oo)                          “Transition Plan” shall have the meaning
set forth in the License Agreement.

 

(pp)                          “2005 Forms 10-Q” has the meaning
specified in Section 3.8.

 

(qq)                          “Voting Securities” means securities of any class or series
of a corporation, association or other entity the holders of which are
ordinarily, in the absence of contingencies, entitled to vote generally in
matters put before the shareholders or members of such corporation, association
or other entity.

 

4

 

(rr)                                “Voting Security Equivalents” means
securities convertible into or exchangeable for Voting Securities or options to
purchase such securities or Voting Securities.

 

(ss)                            “Wholly-Owned Subsidiary” shall mean,
with respect to any entity, a Subsidiary, all of the outstanding Voting
Securities of which are owned, directly or indirectly, by such entity.

 

2.                                       Purchase and Sale
of Notes.

 

2.1                                 Sale and
Issuance of Notes.

 

(a)                                  Purchase and Sale of Initial Note. 
Subject to and upon the terms and conditions of this Agreement, at the
Initial Closing, the Company agrees to issue and sell to the Investor, and the
Investor agrees to purchase from the Company, a convertible subordinated
promissory note (the “Initial Note”), in the aggregate principal amount of Ten
Million Dollars ($10,000,000) (the “Purchase Price”), and to pay the Purchase
Price therefor.  The Initial Note shall
have a maturity date seven years from the date of its original issuance, shall
be in substantially the form attached hereto as Exhibit A, and shall be
convertible into Common Stock of the Company at the conversion price determined
in accordance with, and subject to adjustment pursuant to, the terms of such
Initial Note.

 

(b)                                 Purchase and Sale of Additional Note. 
Subject to and upon the terms and conditions of this Agreement, at the
Subsequent Closing, the Company shall have the option (but shall not be
obligated) to issue and sell to the Investor, and upon exercise by the Company
of such option, the Investor agrees to purchase from the Company, a convertible
subordinated promissory note (the “Additional Note”), in the aggregate
principal amount of Ten Million Dollars ($10,000,000), and to pay the Purchase
Price therefor.  The Additional Note
shall have a maturity date seven years from the date of its original issuance,
shall be in substantially the form attached hereto as Exhibit A, and shall
be convertible into Common Stock of the Company at the conversion price
determined in accordance with, and subject to adjustment pursuant to, the terms
of such Additional Note.   The Company
shall have the right to exercise its option pursuant to this Section 2.1(b) at
any time within ten (10) business days following (x) the first date on
which the Company can lawfully test a given indication in humans pursuant to
the filing of the first IND for an Incyte Compound under the License Agreement and
(y) the delivery by the Company to the Investor of written confirmation that
the Company will use commercially reasonable efforts to continue clinical
development of the Incyte Compound referred to in clause (x) (the satisfaction
of the matters specified in clauses (x) and (y), the “Second Tranche Trigger
Date”) by delivering to the Investor written notice of its election to issue
the Additional Note on or prior to the third anniversary of the Initial Closing
Date (as defined below).

 

2.2                                 Closing(s).

 

(a)                                  The closing of the purchase and sale of
the Initial Note (the “Initial Closing”) shall take place at the offices of
Pillsbury Winthrop Shaw Pittman LLP, 1540 Broadway, New York, New York, at
10:00 a.m. local time, or at such other time and place as the Company and
the Investor mutually agree upon.  The
Initial Closing shall occur on such date (the “Initial Closing Date”) that the
Company and the Investor mutually agree upon, but in any event within twenty
(20) business days after the License Agreement Effective Date.

 

5

 

(b)                                 If the Company chooses to exercise its
option pursuant to Section 2.1(b), the closing of the purchase and sale of
the Additional Note (the “Subsequent Closing”) shall take place at the offices
of Pillsbury Winthrop Shaw Pittman LLP, 1540 Broadway, New York, New York, at
10:00 a.m. local time, or at such other time and place as the Company and
the Investor mutually agree upon.  The
Subsequent Closing shall occur on such date (the “Subsequent Closing Date”)
that the Company and the Investor mutually agree upon, but in any event within
twenty (20) business days after the Second Tranche Trigger Date.    The Initial Closing and the Subsequent
Closing are sometimes referred to herein as a “Closing.”

 

(c)                                  At each Closing, the Company shall
deliver to the Investor the Initial Note or the Additional Note, as the case
may be, against payment of the Purchase Price, by wire transfer in immediately
available funds to the account set forth in Schedule 2.2(c) (or such
other account designated in writing by the Company at least three Business Days
prior to any applicable payment date).

 

3.                                       Representations,
Warranties and Agreements of the Company.  The
Company hereby represents and warrants to, and agrees with, the Investor that:

 

3.1                                 Organization.  The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
has the corporate power and authority to own, lease and operate its properties
and to carry on its business as currently conducted, and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified would not have a
Material Adverse Effect.  The Company has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as currently conducted.

 

3.2                                 Subsidiaries.  Each Subsidiary of the Company has been duly
incorporated or formed or organized, is validly existing and in good standing
under the laws of the jurisdiction of its incorporation or other formation, has
the corporate or other power and authority to own, lease and operate its
properties and to carry on its business as currently conducted, and is duly
qualified to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a Material Adverse Effect.

 

3.3                                 Capitalization.  The authorized capital of the Company
consists of 5,000,000 shares of Preferred Stock and 200,000,000 shares of
Common Stock.  As of November 4, 2005,
(a) there were outstanding no shares of Preferred Stock, 83,540,699 shares
of Common Stock, and options and restricted stock units to purchase or acquire
an aggregate of 7,836,438 shares of Common Stock, (b) 6,811,516 shares of
Common Stock were reserved for future issuance pursuant to the Company’s 1991
Stock Plan, 1993 Directors’ Stock Option Plan, and 1997 Employee Stock Purchase
Plan (collectively, the “Plans”), (c) 1,470,109 shares of Common Stock
were reserved for issuance pursuant to the Company’s 5.5% Convertible
Subordinated Notes Due 2007 (the “5.5% Notes”), and (d) 22,284,625 shares
of Common Stock were reserved for issuance pursuant to the Company’s 31⁄2% Convertible Subordinated Notes due 2011 (the “31⁄2% Notes”). 
Associated with each outstanding share of Common Stock are Series A

 

6

 

Participating
Preferred Stock Purchase Rights (the “Rights”) issued pursuant to a Rights
Agreement dated as of September 25, 1998 between the Company and
ChaseMellon Shareholder Services, L.L.C. 
Except for options and other rights to acquire shares issued pursuant to
the Plans, the 5.5% Notes, the 31⁄2% Notes, and the Rights, and for the potential issuance of additional
shares of Common Stock pursuant to the Agreement and Plan of Merger dated as of
November 11, 2002 among the Company, Maxia Pharmaceuticals, Inc. and
the other parties signatory thereto, as of November 4, 2005, the Company
had outstanding no other securities convertible into or exchangeable for its
capital stock, and there were no other outstanding options, warrants, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from the Company of any shares of its capital stock.

 

3.4                                 Authorization.  All corporate action on the part of the
Company necessary for the authorization, execution and delivery of this
Agreement and the Initial Note, the performance of all obligations of the Company
hereunder and thereunder, and the issuance and delivery of the Shares upon
conversion of the Initial Note, has been taken. 
All corporate action on the part of the Company necessary for the
authorization, execution and delivery of the Additional Note, the performance
of all obligations of the Company thereunder, and the issuance and delivery of
the Shares upon conversion of the Additional Note, has been taken or will be
taken on or prior to the Additional Closing. 
This Agreement constitutes a legal, valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except
for the effect of bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting the rights of creditors generally and by
equitable principles of general applicability.  
At or prior to the Initial Closing, the Company will have reserved for
issuance the Shares initially issuable upon conversion of the Initial Note and
at or prior to the Subsequent Closing, the Company will have reserved for
issuance the Shares initially issuable upon conversion of the Additional Note.

 

3.5                                 Valid Issuance. When
delivered to and paid for by the Investor in accordance with the terms of this
Agreement, each Note will be a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except for the
effect of bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting the rights of creditors generally and by
equitable principles of general applicability. 
Upon their issuance in accordance with the terms of the Notes, the
Shares will be duly authorized and validly issued, fully paid and
nonassessable.  Based in part upon the
representations of the Investor in this Agreement, the Notes, and the Shares
issuable upon conversion thereof, will be issued in compliance with all
applicable federal and state securities laws.

 

3.6                                 Non-Contravention.  The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and thereby will
not (a) conflict with, or result in any breach or violation of the
Certificate of Incorporation or the Bylaws of the Company or (b) conflict
with or constitute a breach of, or default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a Lien on any property or asset of the Company or any of its
Subsidiaries pursuant to any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Company or any of its Subsidiaries
is a party or by which it or any of its properties may be bound, or (c) to
the Company’s knowledge violate any law, administrative regulation or court
decree, except in the

 

7

 

case
of clauses (b) and (c) for conflicts, breaches, defaults, violations
or Liens which, either individually or in the aggregate, would not have a
Material Adverse Effect.

 

3.7                                 Governmental
Consents.  No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Authority on the part of the Company is required
in connection with the consummation of the transactions contemplated by this
Agreement, except for such filings as may be required to be made pursuant to
applicable federal or state securities laws or with any stock exchange or
market on which the Shares will be listed, and except for such consents,
approvals, authorizations or orders the absence of which, either individually
or in the aggregate, would not have a Material Adverse Effect and except for
any consent required under the HSR Act with respect to the License Agreement
Effective Date.

 

3.8                                 Litigation.  Except as disclosed in the Company’s Annual
Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”)
for the year ended December 31, 2004 (the “Form 10-K”), the Company’s
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2005
and June 30, 2005 (the “2005 Forms 10-Q”), or any subsequent period 10-Q
or 10-K report or other filings by the Company with the SEC (the “Subsequent
Filings”), there is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or adversely affecting the
Company and its Subsidiaries that would, if determined adversely to the Company
or any Subsidiary, have a Material Adverse Effect.

 

3.9                                 SEC Filings
and Financial Statements.  The
Company has previously made available to the Investor true and complete copies
of the Form 10-K and the 2005 Forms 10-Q. 
The financial statements included in such reports and any Subsequent
Filings are hereafter collectively referred to as the “Financial Statements.”  Each of the balance sheets included in the
Financial Statements (including any related notes and schedules) presents
fairly the financial position of the Company as of its date, and the other
financial statements included in the Financial Statements (including any
related notes and schedules) present fairly the results of operations or other
information included therein of the Company for the periods or as of the dates
therein set forth (subject, in the case of interim financial statements, to
changes resulting from audits and year-end adjustments), and each of the
Financial Statements was prepared in accordance with generally accepted
accounting principles consistently applied during the periods involved (except
as otherwise stated therein and except, in the case of interim financial
statements, to the extent they may not include footnotes or may be condensed or
summary statements).  None of the documents
filed with the SEC and referred to in this Section 3.9 contained, as of
its date, any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

 

3.10                           No Material
Adverse Change.  Since December 31, 2004,
except as otherwise disclosed by the Company in writing to the Investor or as
set forth in the Company’s SEC filings, in each case on or prior to the date
hereof or thereafter in any Subsequent Filings, (a) there has been no
change or development that individually or in the aggregate would have a
Material Adverse Effect, (b) there have been no material transactions
entered into by the Company, and

 

8

 

(c) there
has been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.

 

3.11                           General
Solicitation.  Neither the Company nor any
other person or entity authorized by the Company to act on its behalf has
engaged in a general solicitation or general advertising (within the meaning of
Regulation D of the Securities Act) of investors with respect to offers or
sales of the Notes.

 

4.                                       Representations and
Warranties of the Investor.  The Investor
hereby represents and warrants to, and agrees with, the Company that:

 

4.1                                 Organization.  The Investor is an unlimited liability
company duly organized under the laws of Ireland.  The Investor has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as currently conducted.

 

4.2                                 Authorization.  All action on the part of the Investor
necessary for the authorization, execution and delivery of this Agreement and
for the performance of all obligations of the Investor hereunder has been
taken.  This Agreement constitutes a
legal, valid and binding agreement of the Investor, enforceable against the
Investor in accordance with its terms, except for the effect of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting the rights of creditors generally and by equitable principles of
general applicability.

 

4.3                                 Non-Contravention.  The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and thereby will
not (a) conflict with, or result in any breach or violation of the organizational
documents of the Investor or (b) conflict with or constitute a breach of,
or default (or an event which with notice or lapse of time or both would become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any
property or asset of the Investor pursuant to any contract, indenture,
mortgage, loan agreement, note, lease or other instrument to which the Investor
or any of its Subsidiaries is a party or by which it or any of its properties
may be bound, or (c) to the Investor’s knowledge, violate any Irish law,
administrative regulation or court decree, except in the case of clauses (b) and
(c) for conflicts, breaches, defaults, violations or Liens which, either
individually or in the aggregate, would not be reasonably expected to
materially and adversely impair or restrict the Investor’s ability to perform
its obligations hereunder or to consummate the transactions contemplated
hereby.

 

4.4                                 Governmental
Consents.  No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Authority on the part of the Investor is required
in connection with the consummation of the transactions contemplated by this
Agreement, except for such filings as may be required to be made pursuant to applicable
federal or state securities laws or with any stock exchange or market on which
the Shares will be listed, and except for such consents, approvals,
authorizations or orders the absence of which, either individually or in the
aggregate, would not reasonably be expected to materially and adversely impair
the Investor’s ability to perform its obligations hereunder or to consummate
the transactions contemplated hereby and except for any consent required under
the HSR Act with respect to the License Agreement Effective Date.

 

9

 

4.5                                 Purchase
Entirely for Own Account.  This
Agreement is made with the Investor in reliance upon the Investor’s
representation to the Company, which by the Investor’s execution of this
Agreement the Investor hereby confirms, that each Note, and the Shares issuable
upon conversion thereof, will be acquired for investment for the Investor’s own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and that the Investor has no present
intention of selling, granting any participation in, or otherwise distributing
the same.  By executing this Agreement,
the Investor further represents that the Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or
grant participations to such person or to any third person, with respect to the
Notes or any of the Shares.

 

4.6                                 Restricted
Securities.

 

(a)                                  The Investor understands that each Note,
and the Shares issuable upon conversion thereof, it is or may be purchasing are
characterized as “restricted securities” under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
may be resold without registration under the Securities Act only in certain
limited circumstances.  In addition to
the restrictions on transfer or assignment set forth in the Notes, the Investor
agrees that it will not sell or otherwise dispose of the Note(s) or any of the
Shares unless such sale or other disposition has been registered or is exempt
from registration under the Securities Act and has been registered or qualified
or is exempt from registration or qualification under applicable state
securities laws.

 

(b)                                 Legends. 
The Investor understands and agrees that the Note(s), and any securities
issued in respect thereof or exchange therefor, including without limitation,
the Shares, may bear one or all of the following legends (appropriately
modified in the case of a legend on a certificate representing any Shares):

 

(i)                                     “THIS
SECURITY AND THE SECURITIES ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS.  THEY MAY NOT BE OFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR UNLESS SUCH TRANSACTION
IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION AND, IF REQUESTED BY THE
COMPANY, UPON DELIVERY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
THAT SUCH REGISTRATION IS NOT REQUIRED. 
THE TRANSFER OF THIS SECURITY AND THE SECURITIES ISSUABLE UPON ITS CONVERSION
ARE ALSO SUBJECT TO CERTAIN TRANSFER RESTRICTIONS CONTAINED IN THAT CERTAIN
NOTE PURCHASE AGREEMENT, DATED AS OF NOVEMBER 18, 2005, BETWEEN THE
COMPANY AND THE HOLDER.”

 

(ii)                                  Any legend required by the Blue Sky laws
of any state to the extent such laws are applicable to the Shares represented
by the certificate so legended.

 

10

 

4.7                                 Investor
Status.  The Investor certifies and
represents to the Company that, as of the date hereof and at the time the
Investor acquires any Note, the Investor is and will be an “accredited investor”
as defined in Rule 501 of Regulation D promulgated under the Securities
Act.  The Investor’s financial condition
is such that it is able to bear the risk of holding the Notes and Shares for an
indefinite period of time and the risk of loss of its entire investment.  The Investor has been afforded the
opportunity to ask questions of and receive answers from the management of the
Company concerning this investment and is able to evaluate the risks and merits
of its investment in the Company.

 

5.                                       Conditions to
Closing.

 

5.1                                 Conditions of
the Investor’s Obligations at the Initial Closing.  The obligations of the Investor to purchase
from the Company the Initial Note and to consummate the transactions to be
consummated at the Initial Closing are subject to the fulfillment on or before
the Initial Closing of each of the following conditions, any of which may be
waived in writing in whole or in part by the Investor:

 

(a)                                  The Company and the Investor shall have
executed and delivered the License Agreement and the Security Agreement.

 

(b)                                 The representations and warranties of
the Company contained herein shall be true and correct on and as of the Initial
Closing Date with the same force and effect as though made on and as of the
Initial Closing Date (it being understood and agreed that, in the case of any
representation and warranty of the Company contained herein that is made as of
a specific date, such representation and warranty need be true and correct only
as of such specific date and it being further understood and agreed that, in
the case of any representation and warranty of the Company contained herein
that is not hereinabove qualified by application thereto of a materiality
standard, such representation and warranty need be true and correct only in all
material respects in order to satisfy as to such representation and warranty
the condition precedent set forth in the foregoing provision of this Section 5.1(b)).

 

(c)                                  The Company shall have performed in all
material respects all obligations, agreements, covenants and conditions herein
required to be performed or observed by the Company under this Agreement, the
License Agreement and the Security Agreement on or prior to the Initial Closing
Date.  No event shall have occurred that
(with or without the delivery of notice or passage of time) may result in the
termination of this Agreement or the License Agreement or an Event of Default
(as defined in the Security Agreement) under the Security Agreement, which
event shall not have been cured (if capable of being cured) within the time
period specified in the applicable agreement.

 

(d)                                 The Investor shall have received a
certificate, dated the Initial Closing Date, signed by an executive officer of
the Company, certifying on behalf of the Company that the conditions specified
in the foregoing Sections 5.1(b) and (c) have been fulfilled.

 

(e)                                  No order enjoining or restraining the
transactions contemplated by this Agreement or the License Agreement shall be
in effect and no action or proceeding before any Governmental Authority shall
have been instituted or pending that challenges the acquisition of,

 

11

 

or payment for, the
Initial Note by the Investor or otherwise seeks to restrain or prohibit
consummation of the transactions contemplated by this Agreement or the License
Agreement or seeking to impose any 
limitations on any provisions of this Agreement or the License
Agreement.

 

(f)                                    The Investor shall have received from
Pillsbury Winthrop Shaw Pittman LLP, counsel for the Company, an opinion, dated
as of the Initial Closing Date, in form and substance reasonably satisfactory
to counsel for the Investor, to substantially the effect set forth in Exhibit B
hereto.

 

(g)                                 The License Agreement Effective Date
shall have occurred.

 

5.2                                 Conditions of
the Company’s Obligations at the Initial Closing.  The obligations of the Company to issue and
sell to the Investor the Initial Note and to consummate the transactions to be
consummated at the Initial Closing are subject to the fulfillment on or before
the Initial Closing of each of the following conditions by the Investor, any of
which may be waived in writing in whole or in part by the Company:

 

(a)                                  The Company and the Investor shall have
executed and delivered the License Agreement and Security Agreement.

 

(b)                                 The representations and warranties of
the Investor contained herein shall be true and correct on and as of the
Initial Closing Date with the same force and effect as though made on and as of
the Initial Closing Date (it being understood and agreed that, in the case of
any representation and warranty of the Investor contained herein that is made
as of a specific date, such representation and warranty need be true and
correct only as of such specific date and it being further understood and
agreed that, in the case of any representation and warranty of the Investor
contained herein that is not hereinabove qualified by application thereto of a
materiality standard, such representation and warranty need be true and correct
only in all material respects in order to satisfy as to such representation and
warranty the condition precedent set forth in the foregoing provision of this Section 5.2(b)).

 

(c)                                  The Investor shall have performed in all
material respects all obligations, agreements, covenants and conditions herein
required to be performed or observed by the Investor under this Agreement, the
License Agreement and the Security Agreement on or prior to the Initial Closing
Date.  No event shall have occurred that
(with or without the delivery of notice or passage of time) may result in the
termination of this Agreement or the License Agreement or an Event of Default
(as defined in the Security Agreement) under the Security Agreement, which
event shall not have been cured (if capable of being cured) within the time
period specified in the applicable agreement.

 

(d)                                 The Company shall have received a
certificate, dated the Initial Closing Date, signed by an authorized
representative of the Investor, certifying on behalf of the Investor that the
conditions specified in the foregoing Sections 5.2(b) and (c) have
been fulfilled.

 

(e)                                  No order enjoining or restraining the
transactions contemplated by this Agreement or the License Agreement shall be
in effect and no action or proceeding before any Governmental Authority shall
have been instituted or pending that challenges the acquisition of,

 

12

 

or payment for, the
Initial Note by the Investor or otherwise seeks to restrain or prohibit
consummation of the transactions contemplated by this Agreement or the License
Agreement or seeking to impose any limitations on any provisions of this
Agreement or the License Agreement.

 

(f)                                    The Investor shall have delivered to the
Company the Purchase Price for the Initial Note specified in Section 2.1(a) by
check or by wire transfer in immediately available funds in accordance with the
provisions of Section 2.2.

 

(g)                                 The License Agreement Effective Date
shall have occurred.

 

5.3                                 Conditions of
the Investor’s Obligations at the Subsequent Closing.  The obligations of the Investor to purchase
from the Company the Additional Note and to consummate the transactions to be
consummated at the Subsequent Closing, if any, are subject to the fulfillment
on or before the Subsequent Closing of each of the following conditions, any of
which may be waived in writing in whole or in part by the Investor:

 

(a)                                  The representations and warranties of
the Company contained herein shall be true and correct on and as of the
Subsequent Closing Date with the same force and effect as though made on and as
of the Subsequent Closing Date (it being understood and agreed that, in the
case of any representation and warranty of the Company contained herein that is
made as of a specific date, such representation and warranty need be true and
correct only as of such specific date and it being further understood and
agreed that, in the case of any representation and warranty of the Company
contained herein that is not hereinabove qualified by application thereto of a
materiality standard, such representation and warranty need be true and correct
only in all material respects in order to satisfy as to such representation and
warranty the condition precedent set forth in the foregoing provision of this Section 5.3(a)).

 

(b)                                 The Company shall have performed in all
material respects all obligations, agreements, covenants and conditions herein
required to be performed or observed by the Company under this Agreement, the
License Agreement, the Security Agreement, the Research Plan and the Transition
Plan on or prior to the Subsequent Closing Date.  No event shall have occurred that (with or
without the delivery of notice or passage of time) may result or has resulted
in the termination of this Agreement or the License Agreement or an Event of
Default (as defined in the Security Agreement) under the Security Agreement,
which event shall not have been cured (if capable of being cured) within the
time period specified in the applicable agreement.

 

(c)                                  The Investor shall have received a
certificate, dated the Subsequent Closing Date, signed by an executive officer
of the Company, certifying on behalf of the Company that the conditions
specified in the foregoing Sections 5.3(a) and (b) have been
fulfilled.

 

(d)                                 No order enjoining or restraining the
transactions contemplated by this Agreement or the License Agreement shall be
in effect and no action or proceeding before any Governmental Authority shall
have been instituted or pending that challenges the acquisition of, or payment
for, the Additional Note by the Investor or otherwise seeks to restrain or
prohibit consummation of the transactions contemplated by this Agreement or the
License Agreement or

 

13

 

seeking to impose any
limitations on any provisions of this Agreement or the License Agreement.

 

(e)                                  The Investor shall have received from
Pillsbury Winthrop Shaw Pittman LLP, counsel for the Company, an opinion, dated
as of the Subsequent Closing Date, in form and substance reasonably
satisfactory to counsel for the Investor, to substantially the effect set forth
in Exhibit B hereto.

 

(f)                                    The Investor shall have received the
written notice of the Company to issue an Additional Note to the Investor
pursuant to Section 2.1(b) on or prior to the third anniversary of
the Initial Closing Date.

 

5.4                                 Conditions of
the Company’s Obligations at the Subsequent Closing.  The obligations of the Company to issue and
sell to the Investor the Additional Note and to consummate the transactions to
be consummated at the Subsequent Closing, if any, are subject to the
fulfillment on or before the Subsequent Closing of each of the following
conditions by the Investor, any of which may be waived in writing in whole or
in part by the Company:

 

(a)                                  The representations and warranties of
the Investor contained herein shall be true and correct on and as of the
Subsequent Closing Date with the same force and effect as though made on and as
of the Subsequent Closing Date (it being understood and agreed that, in the
case of any representation and warranty of the Investor contained herein that
is made as of a specific date, such representation and warranty need be true
and correct only as of such specific date and it being further understood and
agreed that, in the case of any representation and warranty of the Investor
contained herein that is not hereinabove qualified by application thereto of a
materiality standard, such representation and warranty need be true and correct
only in all material respects in order to satisfy as to such representation and
warranty the condition precedent set forth in the foregoing provision of this Section 5.4(a)).

 

(b)                                 The Investor shall have performed in all
material respects all obligations, agreements, covenants and conditions herein
required to be performed or observed by the Investor under this Agreement, the
License Agreement, the Security Agreement, the Research Plan and the Transition
Plan on or prior to the Subsequent Closing Date.  No event shall have occurred that (with or
without the delivery of notice or passage of time) may result or has resulted
in the termination of this Agreement or the License Agreement or an Event of
Default (as defined in the Security Agreement) under the Security Agreement,
which event shall not have been cured (if capable of being cured) within the
time period specified in the applicable agreement.

 

(c)                                  The Company shall have received a
certificate, dated the Subsequent Closing Date, signed by an executive officer
of the Investor, certifying on behalf of the Investor that the conditions
specified in the foregoing Sections 5.4(a) and (b) have been
fulfilled.

 

(d)                                 No order enjoining or restraining the
transactions contemplated by this Agreement or the License Agreement shall be
in effect and no action or proceeding before any Governmental Authority shall
have been instituted or pending that challenges the acquisition of, or payment
for, the Additional Note by the Investor or otherwise seeks to restrain or prohibit

 

14

 

consummation of the
transactions contemplated by this Agreement or the License Agreement or seeking
to impose any limitations on any provisions of this Agreement or the License
Agreement.

 

(e)                                  The Investor shall have delivered to the
Company the Purchase Price for the Additional Note specified in Section 2.1(b) by
check or by wire transfer in immediately available funds in accordance with the
provisions of Section 2.2.

 

6.                                       Covenants of the
Investor.  The Investor covenants and agrees
as follows:

 

6.1                                 Lockup
Provisions.  For so long as Pfizer Inc.
owns beneficially two percent (2%) or more of the outstanding Common Stock
(within the meaning of and as calculated in accordance with Rule 13d-3
under the Exchange Act), the Investor hereby agrees that it will not, without
prior written consent of the Company or its designated managing underwriter(s)
or initial purchaser(s) and except in connection with any tender offer or
exchange offer made generally to the Company’s holders of Common Stock or in
connection with any commitment then in effect, to the extent applicable, during
the period commencing on the date of the final prospectus or offering
memorandum relating to a public underwritten offering by the Company and ending
on the date specified by the Company and such managing underwriter or initial
purchaser (such period not to exceed ninety (90) days) (i) lend, offer,
pledge, sell, contract to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock issued upon conversion of the Notes or any securities convertible
into or exercisable or exchangeable for Common Stock issued upon conversion of
the Notes held immediately prior to the effectiveness of the registration
statement for such offering, or (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock issued upon conversion of the
Notes, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or other securities, in cash or
otherwise, and will enter into an agreement in a form satisfactory to the
Company and such managing underwriter(s) or initial purchaser(s) to evidence
the foregoing; provided that all of the
directors and executive officers of the Company, together with all stockholders
who have been granted registration rights by the Company with respect to their
shares of Common Stock after the date of this Agreement, enter into and remain
subject to similar agreements and restrictions. 
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the securities subject to such
covenant until the end of such period.

 

6.2                                 Note Transfer
Restrictions.  The Investor agrees that the
Note(s) may not be transferred or assigned by the Investor, except to any
Wholly-Owned Subsidiary of Pfizer Inc. or the Investor.

 

7.                                       Registration Rights.

 

7.1                                 Definitions.  For purposes of this Section 7:

 

(a)                                  “Register,”
“registered,” and “registration” refer to a registration effected by preparing
and filing a registration statement or similar document in compliance with the

 

15

 

Securities Act, and the declaration or ordering of effectiveness of
such registration statement or document.

 

(b)                                 “Registrable
Securities” means (i) the Common Stock issuable or issued upon conversion
of the Notes, and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other
security that is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of the shares referenced in (i) above,
excluding in all cases, however, any Registrable Securities sold by a Person in
a transaction in which its rights under this Section 7 are not assigned.

 

7.2                                 Request for Registration.

 

(a)                                  Subject
to the conditions of this Section 7.2, if the Company shall receive at any
time a written request from the Investor that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities with an expected aggregate offering price to the public of at least
$12,500,000 (before deduction of underwriting discounts and commissions), then
the Company shall prepare and file as soon as practicable, and in any event
within seventy-five (75) days of the receipt of such request, a
registration statement under the Securities Act covering all Registrable
Securities that the Investor requests to be registered, subject to the
limitations of Section 7.2(b).

 

(b)                                 If
the Investor intends to distribute the Registrable Securities covered by its
request by means of an underwriting, it shall so advise the Company as a part
of its request made pursuant to Section 7.2(a).  The underwriter or underwriters shall be
selected by the Company and shall be reasonably acceptable to the
Investor.  In such event, the right of
the Investor to include Registrable Securities in such registration shall be
conditioned upon the Investor’s participation in such underwriting and the
inclusion of Registrable Securities in the underwriting  to the extent provided herein.  The Investor shall (together with the Company
as provided in Section 7.5(g)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting.  If the underwriter advises
the Investor in writing that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares of Registrable
Securities to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting.

 

(c)                                  The
Company shall not be obligated to effect, or to take any action to effect, any
registration pursuant to this Section 7.2:

 

(i)                                     in
any particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration, unless
the Company is already subject to service in such jurisdiction and except as
may be required under the Securities Act;

 

(ii)                                  after
the Company has effected one (1) registration pursuant to this Section 7.2
and such registration has been declared or ordered effective (it being
understood that the Investor may still have a right to request registration
pursuant to Section 7.4 below);

 

(iii)                               during
the period starting with the date sixty (60) days prior to the Company’s
good faith estimate of the date of filing of, and ending on the date that is
one

 

16

 

hundred twenty (120) days after the effective
date of a Company-initiated registration subject to Section 7.3 hereof;
provided that (a) the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective, (b) the
period referenced in this Section 7.2(c)(iii) may not exceed two
hundred and ten (210) days, and (c) a request by the Company may only be
made once; or

 

(iv)                              if
the Company shall furnish to the Investor a certificate signed by the Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration to be effected at such time,
in which event the Company shall have the right to defer such filing for a
period of not more than sixty (60) days after receipt of the request of
the Investor; provided, however, that the Company may not utilize this right
more than once in any twelve (12) month period.

 

7.3                                 Company Registration.

 

(a)                                  If
(but without any obligation to do so) the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than the Investor) any of its Common Stock under the Act in
connection with a firm commitment underwritten public offering solely of Common
Stock and solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, a registration on
any form which does not include substantially the same information as
would be required to be included in a registration statement covering the sale
of the Registrable Securities, or a registration in which the only Common Stock
being registered is Common Stock issuable upon conversion of debt securities
that are also being registered), the Company shall, at such time, promptly give
the Investor written notice of such registration.  Upon the written request of the Investor given
within fifteen (15) days after mailing of such notice by the Company in
accordance with Section 8.4, the Company shall, subject to the provisions
of Section 7.3(b), cause to be registered under the Securities Act all of
the Registrable Securities that the Investor has requested to be registered.

 

(b)                                 In
connection with any offering involving an underwriting of shares being issued
by the Company, the Company shall not be required under Section 7.3(a) to
include any of the Investor’s securities in such underwriting unless it accepts
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by the Company (or by other persons entitled to select
the underwriters), and then only in such quantity as the underwriters determine
in their sole discretion will not jeopardize the success of the offering by the
Company.  If the total amount of
securities, including Registrable Securities, requested by stockholders to be included
in such offering exceeds the amount of securities sold other than by the
Company that the underwriters determine in their sole discretion is compatible
with the success of the offering, then the Company shall be required to include
in the offering only that number of such securities, including Registrable
Securities, which the underwriters determine in their sole discretion will not
jeopardize the success of the offering (the securities so included to be
apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders) but provided, however,
that the number of shares of (i) Registrable Securities, and (ii) securities
of the Company (i.e., primary shares) to be included

 

17

 

in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting; provided, further,
that in no event shall the amount of securities of the Investor included in the
offering be reduced below (x) three percent (3%) of the total amount of
securities included in such offering, if such offering occurs on or prior to
the third anniversary of the date of this Agreement, or (y) thirty percent
(30%) of the total amount of securities included in such offering, if such
offering occurs after the third anniversary of the date of this Agreement.

 

7.4                                 Form S-3 Registration.  If
the Company shall receive at any time a written request from the Investor that
the Company file a registration statement under the Securities Act covering the
registration of Registrable Securities (which request shall state the number of
shares of Registrable Securities to be disposed of and the intended methods of
disposition of such shares, which shall not require the Company to participate
in an underwritten offering), then the Company shall prepare and file as soon
as practicable, and in any event within seventy-five (75) days of the
receipt of such request, a registration statement on Form S-3 under the
Securities Act covering such Registrable Securities; provided, however, that the Company shall not be obligated
to effect any such registration pursuant to this Section 7.4:  (i) if Form S-3 is not available
for such offering by the Investor; (ii) if the Company shall furnish to
the Investor a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such registration to be effected at such time, in which event the Company
shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than sixty (60) days after receipt of the
request of the Investor under this Section 7.4; provided, however, that the Company shall not utilize this
right more than once in any twelve (12) month period; or (iii) after the
Company has effected one (1) registration pursuant to this Section 7.4
and such registration has been declared or ordered effective.

 

7.5                                 Obligations of the Company. 
Whenever required under this Section 7 to effect the registration
of any Registrable Securities, the Company shall, as expeditiously as
reasonably possible:

 

(a)                                  Prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use all reasonable efforts to cause such registration statement
to become effective, and keep such registration statement effective for a
period of up to ninety (90) days or until the distribution contemplated in
the Registration Statement has been completed (such period, as may be extended
hereunder, the “Effectiveness Period”); provided,
however, that the Effectiveness Period shall be extended for a
period of time equal to the period the Investor refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company.  In the event that, in the reasonable judgment
of the Company, it is advisable to suspend use of the prospectus relating to
such registration statement for a discrete period of time (a “Deferral Period”)
due to pending material corporate developments or similar material events that
have not yet been publicly disclosed and as to which the Company believes
public disclosure will be prejudicial to the Company, the Company shall deliver
written notice to the Investor to the effect of the foregoing and, upon receipt
of such notice, the Investor agrees not to dispose of Registrable Securities
covered by such registration statement (other than in transactions exempt from
the registration requirements under the Securities Act); provided, however, that such Deferral
Period for all registration statements under this Section 7 shall be no
longer than forty-five (45) days in any three-month

 

18

 

period or ninety (90) days in any 12-month period; provided, that in the case of a pending material corporate
development or similar material event relating to an acquisition or a probable
acquisition or financing, recapitalization, business combination or other
similar transaction, the Company may, without incurring any obligation to pay
liquidated damages pursuant to Section 7.10, deliver to the Investor a
second written notice to the effect set forth above, which shall have the
effect of extending the Deferral Period by up to an additional fifteen (15) days
in any three-month period, or such shorter period of time as is specified in
such second notice. The
Effectiveness Period shall be extended for a period of time equal to such
Deferral Period.

 

(b)                                 Furnish,
at least five (5) days before filing a registration statement that
registers such Registrable Securities, a draft prospectus relating thereto and
any amendments or supplements (if any) relating to such registration statement
or prospectus, to one (1) counsel selected by the Investor (“Investor
Counsel”) copies of all such documents proposed to be filed (it being
understood that such five (5) day period need not apply to successive
drafts of the same document proposed to be filed so long as such successive
drafts are supplied to Investor Counsel in advance of the proposed filing by a
period of time that is customary under the circumstances).

 

(c)                                  Notify
Investor Counsel promptly in writing (i) of any comments by the SEC with
respect to such registration statement or prospectus, or any request by the SEC
for the amending or supplementing thereof or for additional information with
respect thereto, (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of such registration statement or prospectus or
any amendment or supplement thereto or the initiation of any proceedings for
that purpose, and (iii) of the receipt by the Company of any notification
with respect to the suspension of the qualification of such Registrable
Securities for sale in any jurisdiction.

 

(d)                                 Prepare
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement.

 

(e)                                  Furnish
to the Investor such numbers of copies of a prospectus, including a preliminary
prospectus, and any amendment or supplement thereto, all in conformity with the
requirements of the Securities Act, and such other documents as the Investor may
reasonably request in order to facilitate the disposition of such Registrable
Securities.

 

(f)                                    Use
all reasonable efforts to register and qualify the securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as shall be reasonably requested by the Investor; provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required under the Securities Act.

 

(g)                                 In
the event of any underwritten public offering, enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter(s) of such offering. 
If the Investor participates in such underwriting, it shall also enter
into and perform the Investor’s obligations under such an agreement.

 

19

 

(h)                                 Promptly
notify the Investor at any time when a prospectus relating thereto is required
to be delivered under the Securities Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or, if for any reason it shall be necessary during such time period
to amend or supplement the registration statement or the prospectus in order to
comply with the Securities Act, whereupon, in either case, the Investor shall
immediately cease to use such registration statement or prospectus for any
purpose and, as promptly as practicable thereafter, the Company shall prepare
and file with the SEC, and furnish without charge to the Investor and managing
underwriters, if any, a supplement or amendment to such registration statement
or prospectus that will correct such statement or omission or effect such
compliance and such copies thereof as the Investor and any underwriters may
reasonably request.

 

(i)                                     Cause
all such Registrable Securities registered pursuant hereunder to be listed on
each securities exchange, stock market or automated quotation system on which
similar securities issued by the Company are then listed.

 

(j)                                     Provide
a transfer agent and registrar for all Registrable Securities registered
pursuant hereunder and a CUSIP number for all such Registrable Securities, in
each case not later than the effective date of such registration.

 

(k)                                  Use its reasonable
efforts to furnish, at the request of the underwriter pursuant to an
underwriting agreement, on the date that such Registrable Securities are
delivered to the underwriters for sale in connection with a registration
pursuant to Section 7.2, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, and (ii) a letter, dated such
date, from the independent registered public accounting firm of the Company, in
form and substance as is customarily given by independent registered public
accounting firm to underwriters in an underwritten public offering, addressed
to the underwriters.

 

7.6                                 Furnish Information.  It
shall be a condition precedent to the obligations of the Company to take any
action pursuant to this Section 7 with respect to the Registrable
Securities of the Investor that the Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to
effect the registration of the Investor’s Registrable Securities.

 

7.7                                 Expenses of Registration.

 

(a)                                  Except
as set forth in Section 7.7(b), the Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to
Sections 7.2, 7.3 and 7.4 hereof, including (without limitation) all registration,
filing, and qualification fees, printers’ and accounting fees, blue sky fees
and expenses, including fees and disbursements of counsel related to all blue
sky matters, fees and expenses of listing any Registrable Securities on any
securities exchange, stock market or automated quotation system on which shares
of Common Stock are then listed, fees and

 

20

 

disbursements of counsel for the Company, and the
reasonable fees and disbursements of Investor Counsel, but excluding stock
transfer taxes that may be payable by the Investor and underwriting discounts
and commissions relating to Registrable Securities covered by such
registration, which shall be borne by the Investor.

 

(b)                                 Notwithstanding
Section 7.7(a), the Company shall not be required to pay for any expenses
of any registration proceeding begun pursuant to Section 7.2 if the
registration request is subsequently withdrawn at the request of the Investor,
unless the Investor agrees to forfeit its right to one demand registration
pursuant to Section 7.2; provided,
however, that if such withdrawal
occurs prior to the date the registration statement shall have become effective
and at the time of such withdrawal, the Investor has learned of a material adverse
change in the financial condition, business, properties or results of
operations of the Company from that known to the Investor at the time of its request
and have withdrawn the request with reasonable promptness following disclosure
by the Company of such material adverse change, then the Investor shall not be
required to pay any of such expenses and shall retain its rights pursuant to
Sections 7.2 and 7.4.

 

7.8                                 Delay of Registration.  The
Investor shall have no right to obtain or seek an injunction restraining or
otherwise delaying any Company-initiated registration subject to Section 7.3
as the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 7.

 

7.9                                 Indemnification.  In
the event any Registrable Securities are included in a registration statement
under this Section 7:

 

(a)                                  To
the extent permitted by law, the Company will indemnify and hold harmless the
Investor, the officers and directors of the Investor, any underwriter (as
defined in the Securities Act) of such Registrable Securities and each person.
if any, who controls the Investor or such underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Securities
Act, the Exchange Act or other federal or state securities law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively, a “Violation”): (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the Exchange
Act, any state securities law or any rule or regulation promulgated under
the Securities Act, the Exchange Act or any state securities law; and the
Company will reimburse, as incurred, the Investor and each such officer,
director, underwriter or controlling person, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in
this Section 7.9(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent shall not be
unreasonably withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that it arises

 

21

 

out of or is based upon a Violation that occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by the Investor or any such officer,
director, underwriter or controlling person.

 

(b)                                 To
the extent permitted by law, the Investor will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within
the meaning of the Securities Act, and any underwriter, against any losses,
claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, the Exchange
Act or other federal or state securities law insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by the Investor expressly for use in connection with such
registration; and the Investor will reimburse any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this Section 7.9(b),
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however,
that the indemnity agreement contained in this Section 7.9(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Investor, which consent shall not be unreasonably withheld; provided further, that, in no event shall
any indemnity under this Section 7.9(b) exceed the aggregate gross
proceeds from the sale of the Registrable Securities received by the Investor from
the shares sold by the Investor in the offering in question, except in the case
of willful fraud by the Investor.

 

(c)                                  Promptly
after receipt by an indemnified party under this Section 7.9 of notice of
the commencement of any action (including any governmental action), such
indemnified party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7.9, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying party
shall have the right to participate in, and, to the extent the indemnifying
party so desires, jointly with any other indemnifying party similarly noticed,
to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party (together with all other
indemnified parties that may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential differing interests between such indemnified party
and any other party represented by such counsel in such proceeding.  The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section 7.9,
but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party otherwise
than under this Section 7.9.  An
indemnifying party shall not, without the prior written consent of the
indemnified parties, settle, compromise or consent to the entry of any judgment
with respect to any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder by such indemnified parties
(whether or not the indemnified parties are actual or potential parties to such
claim or action) unless such settlement, compromise or consent includes a
release of such indemnified party reasonably acceptable to such indemnified
party from all liability arising out of such claim, action, suit or proceeding.

 

22

 

(d)                                 If
the indemnification provided for in this Section 7.9 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, liability, claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a result
of such loss, liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage,
or expense as well as any other relevant equitable considerations; provided,
that in no event shall any contribution by the Investor under this Section 7.9(d) exceed
the net proceeds from the offering received by the Investor, except in the case
of willful fraud by the Investor.  The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties’ relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.

 

(e)                                  Notwithstanding
the foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.

 

(f)                                    The
obligations of the Company and the Investor under this Section 7.9 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Section 7, and otherwise.

 

7.10                           Liquidated
Damages.

 

(a)                                  The parties hereto agree that the
Investor will suffer damages, and that it would not be feasible to ascertain
the extent of such damages with precision, if:

 

(i)                                     the registration statement pursuant to Section 7.2
has not been filed within the time period required therein;

 

(ii)                                  the registration statement pursuant to Section 7.4
has not been filed within the time period required therein;

 

(iii)                               the aggregate duration of Deferral
Periods in any period exceeds the number of days permitted in respect of such
period pursuant to Section 7.5(a) hereof; or

 

(iv)                              the number of Deferral Periods in any
period exceeds the number permitted in respect of such period pursuant to Section 7.5(a) hereof.

 

Each event described in
any of the foregoing clauses (i) through (iv) is individually
referred to herein as a “Registration Default.” For purposes of this Agreement,
each Registration Default set forth above shall begin and end on the dates set
forth in the table set forth below:

 

23

 

	
  Type of

  Registration

  Default by

  Clause

  	
   

  	
  Beginning Date

  	
   

  	
  Ending Date

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (i)

  	
   

  	
  filing deadline pursuant to Section 7.2

  	
   

  	
  the date the initial registration statement is filed

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  filing deadline pursuant to Section 7.4

  	
   

  	
  the date the initial registration statement is filed

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  the date on which the aggregate duration of Deferral Periods in any
  period exceeds the number of days permitted by Section 7.5(a)

  	
   

  	
  termination of the Deferral Period that caused the limit on the
  aggregate duration of Deferral Periods to be exceeded

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (iv)

  	
   

  	
  the date of commencement of a Deferral Period that causes the number
  of Deferral Periods to exceed the number permitted by Section 7.5(a)

  	
   

  	
  termination of the Deferral Period that caused the number of Deferral
  Periods to exceed the number permitted by Section 7.5(a)

  

 

For purposes of this
Agreement, Registration Defaults shall begin on the dates set forth in the
table above and shall continue until the ending dates set forth in the table
above.

 

(b)                                 Commencing
on (and including) any date that a Registration Default has begun and ending on
(but excluding) the next date on which there are no Registration Defaults that
have occurred and are continuing (a “Registration Default Period”), the Company shall pay, as
liquidated damages and not as a penalty, to the Investor in respect of each day
in the Registration Default Period, liquidated damages in respect of each share
of Registrable Securities at a rate per annum equal to 0.25% of the Conversion
Price (as defined in the Notes) on such date (the “Initial Liquidated Damages
Amount”) for the first 90 days starting on the date that a Registrable Default
begins, and at a rate per annum equal to 0.5% on the Conversion Price on such
date (the “Subsequent Liquidated
Damages Amount”, and together with the Subsequent Liquidated Damages
Amount, the “Liquidated Damages Amount”) after the first 90 days of such
Registration Default Period, as the case may be.  In calculating the Liquidated Damages Amount
on shares of Registrable Securities on any date on which no Notes are
outstanding, the Conversion Price used shall be based on the Conversion Price
that would be in effect if the Notes were still outstanding.  Notwithstanding the foregoing, no Liquidated
Damages Amount shall accrue as to any Registrable Security from and after the
earlier of (x) the date such security is no longer a Registrable Security and
(y) termination of the registration rights applicable to such Registrable
Security pursuant to Section 7.11. 
The rates of accrual of the Liquidated Damages Amount with respect to
any period shall not exceed the rates provided for in this paragraph
notwithstanding the occurrence of multiple concurrent Registration Defaults.

 

24

 

(c)                                  The
Liquidated Damages Amount shall be payable on each six-month anniversary of the
Initial Closing or the Subsequent Closing, as applicable, during the
Registration Default Period (and on such applicable six-month anniversary next
succeeding the end of the Registration Default Period if the Registration
Default Period does not end on such applicable six-month anniversary) to the Investor
as provided in wire transfer instructions provided in writing by the Investor
to the Company pursuant to the provisions of Section 8.4.  Notwithstanding the foregoing, the parties
agree that the sole damages payable for a violation of the terms of this
Agreement with respect to which liquidated damages are expressly provided shall
be such liquidated damages. Nothing shall preclude the Investor from pursuing
or obtaining specific performance or other equitable relief with respect to
this Agreement.

 

(d)                                 All
of the Company’s payment obligations set forth in this 7.10 that have accrued
with respect to any Registrable Security at the time such security ceases to be
a Registrable Security shall survive until such time as all such payment
obligations with respect to such security have been satisfied in full (notwithstanding
termination of this Agreement pursuant to Section 8.1).

 

(e)                                  The
parties hereto agree that the liquidated damages provided for in this Section 7.10
constitute a reasonable estimate of the damages that may be incurred by the
Investor as a holder of Registrable Securities by reason of the failure of a registration
statement to be filed or available for effecting resales of Registrable
Securities in accordance with the provisions of this Section 7.

 

7.11                           Termination of
Registration Rights.  The
right of the Investor to request registration or inclusion in any registration
pursuant to Section 7.2, Section 7.3 or Section 7.4 shall
terminate (a) as to Registrable Securities relating to the Initial Note, on
the seventh anniversary of the Initial Closing and (b) as to Registrable
Securities relating to the Additional Note, on the seventh anniversary of the
Subsequent Closing.

 

8.                                       Miscellaneous.

 

8.1                                 Termination;
Term of Agreement.

 

(a)                                  This Agreement may be terminated by
either party by written notice to the other party in the event that the Initial
Closing Date does not occur on or before the date six months from the date of
this Agreement or such other date as the Company and the Investor shall
mutually agree in writing.  This
Agreement may be terminated by the Investor by written notice to the Company in
the event that the Company does not exercise its option to issue an Additional
Note to the Investor pursuant to Section 2.1(b) by the third anniversary
of the Initial Closing Date.  Unless
otherwise agreed to by the parties in writing, this Agreement will
automatically terminate upon the occurrence of any of the following:  (i) termination of the License
Agreement, or (ii) an Incyte Change in Control, or (iii) an Event of
Default under the Security Agreement.

 

(b)                                 Nothing herein shall relieve any party
from liability for any breach hereof.

 

8.2                                 Public
Announcements.  Each party agrees to cooperate
with the other in the preparation of any governmental filing relating to the
transactions contemplated hereby.  Each

 

25

 

party
may make a public statement (written or oral), including in analyst meetings,
concerning this Agreement where such statement (x) is required by Law or legal
proceeding, (y) is contained in Pfizer Inc.’s or Incyte’s financial statements
prepared in accordance with generally accepted accounting principles in the
United States of America, or (z) has been previously announced under this Section 8.2
so long as such statement is consistent with any previous announcement
permitted hereunder.  In all cases, the party required to or proposing to
make such statement shall (i) endeavor to obtain confidential treatment of
economic and trade secret information and (ii) give the other party
sufficient advance notice of the text of any proposed statement (written or
oral) so that the other party will have the opportunity to comment upon the
statement and such comments will be taken into account in the final statement.

 

8.3                                 Successors and
Assigns.  The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. 
Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.  Except as provided in Section 6.2,
neither the Company nor the Investor shall assign this Agreement or any rights
hereunder or delegate any duties hereunder without the prior written consent of
the other (which consent may be withheld for any reason in the sole discretion
of the party from whom consent is sought).

 

8.4                                 Notices.  Unless otherwise provided, any notice,
request, demand or other communication required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified, or when sent by telecopier (with
receipt confirmed), or overnight courier service, or upon deposit with the
United States Post Office, by registered or certified mail, postage prepaid and
addressed as follows (or at such other address as a party may designate by
notice to the other):

 

If to the Company:

 

Incyte Corporation

Experimental Station

Route 141 & Henry Clay Road

Building E336

Wilmington, DE 19880

Attention: 
General Counsel

Telecopier: 
(302) 425-2707

 

with a copy to:

 

Pillsbury Winthrop Shaw Pittman LLP

50 Fremont Street

San Francisco, CA 94105

Attention: 
Stanton D. Wong, Esq.

Telecopier:  (415) 983-1200

 

and

 

26

 

Pillsbury Winthrop Shaw Pittman LLP

1540 Broadway

New York, New York 10036

Attention: 
Babak Yaghmaie, Esq.

Telecopier:  (212) 858-1500

 

If to the Investor:

 

Pfizer
Inc.

235 East 42nd Street

New York, New York 10017

 

Attention: 
Treasurer

Telecopier:  (212)
338-1558

 

with a copy to:

 

Attention:  Executive Vice President and General Counsel

Telecopier:
212-808-8924

 

8.5                                 Survival.  Notwithstanding
any investigation made by any party to this Agreement and except as set forth
in Section 8.1, all covenants, agreements, representations and warranties
made by the Company and the Investor herein shall survive without limitation
the execution hereof, the delivery to the Investor of the Initial Note,
Additional Note and/or shares of Common Stock being purchased, and the payments
therefor.

 

8.6                                 Finders or
Brokers.  The Investor represents that
it has not engaged any investment banker, finder or broker, and neither is nor
will be obligated for any finder’s fee or commission, in connection with the
transactions contemplated hereby.  The
Company represents that it has not engaged any investment banker, finder or
broker, and neither is nor will be obligated for any finder’s fee or
commission, in connection with the transactions contemplated hereby.  Each party agrees to indemnify and hold
harmless the other from the liability for any fees, commissions and other
payments (and the costs and expenses of defending against such liability or
asserted liability) that may be owing as a result of such party’s breach of its
representation made in this Section 8.6.

 

8.7                                 Expenses.  Each party hereto shall pay all of its own
costs and expenses incurred in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the transactions
contemplated herein, whether or not such transactions are consummated.

 

8.8                                 Waivers.  The observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company
and the Investor.  No waiver by either
party of any default with respect to any provision, condition or requirement
hereof shall be deemed to be a continuing waiver in the future thereof or a
waiver of any other provision, condition or requirement hereof;

 

27

 

nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right accruing to it
thereafter.  Any waiver effected in
accordance with this paragraph shall be binding upon each holder of any securities
purchased under this Agreement at the time outstanding, each future holder of
all such securities, and the Company.

 

8.9                                 Severability.  If one or more provisions of this Agreement
are held to be unenforceable, invalid or void by a court of competent
jurisdiction, such provision shall be excluded from this Agreement and the
balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.

 

8.10                           Specific
Enforcement.  The Company and the Investor
acknowledge and agree that if any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached,
irreparable damage would occur and it would be extremely impracticable and
difficult to measure damages. 
Accordingly, in addition to any other rights and remedies to which the
parties may be entitled by law or equity, the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
agreement and to enforce specifically the terms and provisions hereof, and the
parties expressly waive any defense that a remedy in damages will be adequate.

 

8.11                           Entire
Agreement; Amendments.

 

(a)                                  Except as otherwise provided herein or
in the License Agreement, this Agreement contains the entire understanding of
the parties with respect to the matters covered herein and supersedes all prior
agreements and understandings, written or oral, between the parties relating to
the subject matter hereof.

 

(b)                                 Any term of this Agreement may be
amended only with the written consent of the Company and the Investor.  Any amendment effected in accordance with
this paragraph shall be binding upon each holder of any securities purchased
under this Agreement at the time outstanding, each future holder of all such
securities, and the Company.

 

8.12                           Governing Law.  This Agreement shall be governed by and
construed under the laws of the State of New York (irrespective of its choice
of law principles).

 

8.13                           Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

 

8.14                           Titles and
Subtitles.  The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement. 
Any reference in this Agreement to a statutory provision or rule or
regulation promulgated thereunder shall be deemed to include any similar
successor statutory provision or rule or regulation promulgated
thereunder.

 

28

 

IN WITNESS WHEREOF, the
parties have executed this Agreement as of the date first above written.

 

	
   

  	
  INCYTE CORPORATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Paul A. Friedman

  	
   

  	
   

  
	
   

  	
  Name 

  	
  Paul A. Friedman

  	
   

  
	
   

  	
  Title

  	
  President & CEO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PFIZER OVERSEAS

  PHARMACEUTICALS

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Ciarán Keaney

  	
   

  	
   

  
	
   

  	
  Name

  	
  Ciarán Keaney

  	
   

  
	
   

  	
  Title

  	
  Company Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Paul Duffy

  	
   

  	
   

  
	
   

  	
  Name

  	
  Paul Duffy

  	
   

  
	
   

  	
  Title

  	
  Director

  	
   

  
						

 

29

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