Document:

Exhibit 4.7

CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A-1

CONVERTIBLE PREFERRED STOCK OF ABGENIX, INC.

Pursuant to Section 151 of the

General Corporation Law of the State of Delaware

The undersigned, pursuant to the provisions of
Section 151 of the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to the authority expressly vested in the Board of
Directors of Abgenix, Inc., a Delaware corporation (the “CORPORATION”), by the
Corporation’s Certificate of Incorporation, the Board of Directors of the
Corporation (the “BOARD OF DIRECTORS”) has duly provided for the issuance of
and created a series of Preferred Stock (the “PREFERRED STOCK”) of the
Corporation, par value $0.0001 per share, and in order to fix the designation
and amount and the voting powers, designations, preferences and other rights,
and the qualifications, limitations and restrictions, of a series of Preferred
Stock, has duly adopted this Certificate of Designations, Preferences and
Rights of Preferred Stock (the “CERTIFICATE”).

Each share of such series of Preferred Stock shall
rank equally in all respects and shall be subject to the following provisions:

1.             NUMBER OF SHARES AND
DESIGNATION.  50,000 shares of Preferred
Stock of the Corporation shall constitute a series of Preferred Stock
designated as Series A-1 Convertible Preferred Stock (the “SERIES A-1 PREFERRED
STOCK”).  Subject to Section 8(c), the
number of shares of Series A-1 Preferred Stock may be increased (to the extent
of the Corporation’s authorized and unissued Preferred Stock) or decreased (but
not below the number of shares of Series A-1 Preferred Stock then outstanding)
by further resolution duly adopted by the Board of Directors and the filing of
a certificate of increase or decrease, as the case may be, with the Secretary
of State of the State of Delaware.

2.             RANK.  The Series A-1 Preferred Stock shall, with respect to rights upon
liquidation, dissolution or winding up of the affairs of the Corporation, or
otherwise (a) rank senior and prior to the Common Stock, and each other class
or series of equity securities of the Corporation, whether currently issued or
issued in the future, that by its terms ranks junior to the Series A-1
Preferred Stock (all of such equity securities, including the Common Stock, are
collectively referred to herein as the “JUNIOR SECURITIES”), (b) rank on a
parity with each other class or series of equity securities of the Corporation,
whether currently issued or issued in the future, that does not by its terms
expressly provide that it ranks senior to or junior to the Series A-1 Preferred
Stock (all of such equity securities are collectively referred to herein as the
“PARITY SECURITIES”), and (c) rank junior to each other class or series of
equity securities of the Corporation, whether currently issued or issued in the
future, that by its terms ranks senior to the Series A-1 Preferred Stock (all
of such equity securities are collectively referred to herein as the “SENIOR
SECURITIES”).  The respective definitions
of Junior Securities, Parity Securities and Senior Securities shall also
include any rights or options exercisable or exchangeable for or convertible
into any of the Junior Securities, Parity Securities or Senior Securities, as
the case may be.

3.             DIVIDENDS.

 

 

(a)   Ratably with Common Stock.  The holders of shares of Series A-1
Preferred Stock shall be entitled to participate equally and ratably with the
holders of shares of Common Stock in all dividends and distributions paid
(whether in the form of cash, stock or otherwise) on the shares of Common Stock
as if immediately prior to each record date for the Common Stock, shares of
Series A-1 Preferred Stock then outstanding were converted into shares of
Common Stock (in the manner, and at the Conversion Price, described in Section
6(a)(i)).

(b)   Dividend Trigger Date.  Subject to the rights of the holders of any
Senior Securities, in addition to the dividends specified in Section 3(a), upon
the occurrence and during the continuation of any Event of Default described in
Section 10(a)(i) (the date of each such occurrence, a “DIVIDEND TRIGGER DATE”),
thereafter and continuing until the earlier of the redemption or conversion of
the relevant shares of Series A-1 Preferred Stock and the date on which such Event
of Default is cured and ceases to exist, the holders of such shares shall be
entitled to receive, out of funds legally available for that purpose, cash
dividends at the Dividend Rate.  Such
dividends shall be cumulative from the Dividend Trigger Date and shall be
payable in arrears on each Dividend Payment Date, provided that if any such
payment date is not a Business Day then such dividend shall be payable on the
next Business Day.  The dividends per
share of the Series A-1 Preferred Stock for any full quarterly period shall be
computed by multiplying the Dividend Rate for such Dividend Period by the
Redemption Price per share and dividing the result by four.  Dividends payable for any period less than a
full quarterly period shall be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed for such period less
than one month.

(c)   Ratable Distribution.  If the full cash dividends required to be
paid by the Corporation to the holder of Series A-1 Preferred Stock pursuant to
Section 3(b) are not paid or made available to the holders of all outstanding
shares of Series A-1 Preferred Stock, and funds available shall be insufficient
to permit payment in full in cash to all such holders and the holders of any
Parity Securities of the preferential amounts to which they are then entitled,
the entire amount available for payment of cash dividends shall be distributed
among the holders of the Series A-1 Preferred Stock and such holders of Parity
Securities ratably and in proportion to the full amount to which they would
otherwise be respectively entitled, and any remainder not paid in cash to such
holders shall cumulate.

(d)   Junior Securities.  So long as any shares of Series A-1
Preferred Stock shall be outstanding after the Dividend Trigger Date or any
dividends accrued but unpaid in respect of shares of Series A-1 Preferred Stock
redeemed pursuant to Section 5 or converted pursuant to Section 6 remain
unpaid, the Corporation shall not (i) declare or pay any dividend or make any
distribution on any Junior Securities, whether in cash, property or otherwise
(other than dividends payable on shares of the class or series upon which such
dividends are declared or paid, or payable in shares of Common Stock with
respect to Junior Securities other than Common Stock), or (ii) purchase or
redeem any Junior Securities, or pay or make available any monies for a sinking
fund for the purchase or redemption of any Junior Securities, unless all
dividends to which the holders of Series A-1 Preferred Stock shall have been
entitled for all previous Dividend Periods shall have been paid or declared and
a sum of money sufficient for the payment thereof set apart.

 

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4.             LIQUIDATION
PREFERENCE.

(a)   Amount.  The liquidation preference for the shares of Series A-1 Preferred
Stock shall be One Thousand United States Dollars (U.S. $1,000.00) per share
(the “BASE LIQUIDATION VALUE”), plus the amount of any accrued but unpaid
dividends (the “LIQUIDATION VALUE”).

(b)   Entitlement of Series A-1 Preferred
Stockholders.  In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series A-1 Preferred Stock shall be
entitled to receive the greater of (i) the Liquidation Value of such shares in
effect on the date of such liquidation, dissolution or winding up or (ii) the
payment such holders would have received had such holders, immediately prior to
such liquidation, dissolution or winding up, converted their shares of Series
A-1 Preferred Stock into shares of Common Stock (pursuant to, and at the
Conversion Price described in, Section 6(a)(i)).

(c)   Seniority.  In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series
A-1 Preferred Stock (i) shall not be entitled to receive the Liquidation Value
of such shares until payment in full or provision has been made for the payment
in full of all claims of creditors of the Corporation and the liquidation
preferences for all Senior Securities, and (ii) shall be entitled to receive
the Liquidation Value of such shares before any payment or distribution of any
assets of the Corporation shall be made or set apart for holders of any Junior
Securities.  Subject to clause (i)
above, if the assets of the Corporation are not sufficient to pay in full the
Liquidation Value payable to the holders of shares of Series A-1 Preferred
Stock and the liquidation preference payable to the holders of any Parity
Securities, then such assets, or the proceeds thereof, shall be distributed
among the holders of shares of Series A-1 Preferred Stock and any such other
Parity Securities ratably in accordance with the Liquidation Value for the
Series A-1 Preferred Stock and the liquidation preference for the Parity
Securities, respectively.

(d)   Events Constituting Liquidation.  Neither a consolidation or merger of the
Corporation with or into any other entity, nor a merger of any other entity
with or into the Corporation, nor a sale or transfer of all or any part of the
Corporation’s assets for cash, securities or other property shall be considered
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section 4.

5.             REDEMPTION;
PROCEDURES FOR REDEMPTION.

(a)   Redemption Upon Final Maturity.  On the seventh (7th) anniversary of the
Initial Closing Date (as such term is defined in the Purchase Agreement), the Corporation shall redeem all outstanding shares
of Series A-1 Preferred Stock, if any, at a cash redemption price per share
equal to the Liquidation Value (such amount being referred to herein as the
“REDEMPTION PRICE”).

(b)   Redemption at Option of the Corporation.  At any time prior to the seventh (7th)
anniversary of the Initial Closing Date (as such term is defined in the
Purchase Agreement), at its sole option, the Corporation may redeem any or all
shares of Series A-1 Preferred Stock at

 

3

 

a cash redemption price per
share equal to the Redemption Price if (i) a shelf registration statement
covering resales of the Common Stock issuable upon conversion of Series A-1
Preferred Stock is effective and available for use in accordance with Section
8.1 of the Purchase Agreement and is expected to remain effective and available
for use for the thirty (30) days following the date of the notice provided by
the Corporation pursuant to Section 5(c), unless registration is no longer
required pursuant to the terms and conditions of the Purchase Agreement and
(ii) the Common Stock issuable upon conversion of the Series A-1 Preferred
Stock is listed or admitted for trading on an Approved Market and is expected
to remain so listed or admitted for trading for the thirty (30) days following
the date of the notice provided by the Corporation pursuant to Section
5(c).  Except as set forth in this
Section 5(b), the Corporation shall not have the option to redeem any shares of
Series A-1 Preferred Stock.  If fewer
than all of the outstanding shares of Series A-1 Preferred Stock are to be
redeemed pursuant to this Section 5(b), the shares of each holder of Series A-1
Preferred Stock shall be redeemed on a pro rata basis (according to the number
of shares of Series A-1 Preferred Stock held by each holder, with any
fractional shares rounded to the nearest whole share or in such other manner as
the Board of Directors may determine, as may be prescribed by resolution of the
Board of Directors).

(c)   Notice of Redemption.  In the event of a redemption of shares of
Series A-1 Preferred Stock pursuant to Section 5(a) or 5(b), notice of such
redemption shall be given by the Corporation, by first class mail, postage
prepaid, mailed not less than fifteen (15) days nor more than forty-five
(45) days prior to the Redemption Date, to each holder of Series A-1
Preferred Stock at the address appearing in the Corporation’s records.  Such notice shall state:

(i)            the date on which the holder is to
surrender to the Corporation the certificates for any shares to be redeemed (such
date, the “REDEMPTION DATE”);

(ii)           the number of shares of Series A-1
Preferred Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of shares to be redeemed from such holder
(such notice being referred to as the “REDEMPTION NOTICE”);

(iii)          the then-current Conversion Price;

(iv)          that if the holder wishes to convert any or all shares of
Series A-1 Preferred Stock that are the subject of the Redemption Notice, the
holder must give notice of such conversion no later than the close of business
on the Business Day immediately preceding the Redemption Date; and

(v)           that, unless the Corporation defaults
in paying the Redemption Price with respect to such shares of Series A-1
Preferred Stock, the only remaining right of the holder in respect of such
shares shall be to receive the payment of the Redemption Price.

Once a Redemption Notice is
given by the Corporation to a holder, the shares of Series A-1 Preferred Stock
that are the subject of such Redemption Notice shall not thereafter be
convertible pursuant to Section 6(a)(ii) and the Redemption Price shall become
due and payable on the Redemption Date, except to the extent that all or any
portion of the shares of Series A-1

 

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Preferred Stock held by such
holder are converted in accordance with the provisions of Section 6(a)(i).

(d)   Redemption Events.

(i)            Notwithstanding anything contained in Section 5(a), (b)
or (c) to the contrary, if at any time there shall occur a

(A)  Type I Redemption Event, then on the date that
is thirty (30) Business Days after the date of such Redemption Event (or, if
such day is not a Business Day, then the next Business Day thereafter) (the
“TYPE I REDEMPTION EVENT DATE”), the Corporation shall either, as it may elect,

(1)   redeem from each holder of Series A-1
Preferred Stock, at a cash redemption price equal to the Redemption Price, as
many of the Maximum Number of Type I Redemption Event Shares as the holder may
specify in a Redemption Event Notice (for each holder, such number of shares,
the “DESIGNATED NUMBER OF TYPE I REDEMPTION EVENT SHARES”), or

(2)   exercise its rights pursuant to, and subject
to all of the terms and provisions of, Section 6(a)(ii) to require the holder
of the Series A-1 Preferred Stock to convert the Designated Number of Type I
Redemption Event Shares; provided, however, that if and to the
extent, as of the Type I Redemption Event Date, the Corporation is prevented by
the terms of Section 6(a)(ii)(B) from requiring the holder to convert shares of
Series A-1 Preferred Stock pursuant to Section 6(a)(ii)(A), then the
Corporation shall, notwithstanding any election that it may otherwise have made
pursuant to this Section 5(d)(i)(A), redeem from each holder on the Type I
Redemption Event Date in accordance with clause (1) above such of the
Designated Number of Type I Redemption Event Shares as the Corporation is
prevented by the terms of Section 6(a)(ii)(B) from requiring the holder to
convert as of such date.

(B)   Type II Redemption Event, then on the Type II
Redemption Event Date, the Corporation shall either, as it may elect,

(1)   redeem from each such holder a number of
shares of Series A-1 Preferred Stock then held by such holder up to a maximum
number equal to such holder’s pro rata portion (according to the number of
shares of Series A-1 Preferred Stock held by each holder, with any fractional
shares rounded to the nearest whole share or in such other manner as the Board
of Directors may determine, as may be prescribed by resolution of the Board of
Directors) of the Maximum Number of Type II Redemption Event Shares, at a cash
redemption price per share equal to the Redemption Price, as the holder may
specify in the Redemption Event Notice (for each holder, such number of shares,
the “DESIGNATED NUMBER OF TYPE II REDEMPTION EVENT SHARES”), or

 

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(2)   exercise its rights pursuant to, and subject
to all of the terms and provisions of, Section 6(a)(ii) (without giving effect
to clause (4) of Section 6(a)(ii)(B)) to require the holder of the Series A-1
Preferred Stock to convert any one or all of the Designated Number of Type II
Redemption Event Shares; provided, however, that in the event
that the Corporation elects to convert less than all of such Designated Number
of Type II Redemption Event Shares, the Corporation shall redeem from such
holder on the Type II Redemption Event Date in accordance with clause (1) above
such of the Designated Number of Type II Redemption Event Shares as the
Corporation has elected not to convert; provided, further, that
if and to the extent, as of the Type II Redemption Event Date, the Corporation
is prevented by the terms of Section 6(a)(ii)(B) (without giving effect to
clause (4) of Section 6(a)(ii)(B)) from requiring the holder to convert shares
of Series A-1 Preferred Stock pursuant to Section 6(a)(ii)(A), then the
Corporation shall, notwithstanding any election that it may otherwise have made
pursuant to this Section 5(d)(i)(B), redeem from each holder on the Type II
Redemption Event Date in accordance with clause (1) above such of the
Designated Number of Type II Redemption Event Shares as the Corporation is
prevented by the terms of Section 6(a)(ii)(B) (without giving effect to clause
(4) of Section 6(a)(ii)(B)) from requiring the holder to convert as of such
date.

(ii)           Within ten (10) Business Days after
the occurrence of a Redemption Event, the Corporation shall provide each holder
of Series A-1 Preferred Stock with notice of the Redemption Event. The notice
shall state:

(A)  the date of such Redemption Event, whether it
is a Type I Redemption Event or a Type II Redemption Event, and, briefly, the
events causing such Redemption Event;

(B)   the date by which the Redemption Event Notice
pursuant to this Section 5(d) must be given;

(C)   the Redemption Event Date;

(D)  the Maximum Number of Redemption Event Shares
and, if the Redemption Event is a Type II Redemption Event, the holder’s pro
rata portion of the Maximum Number of Type II Redemption Event Shares;

(E)   the holder’s right to require the
Corporation, (1) in the case of a Type I Redemption Event, to redeem or convert
(at the Corporation’s election) such number of shares of Series A-1 Preferred
Stock as would equal the Maximum Number of Redemption Event Shares or, (2) in
the case of a Type II Redemption Event, to redeem or convert the holder’s pro
rata portion of the Maximum Number of Type II Redemption Event Shares;

(F)   in the case of (1) a Type I Redemption Event,
whether the Corporation is electing to redeem or exercise its rights to convert
such Designated Number of

 

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Type
I Redemption Event Shares as may thereafter be specified by the holder, and (2)
a Type II Redemption Event, whether the Corporation is electing to redeem or
exercise its rights to convert such Designated Number of Type II Redemption
Event Shares as may thereafter be specified by the holder (and, in either case,
in the event that the Corporation is electing to exercise its rights to convert
any such shares, the number of such shares that the Corporation is electing to
convert, and the place or places where certificates for such shares are to be
surrendered for issuance of certificates representing shares of Common Stock);

(G)   the then-current Conversion Price and the
then-current Corporation Conversion Price;

(H)  that the Series A-1 Preferred Stock that is
the subject of redemption pursuant to a Redemption Event Notice may be
converted into Common Stock pursuant to Section 6(a)(i) only to the extent that
the Redemption Event Notice has been withdrawn in accordance with the terms of
this Certificate;

(I)    the procedures that the holder must follow
to exercise rights under this Section 5(d); and

(J)    the procedures for withdrawing a Redemption
Event Notice.

(iii)          The holder may exercise its rights
specified in this Section 5(d) by delivery to the Corporation of a written
notice (a “REDEMPTION EVENT NOTICE”) at any time prior to the close of business
on the Business Day next preceding the Redemption Event Date specifying the
Designated Number of Redemption Event Shares. 
The holder may specify a Designated Number of Redemption Event Shares
that is less than the Maximum Number of Redemption Event Shares only if the
amount so designated is not less than one whole share.  Notwithstanding anything herein to the
contrary, the holder shall have the right to withdraw any Redemption Event
Notice in whole or in a portion thereof so long as the remaining Designated
Number of Redemption Event Shares, if any, is not less than one whole share at
any time prior to the close of business on the Business Day next preceding the
Redemption Event Date by written notice of withdrawal given to the Corporation.

(e)   Rights of Holder.  Upon receipt by the Corporation of the
Redemption Event Notice specified in Section 5(d)(iii), the holder shall
(unless such Redemption Event Notice is withdrawn as specified in Section
5(d)(iii)) thereafter be entitled to receive on the Redemption Event Date,
either the Redemption Price or the certificates and payment amount (if any) to
which it is entitled upon conversion as provided in Section 6(b)(ii), as
applicable, in each case with respect to each share of Series A-1 Preferred
Stock held by such holder that is included in the Designated Number of
Redemption Event Shares.  Any Series A-1
Preferred Stock in respect of which a Redemption Event Notice has been given by
the holder thereof may not be converted into shares of Common Stock pursuant to
Section 6(a) on or after the date of the delivery of such Redemption Event
Notice unless such Redemption Event Notice has first been validly withdrawn.

 

7

 

(f)    Redemption Terms.  In the event that any Designated Number of
Redemption Event Shares are to be redeemed pursuant to this Section 5, the
following terms and conditions shall apply.

(i)            Surrender of Certificates.  On or prior to the Redemption Date or the
Redemption Event Date, as the case may be, each holder of Series A-1 Preferred
Stock to be redeemed shall surrender its certificate or certificates
representing shares of Series A-1 Preferred Stock to be redeemed to the
Corporation at the Corporation’s principal executive offices or such other
location as the Corporation may by notice direct, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. 
In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.  From and after the
Redemption Date or the Redemption Event Date, as the case may be, unless there
shall have been a default in payment of the Redemption Price, all rights of the
holders of the Series A-1 Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to the Series A-1 Preferred Stock
subject to redemption, and such shares shall not thereafter be transferred on
the books of the Corporation or deemed to be outstanding for any purpose
whatsoever.

(ii)           Consequences of Nonpayment.  In the event that the Corporation does not
pay the Redemption Price on the Redemption Date or the Redemption Event Date,
as the case may be, the Redemption Price shall be calculated as if the
Redemption Date or the Redemption Event Date, as the case may be, were the
later of such date and the date on which such payment is made.  If the Corporation is unable at the
Redemption Date or the Redemption Event Date, as the case may be, to redeem any
or all shares of Series A-1 Preferred Stock then to be redeemed because such
redemption would violate the applicable laws of the State of Delaware, then the
Corporation shall redeem such shares as soon thereafter as redemption would not
violate such laws.  In the event of any
redemption of only a part of the then outstanding Series A-1 Preferred Stock
subject to redemption, the Corporation shall effect such redemption pro rata
among the holders thereof (based on the number of shares of Series A-1
Preferred Stock held on the date of notice of redemption).

(g)   Conversion Terms.  In the event that the Corporation elects,
pursuant to clause (2) of Section 5(d)(i)(A) or clause (2) of Section
5(d)(i)(B), to exercise its rights to require the holder to convert any shares of Series A-1
Preferred Stock pursuant to Section 6(a)(ii) with respect to the Designated
Number of Redemption Event Shares specified by each holder, the terms of
Section 6 shall govern the conversion of such shares, except that the notice
provisions of Section 5(d)(ii) shall apply in lieu of the notice requirements
of Section 6(b)(i)(B) such that, upon the Corporation’s giving of the notice
required pursuant to Section 5(d)(ii), the Corporation shall be deemed to have
exercised its conversion rights pursuant to Section 6(a)(ii) with respect to
such Designated Number of Redemption Event Shares and the Corporation shall not
be required to provide any additional notice under Section 6(b)(i)(B) in order
to exercise such rights with respect to such shares.

 

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6.             CONVERSION.

(a)   Right to Convert; Right of Corporation to Require Conversion.

(i)            Voluntary Conversion at the
Option of the Holder.  Subject to
the provisions of Section 5, this Section 6 and Section 9, each holder of
shares of Series A-1 Preferred Stock shall have the right, at any time and from
time to time, at such holder’s option, to convert any or all of such holder’s
shares of Series A-1 Preferred Stock, in whole or in part, into fully paid and
non-assessable shares of Common Stock at the conversion price equal to the
Initial Conversion Price per share of Common Stock, subject to adjustment as
described in Section 6(c) (as adjusted, the “CONVERSION PRICE”).  The number of shares of Common Stock into
which a share of the Series A-1 Preferred Stock shall be convertible pursuant
to this Section 6(a)(i) (calculated as to each conversion to the nearest
1/100th of a share) shall be determined by dividing the Base Liquidation Value
by the Conversion Price in effect at the time of conversion. The “INITIAL
CONVERSION PRICE” shall be Thirty United States Dollars (U.S. $30.00) per
share.  Notwithstanding the foregoing
provisions of this Section 6(a)(i), if some or all of the shares of Series A-1
Preferred Stock held by the holder are to be redeemed pursuant to Section 5,
the conversion right specified in this Section 6(a)(i) shall terminate as to
such shares at the close of business on the Business Day immediately preceding
the Redemption Date or the Redemption Event Date, as the case may be (unless
the Corporation shall default in paying the Redemption Price per share, when
due, in which case the conversion right shall terminate at the close of
business on the date such default is cured).

(ii)           Mandatory Conversion at the Option
of the Corporation.

(A)  Subject to the provisions of Section 5, this
Section 6 and Section 9, the Corporation shall have the right to require
the holder of shares of Series A-1 Preferred Stock, at the Corporation’s
option, to convert any or all of such holder’s shares of Series A-1 Preferred
Stock, in whole or in part, into fully paid and non-assessable shares of Common
Stock at a conversion price equal to the lower of (1) the Average Market Price
for Corporation’s Conversion Option or (2) the Conversion Price described in
Section 6(a)(i) above (such lower price, the “CORPORATION CONVERSION
PRICE”).  The number of shares of Common
Stock into which a share of the Series A-1 Preferred Stock shall be convertible
pursuant to this Section 6(a)(ii) (calculated as to each conversion to the
nearest 1/100th of a share) shall be determined by dividing the Base
Liquidation Value by the Corporation Conversion Price.

(B)   Notwithstanding anything contained herein to
the contrary, in no event shall the Corporation have the right to require the
holder of shares of Series A-1 Preferred Stock to convert any or all of such
shares into shares of Common Stock pursuant to Section 6(a)(ii)(A):  (1) at any time during the period commencing
on the date of the Initial Closing (as such term is defined in the Purchase
Agreement) and ending on the third anniversary thereof (the “RESTRICTED
CONVERSION

 

9

 

PERIOD”),
except to the extent permitted by the terms and conditions of Section
6(a)(ii)(C); (2) unless (y) a shelf registration statement covering resales of
the Common Stock issuable upon conversion of the Series A-1 Preferred Stock is
effective and available for use in accordance with Section 8.1 of the Purchase
Agreement and is expected to remain effective and available for use for the
thirty (30) days following the Conversion Date unless registration is no longer
required pursuant to the terms and conditions of the Purchase Agreement and (z)
the Common Stock issuable upon conversion of the Series A-1 Preferred Stock is
listed or admitted for trading on an Approved Market and is expected to remain
so listed or admitted for trading for the thirty (30) days following the
Conversion Date; (3) if there exists and is continuing an Event of Default; or
(4) during any period when any member of the Corporation’s senior management is,
to the knowledge of the Corporation, at the time of the giving of the
Corporation’s Election Notice (or, in the event of a conversion by the
Corporation pursuant to an election under clause (2) of Section 5(d)(i)(A), at
the time of the Corporation’s giving of the notice required pursuant to Section
5(d)(ii)), prohibited or restricted from trading in shares of Common Stock
under the Corporation’s internal rules and procedures relating to insider
trading in the Corporation’s securities.

(C)           During the Restricted Conversion
Period, the Corporation shall have no right to require the holders of shares of
Series A-1 Preferred Stock to convert in any three month period shares of
Series A-1 Preferred Stock that yield shares of Common Stock exceeding the
greater of (1) one percent of the shares of Common Stock outstanding as of the
beginning of such three month period and (2) the average weekly trading volume
on the NNM for shares of Common Stock during the four weeks ending on the first
day of such three month period, in each case as such amounts are determined
pursuant to Rule 144 of the Securities Act.

(b)   Mechanics of Conversion.

(i)            Procedures to Exercise Conversion
Rights.  A holder of shares of
Series A-1 Preferred Stock or the Corporation, as the case may be, that elects
to exercise its conversion rights pursuant to Section 6(a) shall provide notice
to the other party as follows:

(A)  Holder’s Notice and Surrender.  To exercise its conversion right pursuant to
Section 6(a)(i), the holder of shares of Series A-1 Preferred Stock to be
converted shall surrender the certificate or certificates representing such
shares at the office of the Corporation (or any transfer agent of the
Corporation previously designated by the Corporation to the holders of Series
A-1 Preferred Stock for this purpose) with a written notice of election to
convert, completed and signed, specifying the number of shares to be converted.

(B)   Corporation’s Notice.  Subject to Section 5(g), to exercise its
conversion right pursuant to Section 6(a)(ii), the Corporation shall deliver
written notice to such holder (the “CORPORATION’S ELECTION NOTICE”), at least

 

10

 

twenty
(20) days and no more than forty-five (45) days prior to the Conversion Date,
specifying: (1) the number of shares of Series A-1 Preferred Stock to be
converted and, if fewer than all the shares held by such holder are to be
converted, the number of shares to be held by such holder; (2) the Conversion
Date; and (3) the place or places where certificates for such shares are to be
surrendered for issuance of certificates representing shares of Common Stock.

(ii)           Surrender and Delivery of
Certificates.  Unless the shares
issuable upon conversion are to be issued in the same name as the name in which
such shares of Series A-1 Preferred Stock are registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form reasonably satisfactory to the Corporation, duly executed by the holder or
the holder’s duly authorized attorney and an amount sufficient to pay any
transfer or similar tax in accordance with Section 6(b)(vi).  As promptly as practicable after the
surrender by the holder of the certificates for shares of Series A-1 Preferred
Stock as aforesaid, the Corporation shall issue and shall deliver to such
holder, or on the holder’s written order to the holder’s transferee, a
certificate or certificates for the whole number of shares of Common Stock
issuable upon the conversion of such shares, a check payable in an amount
corresponding to any fractional interest in a share of Common Stock as provided
in Section 6(b)(vii), and, in the case of a conversion pursuant to Section
6(a)(ii), a certificate of an executive officer of the Corporation setting
forth the Corporation Conversion Price and, in reasonable detail, the
determination thereof and the number of shares of Common Stock issued in
respect of each converted share of Series A-1 Preferred Stock.

(iii)          Effective Date of Conversion.  Each conversion shall be deemed to have been
effected immediately prior to the close of business on (A) in the case of
conversion pursuant to Section 6(a)(i), the first Business Day on which the
certificates for shares of Series A-1 Preferred Stock shall have been
surrendered and such notice received by the Corporation as aforesaid or (B) in
the case of conversion pursuant to Section 6(a)(ii), the date specified as the
Conversion Date in the Corporation’s notice of conversion delivered to each
holder pursuant to Section 6(b)(i)(B) (in each case, the “CONVERSION DATE”); provided,
however, that in the event of a conversion by the Corporation under
Section 6(a)(ii) pursuant to an election made by the Corporation under clause
(2) of Section 5(d)(i)(A) or clause (2) of Section 5(d)(i)(B), the “CONVERSION
DATE” shall be the Redemption Event Date. 
At such time on the Conversion Date: 
(A) the person in whose name or names any certificate or certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder of record of the shares of Common Stock
represented thereby at such time; and (B) such shares of Series A-1 Preferred
Stock so converted shall no longer be deemed to be outstanding, and all rights
of a holder with respect to such shares, in the event of conversion pursuant to
Section 6(a)(i), surrendered for conversion and, in the event of conversion
pursuant to Section 6(a)(ii), covered by the Corporation’s notice of
conversion, shall immediately terminate except the right to receive (x) the
Common Stock, (y) other amounts payable pursuant to this Section 6, and (z) any
dividends then accrued but unpaid in respect of the converted Series A-1
Preferred Stock.

 

11

 

(iv)          Duly Issued Shares.  All shares of Common Stock delivered upon
conversion of the Series A-1 Preferred Stock shall, upon delivery, be duly and
validly authorized and issued, fully paid and nonassessable, free from all
preemptive rights and free from all taxes, liens, security interests and
charges (other than liens or charges created by or imposed upon the holder or
taxes in respect of any transfer occurring contemporaneously therewith).

(v)           Reservation and Listing of Shares.  The Corporation shall at all times reserve
and keep available, free from preemptive rights, out of its authorized but
unissued Common Stock, solely for the purpose of effecting conversions of the
Series A-1 Preferred Stock, the aggregate number of shares of Common Stock
issuable upon conversion of the Series A-1 Preferred Stock pursuant to Section
6(a)(i).  Prior to any conversion by the
Corporation pursuant to Section 6(a)(ii), the Corporation shall ensure that it
then has a sufficient number of authorized but unissued shares of Common Stock
in order to effect such conversion.  
The Corporation shall, promptly following the issuance of the shares of
Series A-1 Preferred Stock, take such action to cause the shares of Common
Stock initially issuable upon conversion of the shares of Series A-1 Preferred
Stock to be listed on the NNM as promptly as possible but no later than the
effective date of the Registration Statement providing for the resale by the
holder of shares of Common Stock issuable upon conversion of shares of the
Series A-1 Preferred Stock as contemplated by Section 8 of the Purchase
Agreement.  The Corporation further
agrees that if it applies to have its Common Stock or other securities traded
on any other stock exchange or market it will include in such application all
shares of Common Stock to be issued upon the shares of Series A-1 Preferred
Stock and will take all such other actions as may be necessary to cause such
shares of Common Stock to be so listed. 
During the period beginning on the date hereof and ending on the Final
Date (as defined in the Purchase Agreement), the Corporation shall take all
actions necessary to continue the listing and trading of its Common Stock on an
Approved Market and will comply in all material respects with the Corporation’s
reporting, filing and other obligations under the bylaws and rules of each such
exchange or market on which shares of the Common Stock may from time to time be
listed to the extent necessary to ensure the continued eligibility for trading
of shares of Common Stock.  The
Corporation shall take all commercially reasonable action as may be necessary
to ensure that the shares of Common Stock may be issued without violation of
any applicable law or regulation or of any requirement of any securities
exchange or inter-dealer quotation system on which the shares of Common Stock
are listed or traded.

(vi)          Fees and Taxes.  Issuances of certificates for shares of
Common Stock upon conversion of the Series A-1 Preferred Stock shall be made
without charge to the holder of shares of Series A-1 Preferred Stock for any
issue or transfer tax (other than taxes in respect of any transfer occurring
contemporaneously therewith or as a result of the holder being a non-U.S.
person) or other incidental expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Corporation;
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance or
delivery of shares of Common Stock in a name other than that of the holder of
the Series A-1 Preferred Stock,

 

12

 

and
no such issuance or delivery shall be made unless and until the person
requesting such issuance or delivery has paid to the Corporation the amount of
any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.

(vii)         Fractions of Shares.  In connection with the conversion of any
shares of Series A-1 Preferred Stock, no fractions of shares of Common Stock
shall be issued, but in lieu thereof the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to such
fractional interest multiplied by the Market Price per share of Common Stock on
the Conversion Date.

(viii)        Conversion on Pro Rata Basis.  If fewer than all of the outstanding shares
of Series A-1 Preferred Stock are to be converted pursuant to Section 6(a)(ii),
the shares of each holder of Series A-1 Preferred Stock shall be converted on a
pro rata basis (according to the number of shares of Series A-1 Preferred Stock
held by each holder, with any fractional shares rounded to the nearest whole
share or in such other manner as the Board of Directors may determine, as may
be prescribed by resolution of the Board of Directors).

(c)   Adjustments to Conversion
Price.

(i)            Stock Splits, Etc.  In case the Corporation shall (A) pay a
dividend on its Common Stock in shares of Common Stock, (B) make a distribution
on its Common Stock in shares of Common Stock, (C) subdivide its Outstanding
Common Stock into a greater number of shares, or (D) combine its Outstanding
Common Stock into a smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the holder shall upon conversion
of the shares of Series A-1 Preferred Stock held by it be entitled to receive
that number of shares of Common Stock which it would have owned had such shares
of Series A-1 Preferred Stock been converted immediately prior to the happening
of such event. An adjustment made pursuant to this Section 6(c)(i) shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of subdivision or combination.

(ii)           Rights to Purchase Common Stock.  In case the Corporation shall issue rights
or warrants to all or substantially all holders of its Common Stock entitling
them (for a period commencing no earlier than the record date described below
and expiring not more than sixty (60) days after such record date) to subscribe
for or purchase shares of Common Stock (or securities convertible into Common
Stock) at a price per share (or having a conversion price per share) less than
the Current Average Market Price per share of Common Stock on the record date
for the determination of stockholders entitled to receive such rights or
warrants, the Conversion Price in effect immediately prior thereto shall be
adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to such record date by a fraction
of which the numerator shall be the number of shares of Common Stock
Outstanding on such record date plus the number of shares which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the

 

13

 

convertible
securities so offered, which shall be determined by multiplying the number of
shares of Common Stock issuable upon conversion of such convertible securities
by the conversion price per share of Common Stock pursuant to the terms of such
convertible securities) would purchase at the Current Average Market Price per
share of Common Stock on such record date, and of which the denominator shall
be the number of shares of Common Stock Outstanding on such record date plus
the number of additional shares of Common Stock offered (or into which the
convertible securities so offered are convertible).  Such adjustment shall be made successively whenever any such
rights or warrants are issued, and shall become effective immediately after
such record date.  If at the end of the
period during which such rights or warrants are exercisable not all rights or warrants
shall have been exercised, the adjusted Conversion Price shall be immediately
readjusted to what it would have been based upon the number of additional
shares of Common Stock actually issued (or the number of shares of Common Stock
issuable upon conversion of convertible securities actually issued).

(iii)          Distributions to Holders of Common
Stock.

(A)  In case the Corporation shall distribute to
all or substantially all holders of its Common Stock any shares of Capital
Stock of the Corporation (other than Common Stock), evidences of indebtedness
or other non-cash assets (including securities of any person other than the
Corporation but excluding (1) dividends or distributions paid exclusively in
cash or (2) dividends or distributions referred to in Section 6(c)(i)), or
shall distribute to all or substantially all holders of its Common Stock rights
or warrants to subscribe for or purchase any of its securities (excluding those
rights and warrants referred to in Section 6(c)(ii) and also excluding the distribution
of rights to all holders of Common Stock pursuant to the adoption of a
stockholders rights plan or the detachment of such rights under the terms of
such stockholder rights plan), then in each such case the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the current Conversion Price by a fraction of which the numerator
shall be the Current Average Market Price per share of the Common Stock on the
record date mentioned below less the fair market value on such record date (as
reasonably determined by the Board of Directors, whose determination shall be
conclusive evidence of such fair market value and which shall be evidenced by
an Officers’ Certificate delivered to the holder) of the portion of the Capital
Stock, evidences of indebtedness or other non-cash assets so distributed or of
such rights or warrants applicable to one share of Common Stock (determined on
the basis of the number of shares of Common Stock Outstanding on the record
date), and of which the denominator shall be the Current Average Market Price
per share of the Common Stock on such record date. Such adjustment shall be
made successively whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.

(B)   In the event the then fair market value (as
so determined) of the portion of the Capital Stock, evidences of indebtedness
or other non-cash assets so distributed or of such rights or warrants
applicable to one share of Common Stock is

 

14

 

equal
to or greater than the Current Average Market Price per share of the Common
Stock on such record date, in lieu of the foregoing adjustment, adequate
provision shall be made so that the holder has the right to receive upon
conversion the amount of Capital Stock, evidences of indebtedness or other
non-cash assets so distributed or of such rights or warrants the holder would
have received had the holder converted the shares of Series A-1 Preferred Stock
then held by it on such record date.  In
the event that such dividend or distribution is not so paid or made, the
Conversion Price shall again be adjusted to be the Conversion Price which 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 6(c)(iii)(B)
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 Average Market Price of the Common Stock.

(C)   In the event that the Corporation has
implemented or implements a preferred shares rights plan (“RIGHTS PLAN”), upon
conversion by each holder of the shares of Series A-1 Preferred Stock held by
it into Common Stock, to the extent that the Rights Plan has been implemented
and is still in effect upon such conversion, the holder shall 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 the Rights Plan.  Any distribution of rights or warrants 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 6(c)(iii)(C).

(D)  Rights or warrants distributed by the
Corporation to all holders of Common Stock entitling the holders thereof to
subscribe for or purchase shares of the Corporation’s Capital Stock (either
initially or under certain circumstances), which rights or warrants, until the
occurrence of a specified event or events (“TRIGGER EVENT”): (1) are deemed to
be transferred with such shares of Common Stock; (2) are not exercisable; and
(3) are also issued in respect of future issuances of Common Stock, shall be
deemed not to have been distributed for purposes of this Section 6(c)(iii)(D)
(and no adjustment to the Conversion Price under this Section 6(c)(iii)(D) 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 6(c)(iii)(D). If any such right or warrant, including any such
existing rights or warrants distributed prior to the date of the Initial
Closing Date (as defined in the Purchase Agreement), 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 distribution (or deemed distribution) of rights or warrants, or any Trigger
Event or other event (of the type described in the preceding

 

15

 

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 6(c)(iii)(D) was made, (y) in the case of any such rights or warrants
which 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 (z) in the case of such rights
or warrants which 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.

(E)   In case the Corporation shall, by dividend or
otherwise, at any time distribute (a “TRIGGERING DISTRIBUTION”) to all or
substantially all holders of its Common Stock cash in an aggregate amount that,
together with the aggregate amount of (1) any cash and the fair market value (as
reasonably determined by the Board of Directors, whose determination shall be
conclusive evidence thereof and which shall be evidenced by an Officers’
Certificate delivered to the holder) of any other consideration payable in
respect of any tender offer by the Corporation or a Subsidiary of the
Corporation for Common Stock consummated within the twelve (12) months
preceding the date of payment of the Triggering Distribution and in respect of
which no Conversion Price adjustment pursuant to this Section 6(c)(iii)(E) has
been made and (2) all other cash distributions to all or substantially all
holders of its Common Stock made within the twelve (12) months preceding the
date of payment of the Triggering Distribution and in respect of which no
Conversion Price adjustment pursuant to this Section 6(c)(iii)(E) has been made
(and in which the holder did not otherwise participate), exceeds an amount
equal to ten percent (10%) of the product of the Current Average Market Price
per share of Common Stock on the Business Day (the “DETERMINATION DATE”)
immediately preceding the day on which such Triggering Distribution is declared
by the Corporation multiplied by the number of shares of Common Stock
Outstanding on the Determination Date (excluding shares held in the treasury of
the Corporation), the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying such Conversion Price in effect
immediately prior to the Determination Date by a fraction of which the
numerator shall be the Current Average Market Price per share of the Common
Stock on the Determination Date less the sum of the aggregate amount of cash
and the aggregate fair market value (determined as aforesaid in this Section
6(c)(iii)(E)) of any such other consideration so distributed, paid or payable
within such twelve (12) months (including the Triggering Distribution)
applicable to one share of Common Stock (determined on the basis of the number
of shares of Common Stock Outstanding on the Determination Date) and the denominator
shall be such Current Average Market Price per share of the Common Stock on the
Determination Date, such reduction to become effective immediately prior to the
opening of business on the day following the date on which the Triggering
Distribution is paid.

 

16

 

(F)   In case any tender offer made by the
Corporation or any of its Subsidiaries for Common Stock shall expire and such
tender offer (as amended upon the expiration thereof) shall involve the payment
of aggregate consideration in an amount (determined as the sum of the aggregate
amount of cash consideration and the aggregate fair market value (as reasonably
determined by the Board of Directors, whose determination shall be conclusive
evidence thereof and which shall be evidenced by an Officers’ Certificate
delivered to the holder) of any other consideration) that, together with the
aggregate amount of (1) any cash and the fair market value (as reasonably
determined by the Board of Directors, whose determination shall be conclusive
evidence thereof and which shall be evidenced by an Officers’ Certificate
delivered to the holder) of any other consideration payable in respect of any
other tender offers by the Corporation or any Subsidiary of the Corporation for
Common Stock consummated within the twelve (12) months preceding the date of
the Expiration Date and in respect of which no Conversion Price adjustment
pursuant to this Section 6(c)(iii)(F) has been made and (2) all cash
distributions to all or substantially all holders of its Common Stock made
within the twelve (12) months preceding the Expiration Date and in respect of
which no Conversion Price adjustment pursuant to this Section 6(c)(iii)(F) has
been made (and in which the holder did not otherwise participate), exceeds an
amount equal to ten percent (10%) of the product of the Current Average Market
Price per share of Common Stock as of the last date (the “EXPIRATION DATE”)
tenders could have been made pursuant to such tender offer (as it may be
amended) (the last time at which such tenders could have been made on the
Expiration Date is hereinafter sometimes called the “EXPIRATION TIME”)
multiplied by the number of shares of Common Stock Outstanding (including
tendered shares but excluding any shares held in the treasury of the
Corporation) at the Expiration Time, then, immediately prior to the opening of
business on the day after the Expiration Date, the Conversion Price shall be
reduced so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the close of business on the
Expiration Date by a fraction of which the numerator shall be the product of
the number of shares of Common Stock Outstanding (including tendered shares but
excluding any shares held in the treasury of the Corporation) at the Expiration
Time multiplied by the Current Average Market Price per share of the Common
Stock on the Trading Day next succeeding the Expiration Date and the
denominator shall be the sum of (y) the aggregate consideration (determined as
aforesaid) payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of all shares validly tendered 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 (z) the
product of the number of shares of Common Stock Outstanding (less any Purchased
Shares and excluding any shares held in the treasury of the Corporation) at the
Expiration Time and the Current Average Market Price per share of Common Stock
on the Trading Day next succeeding the Expiration Date, such reduction to
become effective immediately prior to the opening of business on the day
following the Expiration Date. In the event that the Corporation is obligated
to purchase shares pursuant to any such tender offer, but

 

17

 

the
Corporation is permanently prevented by applicable law from effecting any or
all such purchases or any or all such purchases are rescinded, the Conversion
Price shall again be adjusted to be the Conversion Price which would have been
in effect based upon the number of shares actually purchased. If the
application of this Section 6(c)(iii)(F) to any tender offer would result in an
increase in the Conversion Price, no adjustment shall be made for such tender
offer under this Section 6(c)(iii)(F).

(G)   For purposes of this Section 6(c), the term
“tender offer” shall mean and include both tender offers and exchange offers,
all references to “purchases” of shares in tender offers (and all similar
references) shall mean and include both the purchase of shares in tender offers
and the acquisition of shares pursuant to exchange offers, and all references
to “tendered shares” (and all similar references) shall mean and include shares
tendered in both tender offers and exchange offers.

(iv)          Deferral.  In any case in which this Section 6(c) shall
require that an adjustment be made following a record date or a Determination
Date or Expiration Date, as the case may be, established for purposes of this
Section 6(c), the Corporation may elect to defer (but only until five (5)
Business Days following the giving by the Corporation to the holder the
certificate described in Section 6(c)(vii)) issuing to the holder of any Series
A-1 Preferred Stock converted after such record date or Determination Date or
Expiration Date the shares of Common Stock and other Capital Stock of the
Corporation issuable upon such conversion over and above the shares of Common
Stock and other Capital Stock of the Corporation issuable upon such conversion
only on the basis of the Conversion Price prior to adjustment; and, in lieu of
the shares the issuance of which is so deferred, the Corporation shall issue or
cause its transfer agents to issue due bills or other appropriate evidence
prepared by the Corporation of the right to receive such shares.  If any distribution in respect of which an
adjustment to the Conversion Price is required to be made as of the record date
or Determination Date or Expiration Date therefor is not thereafter made or
paid by the Corporation for any reason, the Conversion Price shall be
readjusted to the Conversion Price which would then be in effect if such record
date had not been fixed or such effective date or Determination Date or
Expiration Date had not occurred.

(v)           No Adjustment.  No adjustment in the Conversion Price shall
be required unless the adjustment would require an increase or decrease of at
least one half of one percent (.5%) in the Conversion Price as last adjusted;
provided, however, that any adjustments which by reason of this Section 6(c)(v)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 6(c)(v) shall be
made to the nearest cent or to the nearest one-hundredth (1/100th) of a share,
as the case may be.  No adjustment need
be made for issuances of Common Stock pursuant to a Corporation plan for
reinvestment of dividends or interest or for a change in the par value or a
change to no par value of the Common Stock. 
To the extent that the Series A-1 Preferred Stock held by a holder
becomes redeemable for, or convertible into the right to receive cash, no
adjustment need be made thereafter as to the cash.

 

18

 

(vi)          Adjustment for Tax Purposes.  The Corporation shall be entitled to make
such reductions in the Conversion Price, in addition to those required by the
preceding sections of this Section 6(c), as it in its discretion shall
determine to be advisable in order that any stock dividends, subdivisions of
shares, distributions of rights to purchase stock or securities or
distributions of securities convertible into or exchangeable for stock
hereafter made by the Corporation to its stockholders shall not be taxable.

(vii)         Notice of Adjustment.  Whenever the Conversion Price or conversion
privilege is adjusted, the Corporation shall promptly notify the holder of the
adjustment and provide the holder with an Officers’ Certificate briefly stating
the facts requiring the adjustment and the manner of computing it.

(viii)        Notice of Certain Transactions.  In the event that:

(A)  the Corporation takes any action which would require an adjustment
in the Conversion Price;

(B)   the Corporation consolidates or merges with,
or transfers all or substantially all of its property and assets to, another
corporation and shareholders of the Corporation must approve the transaction;
or

(C)   there is a dissolution or liquidation of the
Corporation;

then the Corporation shall notify the holder
of the proposed transaction and the related record or effective date, as the
case may be.  The Corporation shall give
the notice at least ten (10) days before such date.  Failure to give such notice or any defect therein shall not
affect the validity of any transaction referred to in clause (A), (B) or (C) of
this Section 6(c)(viii).

 

(d)   Effect of Reclassification, Consolidation,
Merger or Sale on Conversion Privilege. 
If any of the following shall occur, namely:

(i)            any reclassification or change of
shares of Common Stock issuable upon conversion of the Series A-1 Preferred
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination,
or any other change for which an adjustment is provided in Section 6(c));

(ii)           any consolidation or merger or
combination to which the Corporation is a party other than a merger in which
the Corporation is the continuing corporation and which does not result in any
reclassification of, or change (other than in par value, or from par value to
no par value, or from no par value to par value, or as a result of a
subdivision or combination) in, Outstanding shares of Common Stock; or

(iii)          any sale or conveyance as an entirety
or substantially as an entirety of the property and assets of the Corporation,
directly or indirectly, to any person,

 

19

 

then the Corporation, or
such successor, purchasing or transferee corporation, as the case may be,
shall, as a condition precedent to such reclassification, change, combination,
consolidation, merger, sale or conveyance, execute and deliver to the holder a
supplemental instrument providing that (A) the holder shall have the right to
convert its shares of Series A-1 Preferred Stock into the kind and amount of
shares of stock and other securities and property (including cash) receivable
upon such reclassification, change, combination, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock deliverable upon
conversion of such Series A-1 Preferred Stock, at a conversion price equal to
the Conversion Price determined pursuant to Section 6(a)(i), immediately prior
to such reclassification, change, combination, consolidation, merger, sale or
conveyance, and (B) in the event of any exercise by the Corporation of its
right to convert any shares of Series A-1 Preferred Stock held by such holder
pursuant to Section 6(a)(ii), such shares of Series A-1 Preferred Stock shall
be convertible into the kind and amount of shares of stock and other securities
and property (including cash) receivable upon such reclassification, change, combination,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock deliverable upon conversion of such Series A-1 Preferred Stock,
at a conversion price equal to the Corporation Conversion Price determined
pursuant to Section 6(a)(ii)(A), immediately prior to such reclassification,
change, combination, consolidation, merger, sale or conveyance.  Any such supplemental instrument shall
provide for adjustments of the Conversion Price which shall be as nearly
equivalent as may be practicable to the adjustments of the Conversion Price
provided for in Section 6(c). If, in the case of any such consolidation,
merger, combination, sale or conveyance, the stock or other securities and
property (including cash) receivable thereupon by a holder of Common Stock
include shares of stock or other securities and property of a person other than
the successor, purchasing or transferee corporation, as the case may be, in
such consolidation, merger, combination, sale or conveyance, then such supplemental
instrument shall also be executed by such other person and shall contain such
additional provisions to protect the interests of the holder as the Board of
Directors shall reasonably consider necessary by reason of the foregoing. The
provisions of this Section 6(d) shall similarly apply to successive
reclassifications, changes, combinations, consolidations, mergers, sales or
conveyances.  In the event the
Corporation shall execute a supplemental instrument pursuant to this Section
6(d), the Corporation shall promptly file with the holder (x) an Officers’
Certificate briefly stating the reasons therefor, the kind or amount of shares
of stock or other securities or property (including cash) receivable by the
holder upon the conversion of its shares of Series A-1 Preferred Stock after
any such reclassification, change, combination, consolidation, merger, sale or
conveyance, any adjustment to be made with respect thereto and that all
conditions precedent have been complied with and (y) an Opinion of Counsel that
all conditions precedent have been complied with.

(e)   Voluntary Reduction.  The Corporation from time to time may reduce
the Conversion Price by any amount for any period of time if the period is at
least twenty (20) days and if the reduction is irrevocable during the period if
the Board of Directors determines that such reduction would be in the best
interest of the Corporation or to avoid or diminish income tax to holders of
shares of the Common Stock in connection with a dividend or distribution of
stock or similar event, and the Corporation provides fifteen (15) days’ prior
notice of any reduction in the Conversion Price; provided, however,
that in no event may the Corporation reduce the Conversion Price to be less
than the par value of a share of Common Stock.

 

20

 

(f)    Miscellaneous.

(i)            Except as otherwise explicitly contemplated by this
Section 6, no adjustment in respect of any dividends or other payments or
distributions made to holders of Series A-1 Preferred Stock or securities
issuable upon the conversion of the Series A-1 Preferred Stock will be made
during the term of the Series A-1 Preferred Stock or upon the conversion of the
Series A-1 Preferred Stock.  The
provisions of this Section 6(f) are without prejudice to the right of holders
of Series A-1 Preferred Stock to receive any dividends to which they may be
entitled under Section 3.

(ii)           If any event occurs of the type contemplated by the
provisions of Section 6(c), (d), or (e) but not expressly provided for by such
provisions (including the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Board of Directors shall
make any appropriate adjustment in the Conversion Price necessary to protect
the rights of the holder as and to the extent contemplated by Sections 6(c),
(d), or (e); provided, that no such adjustment shall increase the
Conversion Price as otherwise determined pursuant to this Section 6 or decrease
the number of shares of Common Stock issuable upon any conversion of shares of
Series A-1 Preferred Stock.

(iii)          If the Corporation shall enter into
any transaction for the purpose of avoiding the application of the provisions
of Sections 6(c), (d) or (e) or this Section 6(f), the benefits of such
provisions shall nevertheless apply and be preserved.

(iv)          Any dividend or distribution that was
paid or distributed to, or otherwise made available to or set aside for, to the
holders of Series A-1 Preferred Stock (pursuant to Section 3(a) or otherwise)
shall not also result in an adjustment to the Conversion Price pursuant to
Section 6.

7.             STATUS OF SHARES.  All shares of Series A-1 Preferred Stock
that are at any time redeemed pursuant to Section 5 or converted pursuant to
Section 6 and all shares of Series A-1 Preferred Stock that are otherwise
reacquired by the Corporation shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) have the status of authorized
but unissued shares of Preferred Stock, without designation as to series,
subject to reissuance by the Board of Directors as shares of any one or more
other series.

8.             VOTING RIGHTS.

(a)   Limited Voting Rights.  The holders of record of shares of Series
A-1 Preferred Stock shall not be entitled to any voting rights except as
hereinafter provided in this Section 8 or as otherwise provided by law.

(b)   Right to Vote with Common Stock.  The holders of the shares of Series A-1
Preferred Stock (i) shall be entitled to vote with the holders of the Common
Stock on all matters submitted for a vote of holders of Common Stock (voting
together with the holders of Common Stock as one class) and (ii) shall be
entitled to a number of votes equal to the number of votes to which shares of
Common Stock issuable upon conversion by the holder of such shares of Series

 

21

 

A-1 Preferred Stock pursuant
to Section 6(a)(i) would have been entitled if such shares of Common Stock
had been Outstanding at the time of the applicable record date.

(c)   Right to Vote as a Separate Class.  In addition to the rights provided in
Section 8(b) and any other rights provided by law, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority by voting power of the then outstanding shares of
Series A-1 Preferred Stock voting together as a single class:

(i)            change the rights, preferences,
privileges or restrictions of the shares of Series A-1 Preferred Stock;

(ii)           increase or decrease the aggregate
number of authorized shares of Series A-1 Preferred;

(iii)          create, authorize, designate or issue
Senior Securities; or

(iv)          merge or consolidate into or with any
other corporation or entity if the effect of any such transaction would be to
change or adversely affect in any manner whatsoever the rights, privileges,
seniority or preferences of the Series A-1 Preferred Stock.

9.             AGGREGATE OWNERSHIP
LIMITATION.  If upon any proposed
conversion of Series A-1 Preferred Stock pursuant to Section 6(a), any
holder of Series A-1 Preferred would be entitled to receive Common Stock that,
taken together with all other shares of Common Stock Beneficially Owned by such
holder and its Affiliates, would result in such holder and its Affiliates acquiring
Beneficial Ownership of more than 19.9% of the Corporation’s Common Stock then
Outstanding immediately following such conversion (the “OWNERSHIP THRESHOLD”),
then:

(a)   Such holder shall instead receive upon
conversion a number of shares of Common Stock up to the Ownership Threshold;
and

(b)   To the extent such holder would have
otherwise received shares of Common Stock in excess of the Ownership Threshold,
the Corporation shall redeem such number of shares of Series A-1 Preferred
Stock as would result in such holder exceeding the Ownership Threshold at a
cash redemption price equal to the product of (i) such number of shares of
Common Stock in excess of the Ownership Threshold times (ii) the Current
Average Market Price on the relevant Conversion Date (the “OWNERSHIP THRESHOLD
REDEMPTION AMOUNT”).  Except in the case
of a proposed conversion by the Corporation of Series A-1 Preferred Stock
pursuant to Section 6(a) as a result of an election by the Corporation pursuant
to clause (2) of Section 5(d)(i)(A) or clause (2) of Section 5(d)(i)(B), in the
event that the Corporation provides written notice to such holder at least ten
(10) days prior to the date on which the Corporation shall redeem such shares
and pay to such holder the Ownership Threshold Redemption Amount (such date,
the “OWNERSHIP THRESHOLD REDEMPTION DATE”), the Corporation shall have the
right to obtain from such holder a loan in the principal amount designated by
the Corporation in such notice, which amount shall not exceed the Ownership

 

22

 

Threshold Redemption Amount,
and in exchange for such loan the holder shall receive from the Corporation a
five-year, interest free Subordinated Promissory Note, with a face amount equal
to the principal amount of the loan, in the form attached to this Certificate
as Exhibit A (a “SUBORDINATED PROMISSORY NOTE”), and, in the event
that multiple Subordinated Promissory Notes shall be made pursuant hereto, mutatis
mutandis as necessary to provide for any prepayment due in
respect of a Type II Prepayment Event among the successive Subordinated
Promissory Notes sequentially in the order in which such Subordinated
Promissory Notes were made.  The holder
shall provide such loan to the Corporation in exchange for such Subordinated
Promissory Note on the Ownership Threshold Redemption Date, immediately
following the receipt by the holder of the Ownership Threshold Redemption
Amount in immediately available funds. 
The Corporation and the holder shall reasonably cooperate with each
other to coordinate the timing of such transactions on the Ownership Threshold
Redemption Date.

10.           CERTAIN DEFAULTS AND
REMEDIES.

(a)   Events of Default.  Subject to Section 10(b), an “EVENT OF
DEFAULT” shall occur if:

(i)            the Corporation (A) defaults in the
payment of any principal of (including any premium, if any, on) (1) any
Convertible Note when the same becomes due and payable (whether at maturity, on
a Prepayment Date, on a Prepayment Event Date, or otherwise) or (2) any
Promissory Note (as defined in the Purchase Agreement) held by AstraZeneca UK
Limited or any of its Affiliates; or (B) fails to redeem, and to pay to any
holder the Redemption Price for, each share of Preferred Stock that the
Corporation is required to redeem on the date specified for such redemption
herein;

(ii)           the Corporation fails to comply with
any of its obligations under (A) the Convertible Note, if any, or any
Promissory Note (as defined in the Purchase Agreement) held by AstraZeneca UK
Limited or any of its Affiliates or (B) Section 5.6(a) or Section 5.8 of the
Purchase Agreement, in each case other than any obligation specified in Section
10(a)(i), and the default continues for the period and after the notice
specified in Section 10(b);

(iii)          the Corporation fails to provide
notice of a Redemption Event to the holder when required by Section 5(d)(ii)
for a period of thirty (30) days after notice of failure to do so;

(iv)          the Corporation shall default in
respect of any of its obligations under the Preferred Stock other than any
obligation specified in Section 10(a)(i) and the default continues for the
period and after the notice specified in Section 10(b);

(v)           the Purchase Agreement, or any other
agreement or instrument contemplated by the Purchase Agreement, shall be
asserted by the Corporation not to be a legal, valid and binding obligation of
the Corporation, enforceable against the Corporation in accordance with its
terms;

 

23

 

(vi)          the Corporation or any Significant
Subsidiary, pursuant to or within the meaning of any Bankruptcy Law:

(A)  commences a voluntary case or proceeding;

(B)   consents to the entry of an order for relief
against it in an involuntary case or proceeding;

(C)   consents to the appointment of a Custodian of
it or for all or substantially all of its property; or

(D)  makes a general assignment for the benefit of
its creditors; or

(vii)         a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that:

(A)  is for relief against the Corporation or any
Significant Subsidiary in an involuntary case or proceeding;

(B)   appoints a Custodian of the Corporation or
any Significant Subsidiary or for all or substantially all of the property of
the Corporation or any Significant Subsidiary; or

(C)   orders the liquidation of the Corporation or
any Significant Subsidiary;

and in each case the order
or decree remains unstayed and in effect for sixty (60) consecutive days.

 

                                The
term “Bankruptcy Law” means Title 11 of the United States Code (or any
successor thereto) or any similar federal or state law for the relief of
debtors. The term “Custodian” means any receiver, holder, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.

 

(b)   Notice and Cure.

(i)            A default under Section 10(a)(ii) or
(a)(iv) is not an Event of Default until the holder notifies the Corporation in
writing of the default and the Corporation does not cure the default within
sixty (60) days after receipt of such notice. 
The notice given pursuant to this Section 10(b) must specify the Event
of Default, demand that it be remedied and state that the notice is a “NOTICE
OF DEFAULT.”

(ii)           When any Event of Default under
Section 10(a) is cured, it ceases.

(iii)          The Corporation shall immediately
notify each holder of Series A-1 Preferred Stock upon becoming aware of the
existence of any condition or event which constitutes a default or an Event of
Default hereunder by written notice which specifies the nature and period of
existence of such default or Event of Default and what action the

 

24

 

Corporation
is taking or proposes to take with respect thereto.  No holder shall be charged with knowledge of any Event of Default
unless written notice thereof shall have been given to the holder or any agent
of the holder.

(c)   Redemption.

(i)            If an Event of Default (other than
an Event of Default specified in Section 10(a)(vi) or (vii)) occurs and is
continuing, the holders of a majority of the shares of Series A-1 Preferred
Stock then outstanding may, by notice to the Corporation, demand in a notice to
the Corporation that the Corporation redeem, on a Business Day specified in
such notice, which day shall be not less than ten (10) days following the date
of such notice (such specified date the “DEFAULT REDEMPTION DATE”), all of the
shares of Series A-1 Preferred Stock then outstanding, and the Corporation
shall redeem all such shares at a cash redemption price per share equal to the
Redemption Price.   If an Event of
Default specified in Section 10(a)(vi) or (vii) occurs, all Series A-1
Preferred Stock then outstanding shall ipso facto become and be immediately
redeemable by the Corporation at a cash redemption price per share equal to the
Redemption Price without any declaration or other act on the part of the
holders.  Each holder may at any time,
by notice to the Corporation, rescind a redemption notice and its
consequences.  No such rescission shall
affect any subsequent default of impair any right consequent thereto.

(ii)            On or prior to the Default
Redemption Date, the holders of the Series A-1 Preferred Stock shall surrender
their certificates representing such shares to the Corporation at the
Corporation’s principal executive offices or such other location as the Corporation
may by notice direct, and thereupon the Redemption Price of such shares shall
be payable to the order of the person whose name appears on each such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled.  From and
after the Default Redemption Date, unless there shall have been a default in
payment of Redemption Price, all rights of the holders of the Series A-1
Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or deemed to be outstanding for any purpose
whatsoever.

(iii)          In the event that the Corporation does
not pay the Redemption Price on the Default Redemption Date, the Redemption
Price shall be calculated as if the Default Redemption Date were the later of
such date and the date on which such payment is made.  If the Corporation is unable at the Default Redemption Date to
redeem any or all shares of Series A-1 Preferred Stock then to be redeemed
because such redemption would violate the applicable laws of the State of
Delaware, then the Corporation shall redeem such shares as soon thereafter as
redemption would not violate such laws. 
In the event of any redemption of only a part of the then outstanding
Series A-1 Preferred Stock, the Corporation shall effect such redemption pro
rata among the holders thereof (based on the number of shares of Series A-1
Preferred Stock held on the date of notice of redemption).

 

25

 

(d)   Other Remedies.  A delay or omission by any 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.

11.           DEFINITIONS.

(a)   General.  Unless otherwise specified, references in this Certificate to any
section are references to such section of this Certificate 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 Certificate 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 Certificate
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.

(b)   Defined Terms.  Unless the context otherwise requires, when
used herein the following terms shall have the meaning indicated:

“Adjusted Outstanding Amount” means fifty percent
(50%) of the sum of (a) the amount that equals the product of the total number
of shares of Series A-1 Preferred Stock outstanding as of the Type II
Redemption Event Date multiplied by the Liquidation Value per share of such
Series A-1 Preferred Stock, plus (b) the amount that equals the product of the
total number of shares of Series A-2 Preferred Stock (as defined in the Series A-2
Certificate of Designation) outstanding as of the Type II Redemption Event Date
multiplied by the Liquidation Value (as defined in the Series A-2 Certificate
of Designation) per share of such Series A-2 Preferred Stock, plus (c) the
principal amount of the Convertible Note outstanding as of the Type II
Redemption Event Date, plus (d) the principal amount of each Promissory Note
(as such term is defined in the Purchase Agreement) outstanding as of the Type
II Redemption Event Date.

“Affiliate” means with respect to any Person, any
other Person directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person.  For purposes of this definition, the term “control”
(and correlative terms “controlling,” “controlled by” and “under common control
with”) means possession of the power, whether by contract, equity ownership or
otherwise, to direct the policies or management of a Person.

“Approved Market” means the NNM, the New York Stock
Exchange, or the American Stock Exchange.

“Average Market Price for Corporation’s Conversion
Option” means, with respect to shares of Common Stock, the arithmetic mean of
the daily Market Prices of shares of

 

26

 

Common Stock for the ten
(10) consecutive Trading Days commencing on the eleventh (11th) Trading Day
preceding the Conversion Date and ending on the Trading Day next preceding the
Conversion Date; provided, however, that in no event shall the
“Average Market Price for Corporation’s Conversion Option” be more than one
hundred one percent (101%) of the Market Price of shares of Common Stock for
the last Trading Day preceding the Conversion Date.

“Bankruptcy Law” has the meaning set forth in
Section 10(a).

“Base Liquidation Value” has the meaning set forth
in Section 4(a).

“Beneficially Own” or “Beneficial Ownership” are
used herein with the same meanings given to such terms in Rules 13d-3 and 13d-5
of the Exchange Act.

“Board of Directors” has the meaning set forth in
the first paragraph hereof.

“Business Day” means any day that, in the State of
New York and the State of California, is not a day on which banking
institutions are authorized by law or regulation to close.

“Capital Stock” of any Person means any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) equity of such Person, but
excluding any debt securities convertible into such equity.

“Certificate” has the meaning set forth in the first
paragraph hereof.

“Collaboration Agreement” means the Collaboration
Agreement, dated as of October 15, 2003, between the Corporation and
AstraZeneca UK Limited.

“Common Stock” means the Common Stock of the
Corporation, par value $0.0001 per share.

“Conversion Date” has the meaning set forth in
Section 6(b)(iii).

“Conversion Price” has the meaning set forth in
Section 6(a)(i).

“Convertible Note” has the meaning set forth in the
Purchase Agreement.

“Corporation” has the meaning set forth in the first
paragraph hereof.

“Corporation Conversion Price” has the meaning set
forth in Section 6(a)(ii).

“Corporation’s Election Notice” has the meaning set
forth in Section 6(b)(i)(B).

“Current Average Market Price” means, with respect
to shares of the Common Stock as of a given day, the arithmetic mean of the
daily Market Prices of shares of the Common Stock for the thirty (30)
consecutive Trading Days commencing forty-five (45) Trading Days before the
date of determination or, for purposes of all computations under Section
6(c)(ii) and (iii), (a) the Determination Date or the Expiration Date, as the
case may be, with respect to

 

27

 

distributions or tender
offers under Section 6(c)(iii) or (b) the record date with respect to
distributions, issuances or other events requiring such computation under
Section 6(c)(ii) and (iii), calculated in any case by taking the sum of the
Market Prices for shares of the Common Stock for each of the thirty (30) days
in the specified period and dividing the foregoing sum by thirty (30).

“Custodian” has the meaning set forth in Section
10(a).

“Default Redemption Date” has the meaning set forth
in Section 10(c).

“Designated Number of Redemption Event Shares”
means, for each holder, the Designated Number of Type I Redemption Event Shares
or the Designated Number of Type II Redemption Event Shares, as the case may
be.

“Designated Number of Type I Redemption Event
Shares” has the meaning set forth in Section 5(d).

“Designated Number of Type II Redemption Event
Shares” has the meaning set forth in Section 5(d).

“Determination Date” has the meaning set forth in
Section 6(c)(iii)(E).

“Discovery Period” means the period commencing on
the effective date of the Collaboration Agreement and ending on the later to
occur of (a) the date of expiration or termination of the Antigen Designation
Term (as such term is defined in the Collaboration Agreement) and (b) the date
of expiration or termination of the Research Program Term (as such term is defined
in the Collaboration Agreement) with respect to the Research Program (as such
term is defined in the Collaboration Agreement) that is the last such program
to terminate or expire pursuant to the Collaboration Agreement.

“Dividend Payment Date” means March 31, June 30,
September 30 and December 31 of each year.

“Dividend Period” means (a) the period beginning on
the Dividend Trigger Date and ending on the first Dividend Payment Date and (b)
each quarterly period between Dividend Payment Dates.

“Dividend Rate” means (a) during the period
commencing on the Initial Closing Date (as such term is defined in the Purchase
Agreement) and ending on the fifth anniversary of such date, a rate equal to
the 10-Year United States Treasury Bond yield rate as reported in The Wall
Street Journal Western edition on the Initial Closing Date, plus an
additional three percent (3%) compounded annually, and (b) during the period
commencing on the date following the fifth anniversary of the Initial Closing
Date and continuing until the last date on which all shares of Preferred Stock
have been converted or redeemed, a rate equal to the 10-Year United States
Treasury Bond yield rate as reported in The Wall Street Journal Western
edition on the first day of such period, plus an additional three percent (3%)
compounded annually; provided, however, that if The Wall
Street Journal ceases to be published, then the 10-Year United States
Treasury

 

28

 

Bond yield rate to be used
shall be that reported in such other business publication of national
circulation in the United States as the Corporation and the holder reasonably
agree.

“Dividend Trigger Date” has the meaning set forth in
Section 3(b).

“Event of Default” has the meaning set forth in
Section 10(a).

“Exchange Act” means the Securities Exchange Act of
1934, as amended, or any successor statute, and the rules and regulations
promulgated thereunder.

“Expiration Date” has the meaning set forth in
Section 6(c)(iii)(F).

“Expiration Time” has the meaning set forth in
Section 6(c)(iii)(F).

“Initial Conversion Price” has the meaning set forth
in Section 6(a)(i).

“Junior Securities” has the meaning set for in
Section 2.

“Liquidation Value” has the meaning set forth in
Section 4(a).

“Market Price” means, with respect to a particular
security, on any given day, the last reported sales price or, in case no such
reported sale takes place on such date, the average of the reported closing bid
and asked prices in either case on the NNM or, if the security is not listed or
admitted to trading on the NNM, on the principal national securities exchange
on which the security is listed or admitted to trading or, if not listed or
admitted to trading on the NNM or any national securities exchange, the last reported
sales price of the security as quoted on Nasdaq or, in case no reported sales
takes place, the average of the closing bid and asked prices as quoted on
Nasdaq or any comparable system or, if the security is not quoted on Nasdaq or
any comparable system, the closing sales price or, in case no reported sale
takes place, the average of the closing bid and asked prices, as furnished by
any two members of the National Association of Securities Dealers, Inc.
selected from time to time by the Corporation for that purpose.  If the Common Stock is not listed and traded
in a manner that the quotations referred to above are available for the period
required hereunder, the Market Price per share of Common Stock shall be deemed
to be the fair value per share of such security as determined in good faith by
the Board of Directors.

“Maximum Number of Redemption Event Shares” means
the Maximum Number of Type I Redemption Event Shares or the Maximum Number of
Type II Redemption Event Shares, as the case may be.

“Maximum Number of Type I Redemption Event Shares”
means the total number of shares of Series A-1 Preferred Stock held by a holder
as of a Type I Redemption Event Date.

“Maximum Number of Type II Redemption Event Shares”
means the total number of shares of Series A-1 Preferred Stock (and any
fraction of any such share) that, if redeemed by the Corporation on the Type II
Redemption Event Date at the Redemption Price per share, would yield the Series
A-1 Type II Redemption Event Amount.

 

29

 

“Maximum Redemption Amount” means Fifty Million
Dollars (U.S. $50,000,000.00).

“NNM” means the Nasdaq National Market.

“Notice of Default” has the meaning set forth in
Section 10(b).

“Officer” means the chairman or any co-chairman of
the board, any vice chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the controller, the
secretary or any assistant controller or assistant secretary of the
Corporation.

“Officers’ Certificate” means a certificate signed
by two Officers.

“Opinion of Counsel” means a written opinion from
legal counsel.  The counsel may be an
employee of or counsel to the Corporation.

“Outstanding” means, at any time, the number of
shares of Common Stock then outstanding calculated on a fully diluted basis,
assuming the exercise, exchange or conversion into Common Stock of all
outstanding securities exercisable, exchangeable or convertible into shares of
Common Stock (whether or not then exercisable, exchangeable or convertible).

“Ownership Threshold” has the meaning set forth in
Section 9.

“Ownership Threshold Redemption Amount” has the
meaning set forth in Section 9(b).

“Ownership Threshold Redemption Date” has the
meaning set forth in Section 9(b).

“Parity Securities” has the meaning set forth in
Section 2.

“Person” means an individual, corporation,
partnership, other entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act).

“Preferred Stock” has the meaning set forth in the
first paragraph hereof.

“Program” has the meaning given to the term
“Research Program” in the Collaboration Agreement.

“Program Completion Factor” means a fraction, the
numerator of which equals 36 less the number of Programs that have achieved a
Program Milestone as of the Type II Redemption Event Date and the denominator
of which is 36.

“Program Milestone” means, with respect to a
particular Program, the occurrence of the selection of the first Research
Antibody (as such term is defined in the Collaboration Agreement); provided,
that notwithstanding anything to the contrary in the Collaboration

 

30

 

Agreement, for the purpose
of calculating the Program Completion Factor hereunder, any dispute as to
whether or not an Antibody(ies) (as such term is defined in the Collaboration
Agreement) has met the binding criteria as contemplated by clause (a) of
Section 2.3.2 of the Collaboration Agreement shall be resolved in accordance
with the provisions of Section 3.6 of the Collaboration Agreement, as if the
selection or non-selection of such Research Antibody were a matter giving
either party a right to refer such dispute to an Expert (as such term is
defined in the Collaboration Agreement) for expedited arbitration as set forth
in Section 3.6.1 of the Collaboration Agreement.

“Purchase Agreement” means the Securities Purchase
Agreement, dated as of October 15, 2003, between the Corporation and
AstraZeneca UK Limited.

“Purchased Shares” has the meaning set forth in
Section 6(c)(iii)(F).

“Redemption Date” has the meaning set forth in
Section 5(c).

“Redemption Event” means a Type I Redemption Event
or a Type II Redemption Event, as the case may be.

“Redemption Event Date” means the Type I Redemption
Event Date or the Type II Redemption Event Date, as the case may be.

“Redemption Event Notice” has the meaning set forth
in Section 5(d)(iii).

“Redemption Notice” has the meaning set forth in
Section 5(c).

“Redemption Price” has the meaning set forth in
Section 5(a).

“Restricted Conversion Period” has the meaning set
forth in Section 6(a)(ii).

“Rights Plan” has the meaning set forth in Section
6(c)(iii)(C).

“Securities Act” means the United States Securities
Act of 1933, as amended.

“Senior Securities” has the meaning set forth in Section
2.

“Series A-1 Allocated Redemption Amount” means the
amount that equals the lesser of (a) the product of (i) the Program Completion
Factor multiplied by (ii) the Maximum Redemption Amount and (b) the Adjusted
Outstanding Amount.

“Series A-1 Preferred Stock” has the meaning set
forth in the first paragraph hereof.

“Series A-1 Remaining Redemption Amount” means the
amount that equals the product of (a) the number of shares of Series A-1
Preferred Stock outstanding as of the Type II Redemption Event Date multiplied
by (b) the Liquidation Value per share of such Series A-1 Preferred Stock.

 

31

 

“Series A-1 Type II Redemption Event Amount” means
the amount that equals the lesser of the Series A-1 Allocated Redemption Amount
and the Series A-1 Remaining Redemption Amount.

“Series A-2 Certificate of Designation” has the
meaning given to such term in the Purchase Agreement.

“Significant Subsidiary” means, in respect of any
Person, a Subsidiary of such Person that would constitute a “significant
subsidiary” as such term is defined under Rule 1-02 of Regulation S-X under the
Securities Act and the Exchange Act.

“Subordinated Promissory Note” has the meaning set
forth in Section 9.

“Subsidiary” means, in respect of any Person, any
corporation, association, partnership, or other business entity of which more
than fifty percent (50%) of the total voting power of shares of Capital Stock
or other interests (including partnership interests) entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers, general partners or holders thereof is at the time owned or
controlled, directly or indirectly, by (a) such Person; (b) such Person and one
or more Subsidiaries of such Person; or (c) one or more Subsidiaries of such
Person.

“Trading Day” means, with respect to any security,
each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on
which securities are generally not traded on the principal exchange or market in
which such security is traded.

“Trigger Event” has the meaning set forth in Section
6(c)(iii)(D).

“Triggering Distribution” has the meaning set forth
in Section 6(c)(iii)(E).

“Type I Redemption Event” means a Change in Control
(as defined in the Collaboration Agreement) that occurs at any time after the
last day of the Discovery Period.

“Type I Redemption Event Date” has the meaning set
forth in Section 5(d).

“Type II Redemption Event” means the termination by
AstraZeneca UK Limited (or any of its Affiliates) of all outstanding Research
Programs and, in the event that the Antigen Designation Term has not expired,
the Antigen Designation Term, pursuant to Section 16.2 or Section 16.3.1 of the
Collaboration Agreement, which termination occurs at any time prior to or on
the last day of the Discovery Period.

“Type II Redemption Event Date” means the date that
is thirty (30) Business Days after the date of the applicable Type II
Redemption Event (or if such day is not a Business Day, then the next Business
Day thereafter).

 

32

 

12.           NO OTHER RIGHTS.

The shares of Series A-1 Preferred Stock shall not
have any relative, optional or other special rights and powers except as set
forth herein or as may be required by law.

[The
remainder of this page was left blank intentionally.]

 

 

 

 

33

 

IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed and acknowledged by its undersigned duly
authorized officer this 27th day of October, 2003.

	
   

  	
  ABGENIX, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Raymond M. Withy,
  Ph.D.

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Raymond M. Withy, Ph.D.

  
	
   

  	
   

  	
  Title:

  	
   

  	
  President and

  
	
   

  	
   

  	
   

  	
   

  	
  Chief
  Executive Officer

  

 

 

34

 

Exhibit A

FORM OF SUBORDINATED PROMISSORY NOTE ISSUABLE TO
PURCHASER ON

ACCOUNT OF THE OWNERSHIP THRESHOLD

 

 

 

 

 

 

 

EXHIBIT A

 

 

THE
SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR SECURITIES LAWS OF ANY STATE
AND MAY NOT BE OFFERED, SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH LAWS AND, IF REQUESTED BY THE MAKER, UPON
DELIVERY OF AN OPINION OF COUNSEL SATISFACTORY TO THE MAKER THAT THE PROPOSED
TRANSFER IS EXEMPT FROM THE ACT OR SUCH LAWS. 
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO CERTAIN TRANSFER RESTRICTIONS CONTAINED IN THAT CERTAIN SECURITIES
PURCHASE AGREEMENT, DATED AS OF OCTOBER 15, 2003, BETWEEN THE MAKER AND THE
HOLDER.

SUBORDINATED PROMISSORY NOTE

 

U.S.
$[________]                                                                                                                                        ___________,
20__

New York, New York

 

FOR VALUE RECEIVED, Abgenix, Inc., a Delaware
corporation (the “Maker”), hereby unconditionally promises to pay to the order
of [__________________] (the “Holder”), or its permitted assigns, the original
aggregate principal sum of [_________] United States Dollars (U.S. $[________])
on the Maturity Date, subject to prior prepayment in accordance with the
provisions hereof.

Upon the occurrence and during the continuation
uncured of any Event of Default described in Section 6.1(a), such principal
amount of this Note as from time to time remains unpaid shall bear interest at
the Default Rate.  Such interest shall
be payable in arrears on the last day of each March, June, September and
December and at the time of the final payment of the principal amount hereof.  Interest shall be calculated on the basis of
a three hundred sixty-five (365)-day year for the number of days elapsed.

For purposes of determining the person entitled to
payment of the principal of and interest on this Note, the Maker is entitled to
pay the person in whose name this Note is registered at the close of business
on the fifteenth day (whether or not a Business Day) next preceding the date
for such payment.  All payments of
principal and interest on this Note shall be payable at the principal executive
office of such registered holder or at such other place as such registered
holder may from time to time in writing appoint at least fifteen (15) days
before the date such payment is due. 
All payments required to be made by the Maker under this Note shall be
made in cash in immediately available funds.

 

 

Subject to the Holder’s compliance with Section 7 of
the Purchase Agreement and with applicable law, this Note is transferable on
the note register of the Maker upon surrender of this Note for transfer at the
principal executive offices of the Maker duly endorsed by or accompanied by a
written instrument of transfer in form satisfactory to the Maker and duly
executed by the registered 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 Maker 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.

1.             Definitions.

1.1           General. 
Terms used herein and not otherwise defined are used herein with the
same meanings given to them in the Purchase Agreement.  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.

1.2           Defined Terms. 
Unless the context otherwise requires, when used herein the following
terms shall have the meaning indicated:

“Affiliate” means with respect to any Person,
any other Person directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person.  For purposes of this definition, the term
“control” (and correlative terms “controlling,” “controlled by” and “under
common control with”) means possession of the power, whether by contract,
equity ownership or otherwise, to direct the policies or management of a
Person.

“Bankruptcy Law” has the meaning set forth in
Section 6.1.

“Capital Stock” of any Person means any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such
Person, but excluding any debt securities convertible into such equity.

“Certificate(s) of Designation” means the
Series A-1 Certificate of Designation, the Series A-2 Certificate of
Designation, and the Series A-3/A-4 Certificate of Designation.

“Collaboration Agreement” means the
Collaboration Agreement, dated as of October 15, 2003, between the Maker and
AstraZeneca UK Limited.

2

 

“Common Stock” means the common stock, par
value $0.0001 per share, of Maker.

“Convertible Note” has the meaning set forth in
the Purchase Agreement.

“Custodian” has the meaning set forth in
Section 6.1.

“Default Rate” means (i) during the period
commencing on the date hereof and ending on the fifth anniversary of such date,
an interest rate equal to the 10-Year United States Treasury Bond yield rate as
reported in The Wall Street Journal Western edition on the date hereof,
plus an additional three percent (3%) compounded annually, and (ii) during the
period commencing on the date following the fifth anniversary of the date
hereof and continuing until the last date on which the entire principal amount
of this Note has been converted or repaid and any interest owing hereon has
been paid, an interest rate equal to the 10-Year United States Treasury Bond
yield rate as reported in The Wall Street Journal Western edition on the
first day of such period, plus an additional three percent (3%) compounded
annually; provided, however, that if The Wall Street Journal ceases to
be published, then the 10-Year United States Treasury Bond yield rate to be
used shall be that reported in such other business publication of national
circulation in the United States as the Maker and the Holder reasonably agree.

“Designated Prepayment Event Amount” means the
Designated Type I Prepayment Event Amount or the Designated Type II Prepayment
Event Amount, as the case may be.

“Designated Senior Indebtedness” means any
particular Senior Indebtedness of the Maker in which the instrument creating or
evidencing the same or the assumption or guarantee thereof (or any related
agreements or documents to which the Maker is a party) expressly provides that
such Senior Indebtedness shall be “Designated Senior Indebtedness” for purposes
of this Note (provided that such instrument, agreement or other document
creating or evidencing the Indebtedness may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of Designated
Senior Indebtedness).  If any payment
made to any holder of any Designated Senior Indebtedness or its Representative
with respect to such Designated Senior Indebtedness is rescinded or must otherwise
be returned by such holder or Representative upon the insolvency, bankruptcy or
reorganization of the Maker or otherwise, the reinstated Indebtedness of the
Maker arising as a result of such rescission or return shall constitute
Designated Senior Indebtedness effective as of the date of such rescission or
return.

“Designated Type I Prepayment Event Amount” has
the meaning set forth in Section 3.2(a)(i).

“Designated Type II Prepayment Event Amount”
has the meaning set forth in Section 3.2(a)(ii).

“Discovery Period” means the period
commencing on the effective date of the Collaboration Agreement and ending on
the later to occur of (a) the date of expiration or termination of the Antigen
Designation Term (as such term is defined in the Collaboration Agreement) and
(b) the date of expiration or termination of the Research Program Term (as such
term is defined in the Collaboration Agreement) with respect to the Research
Program (as such

 

3

 

term is defined in the
Collaboration Agreement) that is the last such program to terminate or expire
pursuant to the Collaboration Agreement.

“Event of Default” has the meaning set forth in
Section 6.1.

“Exchange Act” means the United States
Securities Exchange Act of 1934, as amended.

“GAAP” means generally accepted accounting
principles in the United States of America as in effect as of the date of this
Note, including those set forth in (i) the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (ii) the statements and pronouncements of the Financial Accounting
Standards Board, (iii) such other statements by such other entity as approved
by a significant segment of the accounting profession and (iv) the rules and
regulations of the SEC governing the inclusion of financial statements
(including pro forma financial statements) in registration statements filed
under the Securities Act and periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting staff
of the SEC.

“Holder” has the meaning set forth in the first
paragraph hereof.

“Indebtedness” means, with respect to any
Person, without duplication, (i) all indebtedness, obligations and other
liabilities (contingent or otherwise) of such Person (A) for borrowed money
(including obligations of such Person in respect of overdrafts, foreign
exchange 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 (B) evidenced by credit or loan agreements,
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 accounts 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) of such Person (A) in
respect of (1) leases of such Person required, in conformity with GAAP, to be
accounted for as capitalized lease obligations on the balance sheet of such
Person (as determined by the Maker), and (2) ground leases the Maker may enter
into in the future with respect to the Maker’s facilities in Fremont,
California, or (B) under any lease or related document (including a purchase
agreement, conditional sale or other title retention agreement) in connection
with the lease of real property or improvement thereon (or any personal
property included as part of any such lease) which provides that such Person is
contractually obligated to purchase or cause a third party to purchase the
leased property or pay an agreed upon residual value of the leased property to
the lessor (whether or not such lease transaction is characterized as an
operating lease or a capitalized lease in accordance with GAAP), (iv) all
obligations (contingent or otherwise) of such Person with respect to any
interest rate or other swap, cap, floor or collar agreement, hedge agreement,
forward contract, or other similar instrument or agreement or foreign currency
hedge, exchange, purchase or similar instrument or agreement; (v) all direct or
indirect guarantees, agreements to be jointly liable or similar agreements by
such Person in respect of, and obligations or liabilities of such Person to

 

4

 

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

“Instrument” has the meaning set forth in
Section 6.1.

“Maker” has the meaning set forth in the first
paragraph hereof.

“Maturity Date” means the fifth (5th)
anniversary of the date of issuance of this Note.

“Maximum Prepayment Event Amount” means the
Maximum Type I Prepayment Event Amount or the Maximum Type II Prepayment Event
Amount, as the case may be.

“Maximum Type I Prepayment Event Amount” means
the total principal amount of this Note outstanding as of a Type I Prepayment
Event Date.

“Maximum Type II Prepayment Event Amount” means
the amount that equals the lesser of the Type II Allocated Prepayment Amount
and the Type II Remaining Prepayment Amount.

“Note” has the meaning set forth in Section 2.

“Officer” means the chairman or any co-chairman
of the board, any vice chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the controller, the
secretary or any assistant controller or assistant secretary of the Maker.

“Officers’ Certificate” means a certificate
signed by two Officers.

“Opinion of Counsel” means a written opinion
from legal counsel, which counsel may be an employee of or counsel to the
Maker.

“Payment Blockage Notice” has the meaning set
forth in Section 4.2.

“Person” means an individual, corporation,
partnership, other entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act).

“Prepayment Event” means a Type I Prepayment
Event or a Type II Prepayment event, as the case may be.

“Prepayment Event Date” means the Type I
Prepayment Event Date or the Type II Prepayment Event Date, as the case may be.

“Prepayment Event Notice” has the meaning set
forth in Section 3.2.

“Purchase Agreement” means the Securities
Purchase Agreement, dated as of October 15, 2003, between the Maker and
AstraZeneca UK Limited.

 

5

 

“Representative” means the (i) trustee under
any indenture to which Maker is a party or other holder, agent or
representative for any Senior Indebtedness or (ii) with respect to any Senior
Indebtedness that does not have any such trustee, holder, agent or other
representative, (a) in the case of such Senior Indebtedness issued pursuant to
an agreement providing for voting arrangements as amount the holders or owner
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.

“SEC” means the United States Securities and
Exchange Commission.

“Securities Act” means the United States
Securities Act of 1933, as amended.

“Senior Indebtedness” means 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 allowed as a claim in any such proceeding) and
rent, if any, payable on or in connection with, and all fees, costs, expenses
and other amounts accrued or due on or in connection with, the Maker’s 3.5%
Convertible Subordinated Notes due March 15, 2007, or any other Indebtedness of
the Maker, whether outstanding on the date of this Note or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Maker (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to this Note or expressly provides that such
Indebtedness is “pari passu” or “junior” to this Note.  Notwithstanding the foregoing, the term
Senior Indebtedness shall not include (i) any Indebtedness of the Maker to any
Subsidiary of the Maker (other than Indebtedness of the Maker to such
Subsidiary arising by reason of guarantees by the Maker of Indebtedness of such
Subsidiary to a Person that is not a Subsidiary of the Maker); (ii) this Note;
or (iii) Indebtedness of or amounts owed by the Maker for compensation to
employees, or for goods or materials purchased in the ordinary course of
business, or for services.  If any
payment made to any holder of any Senior Indebtedness or its Representative
with respect to such Senior Indebtedness is rescinded or must otherwise be
returned by such holder or Representative upon the insolvency, bankruptcy or
reorganization of the Maker or otherwise, the reinstated Indebtedness of the
Maker arising as a result of such rescission or return shall constitute Senior
Indebtedness effective as of the date of such rescission or return.

“Series A-1 Certificate of Designation” has the
meaning set forth in Purchase Agreement.

“Series A-2 Certificate of Designation” has the
meaning set forth in Purchase Agreement.

“Series A-3/A-4 Certificate of Designation” has
the meaning set forth in the Purchase Agreement.

 

6

 

“Significant Subsidiary” means, in respect of
any Person, a Subsidiary of such Person that would constitute a “significant
subsidiary” as such term is defined under Rule 1-02 of Regulation S-X under the
Securities Act and the Exchange Act.

“Subsidiary” means, in respect of any Person,
any corporation, association, partnership, or other business entity of which
more than fifty percent (50%) of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers, general partners or holders thereof is at the time owned
or controlled, directly or indirectly, by (i) such Person; (ii) such Person and
one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of
such Person.

“Type I Prepayment Event” means a Change in
Control (as such term is defined in the Collaboration Agreement) that occurs at
any time after the last day of the Discovery Period.

“Type I Prepayment Event Date” has the meaning
set forth in Section 3.2(a)(i).

“Type II Allocated Prepayment Amount” means the
greater of (i) the amount, if positive, that is derived when the Series A-2
Remaining Redemption Amount (as such term is defined in the Series A-2
Certificate of Designation) is subtracted from the Series A-2 Allocated
Redemption Amount (as such term is defined in the Series A-2 Certificate of
Designation), which amount shall be zero (0) in the event that such amount is
zero (0) or negative, or (ii) the amount, if positive, that is derived when the
Type II Remaining Prepayment Amount (as such term is defined in the Convertible
Note) is subtracted from the Type II Allocated Prepayment Amount (as such term
is defined in the Convertible Note), which amount shall be zero (0) in the
event that such amount is zero (0) or negative; provided, that, in the event
that the amount in each of clause (i) and clause (ii) is zero (0), the “Type II
Allocated Prepayment Amount” means zero (0).

“Type II Prepayment Event” means the
termination by AstraZeneca UK Limited (or any of its Affiliates) of all
outstanding Research Programs and, in the event that the Antigen Designation
Term has not expired, the Antigen Designation Term, pursuant to Section 16.2 or
Section 16.3.1 of the Collaboration Agreement, which termination occurs at any
time prior to or on the last day of the Discovery Period.

“Type II Prepayment Event Date” has the meaning
set forth in Section 3.2(a)(ii).

 “Type II
Remaining Prepayment Amount” means the principal amount of this Note
outstanding as of the Type II Redemption Event Date.

2.             Securities Purchase Agreement.  This Subordinated Promissory Note (this
“Note”) is one of the Promissory Notes of the Maker referred to in the Purchase
Agreement.

 

7

 

3.             Payments.

3.1           Maker’s Right to
Prepay.  The principal amount of
this Note may be prepaid (without premium or penalty) at any time and from time
to time at the election of the Maker, as a whole or in part.

3.2           Prepayment upon
Prepayment Event.

(a)   Prepayments at Option of Holder.

(i)            If at any time that any portion of
the principal amount this Note remains unpaid there shall occur a Type I
Prepayment Event, then on the date that is thirty (30) Business Days after the
date of such Prepayment Event (or, if such day is not a Business Day, then the
next Business Day thereafter) (the “Type I Prepayment Event Date”), the Maker
shall prepay in full so much of the Maximum Type I Prepayment Event Amount as
the Holder may specify in a Prepayment Event Notice (the “Designated Type I
Prepayment Event Amount”).

(ii)           If at any time that any portion of
the principal amount this Note remains unpaid there shall occur a Type II
Prepayment Event, then on the date that is thirty (30) Business Days after the
date of such Prepayment Event (or, if such day is not a Business Day, then the
next Business Day thereafter) (the “Type II Prepayment Event Date”), the Maker
shall prepay in full so much of the principal amount of this Note then
remaining unpaid, not to exceed an amount equal to the Maximum Type II
Prepayment Event Amount, as the Holder may specify in a Prepayment Event Notice
(the “Designated Type II Prepayment Event Amount”).

(b)   Notice to Holder.  Within ten (10) Business Days after the
occurrence of a Prepayment Event, the Maker shall provide Holder with notice of
the Prepayment Event. The notice shall state:

(i)            the date of such Prepayment Event,
whether the Prepayment Event is a Type I Prepayment Event or a Type II
Prepayment Event, and, briefly, the events causing such Prepayment Event;

(ii)           the date by which the Prepayment
Event Notice pursuant to Section 3.2(c) must be given;

(iii)          the Prepayment Event Date;

(iv)          the Maximum Prepayment Event Amount;

(v)           the Holder’s right to require the
Maker to prepay an amount up to the Maximum Prepayment Event Amount;

(vi)          the procedures that the Holder must
follow to exercise rights under this Section 3.2; and

 

8

 

(vii)         the procedures for withdrawing a
Prepayment Event Notice.

(c)   Exercise by Holder of Right to Receive
Prepayment.  The Holder may exercise
its rights specified in this Section 3.2 by delivery of a written notice (a
“Prepayment Event Notice”) to the Maker at any time prior to the close of
business on the Business Day next preceding the Prepayment Event Date
specifying the Designated Prepayment Event Amount.  The Holder may specify a Designated Prepayment Event Amount that
is less than the Maximum Prepayment Event Amount.  Provisions of this Note that apply to the prepayment of the
Maximum Prepayment Event Amount also apply to the prepayment of a Designated
Prepayment Event Amount that is less than the Maximum Prepayment Event
Amount.  Notwithstanding anything herein
to the contrary, the Holder shall have the right to withdraw any Prepayment
Event Notice in whole or in a portion thereof, at any time prior to the close
of business on the Business Day next preceding the Prepayment Event Date by
written notice of withdrawal given to the Maker.

(d)   Effect of Prepayment Event Notice.  Upon receipt by the Maker of the Prepayment
Event Notice specified in Section 3.2(c), the Holder shall (unless such
Prepayment Event Notice is withdrawn as specified in Section 3.2(c)) thereafter
be entitled to receive on the Prepayment Event Date the Designated Type I
Prepayment Event Amount or the Designated Type II Prepayment Event Amount with
respect to this Note, as the case may be.

4.             Subordination.

4.1           Agreement of Subordination.

(a)   Note Subject to Section 4.  The Maker covenants and agrees, and the
Holder by its acceptance of this Note likewise covenants and agrees, that this
Note shall be issued subject to the provisions of this Article 4; and each
transferee of this Note accepts and agrees to be bound by such provisions.

(b)   Subordination.  The payment of the principal of, premium, if
any, and interest on this Note (including any amount prepayable pursuant to
Section 3) 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 in
cash or payment satisfactory to the holders of Senior Indebtedness of all
Senior Indebtedness, whether outstanding at the date of this Note or thereafter
incurred.

(c)   No Effect on Default.  No provision of this Article 4 shall prevent
the occurrence of any default or Event of Default hereunder.

4.2           Payments to
Holder.

(a)   Payment Blockage.  No payment shall be made with respect to the
principal of, or premium, if any, or interest on this Note (including any
amount prepayable pursuant to Section 3), if:

(i)            a default in the payment of principal,
premium, interest, rent or other obligations due on any Designated Senior
Indebtedness occurs and is continuing (or, in the case of Designated Senior
Indebtedness for which there is a

 

9

 

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 Designated
Senior Indebtedness), unless and until such default shall have been cured or
waived or shall have ceased to exist; or

(ii)           a default, other than a payment
default, on Designated Senior Indebtedness occurs and is continuing that then
permits holders of such Designated Senior Indebtedness to accelerate its
maturity and the Holder receives a notice of the default (a “Payment Blockage
Notice”) from a Representative or holder of Designated Senior Indebtedness or
the Maker.

(b)   Limit on Payment Blockage.  If the Holder receives any Payment Blockage
Notice pursuant to clause (a)(ii) above, no subsequent Payment Blockage Notice
shall be effective for purposes of this Section unless and until (i) at least
three hundred sixty-five (365) days shall have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice; and (ii) all
scheduled payments on this Note that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Holder (unless such default was
waived, cured or otherwise ceased to exist and thereafter subsequently
reoccurred) shall be, or be made, the basis for a subsequent Payment Blockage
Notice.

(c)   Resumption of Payments.  The Maker may and shall resume payments on
and distributions in respect of this Note upon the earlier of:

(i)            in the case of a default referred to
in clause (a)(i) of Section 4.2 above, the date upon which the default is cured
or waived or ceases to exist, or

(ii)           in the case of a default referred to
in clause (a)(ii) of Section 4.2 above, the earlier of the date on which such
default is cured or waived or ceases to exist or one hundred seventy-nine (179)
days pass after the date on which the applicable Payment Blockage Notice is
received, if the maturity of such Designated Senior Indebtedness has not been
accelerated, unless this Section 4 otherwise prohibits the payment or
distribution at the time of such payment or distribution.

(d)   Payments Upon Dissolution.  Upon any payment by the Maker, or
distribution of assets of the Maker 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 Maker (whether voluntary or involuntary)
or in bankruptcy, insolvency, receivership or similar proceedings, all amounts
due or to become due upon all Senior Indebtedness shall first be paid in full
in cash, or other payments satisfactory to the holders of Senior Indebtedness
before any payment is made on account of the principal of, premium, if any, or
interest on this Note; and upon any such dissolution or winding-up or
liquidation or reorganization of the Maker or bankruptcy, insolvency,
receivership or other proceeding, any payment by the Maker, or distribution of
assets of the Maker of any kind or character, whether in cash, property or securities,
to which the Holder would be entitled, except for the provisions of this
Section 4, shall (except as aforesaid) be paid by the Maker or by any receiver,
trustee in bankruptcy,

 

10

 

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, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay all Senior Indebtedness in full in cash, or other payment
satisfactory to the holders of Senior Indebtedness, 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 in
respect of this Note.

(e)   Certain Distributions Excluded.  For purposes of this Section 4, the words,
“cash, property or securities” shall not be deemed to include shares of stock of
the Maker as reorganized or readjusted, or securities of the Maker 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 4 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, 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 Maker 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 Maker with, or the
merger of the Maker into, another corporation or the liquidation or dissolution
of the Maker following the conveyance, transfer or lease of its property as an
entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Section 5 shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 4.2 if such other corporation shall, as a part of such consolidation,
merger, conveyance, transfer or lease, comply with the conditions stated in
Section 5.

(f)    Acceleration.  In the event of the acceleration of this
Note because of an Event of Default, no payment or distribution shall be made
to the Holder in respect of the principal of, premium, if any, or interest on
this Note by the Maker (including any amount prepayable pursuant to Section 3)
until all Senior Indebtedness has been paid in full in cash or other payment
satisfactory to the holders of Senior Indebtedness 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 Maker shall promptly notify
holders of Senior Indebtedness of such acceleration.  In the event that, notwithstanding the foregoing provisions, any
payment or distribution of assets of the Maker of any kind or character,
whether in cash, property or securities (including by way of setoff or
otherwise), prohibited by the foregoing, shall be received by the Holder before
all Senior Indebtedness is paid in full, in cash or other payment satisfactory
to the holders of Senior Indebtedness, or provision is made for such payment
thereof in accordance with its terms in cash or other payment satisfactory to
the holders of Senior Indebtedness, 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, or to the
trustee or trustees under any indenture pursuant to which any instruments evidencing
any Senior Indebtedness may have been issued, as their respective interests may
appear, as calculated by the Maker, for application to the payment of all
Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full, in cash or other payment satisfactory to the holders of
Senior Indebtedness,

 

11

 

after giving effect to any
concurrent payment or distribution to or for the holders of such Senior
Indebtedness.

4.3           Subrogation. 
Subject to the payment in full, in cash or other payment satisfactory to
the holders of Senior Indebtedness, of all Senior Indebtedness, the rights of
the Holder 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 4 (equally and ratably with the holders of all
indebtedness of the Maker which by its express terms is subordinated to other
indebtedness of the Maker to substantially the same extent as this 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 Maker applicable to the Senior Indebtedness
until the principal, premium, if any, and interest on this Note shall be paid
in full in cash or other payment satisfactory to the holders of Senior
Indebtedness; 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 4, and no payment over pursuant to the provisions of this
Section 4, to or for the benefit of the holders of Senior Indebtedness by the
Holder, shall, as between the Maker, its creditors other than holders of Senior
Indebtedness, and the Holder, be deemed to be a payment by the Maker 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 4, which would otherwise have been paid
to the holders of Senior Indebtedness shall be deemed to be a payment by the
Maker to or for the account of this Note. It is understood that the provisions
of this Section 4 are and 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.

4.4           No Impairment of Obligations.  Nothing contained in this Section 4 or
elsewhere in this Note is intended to or shall impair, as among the Maker, its
creditors other than the holders of Senior Indebtedness, and the Holder, the
obligation of the Maker, which is absolute and unconditional, to pay to the
Holder the principal of (and premium, if any) and interest on this Note as and
when the same shall become due and payable in accordance with their terms, or
is intended to or shall affect the relative rights of the Holder and creditors
of the Maker other than the holders of the Senior Indebtedness, nor shall
anything herein or therein 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 4 of the holders of Senior Indebtedness in
respect of cash, property or securities of the Maker received upon the exercise
of any such remedy.

4.5           Reliance on Order of Court.  Upon any payment or distribution of assets
of the Maker referred to in this Section 4, the Holder shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, or a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, 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 distribution, the holders of the Senior
Indebtedness and other indebtedness of the Maker, the amount thereof or payable
thereon and all other facts pertinent thereto or to this Section 4.

 

12

 

4.6           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 Maker or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Maker 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.

4.7           Senior Indebtedness Entitled to Rely.  The holders of Senior Indebtedness
(including Designated Senior Indebtedness) shall have the right to rely upon
this Section 4, 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.

4.8           Holder’s Agreement to Effectuate Subordination of Note.  The Holder by its acceptance
of this Note agrees to take such actions as may be necessary or appropriate to
effectuate, as between the holders of Senior Indebtedness and the Holder, the
subordination provided in this Section 4.

5.             Consolidation, Merger, Conveyance, Transfer or Lease.

5.1           Maker May Consolidate, Etc., Only On Certain Terms.  The Maker shall not consolidate with or
merge into any other Person (in a transaction in which the Maker is not the
surviving corporation) or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, unless:

(a)   in case the Maker shall consolidate with or
merge into another Person (in a transaction in which the Maker is not the
surviving corporation) or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Maker is merged or the Person which acquires by
conveyance or transfer, or which leases, the properties and assets of the Maker
substantially as an entirety shall be a corporation organized and validly
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall expressly assume, by an instrument
supplemental hereto, executed and delivered to the Holder, in form reasonably
satisfactory to the Holder, the due and punctual payment of the principal of
and any premium and interest on this Note and the performance or observance of
every covenant of this Note on the part of the Maker to be performed or
observed, by supplemental instrument satisfactory in form to the Holder,
executed and delivered to the Holder by the Person (if other than the Maker)
formed by such consolidation or into which the Maker shall have been merged or
by the Person which shall have acquired the Maker’s assets;

(b)   immediately after giving effect to such transaction, 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; and

(c)   the Maker has delivered to the Holder an
Officers’ Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplement
instrument is required in connection with such transaction, such supplemental

 

13

 

instrument comply with this
Section 5 and that all conditions precedent herein provided for relating to
such transaction have been complied with.

5.2           Successor Substituted.  Upon any consolidation of the Maker with, or merger of the Maker
into, any Person or any conveyance, transfer or lease of the properties and
assets of the Maker substantially as an entirety in accordance with Section
5.1, the successor Person formed by such consolidation or into which the Maker
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Maker under this Note with the same effect as if such successor Person had been
named as the Maker herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under
this Note.

6.             Default and Remedies.

6.1           Events of Default. 
Subject to Section 6.2, an “Event of Default” shall occur if:

(a)   the Maker (i) defaults in the payment of any
principal of (including any premium, if any, on) (A) this Note when the same
becomes due and payable (whether at maturity, on a mandatory prepayment date,
or otherwise), whether or not such payment shall be prohibited by the
provisions of Section 4, or (B) any Promissory Note (as such term is defined in
the Purchase Agreement) held by the Holder or any of its Affiliates; or (C) the
Convertible Note (as such term is defined in the Purchase Agreement); or (ii)
fails to redeem, and to pay to any holder of Preferred Stock the Redemption
Price (as such term is defined in the applicable Certificate of Designation)
for, each share of Preferred Stock that the Maker is required to redeem from
such holder on the date specified for such redemption under the terms of the
applicable Certificate of Designation;

(b)   the Maker fails to comply with any of its
obligations under (i) this Note, (ii) any Promissory Note held by the Holder or
any of its Affiliates, (iii) the Convertible Note or (iv) Section 5.6(a) or
Section 5.8 of the Purchase Agreement, in each case other than any obligation specified
in Section 6.1(a);

(c)   the Maker fails to provide notice of a
Prepayment Event to the Holder when required by Section 3.2(b) for a period of
thirty (30) days after notice of failure to do so;

(d)   any indebtedness under any bond, debenture,
note or other evidence of indebtedness for money borrowed by the Maker or any
Significant Subsidiary (all or substantially all of the outstanding voting
securities of which are owned, directly or indirectly, by the Maker) or under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed by
the Maker or any Significant Subsidiary (all or substantially all of the
outstanding voting securities of which are owned, directly or indirectly, by
the Maker) (excluding, however, this Note, any Promissory Note and the
Convertible Note) (an “Instrument”) with an aggregate outstanding principal
amount then outstanding in excess of Twenty-Five Million United States Dollars
(U.S. $25,000,000), whether such indebtedness now exists or shall hereafter be
created, is not paid at final maturity of the Instrument (either at its stated
maturity or upon acceleration thereof), and

 

14

 

such indebtedness is not
discharged, or such acceleration is not rescinded or annulled, within a period
of thirty (30) days after there shall have been given to the Maker by the
Holder a written notice specifying such default and requiring the Maker to
cause such indebtedness to be discharged or cause such default to be cured or
waived or such acceleration to be rescinded or annulled and stating that such
notice is a “Notice of Default” hereunder;

(e)   the Maker shall default in respect of any of
its obligations under the Preferred Stock other than any obligation specified
in Section 6.1(a) and the default continues for the period and after the notice
specified in Section 6.2;

(f)    this Note, the Purchase Agreement, or any
other agreement or instrument contemplated by the Purchase Agreement shall be
asserted by the Maker not to be a legal, valid and binding obligation of the
Maker, enforceable against the Maker in accordance with its terms;

(g)   the Maker or any Significant Subsidiary,
pursuant to or within the meaning of any Bankruptcy Law:

(i)            commences a voluntary case or
proceeding;

(ii)           consents to the entry of an order for
relief against it in an involuntary case or proceeding;

(iii)          consents to the appointment of a
Custodian of it or for all or substantially all of its property; or

(iv)          makes a general assignment for the
benefit of its creditors; or

(h)   a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:

(i)            is for relief against the Maker or
any Significant Subsidiary in an involuntary case or proceeding;

(ii)           appoints a Custodian of the Maker or
any Significant Subsidiary or for all or substantially all of the property of
the Maker or any Significant Subsidiary; or

(iii)          orders the liquidation of the Maker or
any Significant Subsidiary;

and in each case the order
or decree remains unstayed and in effect for sixty (60) consecutive days.

The
term “Bankruptcy Law” means Title 11 of the United States Code (or any
successor thereto) or any similar federal or state law for the relief of debtors.
The term “Custodian” means any receiver, holder, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.

 

15

 

6.2           Notice and Cure.

(a)   A default under Section 6.1(b) or (e) above is not an Event of
Default until the Holder notifies the Maker in writing of the default and the
Maker does not cure the default within sixty (60) days after receipt of such
notice.  The notice given pursuant to
this Section 6.2 must specify the default, demand that it be remedied and state
that the notice is a “Notice Of Default.”

(b)   When any Event of Default under Section 6.1
is cured, it ceases.

(c)   The Maker shall immediately notify Holder
upon becoming aware of the existence of any condition or event which
constitutes a default or an Event of Default hereunder by written notice which
specifies the nature and period of existence of such default or Event of
Default and what action the Maker is taking or proposes to take with respect
thereto.  The Holder shall not be
charged with knowledge of any Event of Default unless written notice thereof
shall have been given to the Holder or any agent of the Holder.

6.3           Acceleration. 
If an Event of Default (other than an Event of Default specified in
Section 6.1(g) or (h)) occurs and is continuing, the Holder may, by notice to
the Maker, declare all unpaid principal on this Note then outstanding (if not
then due and payable), together with unpaid interest, if any, to the date of
acceleration, 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 6.1(g) or (h) occurs,
all unpaid principal of this Note then outstanding, together with unpaid
interest, shall ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Holder.  The Holder may at any time, by notice to the
Maker, rescind an acceleration and its consequences.  No such rescission shall affect any subsequent default or impair
any right consequent thereto.

6.4           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 of or interest on this Note or to enforce the performance of any
provision of the Purchase Agreement or this Note.

(b)   Remedies Not Exclusive.  The Holder may maintain a proceeding even if
it does not possess this Note or does not produce it in the proceeding.  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.

6.5           Collection Suit By Holder.  If an Event of Default in the payment of
principal specified in Section 6.1(a) occurs and is continuing or if any interest
due and payable hereunder is not paid when due and thereafter remains unpaid,
the Holder may recover judgment against the Maker for the whole amount of
principal and accrued interest remaining unpaid, together with, to the extent
that payment of such interest is lawful, interest on overdue principal and on
overdue installments of interest, in each case at the Default Rate and such
further amount

 

16

 

as shall be sufficient to
cover the costs and expenses of collection, including reasonable attorneys’
fees and disbursements.

7.             Voting Rights. 
The Holder of this Note shall have no voting rights with respect to
Maker.

8.             Waiver. 
No delay or omission on the part of the Holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right
of the Holder, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future
occasion.  The Maker hereby forever
waives presentment, demand, presentment for payment, protest, notice of
protest, notice of dishonor of this Note and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Note.

9.             Miscellaneous.

9.1           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 Maker expressly referring to this Note and
setting forth the provision so excluded, modified or amended.

9.2           Costs.     If
action is successfully instituted to collect on this Note, the Maker promises
to pay all costs and expenses, including reasonable attorneys’ fees, incurred
in connection with such action.

9.3           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.

9.4           Governing Law.  This Note shall be governed by, and construed
in accordance with, the laws of the State of New York.

9.5           Service of
Process; Consent to Jurisdiction; Venue.

(a)   The Maker agrees that service of any process,
summons, notice or document by registered mail to its address set forth in
Section 11.4 of the Purchase Agreement, or any other lawful means, shall
be effective service of process for any action, suit or proceeding brought
against it with respect to this Note in any court identified in clause (b)
below.

(b)   The Maker hereby irrevocably and unconditionally
consents to the exclusive jurisdiction of the courts of the State of New York
and the United States District Court for the Southern District of New York for
any action, suit or proceeding (other than appeals therefrom) arising out of or
relating to this Agreement, and agrees not to commence any action, suit or
proceeding (other than appeals therefrom) related thereto except in such
courts.  The Maker further hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding (other than appeals therefrom) arising out of or
relating to this Note in the courts of the State of New York or the United
States District Court for the Southern District of New York, and hereby further
irrevocably and unconditionally waives and agrees not

 

17

 

to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.

9.6           Notices. 
All notices hereunder shall be given by a party in writing and shall be
deemed received by the other party hereto, in each case in accordance with the
terms of Section 11.4 of the Purchase Agreement as if any such notice were a
notice thereunder.

9.7           Transferability.  This Note may not be transferred or assigned by the Holder except
as permitted by Section 7 of the Purchase Agreement.  For the avoidance of doubt, the parties acknowledge and agree
that, in the event that the Holder merges into or consolidates with any other
Person, or that any other Person acquires securities of the Holder, such
merger, consolidation or acquisition (as the case may be) shall not be deemed
for purposes of this Section 9.7 to be, or to trigger, a transfer or assignment
of the Holder’s rights and obligations hereunder.

9.8           Maximum Rate. 
Any provisions contained in this Note to the contrary notwithstanding,
Holder shall not be entitled to receive, collect or apply, as interest on the
obligations evidenced hereunder, any amount in excess of the maximum rate of
interest permitted to be charged by applicable law, and, in the event any
amount is ever received, collected, or applied as interest in excess of this
maximum allowable rate by Holder, any such amount which would be excessive
interest shall be applied to the reduction of the principal amount owed by the
Maker.  If such principal amount is paid
in full, any such excess shall be promptly paid over to the Maker.  In determining whether or not the interest
paid or payable under any specific circumstances exceeds the maximum rate
allowed by law, Holder may, to the maximum extent allowed by law, characterize
any nonprincipal payment as an expense, fee or premium rather than interest;
exclude voluntary prepayments and the effects of them; and apportion the total
amount of interest throughout the entire contemplated term of the this Note so
that the interest rate is uniform throughout.

9.9           Binding Effect. 
This Note shall be binding upon the successors or assigns of the Maker
and shall inure to the benefit of the successors and assigns of the Holder.

[The
remainder of this page was left blank intentionally.]

 

 

 

18

 

 

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

	
   

  	
   

  	
  ABGENIX, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
							

 

 

 

 

 

19Exhibit 4.8

CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A-2

CONVERTIBLE PREFERRED STOCK OF ABGENIX, INC.

Pursuant to Section 151 of the

General Corporation Law of the State of Delaware

The undersigned, pursuant to the provisions of
Section 151 of the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to the authority expressly vested in the Board of
Directors of Abgenix, Inc., a Delaware corporation (the “CORPORATION”), by the
Corporation’s Certificate of Incorporation, the Board of Directors of the
Corporation (the “BOARD OF DIRECTORS”) has duly provided for the issuance of
and created a series of Preferred Stock (the “PREFERRED STOCK”) of the
Corporation, par value $0.0001 per share, and in order to fix the designation
and amount and the voting powers, designations, preferences and other rights,
and the qualifications, limitations and restrictions, of a series of Preferred
Stock, has duly adopted this Certificate of Designations, Preferences and
Rights of Preferred Stock (the “CERTIFICATE”).

Each share of such series of Preferred Stock shall
rank equally in all respects and shall be subject to the following provisions:

1.             NUMBER OF SHARES AND
DESIGNATION.  50,000 shares of Preferred
Stock of the Corporation shall constitute a series of Preferred Stock
designated as Series A-2 Convertible Preferred Stock (the “SERIES A-2 PREFERRED
STOCK”).  Subject to Section 9(c), the
number of shares of Series A-2 Preferred Stock may be increased (to the extent
of the Corporation’s authorized and unissued Preferred Stock) or decreased (but
not below the number of shares of Series A-2 Preferred Stock then outstanding)
by further resolution duly adopted by the Board of Directors and the filing of
a certificate of increase or decrease, as the case may be, with the Secretary
of State of the State of Delaware.

2.             RANK.  The Series A-2 Preferred Stock shall, with respect to rights upon
liquidation, dissolution or winding up of the affairs of the Corporation, or
otherwise (a) rank senior and prior to the Common Stock, and each other class
or series of equity securities of the Corporation, whether currently issued or
issued in the future, that by its terms ranks junior to the Series A-2
Preferred Stock (all of such equity securities, including the Common Stock, are
collectively referred to herein as the “JUNIOR SECURITIES”), (b) rank on a
parity with each other class or series of equity securities of the Corporation,
whether currently issued or issued in the future, that does not by its terms
expressly provide that it ranks senior to or junior to the Series A-2 Preferred
Stock (all of such equity securities are collectively referred to herein as the
“PARITY SECURITIES”), and (c) rank junior to each other class or series of
equity securities of the Corporation, whether currently issued or issued in the
future, that by its terms ranks senior to the Series A-2 Preferred Stock (all
of such equity securities are collectively referred to herein as the “SENIOR
SECURITIES”).  The respective definitions
of Junior Securities, Parity Securities and Senior Securities shall also
include any rights or options exercisable or exchangeable for or convertible
into any of the Junior Securities, Parity Securities or Senior Securities, as
the case may be.

3.             DIVIDENDS.

 

 

(a)   Ratably with Common Stock.  The holders of shares of Series A-2
Preferred Stock shall be entitled to participate equally and ratably with the
holders of shares of Common Stock in all dividends and distributions paid
(whether in the form of cash, stock or otherwise) on the shares of Common Stock
as if immediately prior to each record date for the Common Stock, shares of
Series A-2 Preferred Stock then outstanding were converted into shares of
Common Stock (in the manner, and at the Conversion Price, described in Section
6(a)(i)).

(b)   Dividend Trigger Date.  Subject to the rights of the holders of any
Senior Securities, in addition to the dividends specified in Section 3(a), upon
the occurrence and during the continuation of any Event of Default described in
Section 11(a)(i) (the date of each such occurrence, a “DIVIDEND TRIGGER DATE”),
thereafter and continuing until the earlier of the redemption or conversion of
the relevant shares of Series A-2 Preferred Stock and the date on which such Event
of Default is cured and ceases to exist, the holders of such shares shall be
entitled to receive, out of funds legally available for that purpose, cash
dividends at the Dividend Rate.  Such
dividends shall be cumulative from the Dividend Trigger Date and shall be
payable in arrears on each Dividend Payment Date, provided that if any such
payment date is not a Business Day then such dividend shall be payable on the
next Business Day.  The dividends per
share of the Series A-2 Preferred Stock for any full quarterly period shall be
computed by multiplying the Dividend Rate for such Dividend Period by the
Redemption Price per share and dividing the result by four.  Dividends payable for any period less than a
full quarterly period shall be computed on the basis of a 360-day year of
twelve 30-day months and the actual number of days elapsed for such period less
than one month.

(c)   Ratable Distribution.  If the full cash dividends required to be
paid by the Corporation to the holder of Series A-2 Preferred Stock pursuant to
Section 3(b) are not paid or made available to the holders of all outstanding
shares of Series A-2 Preferred Stock, and funds available shall be insufficient
to permit payment in full in cash to all such holders and the holders of any
Parity Securities of the preferential amounts to which they are then entitled,
the entire amount available for payment of cash dividends shall be distributed
among the holders of the Series A-2 Preferred Stock and such holders of Parity
Securities ratably and in proportion to the full amount to which they would
otherwise be respectively entitled, and any remainder not paid in cash to such
holders shall cumulate.

(d)   Junior Securities.  So long as any shares of Series A-2
Preferred Stock shall be outstanding after the Dividend Trigger Date or any
dividends accrued but unpaid in respect of shares of Series A-2 Preferred Stock
redeemed pursuant to Section 5 or Section 7 or converted pursuant to Section 6
remain unpaid, the Corporation shall not (i) declare or pay any dividend or
make any distribution on any Junior Securities, whether in cash, property or
otherwise (other than dividends payable on shares of the class or series upon
which such dividends are declared or paid, or payable in shares of Common Stock
with respect to Junior Securities other than Common Stock), or (ii) purchase or
redeem any Junior Securities, or pay or make available any monies for a sinking
fund for the purchase or redemption of any Junior Securities, unless all
dividends to which the holders of Series A-2 Preferred Stock shall have been
entitled for all previous Dividend Periods shall have been paid or declared and
a sum of money sufficient for the payment thereof set apart.

2

 

4.             LIQUIDATION
PREFERENCE.

(a)   Amount.  The liquidation preference for the shares of Series A-2 Preferred
Stock shall be One Thousand United States Dollars (U.S. $1,000.00) per share
(the “BASE LIQUIDATION VALUE”), plus the amount of any accrued but unpaid
dividends (the “LIQUIDATION VALUE”).

(b)   Entitlement of Series A-2 Preferred
Stockholders.  In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series A-2 Preferred Stock shall be
entitled to receive the greater of (i) the Liquidation Value of such shares in
effect on the date of such liquidation, dissolution or winding up or (ii) the
payment such holders would have received had such holders, immediately prior to
such liquidation, dissolution or winding up, converted their shares of Series
A-2 Preferred Stock into shares of Common Stock (pursuant to, and at the
Conversion Price described in, Section 6(a)(i)).

(c)   Seniority.  In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series
A-2 Preferred Stock (i) shall not be entitled to receive the Liquidation Value
of such shares until payment in full or provision has been made for the payment
in full of all claims of creditors of the Corporation and the liquidation
preferences for all Senior Securities, and (ii) shall be entitled to receive
the Liquidation Value of such shares before any payment or distribution of any
assets of the Corporation shall be made or set apart for holders of any Junior
Securities.  Subject to clause (i)
above, if the assets of the Corporation are not sufficient to pay in full the
Liquidation Value payable to the holders of shares of Series A-2 Preferred
Stock and the liquidation preference payable to the holders of any Parity
Securities, then such assets, or the proceeds thereof, shall be distributed
among the holders of shares of Series A-2 Preferred Stock and any such other
Parity Securities ratably in accordance with the Liquidation Value for the Series
A-2 Preferred Stock and the liquidation preference for the Parity Securities,
respectively.

(d)   Events Constituting Liquidation.  Neither a consolidation or merger of the
Corporation with or into any other entity, nor a merger of any other entity with
or into the Corporation, nor a sale or transfer of all or any part of the
Corporation’s assets for cash, securities or other property shall be considered
a liquidation, dissolution or winding up of the Corporation within the meaning
of this Section 4.

5.             REDEMPTION;
PROCEDURES FOR REDEMPTION.

(a)   Redemption Upon Final Maturity.  On the tenth (10th) anniversary of the
Initial Closing Date (as such term is defined in the Purchase Agreement), the Corporation shall redeem all outstanding shares
of Series A-2 Preferred Stock, if any, at a cash redemption price per share
equal to the Liquidation Value (such amount being referred to herein as the
“REDEMPTION PRICE”).

(b)   Redemption at Option of the Corporation.  At any time prior to the tenth (10th)
anniversary of the Initial Closing Date (as such term is defined in the
Purchase Agreement), at its sole option, the Corporation may redeem any or all
shares of Series A-2 Preferred Stock at a cash redemption price per share equal
to the Redemption Price if (i) a shelf

 

3

 

registration statement
covering resales of the Common Stock issuable upon conversion of Series A-2
Preferred Stock is effective and available for use in accordance with Section
8.1 of the Purchase Agreement and is expected to remain effective and available
for use for the thirty (30) days following the date of the notice provided by
the Corporation pursuant to Section 5(c), unless registration is no longer
required pursuant to the terms and conditions of the Purchase Agreement and
(ii) the Common Stock issuable upon conversion of the Series A-2 Preferred
Stock is listed or admitted for trading on an Approved Market and is expected
to remain so listed or admitted for trading for the thirty (30) days following
the date of the notice provided by the Corporation pursuant to Section
5(c).  Except as set forth in this
Section 5(b), the Corporation shall not have the option to redeem any shares of
Series A-2 Preferred Stock.  If fewer
than all of the outstanding shares of Series A-2 Preferred Stock are to be
redeemed pursuant to this Section 5(b), the shares of each holder of Series A-2
Preferred Stock shall be redeemed on a pro rata basis (according to the number
of shares of Series A-2 Preferred Stock held by each holder, with any
fractional shares rounded to the nearest whole share or in such other manner as
the Board of Directors may determine, as may be prescribed by resolution of the
Board of Directors).

 

(c)   Notice of Redemption.  In the event of a redemption of shares of
Series A-2 Preferred Stock pursuant to Section 5(a) or 5(b), notice of such
redemption shall be given by the Corporation, by first class mail, postage
prepaid, mailed not less than fifteen (15) days nor more than forty-five
(45) days prior to the Redemption Date, to each holder of Series A-2
Preferred Stock at the address appearing in the Corporation’s records.  Such notice shall state:

(i)            the date on which the holder is to
surrender to the Corporation the certificates for any shares to be redeemed
(such date, the “REDEMPTION DATE”);

(ii)           the number of shares of Series A-2
Preferred Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of shares to be redeemed from such holder
(such notice being referred to as the “REDEMPTION NOTICE”);

(iii)          the then-current Conversion Price;

(iv)          that if the holder wishes to convert any or all shares of
Series A-2 Preferred Stock that are the subject of the Redemption Notice, the
holder must give notice of such conversion no later than the close of business
on the Business Day immediately preceding the Redemption Date; and

(v)           that, unless the Corporation defaults
in paying the Redemption Price with respect to such shares of Series A-2
Preferred Stock, the only remaining right of the holder in respect of such
shares shall be to receive the payment of the Redemption Price.

Once a Redemption Notice is
given by the Corporation to a holder, the shares of Series A-2 Preferred Stock
that are the subject of such Redemption Notice shall not thereafter be
convertible pursuant to Section 6(a)(ii) and the Redemption Price shall become
due and payable on the Redemption Date, except to the extent that all or any
portion of the shares of Series A-2 Preferred Stock held by such holder are
converted in accordance with the provisions of Section 6(a)(i).

 

4

 

(d)   Redemption Events.

(i)            Notwithstanding anything contained
in Section 5(a), (b) or (c) to the contrary, if at any time there shall occur a

(A)  Type I Redemption Event, then on the date that
is thirty (30) Business Days after the date of such Redemption Event (or, if
such day is not a Business Day, then the next Business Day thereafter) (the
“TYPE I REDEMPTION EVENT DATE”), the Corporation shall either, as it may elect,

(1)   redeem from each holder of
Series A-2 Preferred Stock, at a cash redemption price equal to the Redemption
Price, as many of the Maximum Number of Type I Redemption Event Shares as the
holder may specify in a Redemption Event Notice (for each holder, such number
of shares, the “DESIGNATED NUMBER OF TYPE I REDEMPTION EVENT SHARES”), or

(2)   exercise its rights pursuant
to, and subject to all of the terms and provisions of, Section 6(a)(ii) to
require the holder of the Series A-2 Preferred Stock to convert the Designated
Number of Type I Redemption Event Shares; provided, however, that
if and to the extent, as of the Type I Redemption Event Date, the Corporation
is prevented by the terms of Section 6(a)(ii)(B) from requiring the holder to
convert shares of Series A-2 Preferred Stock pursuant to Section 6(a)(ii)(A),
then the Corporation shall, notwithstanding any election that it may otherwise
have made pursuant to this Section 5(d)(i)(A), redeem from each holder on the
Type I Redemption Event Date in accordance with clause (1) above such of the
Designated Number of Type I Redemption Event Shares as the Corporation is
prevented by the terms of Section 6(a)(ii)(B) from requiring the holder to
convert as of such date.

(B)   Type II Redemption Event, then on the Type II
Redemption Event Date, the Corporation shall either, as it may elect,

(1)   redeem from each such holder
a number of shares of Series A-2 Preferred Stock then held by such holder up to
a maximum number equal to such holder’s pro rata portion (according to the
number of shares of Series A-2 Preferred Stock held by each holder, with any
fractional shares rounded to the nearest whole share or in such other manner as
the Board of Directors may determine, as may be prescribed by resolution of the
Board of Directors) of the Maximum Number of Type II Redemption Event Shares,
at a cash redemption price per share equal to the Redemption Price, as the
holder may specify in the Redemption Event Notice (for each holder, such number
of shares, the “DESIGNATED NUMBER OF TYPE II REDEMPTION EVENT SHARES”), or

(2)   exercise its rights pursuant
to, and subject to all of the terms and provisions of, Section 6(a)(ii)
(without giving effect to clause (4) of Section

 

5

 

6(a)(ii)(B))
to require the holder of the Series A-2 Preferred Stock to convert any one or
all of the Designated Number of Type II Redemption Event Shares; provided,
however, that in the event that the Corporation elects to convert less
than all of such Designated Number of Type II Redemption Event Shares, the
Corporation shall redeem from such holder on the Type II Redemption Event Date
in accordance with clause (1) above such of the Designated Number of Type II
Redemption Event Shares as the Corporation has elected not to convert; provided,
further, that if and to the extent, as of the Type II Redemption Event
Date, the Corporation is prevented by the terms of Section 6(a)(ii)(B) (without
giving effect to clause (4) of Section 6(a)(ii)(B)) from requiring the holder
to convert shares of Series A-2 Preferred Stock pursuant to Section
6(a)(ii)(A), then the Corporation shall, notwithstanding any election that it
may otherwise have made pursuant to this Section 5(d)(i)(B), redeem from each
holder on the Type II Redemption Event Date in accordance with clause (1) above
such of the Designated Number of Type II Redemption Event Shares as the
Corporation is prevented by the terms of Section 6(a)(ii)(B) (without giving
effect to clause (4) of Section 6(a)(ii)(B)) from requiring the holder to
convert as of such date.

(ii)           Within ten (10) Business Days after
the occurrence of a Redemption Event, the Corporation shall provide each holder
of Series A-2 Preferred Stock with notice of the Redemption Event. The notice
shall state:

(A)  the date of such Redemption Event, whether it
is a Type I Redemption Event or a Type II Redemption Event, and, briefly, the
events causing such Redemption Event;

(B)   the date by which the Redemption Event Notice
pursuant to this Section 5(d) must be given;

(C)   the Redemption Event Date;

(D)  the Maximum Number of Redemption Event Shares
and, if the Redemption Event is a Type II Redemption Event, the holder’s pro
rata portion of the Maximum Number of Type II Redemption Event Shares;

(E)   the holder’s right to require the
Corporation, (1) in the case of a Type I Redemption Event, to redeem or convert
(at the Corporation’s election) such number of shares of Series A-2 Preferred
Stock as would equal the Maximum Number of Redemption Event Shares or, (2) in
the case of a Type II Redemption Event, to redeem or convert the holder’s pro
rata portion of the Maximum Number of Type II Redemption Event Shares;

(F)   in the case of (1) a Type I Redemption Event,
whether the Corporation is electing to redeem or exercise its rights to convert
such Designated Number of Type I Redemption Event Shares as may thereafter be
specified by the holder, and (2) a Type II Redemption Event, whether the
Corporation is electing to redeem or exercise its rights to convert such
Designated Number of Type II Redemption Event

 

6

 

Shares
as may thereafter be specified by the holder (and, in either case, in the event
that the Corporation is electing to exercise its rights to convert any such
shares, the number of such shares that the Corporation is electing to convert,
and the place or places where certificates for such shares are to be
surrendered for issuance of certificates representing shares of Common Stock);

(G)   the then-current Conversion Price and the
then-current Corporation Conversion Price;

(H)  that the Series A-2 Preferred Stock that is
the subject of redemption pursuant to a Redemption Event Notice may be
converted into Common Stock pursuant to Section 6(a)(i) only to the extent that
the Redemption Event Notice has been withdrawn in accordance with the terms of
this Certificate;

(I)    the procedures that the holder must follow
to exercise rights under this Section 5(d); and

(J)    the procedures for withdrawing a Redemption
Event Notice.

(iii)          The holder may exercise its rights
specified in this Section 5(d) by delivery to the Corporation of a written
notice (a “REDEMPTION EVENT NOTICE”) at any time prior to the close of business
on the Business Day next preceding the Redemption Event Date specifying the
Designated Number of Redemption Event Shares. 
The holder may specify a Designated Number of Redemption Event Shares
that is less than the Maximum Number of Redemption Event Shares only if the
amount so designated is not less than one whole share.  Notwithstanding anything herein to the
contrary, the holder shall have the right to withdraw any Redemption Event
Notice in whole or in a portion thereof so long as the remaining Designated
Number of Redemption Event Shares, if any, is not less than one whole share at
any time prior to the close of business on the Business Day next preceding the
Redemption Event Date by written notice of withdrawal given to the Corporation.

(e)   Rights of Holder.  Upon receipt by the Corporation of the
Redemption Event Notice specified in Section 5(d)(iii), the holder shall
(unless such Redemption Event Notice is withdrawn as specified in Section
5(d)(iii)) thereafter be entitled to receive on the Redemption Event Date,
either the Redemption Price or the certificates and payment amount (if any) to
which it is entitled upon conversion as provided in Section 6(b)(ii), as
applicable, in each case with respect to each share of Series A-2 Preferred
Stock held by such holder that is included in the Designated Number of
Redemption Event Shares.  Any Series A-2
Preferred Stock in respect of which a Redemption Event Notice has been given by
the holder thereof may not be converted into shares of Common Stock pursuant to
Section 6(a) on or after the date of the delivery of such Redemption Event
Notice unless such Redemption Event Notice has first been validly withdrawn.

(f)    Redemption Terms.  In the event that any Designated Number of
Redemption Event Shares are to be redeemed pursuant to this Section 5, the
following terms and conditions shall apply.

 

7

 

(i)            Surrender of Certificates.  On or prior to the Redemption Date or the
Redemption Event Date, as the case may be, each holder of Series A-2 Preferred
Stock to be redeemed shall surrender its certificate or certificates
representing shares of Series A-2 Preferred Stock to be redeemed to the
Corporation at the Corporation’s principal executive offices or such other
location as the Corporation may by notice direct, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. 
In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares.  From and after the
Redemption Date or the Redemption Event Date, as the case may be, unless there
shall have been a default in payment of the Redemption Price, all rights of the
holders of the Series A-2 Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to the Series A-2 Preferred Stock
subject to redemption, and such shares shall not thereafter be transferred on
the books of the Corporation or deemed to be outstanding for any purpose
whatsoever.

(ii)           Consequences of Nonpayment.  In the event that the Corporation does not
pay the Redemption Price on the Redemption Date or the Redemption Event Date,
as the case may be, the Redemption Price shall be calculated as if the
Redemption Date or the Redemption Event Date, as the case may be, were the
later of such date and the date on which such payment is made.  If the Corporation is unable at the
Redemption Date or the Redemption Event Date, as the case may be, to redeem any
or all shares of Series A-2 Preferred Stock then to be redeemed because such
redemption would violate the applicable laws of the State of Delaware, then the
Corporation shall redeem such shares as soon thereafter as redemption would not
violate such laws.  In the event of any
redemption of only a part of the then outstanding Series A-2 Preferred Stock
subject to redemption, the Corporation shall effect such redemption pro rata
among the holders thereof (based on the number of shares of Series A-2
Preferred Stock held on the date of notice of redemption).

(g)   Conversion Terms.  In the event that the Corporation elects,
pursuant to clause (2) of Section 5(d)(i)(A) or clause (2) of Section
5(d)(i)(B), to exercise its rights to require the holder to convert any shares of Series A-2
Preferred Stock pursuant to Section 6(a)(ii) with respect to the Designated
Number of Redemption Event Shares specified by each holder, the terms of
Section 6 shall govern the conversion of such shares, except that the notice
provisions of Section 5(d)(ii) shall apply in lieu of the notice requirements
of Section 6(b)(i)(B) such that, upon the Corporation’s giving of the notice
required pursuant to Section 5(d)(ii), the Corporation shall be deemed to have
exercised its conversion rights pursuant to Section 6(a)(ii) with respect to
such Designated Number of Redemption Event Shares and the Corporation shall not
be required to provide any additional notice under Section 6(b)(i)(B) in order
to exercise such rights with respect to such shares.

 

8

 

6.             CONVERSION.

(a)   Right to Convert; Right of Corporation to Require Conversion.

(i)            Voluntary Conversion at the
Option of the Holder.  Subject to
the provisions of Section 5, this Section 6, Section 7 and Section 10,
each holder of shares of Series A-2 Preferred Stock shall have the right, at any
time and from time to time, at such holder’s option, to convert any or all of
such holder’s shares of Series A-2 Preferred Stock, in whole or in part, into
fully paid and non-assessable shares of Common Stock at the conversion price
equal to the Initial Conversion Price per share of Common Stock, subject to
adjustment as described in Section 6(c) (as adjusted, the “CONVERSION
PRICE”).  The number of shares of Common
Stock into which a share of the Series A-2 Preferred Stock shall be convertible
pursuant to this Section 6(a)(i) (calculated as to each conversion to the
nearest 1/100th of a share) shall be determined by dividing the Base
Liquidation Value by the Conversion Price in effect at the time of conversion.
The “INITIAL CONVERSION PRICE” shall be Thirty United States Dollars (U.S.
$30.00) per share.  Notwithstanding the
foregoing provisions of this Section 6(a)(i), if some or all of the shares of
Series A-2 Preferred Stock held by the holder are to be redeemed pursuant to
Section 5 or Section 7, the conversion right specified in this Section 6(a)(i)
shall terminate as to such shares at the close of business on the Business Day
immediately preceding the Redemption Date, Redemption Event Date, or Exchange
Date, as the case may be (unless the Corporation shall default in paying the
Redemption Price per share, when due, in which case the conversion right shall
terminate at the close of business on the date such default is cured).

(ii)           Mandatory Conversion at the Option
of the Corporation.

(A)  Subject to the provisions of Section 5, this
Section 6, Section 7 and Section 10, the Corporation shall have the right
to require the holder of shares of Series A-2 Preferred Stock, at the
Corporation’s option, to convert any or all of such holder’s shares of Series
A-2 Preferred Stock, in whole or in part, into fully paid and non-assessable
shares of Common Stock at a conversion price equal to the lower of (1) the
Average Market Price for Corporation’s Conversion Option or (2) the Conversion
Price described in Section 6(a)(i) above (such lower price, the “CORPORATION
CONVERSION PRICE”).  The number of
shares of Common Stock into which a share of the Series A-2 Preferred Stock
shall be convertible pursuant to this Section 6(a)(ii) (calculated as to each
conversion to the nearest 1/100th of a share) shall be determined by dividing
the Base Liquidation Value by the Corporation Conversion Price.

(B)   Notwithstanding anything contained herein to
the contrary, in no event shall the Corporation have the right to require the
holder of shares of Series A-2 Preferred Stock to convert any or all of such
shares into shares of Common Stock pursuant to Section 6(a)(ii)(A):  (1) at any time during the period commencing
on the date of the Initial Closing (as such term is defined in the Purchase
Agreement) and ending on the third anniversary thereof (the “RESTRICTED
CONVERSION PERIOD”), except to the extent permitted by the terms and conditions
of Section

 

9

 

6(a)(ii)(C);
(2) unless (y) a shelf registration statement covering resales of the Common
Stock issuable upon conversion of the Series A-2 Preferred Stock is effective
and available for use in accordance with Section 8.1 of the Purchase Agreement
and is expected to remain effective and available for use for the thirty (30)
days following the Conversion Date unless registration is no longer required
pursuant to the terms and conditions of the Purchase Agreement and (z) the
Common Stock issuable upon conversion of the Series A-2 Preferred Stock is
listed or admitted for trading on an Approved Market and is expected to remain
so listed or admitted for trading for the thirty (30) days following the
Conversion Date; (3) if there exists and is continuing an Event of Default; or
(4) during any period when any member of the Corporation’s senior management
is, to the knowledge of the Corporation, at the time of the giving of the
Corporation’s Election Notice (or, in the event of a conversion by the
Corporation pursuant to an election under clause (2) of Section 5(d)(i)(A), at
the time of the Corporation’s giving of the notice required pursuant to Section
5(d)(ii)), prohibited or restricted from trading in shares of Common Stock
under the Corporation’s internal rules and procedures relating to insider trading
in the Corporation’s securities.

(C)           During the Restricted Conversion
Period, the Corporation shall have no right to require the holders of shares of
Series A-2 Preferred Stock to convert in any three month period shares of
Series A-2 Preferred Stock that yield shares of Common Stock exceeding the
greater of (1) one percent of the shares of Common Stock outstanding as of the
beginning of such three month period and (2) the average weekly trading volume
on the NNM for shares of Common Stock during the four weeks ending on the first
day of such three month period, in each case as such amounts are determined
pursuant to Rule 144 of the Securities Act.

(b)   Mechanics of Conversion.

(i)            Procedures to Exercise Conversion
Rights.  A holder of shares of Series
A-2 Preferred Stock or the Corporation, as the case may be, that elects to
exercise its conversion rights pursuant to Section 6(a) shall provide notice to
the other party as follows:

(A)  Holder’s Notice and Surrender.  To exercise its conversion right pursuant to
Section 6(a)(i), the holder of shares of Series A-2 Preferred Stock to be
converted shall surrender the certificate or certificates representing such
shares at the office of the Corporation (or any transfer agent of the
Corporation previously designated by the Corporation to the holders of Series
A-2 Preferred Stock for this purpose) with a written notice of election to
convert, completed and signed, specifying the number of shares to be converted.

(B)   Corporation’s Notice.  Subject to Section 5(g), to exercise its
conversion right pursuant to Section 6(a)(ii), the Corporation shall deliver
written notice to such holder (the “CORPORATION’S ELECTION NOTICE”), at least
twenty (20) days and no more than forty-five (45) days prior to the Conversion
Date, specifying: (1) the number of shares of Series A-2 Preferred Stock to be
converted

 

10

 

and,
if fewer than all the shares held by such holder are to be converted, the
number of shares to be held by such holder; (2) the Conversion Date; and (3)
the place or places where certificates for such shares are to be surrendered
for issuance of certificates representing shares of Common Stock.

(ii)           Surrender and Delivery of
Certificates.  Unless the shares
issuable upon conversion are to be issued in the same name as the name in which
such shares of Series A-2 Preferred Stock are registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form reasonably satisfactory to the Corporation, duly executed by the holder or
the holder’s duly authorized attorney and an amount sufficient to pay any
transfer or similar tax in accordance with Section 6(b)(vi).  As promptly as practicable after the
surrender by the holder of the certificates for shares of Series A-2 Preferred
Stock as aforesaid, the Corporation shall issue and shall deliver to such
holder, or on the holder’s written order to the holder’s transferee, a
certificate or certificates for the whole number of shares of Common Stock
issuable upon the conversion of such shares, a check payable in an amount
corresponding to any fractional interest in a share of Common Stock as provided
in Section 6(b)(vii), and, in the case of a conversion pursuant to Section
6(a)(ii), a certificate of an executive officer of the Corporation setting
forth the Corporation Conversion Price and, in reasonable detail, the
determination thereof and the number of shares of Common Stock issued in
respect of each converted share of Series A-2 Preferred Stock.

(iii)          Effective Date of Conversion.  Each conversion shall be deemed to have been
effected immediately prior to the close of business on (A) in the case of
conversion pursuant to Section 6(a)(i), the first Business Day on which the
certificates for shares of Series A-2 Preferred Stock shall have been
surrendered and such notice received by the Corporation as aforesaid or (B) in
the case of conversion pursuant to Section 6(a)(ii), the date specified as the
Conversion Date in the Corporation’s notice of conversion delivered to each
holder pursuant to Section 6(b)(i)(B) (in each case, the “CONVERSION DATE”); provided,
however, that in the event of a conversion by the Corporation under
Section 6(a)(ii) pursuant to an election made by the Corporation under clause
(2) of Section 5(d)(i)(A) or clause (2) of Section 5(d)(i)(B), the “CONVERSION
DATE” shall be the Redemption Event Date. 
At such time on the Conversion Date: 
(A) the person in whose name or names any certificate or certificates
for shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder of record of the shares of Common Stock
represented thereby at such time; and (B) such shares of Series A-2 Preferred
Stock so converted shall no longer be deemed to be outstanding, and all rights
of a holder with respect to such shares, in the event of conversion pursuant to
Section 6(a)(i), surrendered for conversion and, in the event of conversion
pursuant to Section 6(a)(ii), covered by the Corporation’s notice of conversion,
shall immediately terminate except the right to receive (x) the Common Stock,
(y) other amounts payable pursuant to this Section 6, and (z) any dividends
then accrued but unpaid in respect of the converted Series A-2 Preferred Stock.

(iv)          Duly Issued Shares.  All shares of Common Stock delivered upon
conversion of the Series A-2 Preferred Stock shall, upon delivery, be duly and
validly

 

11

 

authorized
and issued, fully paid and nonassessable, free from all preemptive rights and
free from all taxes, liens, security interests and charges (other than liens or
charges created by or imposed upon the holder or taxes in respect of any
transfer occurring contemporaneously therewith).

(v)           Reservation and Listing of Shares.  The Corporation shall at all times reserve
and keep available, free from preemptive rights, out of its authorized but
unissued Common Stock, solely for the purpose of effecting conversions of the
Series A-2 Preferred Stock, the aggregate number of shares of Common Stock
issuable upon conversion of the Series A-2 Preferred Stock pursuant to Section
6(a)(i).  Prior to any conversion by the
Corporation pursuant to Section 6(a)(ii), the Corporation shall ensure that it
then has a sufficient number of authorized but unissued shares of Common Stock
in order to effect such conversion.  
The Corporation shall, promptly following the issuance of the shares of
Series A-2 Preferred Stock, take such action to cause the shares of Common
Stock initially issuable upon conversion of the shares of Series A-2 Preferred
Stock to be listed on the NNM as promptly as possible but no later than the
effective date of the Registration Statement providing for the resale by the
holder of shares of Common Stock issuable upon conversion of shares of the
Series A-2 Preferred Stock as contemplated by Section 8 of the Purchase
Agreement.  The Corporation further
agrees that if it applies to have its Common Stock or other securities traded on
any other stock exchange or market it will include in such application all
shares of Common Stock to be issued upon the shares of Series A-2 Preferred
Stock and will take all such other actions as may be necessary to cause such
shares of Common Stock to be so listed. 
During the period beginning on the date hereof and ending on the Final
Date (as such term is defined in the Purchase Agreement), the Corporation shall
take all actions necessary to continue the listing and trading of its Common
Stock on an Approved Market and will comply in all material respects with the
Corporation’s reporting, filing and other obligations under the bylaws and
rules of each such exchange or market on which shares of the Common Stock may
from time to time be listed to the extent necessary to ensure the continued eligibility
for trading of shares of Common Stock. 
The Corporation shall take all commercially reasonable action as may be
necessary to ensure that the shares of Common Stock may be issued without
violation of any applicable law or regulation or of any requirement of any
securities exchange or inter-dealer quotation system on which the shares of
Common Stock are listed or traded.

(vi)          Fees and Taxes.  Issuances of certificates for shares of
Common Stock upon conversion of the Series A-2 Preferred Stock shall be made
without charge to the holder of shares of Series A-2 Preferred Stock for any
issue or transfer tax (other than taxes in respect of any transfer occurring
contemporaneously therewith or as a result of the holder being a non-U.S.
person) or other incidental expense in respect of the issuance of such
certificates, all of which taxes and expenses shall be paid by the Corporation;
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance or
delivery of shares of Common Stock in a name other than that of the holder of
the Series A-2 Preferred Stock, and no such issuance or delivery shall be made
unless and until the person requesting

 

12

 

such
issuance or delivery has paid to the Corporation the amount of any such tax or
has established, to the satisfaction of the Corporation, that such tax has been
paid.

(vii)         Fractions of Shares.  In connection with the conversion of any
shares of Series A-2 Preferred Stock, no fractions of shares of Common Stock
shall be issued, but in lieu thereof the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to such
fractional interest multiplied by the Market Price per share of Common Stock on
the Conversion Date.

(viii)        Conversion on Pro Rata Basis.  If fewer than all of the outstanding shares
of Series A-2 Preferred Stock are to be converted pursuant to Section 6(a)(ii),
the shares of each holder of Series A-2 Preferred Stock shall be converted on a
pro rata basis (according to the number of shares of Series A-2 Preferred Stock
held by each holder, with any fractional shares rounded to the nearest whole
share or in such other manner as the Board of Directors may determine, as may
be prescribed by resolution of the Board of Directors).

(c)   Adjustments to Conversion
Price.

(i)            Stock Splits, Etc.  In case the Corporation shall (A) pay a
dividend on its Common Stock in shares of Common Stock, (B) make a distribution
on its Common Stock in shares of Common Stock, (C) subdivide its Outstanding
Common Stock into a greater number of shares, or (D) combine its Outstanding
Common Stock into a smaller number of shares, the Conversion Price in effect immediately
prior thereto shall be adjusted so that the holder shall upon conversion of the
shares of Series A-2 Preferred Stock held by it be entitled to receive that
number of shares of Common Stock which it would have owned had such shares of
Series A-2 Preferred Stock been converted immediately prior to the happening of
such event. An adjustment made pursuant to this Section 6(c)(i) shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of subdivision or combination.

(ii)           Rights to Purchase Common Stock.  In case the Corporation shall issue rights
or warrants to all or substantially all holders of its Common Stock entitling
them (for a period commencing no earlier than the record date described below
and expiring not more than sixty (60) days after such record date) to subscribe
for or purchase shares of Common Stock (or securities convertible into Common
Stock) at a price per share (or having a conversion price per share) less than
the Current Average Market Price per share of Common Stock on the record date
for the determination of stockholders entitled to receive such rights or
warrants, the Conversion Price in effect immediately prior thereto shall be
adjusted so that the same shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to such record date by a fraction
of which the numerator shall be the number of shares of Common Stock
Outstanding on such record date plus the number of shares which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered, which
shall be determined by multiplying the number of shares of Common Stock
issuable upon conversion of such convertible securities by the

 

13

 

conversion
price per share of Common Stock pursuant to the terms of such convertible
securities) would purchase at the Current Average Market Price per share of
Common Stock on such record date, and of which the denominator shall be the
number of shares of Common Stock Outstanding on such record date plus the
number of additional shares of Common Stock offered (or into which the
convertible securities so offered are convertible).  Such adjustment shall be made successively whenever any such
rights or warrants are issued, and shall become effective immediately after
such record date.  If at the end of the
period during which such rights or warrants are exercisable not all rights or
warrants shall have been exercised, the adjusted Conversion Price shall be
immediately readjusted to what it would have been based upon the number of
additional shares of Common Stock actually issued (or the number of shares of
Common Stock issuable upon conversion of convertible securities actually
issued).

(iii)          Distributions to Holders of Common
Stock.

(A)  In case the Corporation shall distribute to
all or substantially all holders of its Common Stock any shares of Capital
Stock of the Corporation (other than Common Stock), evidences of indebtedness
or other non-cash assets (including securities of any person other than the
Corporation but excluding (1) dividends or distributions paid exclusively in
cash or (2) dividends or distributions referred to in Section 6(c)(i)), or
shall distribute to all or substantially all holders of its Common Stock rights
or warrants to subscribe for or purchase any of its securities (excluding those
rights and warrants referred to in Section 6(c)(ii) and also excluding the
distribution of rights to all holders of Common Stock pursuant to the adoption
of a stockholders rights plan or the detachment of such rights under the terms
of such stockholder rights plan), then in each such case the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the current Conversion Price by a fraction of which the numerator
shall be the Current Average Market Price per share of the Common Stock on the
record date mentioned below less the fair market value on such record date (as
reasonably determined by the Board of Directors, whose determination shall be
conclusive evidence of such fair market value and which shall be evidenced by
an Officers’ Certificate delivered to the holder) of the portion of the Capital
Stock, evidences of indebtedness or other non-cash assets so distributed or of
such rights or warrants applicable to one share of Common Stock (determined on
the basis of the number of shares of Common Stock Outstanding on the record
date), and of which the denominator shall be the Current Average Market Price
per share of the Common Stock on such record date. Such adjustment shall be
made successively whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such distribution.

(B)   In the event the then fair market value (as
so determined) of the portion of the Capital Stock, evidences of indebtedness
or other non-cash assets so distributed or of such rights or warrants
applicable to one share of Common Stock is equal to or greater than the Current
Average Market Price per share of the Common Stock on such record date, in lieu
of the foregoing adjustment, adequate provision

 

14

 

shall
be made so that the holder has the right to receive upon conversion the amount
of Capital Stock, evidences of indebtedness or other non-cash assets so distributed
or of such rights or warrants the holder would have received had the holder
converted the shares of Series A-2 Preferred Stock then held by it on such
record date.  In the event that such
dividend or distribution is not so paid or made, the Conversion Price shall
again be adjusted to be the Conversion Price which 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 6(c)(iii)(B) 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 Average Market Price of the Common Stock.

(C)   In the event that the Corporation has
implemented or implements a preferred shares rights plan (“RIGHTS PLAN”), upon
conversion by each holder of the shares of Series A-2 Preferred Stock held by
it into Common Stock, to the extent that the Rights Plan has been implemented
and is still in effect upon such conversion, the holder shall 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 the Rights Plan.  Any distribution of rights or warrants 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 6(c)(iii)(C).

(D)  Rights or warrants distributed by the
Corporation to all holders of Common Stock entitling the holders thereof to
subscribe for or purchase shares of the Corporation’s Capital Stock (either
initially or under certain circumstances), which rights or warrants, until the
occurrence of a specified event or events (“TRIGGER EVENT”): (1) are deemed to
be transferred with such shares of Common Stock; (2) are not exercisable; and
(3) are also issued in respect of future issuances of Common Stock, shall be
deemed not to have been distributed for purposes of this Section 6(c)(iii)(D)
(and no adjustment to the Conversion Price under this Section 6(c)(iii)(D) 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 6(c)(iii)(D). If any such right or warrant, including any such
existing rights or warrants distributed prior to the date of the Initial
Closing Date (as such term is defined in the Purchase Agreement), 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 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

 

15

 

Section
6(c)(iii)(D) was made, (y) in the case of any such rights or warrants which
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 (z) in the case of such rights or warrants which
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.

(E)   In case the Corporation shall, by dividend or
otherwise, at any time distribute (a “TRIGGERING DISTRIBUTION”) to all or
substantially all holders of its Common Stock cash in an aggregate amount that,
together with the aggregate amount of (1) any cash and the fair market value
(as reasonably determined by the Board of Directors, whose determination shall
be conclusive evidence thereof and which shall be evidenced by an Officers’
Certificate delivered to the holder) of any other consideration payable in
respect of any tender offer by the Corporation or a Subsidiary of the
Corporation for Common Stock consummated within the twelve (12) months
preceding the date of payment of the Triggering Distribution and in respect of
which no Conversion Price adjustment pursuant to this Section 6(c)(iii)(E) has
been made and (2) all other cash distributions to all or substantially all
holders of its Common Stock made within the twelve (12) months preceding the date
of payment of the Triggering Distribution and in respect of which no Conversion
Price adjustment pursuant to this Section 6(c)(iii)(E) has been made (and in
which the holder did not otherwise participate), exceeds an amount equal to ten
percent (10%) of the product of the Current Average Market Price per share of
Common Stock on the Business Day (the “DETERMINATION DATE”) immediately
preceding the day on which such Triggering Distribution is declared by the
Corporation multiplied by the number of shares of Common Stock Outstanding on
the Determination Date (excluding shares held in the treasury of the
Corporation), the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying such Conversion Price in effect immediately
prior to the Determination Date by a fraction of which the numerator shall be
the Current Average Market Price per share of the Common Stock on the
Determination Date less the sum of the aggregate amount of cash and the
aggregate fair market value (determined as aforesaid in this Section
6(c)(iii)(E)) of any such other consideration so distributed, paid or payable
within such twelve (12) months (including the Triggering Distribution)
applicable to one share of Common Stock (determined on the basis of the number
of shares of Common Stock Outstanding on the Determination Date) and the
denominator shall be such Current Average Market Price per share of the Common
Stock on the Determination Date, such reduction to become effective immediately
prior to the opening of business on the day following the date on which the
Triggering Distribution is paid.

 

16

 

(F)   In case any tender offer made by the
Corporation or any of its Subsidiaries for Common Stock shall expire and such
tender offer (as amended upon the expiration thereof) shall involve the payment
of aggregate consideration in an amount (determined as the sum of the aggregate
amount of cash consideration and the aggregate fair market value (as reasonably
determined by the Board of Directors, whose determination shall be conclusive
evidence thereof and which shall be evidenced by an Officers’ Certificate
delivered to the holder) of any other consideration) that, together with the
aggregate amount of (1) any cash and the fair market value (as reasonably
determined by the Board of Directors, whose determination shall be conclusive
evidence thereof and which shall be evidenced by an Officers’ Certificate
delivered to the holder) of any other consideration payable in respect of any
other tender offers by the Corporation or any Subsidiary of the Corporation for
Common Stock consummated within the twelve (12) months preceding the date of
the Expiration Date and in respect of which no Conversion Price adjustment pursuant
to this Section 6(c)(iii)(F) has been made and (2) all cash distributions to
all or substantially all holders of its Common Stock made within the twelve
(12) months preceding the Expiration Date and in respect of which no Conversion
Price adjustment pursuant to this Section 6(c)(iii)(F) has been made (and in
which the holder did not otherwise participate), exceeds an amount equal to ten
percent (10%) of the product of the Current Average Market Price per share of
Common Stock as of the last date (the “EXPIRATION DATE”) tenders could have
been made pursuant to such tender offer (as it may be amended) (the last time
at which such tenders could have been made on the Expiration Date is
hereinafter sometimes called the “EXPIRATION TIME”) multiplied by the number of
shares of Common Stock Outstanding (including tendered shares but excluding any
shares held in the treasury of the Corporation) at the Expiration Time, then,
immediately prior to the opening of business on the day after the Expiration
Date, the Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect immediately
prior to the close of business on the Expiration Date by a fraction of which
the numerator shall be the product of the number of shares of Common Stock
Outstanding (including tendered shares but excluding any shares held in the
treasury of the Corporation) at the Expiration Time multiplied by the Current
Average Market Price per share of the Common Stock on the Trading Day next
succeeding the Expiration Date and the denominator shall be the sum of (y) the
aggregate consideration (determined as aforesaid) payable to stockholders based
on the acceptance (up to any maximum specified in the terms of the tender
offer) of all shares validly tendered 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 (z) the product of the number of shares of
Common Stock Outstanding (less any Purchased Shares and excluding any shares
held in the treasury of the Corporation) at the Expiration Time and the Current
Average Market Price per share of Common Stock on the Trading Day next
succeeding the Expiration Date, such reduction to become effective immediately
prior to the opening of business on the day following the Expiration Date. In
the event that the Corporation is obligated to purchase shares pursuant to any
such tender offer, but the Corporation is permanently prevented by applicable
law from effecting any or all

 

17

 

such
purchases or any or all such purchases are rescinded, the Conversion Price
shall again be adjusted to be the Conversion Price which would have been in
effect based upon the number of shares actually purchased. If the application
of this Section 6(c)(iii)(F) to any tender offer would result in an increase in
the Conversion Price, no adjustment shall be made for such tender offer under
this Section 6(c)(iii)(F).

(G)   For purposes of this Section 6(c), the term
“tender offer” shall mean and include both tender offers and exchange offers,
all references to “purchases” of shares in tender offers (and all similar
references) shall mean and include both the purchase of shares in tender offers
and the acquisition of shares pursuant to exchange offers, and all references
to “tendered shares” (and all similar references) shall mean and include shares
tendered in both tender offers and exchange offers.

(iv)          Deferral.  In any case in which this Section 6(c) shall
require that an adjustment be made following a record date or a Determination
Date or Expiration Date, as the case may be, established for purposes of this
Section 6(c), the Corporation may elect to defer (but only until five (5)
Business Days following the giving by the Corporation to the holder the
certificate described in Section 6(c)(vii)) issuing to the holder of any Series
A-2 Preferred Stock converted after such record date or Determination Date or
Expiration Date the shares of Common Stock and other Capital Stock of the
Corporation issuable upon such conversion over and above the shares of Common
Stock and other Capital Stock of the Corporation issuable upon such conversion
only on the basis of the Conversion Price prior to adjustment; and, in lieu of
the shares the issuance of which is so deferred, the Corporation shall issue or
cause its transfer agents to issue due bills or other appropriate evidence
prepared by the Corporation of the right to receive such shares.  If any distribution in respect of which an
adjustment to the Conversion Price is required to be made as of the record date
or Determination Date or Expiration Date therefor is not thereafter made or
paid by the Corporation for any reason, the Conversion Price shall be readjusted
to the Conversion Price which would then be in effect if such record date had
not been fixed or such effective date or Determination Date or Expiration Date
had not occurred.

(v)           No Adjustment.  No adjustment in the Conversion Price shall
be required unless the adjustment would require an increase or decrease of at
least one half of one percent (.5%) in the Conversion Price as last adjusted;
provided, however, that any adjustments which by reason of this Section 6(c)(v)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 6(c)(v) shall be
made to the nearest cent or to the nearest one-hundredth (1/100th) of a share,
as the case may be.  No adjustment need
be made for issuances of Common Stock pursuant to a Corporation plan for
reinvestment of dividends or interest or for a change in the par value or a
change to no par value of the Common Stock. 
To the extent that the Series A-2 Preferred Stock held by a holder becomes
redeemable for, or convertible into the right to receive cash, no adjustment
need be made thereafter as to the cash.

 

18

 

(vi)          Adjustment for Tax Purposes.  The Corporation shall be entitled to make
such reductions in the Conversion Price, in addition to those required by the
preceding sections of this Section 6(c), as it in its discretion shall
determine to be advisable in order that any stock dividends, subdivisions of
shares, distributions of rights to purchase stock or securities or
distributions of securities convertible into or exchangeable for stock
hereafter made by the Corporation to its stockholders shall not be taxable.

(vii)         Notice of Adjustment.  Whenever the Conversion Price or conversion
privilege is adjusted, the Corporation shall promptly notify the holder of the
adjustment and provide the holder with an Officers’ Certificate briefly stating
the facts requiring the adjustment and the manner of computing it.

(viii)        Notice of Certain Transactions.  In the event that:

(A)  the Corporation takes any action which would require an adjustment
in the Conversion Price;

(B)   the Corporation consolidates or merges with,
or transfers all or substantially all of its property and assets to, another
corporation and shareholders of the Corporation must approve the transaction;
or

(C)   there is a dissolution or liquidation of the
Corporation;

then the Corporation shall notify the holder
of the proposed transaction and the related record or effective date, as the
case may be.  The Corporation shall give
the notice at least ten (10) days before such date.  Failure to give such notice or any defect therein shall not
affect the validity of any transaction referred to in clause (A), (B) or (C) of
this Section 6(c)(viii).

 

(d)   Effect of Reclassification, Consolidation,
Merger or Sale on Conversion Privilege. 
If any of the following shall occur, namely:

(i)            any reclassification or change of
shares of Common Stock issuable upon conversion of the Series A-2 Preferred
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination,
or any other change for which an adjustment is provided in Section 6(c));

(ii)           any consolidation or merger or
combination to which the Corporation is a party other than a merger in which
the Corporation is the continuing corporation and which does not result in any
reclassification of, or change (other than in par value, or from par value to
no par value, or from no par value to par value, or as a result of a
subdivision or combination) in, Outstanding shares of Common Stock; or

(iii)          any sale or conveyance as an entirety
or substantially as an entirety of the property and assets of the Corporation,
directly or indirectly, to any person,

 

19

 

then the Corporation, or
such successor, purchasing or transferee corporation, as the case may be,
shall, as a condition precedent to such reclassification, change, combination,
consolidation, merger, sale or conveyance, execute and deliver to the holder a
supplemental instrument providing that (A) the holder shall have the right to
convert its shares of Series A-2 Preferred Stock into the kind and amount of
shares of stock and other securities and property (including cash) receivable
upon such reclassification, change, combination, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock deliverable upon
conversion of such Series A-2 Preferred Stock, at a conversion price equal to
the Conversion Price determined pursuant to Section 6(a)(i), immediately prior
to such reclassification, change, combination, consolidation, merger, sale or
conveyance, and (B) in the event of any exercise by the Corporation of its
right to convert any shares of Series A-2 Preferred Stock held by such holder
pursuant to Section 6(a)(ii), such shares of Series A-2 Preferred Stock shall
be convertible into the kind and amount of shares of stock and other securities
and property (including cash) receivable upon such reclassification, change,
combination, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock deliverable upon conversion of such Series A-2
Preferred Stock, at a conversion price equal to the Corporation Conversion
Price determined pursuant to Section 6(a)(ii)(A), immediately prior to such
reclassification, change, combination, consolidation, merger, sale or
conveyance.  Any such supplemental
instrument shall provide for adjustments of the Conversion Price which shall be
as nearly equivalent as may be practicable to the adjustments of the Conversion
Price provided for in Section 6(c). If, in the case of any such consolidation,
merger, combination, sale or conveyance, the stock or other securities and
property (including cash) receivable thereupon by a holder of Common Stock
include shares of stock or other securities and property of a person other than
the successor, purchasing or transferee corporation, as the case may be, in
such consolidation, merger, combination, sale or conveyance, then such
supplemental instrument shall also be executed by such other person and shall
contain such additional provisions to protect the interests of the holder as
the Board of Directors shall reasonably consider necessary by reason of the
foregoing. The provisions of this Section 6(d) shall similarly apply to
successive reclassifications, changes, combinations, consolidations, mergers,
sales or conveyances.  In the event the
Corporation shall execute a supplemental instrument pursuant to this Section
6(d), the Corporation shall promptly file with the holder (x) an Officers’
Certificate briefly stating the reasons therefor, the kind or amount of shares
of stock or other securities or property (including cash) receivable by the
holder upon the conversion of its shares of Series A-2 Preferred Stock after
any such reclassification, change, combination, consolidation, merger, sale or
conveyance, any adjustment to be made with respect thereto and that all
conditions precedent have been complied with and (y) an Opinion of Counsel that
all conditions precedent have been complied with.

(e)   Voluntary Reduction.  The Corporation from time to time may reduce
the Conversion Price by any amount for any period of time if the period is at
least twenty (20) days and if the reduction is irrevocable during the period if
the Board of Directors determines that such reduction would be in the best
interest of the Corporation or to avoid or diminish income tax to holders of
shares of the Common Stock in connection with a dividend or distribution of
stock or similar event, and the Corporation provides fifteen (15) days’ prior notice
of any reduction in the Conversion Price; provided, however, that
in no event may the Corporation reduce the Conversion Price to be less than the
par value of a share of Common Stock.

 

20

 

(f)    Miscellaneous.

(i)            Except as otherwise explicitly
contemplated by this Section 6, no adjustment in respect of any dividends or
other payments or distributions made to holders of Series A-2 Preferred Stock
or securities issuable upon the conversion of the Series A-2 Preferred Stock
will be made during the term of the Series A-2 Preferred Stock or upon the
conversion of the Series A-2 Preferred Stock. 
The provisions of this Section 6(f) are without prejudice to the right
of holders of Series A-2 Preferred Stock to receive any dividends to which they
may be entitled under Section 3.

(ii)           If any event occurs of the type contemplated by the
provisions of Section 6(c), (d), or (e) but not expressly provided for by such
provisions (including the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Board of Directors shall
make any appropriate adjustment in the Conversion Price necessary to protect
the rights of the holder as and to the extent contemplated by Sections 6(c),
(d), or (e); provided, that no such adjustment shall increase the
Conversion Price as otherwise determined pursuant to this Section 6 or decrease
the number of shares of Common Stock issuable upon any conversion of shares of
Series A-2 Preferred Stock.

(iii)          If the Corporation shall enter into
any transaction for the purpose of avoiding the application of the provisions
of Sections 6(c), (d) or (e) or this Section 6(f), the benefits of such
provisions shall nevertheless apply and be preserved.

(iv)          Any dividend or distribution that was
paid or distributed to, or otherwise made available to or set aside for, to the
holders of Series A-2 Preferred Stock (pursuant to Section 3(a) or otherwise)
shall not also result in an adjustment to the Conversion Price pursuant to
Section 6.

7.             SPECIAL REDEMPTION.

(a)   Special Redemption Rights.

(i)            At the Option of the Corporation.  The Corporation may, at its option, and
subject to the terms and conditions of this Section 7, redeem all of the shares
of the Series A-2 Preferred Stock, in whole but not in part, on the Special
Redemption Date at a cash redemption price per share equal to the Redemption
Price.

(ii)           At the Option of the Holder.  Each holder of the Series A-2 Preferred
Stock may, at its option, and subject to the terms and conditions of this
Section 7, require the Corporation to redeem all, but not less than all, of the
shares of the Series A-2 Preferred Stock then held by such holder on the
Special Redemption Date at a cash redemption price per share equal to the
Redemption Price.

(b)   Special Redemption Price.  In the event that the Corporation exercises
its option to redeem the shares of the Series A-2 Preferred Stock pursuant to
Section 7(a)(i), or holders of the shares of the Series A-2 Preferred Stock
exercise their option to require the

 

21

 

Corporation to redeem shares
of Series A-2 Preferred Stock pursuant to Section 7(a)(ii), on the Special
Redemption Date the Corporation shall pay to each holder of shares of Series
A-2 Preferred Stock to be redeemed the Redemption Price per share in
immediately available funds (the sum of the Redemption Price of each share of
Series A-2 Preferred Stock to be redeemed from a particular holder, the
“AGGREGATE SPECIAL REDEMPTION PRICE”), provided that, on the Special Redemption
Date, immediately following the receipt by a holder of the Aggregate Special
Redemption Price for its shares, the holder of shares subject to redemption
shall, at the Corporation’s request, make a loan to the Corporation in an
amount equal to the Aggregate Special Redemption Price, in immediately
available funds, and in exchange for such loan the holder shall receive from
the Corporation a Convertible Subordinated Promissory Note in the form attached
to this Certificate as Exhibit A (the “CONVERTIBLE NOTE”) with a
principal amount equal to the Aggregate Special Redemption Price.  The Corporation and the holder shall
reasonably cooperate with each other to coordinate the timing of such transactions
on the Special Redemption Date.

(c)   Special Redemption Option Exercise.  The Corporation may exercise the option
granted to it in Section 7(a)(i), and holders may exercise the option granted
to them in Section 7(a)(ii), by delivering to the other party, not less than
sixty (60) days after the Initial Closing (as such term is defined in the
Purchase Agreement), a written notice of such exercise (the “SPECIAL REDEMPTION
NOTICE”), by first-class mail, postage prepaid.  The Special Redemption Notice shall specify the date on which the
Corporation shall redeem, or be required to redeem, the shares of the Series
A-2 Preferred Stock in accordance with the provisions of this Section 7 (the
“SPECIAL REDEMPTION DATE”), which date shall be no less than ten (10) Business
Days and no more than thirty (30) days from the date on which such notice is
delivered.  Notwithstanding anything
herein to the contrary, the party providing the Special Redemption Notice shall
have the right to withdraw such notice at any time prior to the close of
business on the Business Day next preceding the Special Redemption Date by
written notice of withdrawal given to the other party.

(d)   Special Redemption Terms.  In the event that the Corporation or the
holder of the Series A-2 Preferred Stock delivers to the other a Special
Redemption Notice in accordance with the terms of this Section 7, the following
terms and conditions shall apply:

(i)            Effect of Special Redemption
Notice.  Delivery of a Special
Redemption Notice shall be without prejudice to the right of the Corporation to
redeem pursuant to Section 5(b) shares of Series A-2 Preferred Stock to which
the Special Redemption Notice applies or the right of the holder or the
Corporation pursuant to Section 6 to convert the shares of Series A-2 Preferred
Stock to which the Special Redemption Notice applies into shares of Common
Stock.  The Special Redemption Notice
shall be deemed qualified or withdrawn, as appropriate, to the extent of any
redemption or conversion, as contemplated by the preceding sentence, of the
shares of Series A-2 Preferred Stock to which it applies.

(ii)           Surrender of Certificates.  On or before the Special Redemption Date,
each holder of Series A-2 Preferred Stock to be redeemed shall surrender its
certificate or certificates representing all of the outstanding shares of
Series A-2 Preferred Stock held

 

22

 

by
it to the Corporation at the Corporation’s principal executive offices or such
other location as the Corporation may by notice direct, and the Aggregate
Special Redemption Price shall be delivered by the Corporation to the holder
and each surrendered certificate shall be canceled.  From and after the Special Redemption Date, unless there shall
have been a default by the Corporation in the delivery of the Aggregate Special
Redemption Price to the holder, all rights of the holder of Series A-2
Preferred Stock subject to redemption pursuant to this Section 7 (except the
right to receive the Aggregate Special Redemption Price upon surrender of its
certificate or certificates) shall cease with respect to the shares of the
Series A-2 Preferred Stock subject to redemption, and such shares shall not
thereafter be transferred on the books of the Corporation or deemed to be
outstanding for any purpose whatsoever.

(iii)          Consequences of Nonpayment.  In the event that the Corporation does not
redeem the shares of the Series A-2 Preferred Stock and pay to the holder the
Aggregate Special Redemption Price on the Special Redemption Date, the
Aggregate Special Redemption Price shall be calculated as if the Special
Redemption Date were the later of such date and the date on which such payment
is made.  If the Corporation is unable
on the Exchange Date to redeem any or all shares of Series A-2 Preferred Stock
then to be redeemed because such redemption would violate the applicable laws
of the State of Delaware, then, without limitation to any other right or remedy
that may be available to the holder, the Corporation shall redeem such shares
as soon thereafter as redemption would not violate such laws.

(iv)          Effect of Special Redemption.  Following the redemption of the shares of
the Series A-2 Preferred Stock in accordance with this Section 7, all dividends
thereon shall cease and the person entitled to receive the Convertible Note
upon such exchange shall be treated as the registered holder of such
Convertible Note unless and until such instrument is transferred on the note
register of the Corporation in accordance with the terms thereof.

(e)   Covenant of Corporation.  The Corporation hereby represents, warrants
and covenants that, on the date that the shares of Series A-2 Preferred Stock
are issued in accordance with the Purchase Agreement, and for a period of not
less than one hundred and twenty (120) days after such date, the Corporation
has and shall maintain sufficient surplus (as such term is used in the General
Corporation Law of the State of Delaware) to permit the Corporation to effect
the exchange provided for in this Section 7 consistent with the requirements of
the General Corporation Law of the State of Delaware and any other applicable
law.

8.             STATUS OF SHARES.  All shares of Series A-2 Preferred Stock
that are at any time redeemed pursuant to Section 5 or Section 7 or converted
pursuant to Section 6 and all shares of Series A-2 Preferred Stock that are
otherwise reacquired by the Corporation shall (upon compliance with any
applicable provisions of the laws of the State of Delaware) have the status of
authorized but unissued shares of Preferred Stock, without designation as to
series, subject to reissuance by the Board of Directors as shares of any one or
more other series.

 

23

 

9.             VOTING RIGHTS.

(a)   Limited Voting Rights.  The holders of record of shares of Series
A-2 Preferred Stock shall not be entitled to any voting rights except as
hereinafter provided in this Section 9 or as otherwise provided by law.

(b)   Right to Vote with Common Stock.  The holders of the shares of Series A-2
Preferred Stock (i) shall be entitled to vote with the holders of the Common
Stock on all matters submitted for a vote of holders of Common Stock (voting
together with the holders of Common Stock as one class) and (ii) shall be
entitled to a number of votes equal to the number of votes to which shares of
Common Stock issuable upon conversion by the holder of such shares of Series
A-2 Preferred Stock pursuant to Section 6(a)(i) would have been entitled
if such shares of Common Stock had been Outstanding at the time of the applicable
record date.

(c)   Right to Vote as a Separate Class.  In addition to the rights provided in
Section 9(b) and any other rights provided by law, the Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than a majority by voting power of the then outstanding shares of
Series A-2 Preferred Stock voting together as a single class:

(i)            change the rights, preferences,
privileges or restrictions of the shares of Series A-2 Preferred Stock;

(ii)           increase or decrease the aggregate
number of authorized shares of Series A-2 Preferred;

(iii)          create, authorize, designate or issue
Senior Securities; or

(iv)          merge or consolidate into or with any
other corporation or entity if the effect of any such transaction would be to
change or adversely affect in any manner whatsoever the rights, privileges,
seniority or preferences of the Series A-2 Preferred Stock.

10.           AGGREGATE OWNERSHIP LIMITATION.  If upon any proposed conversion of Series
A-2 Preferred Stock pursuant to Section 6(a), any holder of Series A-2
Preferred would be entitled to receive Common Stock that, taken together with
all other shares of Common Stock Beneficially Owned by such holder and its
Affiliates, would result in such holder and its Affiliates acquiring Beneficial
Ownership of more than 19.9% of the Corporation’s Common Stock then Outstanding
immediately following such conversion (the “OWNERSHIP THRESHOLD”), then:

(a)   Such holder shall instead receive upon
conversion a number of shares of Common Stock up to the Ownership Threshold;
and

(b)   To the extent such holder would have
otherwise received shares of Common Stock in excess of the Ownership Threshold,
the Corporation shall redeem such number of shares of Series A-2 Preferred
Stock as would result in such holder exceeding the Ownership

 

24

 

Threshold at a cash
redemption price equal to the product of (i) such number of shares of Common
Stock in excess of the Ownership Threshold times (ii) the Current
Average Market Price on the relevant Conversion Date (the “OWNERSHIP THRESHOLD
REDEMPTION AMOUNT”).  Except in the case
of a proposed conversion by the Corporation of Series A-2 Preferred Stock
pursuant to Section 6(a) as a result of an election by the Corporation pursuant
to clause (2) of Section 5(d)(i)(A) or clause (2) of Section 5(d)(i)(B), in the
event that the Corporation provides written notice to such holder at least ten
(10) days prior to the date on which the Corporation shall redeem such shares
and pay to such holder the Ownership Threshold Redemption Amount (such date,
the “OWNERSHIP THRESHOLD REDEMPTION DATE”), the Corporation shall have the
right to obtain from such holder a loan in the principal amount designated by
the Corporation in such notice, which amount shall not exceed the Ownership
Threshold Redemption Amount, and in exchange for such loan the holder shall
receive from the Corporation a two-year, interest free Subordinated Promissory
Note, with a face amount equal to the principal amount of the loan, in the form
attached to this Certificate as Exhibit B (a “SUBORDINATED
PROMISSORY NOTE”), and, in the event that multiple Subordinated Promissory
Notes shall be made pursuant hereto, mutatis mutandis as necessary
to provide for any prepayment due in respect of a Type II Prepayment Event
among the successive Subordinated Promissory Notes sequentially in the order in
which such Subordinated Promissory Notes were made.  The holder shall provide such loan to the Corporation in exchange
for such Subordinated Promissory Note on the Ownership Threshold Redemption
Date, immediately following the receipt by the holder of the Ownership
Threshold Redemption Amount in immediately available funds.  The Corporation and the holder shall
reasonably cooperate with each other to coordinate the timing of such
transactions on the Ownership Threshold Redemption Date.

11.           CERTAIN DEFAULTS AND
REMEDIES.

(a)   Events of Default.  Subject to Section 11(b), an “EVENT OF
DEFAULT” shall occur if:

(i)            the Corporation (A) defaults in the
payment of any principal of (including any premium on) (1) any Convertible Note
or any Promissory Note (as such term is defined in the Purchase Agreement) held
by AstraZeneca UK Limited or any of its Affiliates when the same becomes due and
payable (whether at maturity, on a date specified for prepayment, or
otherwise); or (B) fails to redeem (including pursuant to Section 7), and to
pay to any holder the Redemption Price for, each share of Preferred Stock that
the Corporation is required to redeem on the date specified for such redemption
herein;

(ii)           the Corporation fails to comply with
any of its obligations under (A) any Convertible Note or any Promissory Note
held by AstraZeneca UK Limited or any of its Affiliates or (B) Section 5.6(a)
or Section 5.8 of the Purchase Agreement, in each case other than any
obligation specified in Section 11(a)(i), and the default continues for the
period and after the notice specified in Section 11(b);

 

25

 

(iii)          the Corporation fails to provide
notice of a Redemption Event to the holder when required by Section 5(d)(ii)
for a period of thirty (30) days after notice of failure to do so;

(iv)          the Corporation shall default in
respect of any of its obligations under the Preferred Stock other than any
obligation specified in Section 11(a)(i) and the default continues for the
period and after the notice specified in Section 11(b);

(v)           the Purchase Agreement, or any other
agreement or instrument contemplated by the Purchase Agreement, shall be
asserted by the Corporation not to be a legal, valid and binding obligation of
the Corporation, enforceable against the Corporation in accordance with its
terms;

(vi)          the Corporation or any Significant
Subsidiary, pursuant to or within the meaning of any Bankruptcy Law:

(A)  commences a voluntary case or proceeding;

(B)   consents to the entry of an order for relief
against it in an involuntary case or proceeding;

(C)   consents to the appointment of a Custodian of
it or for all or substantially all of its property; or

(D)  makes a general assignment for the benefit of
its creditors; or

(vii)         a court of competent jurisdiction
enters an order or decree under any Bankruptcy Law that:

(A)  is for relief against the Corporation or any
Significant Subsidiary in an involuntary case or proceeding;

(B)   appoints a Custodian of the Corporation or
any Significant Subsidiary or for all or substantially all of the property of
the Corporation or any Significant Subsidiary; or

(C)   orders the liquidation of the Corporation or
any Significant Subsidiary;

and in each case the order
or decree remains unstayed and in effect for sixty (60) consecutive days.

 

                                The
term “Bankruptcy Law” means Title 11 of the United States Code (or any
successor thereto) or any similar federal or state law for the relief of
debtors. The term “Custodian” means any receiver, holder, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.

 

(b)   Notice and Cure.

 

26

 

(i)            A default under Section 11(a)(ii) or
(a)(iv) is not an Event of Default until the holder notifies the Corporation in
writing of the default and the Corporation does not cure the default within
sixty (60) days after receipt of such notice. 
The notice given pursuant to this Section 11(b) must specify the Event
of Default, demand that it be remedied and state that the notice is a “NOTICE
OF DEFAULT.”

(ii)           When any Event of Default under
Section 11(a) is cured, it ceases.

(iii)          The Corporation shall immediately
notify each holder of Series A-2 Preferred Stock upon becoming aware of the
existence of any condition or event which constitutes a default or an Event of
Default hereunder by written notice which specifies the nature and period of
existence of such default or Event of Default and what action the Corporation
is taking or proposes to take with respect thereto.  No holder shall be charged with knowledge of any Event of Default
unless written notice thereof shall have been given to the holder or any agent
of the holder.

(c)   Redemption.

(i)            If an Event of Default (other than an Event of Default
specified in Section 11(a)(vi) or (vii)) occurs and is continuing, the holders
of a majority of the shares of Series A-2 Preferred Stock then outstanding may,
by notice to the Corporation, demand in a notice to the Corporation that the
Corporation redeem, on a Business Day specified in such notice, which day shall
be not less than ten (10) days following the date of such notice (such
specified date the “DEFAULT REDEMPTION DATE”), all of the shares of Series A-2
Preferred Stock then outstanding, and the Corporation shall redeem all such
shares at a cash redemption price per share equal to the Redemption Price.   If an Event of Default specified in Section
11(a)(vi) or (vii) occurs, all Series A-2 Preferred Stock then outstanding
shall ipso facto become and be immediately redeemable by the Corporation at a
cash redemption price per share equal to the Redemption Price without any
declaration or other act on the part of the holders.  Each holder may at any time, by notice to the Corporation,
rescind a redemption notice and its consequences.  No such rescission shall affect any subsequent default of impair
any right consequent thereto.

(ii)            On or prior to the Default
Redemption Date, the holders of the Series A-2 Preferred Stock shall surrender
their certificates representing such shares to the Corporation at the
Corporation’s principal executive offices or such other location as the
Corporation may by notice direct, and thereupon the Redemption Price of such
shares shall be payable to the order of the person whose name appears on each
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled.  From and
after the Default Redemption Date, unless there shall have been a default in
payment of Redemption Price, all rights of the holders of the Series A-2
Preferred Stock (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or deemed to be outstanding for any purpose
whatsoever.

 

27

 

(iii)          In the event that the Corporation does
not pay the Redemption Price on the Default Redemption Date, the Redemption
Price shall be calculated as if the Default Redemption Date were the later of
such date and the date on which such payment is made.  If the Corporation is unable at the Default Redemption Date to
redeem any or all shares of Series A-2 Preferred Stock then to be redeemed
because such redemption would violate the applicable laws of the State of
Delaware, then the Corporation shall redeem such shares as soon thereafter as
redemption would not violate such laws. 
In the event of any redemption of only a part of the then outstanding
Series A-2 Preferred Stock, the Corporation shall effect such redemption pro
rata among the holders thereof (based on the number of shares of Series A-2
Preferred Stock held on the date of notice of redemption).

(d)   Other Remedies.  A delay or omission by any 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.

12.           DEFINITIONS.

(a)   General.  Unless otherwise specified, references in this Certificate to any
section are references to such section of this Certificate 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
Certificate 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
Certificate 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.

(b)   Defined Terms.  Unless the context otherwise requires, when
used herein the following terms shall have the meaning indicated:

“Affiliate” means with respect to any Person, any
other Person directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person.  For purposes of this definition, the term
“control” (and correlative terms “controlling,” “controlled by” and “under
common control with”) means possession of the power, whether by contract,
equity ownership or otherwise, to direct the policies or management of a
Person.

“Aggregate Special Redemption Price” has the meaning
set forth in Section 7(b).

“Approved Market” means the NNM, the New York Stock
Exchange, or the American Stock Exchange.

 

28

 

“Average Market Price for Corporation’s Conversion
Option” means, with respect to shares of Common Stock, the arithmetic mean of
the daily Market Prices of shares of Common Stock for the ten (10) consecutive
Trading Days commencing on the eleventh (11th) Trading Day preceding the
Conversion Date and ending on the Trading Day next preceding the Conversion
Date; provided, however, that in no event shall the “Average Market
Price for Corporation’s Conversion Option” be more than one hundred one percent
(101%) of the Market Price of shares of Common Stock for the last Trading Day
preceding the Conversion Date.

“Bankruptcy Law” has the meaning set forth in
Section 11(a).

“Base Liquidation Value” has the meaning set forth
in Section 4(a).

“Beneficially Own” or “Beneficial Ownership” are
used herein with the same meanings given to such terms in Rules 13d-3 and 13d-5
of the Exchange Act.

“Board of Directors” has the meaning set forth in
the first paragraph hereof.

“Business Day” means any day that, in the State of
New York and the State of California, is not a day on which banking
institutions are authorized by law or regulation to close.

“Capital Stock” of any Person means any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such
Person, but excluding any debt securities convertible into such equity.

“Certificate” has the meaning set forth in the first
paragraph hereof.

“Collaboration Agreement” means the Collaboration
Agreement, dated as of October 15, 2003, between the Corporation and
AstraZeneca UK Limited.

“Common Stock” means the Common Stock of the
Corporation, par value $0.0001 per share.

“Conversion Date” has the meaning set forth in
Section 6(b)(iii).

“Conversion Price” has the meaning set forth in
Section 6(a)(i).

“Convertible Note” has the meaning set forth in
Section 7(b).

“Corporation” has the meaning set forth in the first
paragraph hereof.

“Corporation Conversion Price” has the meaning set
forth in Section 6(a)(ii).

“Corporation’s Election Notice” has the meaning set
forth in Section 6(b)(i)(B).

“Current Average Market Price” means, with respect
to shares of the Common Stock as of a given day, the arithmetic mean of the
daily Market Prices of shares of the Common Stock for the thirty (30)
consecutive Trading Days commencing forty-five (45) Trading Days

 

29

 

before the date of
determination or, for purposes of all computations under Section 6(c)(ii) and
(iii), (a) the Determination Date or the Expiration Date, as the case may be,
with respect to distributions or tender offers under Section 6(c)(iii) or (b)
the record date with respect to distributions, issuances or other events
requiring such computation under Section 6(c)(ii) and (iii), calculated in any
case by taking the sum of the Market Prices for shares of the Common Stock for
each of the thirty (30) days in the specified period and dividing the foregoing
sum by thirty (30).

“Custodian” has the meaning set forth in Section
11(a).

“Default Redemption Date” has the meaning set forth
in Section 11(c).

“Designated Number of Redemption Event Shares”
means, for each holder, the Designated Number of Type I Redemption Event Shares
or the Designated Number of Type II Redemption Event Shares, as the case may
be.

“Designated Number of Type I Redemption Event
Shares” has the meaning set forth in Section 5(d).

“Designated Number of Type II Redemption Event
Shares” has the meaning set forth in Section 5(d).

“Determination Date” has the meaning set forth in
Section 6(c)(iii)(E).

“Discovery Period” means the period commencing on
the effective date of the Collaboration Agreement and ending on the later to
occur of (a) the date of expiration or termination of the Antigen Designation
Term (as such term is defined in the Collaboration Agreement) and (b) the date
of expiration or termination of the Research Program Term (as such term is defined
in the Collaboration Agreement) with respect to the Research Program (as such
term is defined in the Collaboration Agreement) that is the last such program
to terminate or expire pursuant to the Collaboration Agreement.

“Dividend Payment Date” means March 31, June 30,
September 30 and December 31 of each year.

“Dividend Period” means (a) the period beginning on
the Dividend Trigger Date and ending on the first Dividend Payment Date and (b)
each quarterly period between Dividend Payment Dates.

“Dividend Rate” means (a) during the period
commencing on the Initial Closing Date (as such term is defined in the Purchase
Agreement) and ending on the fifth anniversary of such date, a rate equal to
the 10-Year United States Treasury Bond yield rate as reported in The Wall
Street Journal Western edition on the Initial Closing Date, plus an
additional three percent (3%) compounded annually, and (b) during the period
commencing on the date following the fifth anniversary of the Initial Closing
Date and continuing until the last date on which all shares of Preferred Stock
have been converted or redeemed, a rate equal to the 10-Year United States
Treasury Bond yield rate as reported in The Wall Street Journal Western
edition on the first day

 

30

 

of such period, plus an
additional three percent (3%) compounded annually; provided, however,
that if The Wall Street Journal ceases to be published, then the 10-Year
United States Treasury Bond yield rate to be used shall be that reported in
such other business publication of national circulation in the United States as
the Corporation and the holder reasonably agree.

“Dividend Trigger Date” has the meaning set forth in
Section 3(b).

“Event of Default” has the meaning set forth in
Section 11(a).

“Exchange Act” means the Securities Exchange Act of
1934, as amended, or any successor statute, and the rules and regulations
promulgated thereunder.

“Expiration Date” has the meaning set forth in
Section 6(c)(iii)(F).

“Expiration Time” has the meaning set forth in
Section 6(c)(iii)(F).

“Initial Conversion Price” has the meaning set forth
in Section 6(a)(i).

“Junior Securities” has the meaning set for in
Section 2.

“Liquidation Value” has the meaning set forth in
Section 4(a).

“Market Price” means, with respect to a particular
security, on any given day, the last reported sales price or, in case no such
reported sale takes place on such date, the average of the reported closing bid
and asked prices in either case on the NNM or, if the security is not listed or
admitted to trading on the NNM, on the principal national securities exchange
on which the security is listed or admitted to trading or, if not listed or
admitted to trading on the NNM or any national securities exchange, the last reported
sales price of the security as quoted on Nasdaq or, in case no reported sales
takes place, the average of the closing bid and asked prices as quoted on
Nasdaq or any comparable system or, if the security is not quoted on Nasdaq or
any comparable system, the closing sales price or, in case no reported sale
takes place, the average of the closing bid and asked prices, as furnished by
any two members of the National Association of Securities Dealers, Inc.
selected from time to time by the Corporation for that purpose.  If the Common Stock is not listed and traded
in a manner that the quotations referred to above are available for the period
required hereunder, the Market Price per share of Common Stock shall be deemed
to be the fair value per share of such security as determined in good faith by
the Board of Directors.

“Maximum Number of Redemption Event Shares” means
the Maximum Number of Type I Redemption Event Shares or the Maximum Number of
Type II Redemption Event Shares, as the case may be.

“Maximum Number of Type I Redemption Event Shares”
means the total number of shares of Series A-2 Preferred Stock held by a holder
as of a Type I Redemption Event Date.

“Maximum Number of Type II Redemption Event Shares”
means the total number of shares of Series A-2 Preferred Stock (and any
fraction of any such share) that, if

 

31

 

redeemed by the Corporation
on the Type II Redemption Event Date at the Redemption Price per share, would
yield the Series A-2 Type II Redemption Event Amount.

“NNM” means the Nasdaq National Market.

“Notice of Default” has the meaning set forth in
Section 11(b).

“Officer” means the chairman or any co-chairman of
the board, any vice chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the controller, the secretary
or any assistant controller or assistant secretary of the Corporation.

“Officers’ Certificate” means a certificate signed
by two Officers.

“Opinion of Counsel” means a written opinion from
legal counsel.  The counsel may be an
employee of or counsel to the Corporation.

“Outstanding” means, at any time, the number of
shares of Common Stock then outstanding calculated on a fully diluted basis,
assuming the exercise, exchange or conversion into Common Stock of all
outstanding securities exercisable, exchangeable or convertible into shares of
Common Stock (whether or not then exercisable, exchangeable or convertible).

“Ownership Threshold” has the meaning set forth in
Section 10.

“Ownership Threshold Redemption Amount” has the
meaning set forth in Section 10(b).

“Ownership Threshold Redemption Date” has the
meaning set forth in Section 10(b).

“Parity Securities” has the meaning set forth in
Section 2.

“Person” means an individual, corporation,
partnership, other entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act).

“Preferred Stock” has the meaning set forth in the
first paragraph hereof.

“Promissory Note” has the meaning set forth in
Section 11(a)(ii).

“Purchase Agreement” means the Securities Purchase
Agreement, dated as of October 15, 2003, between the Corporation and
AstraZeneca UK Limited.

“Purchased Shares” has the meaning set forth in
Section 6(c)(iii)(F).

“Redemption Date” has the meaning set forth in
Section 5(c).

“Redemption Event” means a Type I Redemption Event
or a Type II Redemption Event, as the case may be.

 

32

 

“Redemption Event Date” means the Type I Redemption
Event Date or the Type II Redemption Event Date, as the case may be.

“Redemption Event Notice” has the meaning set forth
in Section 5(d)(iii).

“Redemption Notice” has the meaning set forth in
Section 5(c).

“Redemption Price” has the meaning set forth in
Section 5(a).

“Restricted Conversion Period” has the meaning set
forth in Section 6(a)(ii).

“Rights Plan” has the meaning set forth in Section
6(c)(iii)(C).

“Securities Act” means the United States Securities
Act of 1933, as amended.

“Senior Securities” has the meaning set forth in
Section 2.

“Series A-1 Certificate of Designation” has the
meaning set forth in the Purchase Agreement.

“Series A-2 Allocated Redemption Amount” means the
amount, if positive, that is derived when the Series A-1 Remaining Redemption
Amount (as such term is defined in the Series A-1 Certificate of Designation)
is subtracted from the Series A-1 Allocated Redemption Amount (as such term is
defined in the Series A-1 Certificate of Designation), and means zero (0) in
the event that such amount is zero (0) or negative.

“Series A-2 Preferred Stock” has the meaning set
forth in Section 1.

“Series A-2 Remaining Redemption Amount” means the
amount that equals the product of (a) the number of shares of Series A-2
Preferred Stock outstanding as of the Type II Redemption Event Date multiplied
by (b) the Liquidation Value per share of such Series A-2 Preferred Stock.

“Series A-2 Type II Redemption Event Amount” means
the amount that equals the lesser of the Series A-2 Allocated Redemption Amount
and the Series A-2 Remaining Redemption Amount.

“Significant Subsidiary” means, in respect of any
Person, a Subsidiary of such Person that would constitute a “significant
subsidiary” as such term is defined under Rule 1-02 of Regulation S-X under the
Securities Act and the Exchange Act.

“Special Redemption Date” has the meaning set forth
in Section 7(c).

“Special Redemption Notice” has the meaning set
forth in Section 7(c).

“Subordinated Promissory Note” has the meaning set
forth in Section 10.

 

33

 

“Subsidiary” means, in respect of any Person, any
corporation, association, partnership, or other business entity of which more
than fifty percent (50%) of the total voting power of shares of Capital Stock
or other interests (including partnership interests) entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers, general partners or holders thereof is at the time owned or
controlled, directly or indirectly, by (a) such Person; (b) such Person and one
or more Subsidiaries of such Person; or (c) one or more Subsidiaries of such
Person.

“Trading Day” means, with respect to any security,
each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day on
which securities are generally not traded on the principal exchange or market
in which such security is traded.

“Trigger Event” has the meaning set forth in Section
6(c)(iii)(D).

“Triggering Distribution” has the meaning set forth
in Section 6(c)(iii)(E).

“Type I Redemption Event” means a Change in Control
(as such term is defined in the Collaboration Agreement) that occurs at any
time after the last day of the Discovery Period.

“Type I Redemption Event Date” has the meaning set
forth in Section 5(d).

“Type II Redemption Event” means the termination by
AstraZeneca UK Limited (or any of its Affiliates) of all outstanding Research
Programs and, in the event that the Antigen Designation Term has not expired,
the Antigen Designation Term, pursuant to Section 16.2 or Section 16.3.1 of the
Collaboration Agreement, which termination occurs at any time prior to or on
the last day of the Discovery Period.

“Type II Redemption Event Date” means the date that
is thirty (30) Business Days after the date of the applicable Type II
Redemption Event (or if such day is not a Business Day, then the next Business
Day thereafter).

13.           NO OTHER RIGHTS.

The shares of Series A-2 Preferred Stock shall not
have any relative, optional or other special rights and powers except as set
forth herein or as may be required by law.

[The
remainder of this page was left blank intentionally.]

 

34

 

IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be duly executed and acknowledged by its undersigned duly authorized
officer this 27th day of October, 2003.

	
   

  	
  ABGENIX, INC.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Raymond M. Withy,
  Ph.D.

  
	
   

  	
   

  	
  Name:

  	
   

  	
  Raymond M. Withy, Ph.D.

  
	
   

  	
   

  	
  Title:

  	
   

  	
  President and

  
	
   

  	
   

  	
   

  	
   

  	
  Chief
  Executive Officer

  

 

 

35

 

Exhibit A

FORM OF CONVERTIBLE SUBORDINATED PROMISSORY NOTE
ISSUABLE TO

PURCHASER PURSUANT TO SECTION 7

 

 

 

 

 

 

EXHIBIT A

 

 

THE
SECURITIES REPRESENTED BY THIS NOTE AND THE SECURITIES ISSUABLE UPON ITS
CONVERSION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT”), OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED,
SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH LAWS AND, IF REQUESTED BY THE MAKER, UPON DELIVERY OF AN OPINION OF
COUNSEL SATISFACTORY TO THE MAKER THAT THE PROPOSED TRANSFER IS EXEMPT FROM THE
ACT OR SUCH LAWS.   THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN TRANSFER
RESTRICTIONS CONTAINED IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS
OF OCTOBER 15, 2003, BETWEEN THE MAKER AND THE HOLDER.

 

CONVERTIBLE SUBORDINATED PROMISSORY NOTE

 

	
  U.S. $[________]

  	
   

  	
  ___________, 20__

  
	
   

  	
   

  	
  New York, New York

  

 

FOR VALUE RECEIVED, Abgenix, Inc., a Delaware
corporation (the “Maker”), hereby unconditionally promises to pay to the order
of [__________________] (the “Holder”), or its permitted assigns, the original
aggregate principal sum of [_________] United States Dollars (U.S. $[________])
on the Maturity Date, subject to prior prepayment in accordance with the
provisions hereof.

Upon the occurrence and during the continuation
uncured of any Event of Default described in Section 7.1(a), such principal
amount of this Note as from time to time remains unpaid shall bear interest at
the Default Rate.  Such interest shall
be payable in arrears on the last day of each March, June, September and
December and at the time of the final payment of the principal amount
hereof.  Interest shall be calculated on
the basis of a three hundred sixty-five (365)-day year for the number of days
elapsed.

For purposes of determining the person entitled to
payment of the principal of and interest on this Note, the Maker is entitled to
pay the person in whose name this Note is registered at the close of business
on the fifteenth day (whether or not a Business Day) next preceding the date
for such payment.  All payments of
principal and interest on this Note shall be payable at the principal executive
office of such registered holder or at such other place as such registered
holder may from time to time in writing appoint at least fifteen (15) days
before the date such payment is due. 
All payments required to be made by the Maker under this Note shall be
made in cash in immediately available funds.

 

 

Subject to the Holder’s compliance with Section 7 of
the Purchase Agreement and with applicable law, this Note is transferable on
the note register of the Maker upon surrender of this Note for transfer at the
principal executive offices of the Maker duly endorsed by or accompanied by a
written instrument of transfer in form satisfactory to the Maker and duly
executed by the registered 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 Maker 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.

1.             Definitions.

1.1           General. 
Terms used herein and not otherwise defined are used herein with the
same meanings given to them in the Purchase Agreement.  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.

1.2           Defined Terms. 
Unless the context otherwise requires, when used herein the following
terms shall have the meaning indicated:

“Affiliate” means with respect to any Person,
any other Person directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person.  For purposes of this definition, the term
“control” (and correlative terms “controlling,” “controlled by” and “under
common control with”) means possession of the power, whether by contract,
equity ownership or otherwise, to direct the policies or management of a
Person.

“Approved Market” means the NNM, the New York
Stock Exchange, or the American Stock Exchange.

“Average Market Price for Maker’s Conversion
Option” means, with respect to shares of Common Stock, the arithmetic mean
of the daily Market Prices of shares of Common Stock for the ten (10)
consecutive Trading Days commencing on the eleventh (11th) Trading Day
preceding the Conversion Date and ending on the Trading Day next preceding the
Conversion Date; provided, however, that in no event shall the
Average Market Price for Maker’s Conversion Option be more than one hundred one
percent (101%) of the Market Price of shares of Common Stock for the last
Trading Day preceding the Conversion Date.

 

2

 

“Bankruptcy Law” has the meaning set forth in
Section 7.1.

“Beneficially Own” or “Beneficial Ownership”
are used herein with the same meanings given to such terms in Rules 13d-3 and
13d-5 of the Securities Exchange Act of 1934, as amended.

“Board of Directors” means the board of
directors of Maker.

“Capital Stock” of any Person means any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such
Person, but excluding any debt securities convertible into such equity.

“Certificate(s) of Designation” means the
Series A-1 Certificate of Designation and/or the Series A-3/A-4 Certificate of
Designation.

“Collaboration Agreement” means the
Collaboration Agreement, dated as of October 15, 2003, between the Maker and
AstraZeneca UK Limited.

“Common Stock” means the common stock, par
value $0.0001 per share, of Maker.

“Conversion Date” has the meaning set forth in
Section 4.2.

“Conversion Price” has the meaning set forth in
Section 4.1.

“Current Average Market Price” means, with
respect to shares of the Common Stock as of a given day, the arithmetic mean of
the daily Market Prices of shares of the Common Stock for the thirty (30)
consecutive Trading Days commencing forty-five (45) Trading Days before the
date of determination or, for purposes of all computations under Section 4.3(b)
and (c), (i) the Determination Date or the Expiration Date, as the case may be,
with respect to distributions or tender offers under Section 4.3(c) or (ii) the
record date with respect to distributions, issuances or other events requiring
such computation under Section 4.3(b) and (c), calculated in any case by taking
the sum of the Market Prices for shares of the Common Stock for each of the
thirty (30) days in the specified period and dividing the foregoing sum by
thirty (30).

“Custodian” has the meaning set forth in
Section 7.1.

“Default Rate” means (i) during the period
commencing on the date hereof and ending on the fifth anniversary of such date,
an interest rate equal to the 10-Year United States Treasury Bond yield rate as
reported in The Wall Street Journal Western edition on the date hereof,
plus an additional three percent (3%) compounded annually, and (ii) during the
period commencing on the date following the fifth anniversary of the date
hereof and continuing until the last date on which the entire principal amount
of this Note has been converted or repaid and any interest owing hereon has
been paid, an interest rate equal to the 10-Year United States Treasury Bond
yield rate as reported in The Wall Street Journal Western edition on the
first day of such period, plus an additional three percent (3%) compounded
annually; provided, however, that if The Wall Street Journal ceases to
be published, then the 10-Year United States Treasury

 

3

 

Bond yield rate to be
used shall be that reported in such other business publication of national
circulation in the United States as the Maker and the Holder reasonably agree.

“Designated Prepayment Event Amount” means the
Designated Type I Prepayment Event Amount or the Designated Type II Prepayment
Event Amount, as the case may be.

“Designated Senior Indebtedness” means any
particular Senior Indebtedness of the Maker in which the instrument creating or
evidencing the same or the assumption or guarantee thereof (or any related
agreements or documents to which the Maker is a party) expressly provides that
such Senior Indebtedness shall be “Designated Senior Indebtedness” for purposes
of this Note (provided that such instrument, agreement or other document
creating or evidencing the Indebtedness may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of Designated
Senior Indebtedness).  If any payment
made to any holder of any Designated Senior Indebtedness or its Representative
with respect to such Designated Senior Indebtedness is rescinded or must
otherwise be returned by such holder or Representative upon the insolvency,
bankruptcy or reorganization of the Maker or otherwise, the reinstated
Indebtedness of the Maker arising as a result of such rescission or return
shall constitute Designated Senior Indebtedness effective as of the date of
such rescission or return.

“Designated Type I Prepayment Event Amount” has
the meaning set forth in Section 3.2(a)(i).

“Designated Type II Prepayment Event Amount”
has the meaning set forth in Section 3.2(a)(ii).

“Determination Date” has the meaning set forth
in Section 4.3.

“Discovery Period” means the period
commencing on the effective date of the Collaboration Agreement and ending on
the later to occur of (a) the date of expiration or termination of the Antigen
Designation Term (as such term is defined in the Collaboration Agreement) and
(b) the date of expiration or termination of the Research Program Term (as such
term is defined in the Collaboration Agreement) with respect to the Research
Program (as such term is defined in the Collaboration Agreement) that is the
last such program to terminate or expire pursuant to the Collaboration
Agreement.

“Event of Default” has the meaning set forth in
Section 7.1.

“Exchange Act” means the United States
Securities Exchange Act of 1934, as amended.

“Expiration Date” has the meaning set forth in
Section 4.3.

“Expiration Time” has the meaning set forth in
Section 4.3.

“GAAP” means generally accepted accounting
principles in the United States of America as in effect as of the date of this
Note, including those set forth in (i) the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public

4

 

Accountants, (ii) the
statements and pronouncements of the Financial Accounting Standards Board,
(iii) such other statements by such other entity as approved by a significant
segment of the accounting profession and (iv) the rules and regulations of the
SEC governing the inclusion of financial statements (including pro forma
financial statements) in registration statements filed under the Securities Act
and periodic reports required to be filed pursuant to Section 13 of the
Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.

“Holder” has the meaning set forth in the first
paragraph hereof.

“Indebtedness” means, with respect to any
Person, without duplication, (i) all indebtedness, obligations and other
liabilities (contingent or otherwise) of such Person (A) for borrowed money
(including obligations of such Person in respect of overdrafts, foreign
exchange 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 (B) evidenced by credit or loan agreements,
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 accounts 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) of such Person (A) in
respect of (1) leases of such Person required, in conformity with GAAP, to be
accounted for as capitalized lease obligations on the balance sheet of such
Person (as determined by the Maker), and (2) ground leases the Maker may enter
into in the future with respect to the Maker’s facilities in Fremont,
California, or (B) under any lease or related document (including a purchase
agreement, conditional sale or other title retention agreement) in connection
with the lease of real property or improvement thereon (or any personal
property included as part of any such lease) which provides that such Person is
contractually obligated to purchase or cause a third party to purchase the
leased property or pay an agreed upon residual value of the leased property to
the lessor (whether or not such lease transaction is characterized as an
operating lease or a capitalized lease in accordance with GAAP), (iv) all
obligations (contingent or otherwise) of such Person with respect to any
interest rate or other swap, cap, floor or collar agreement, hedge agreement,
forward contract, or other similar instrument or agreement or foreign currency
hedge, exchange, purchase or similar instrument or agreement; (v) all direct or
indirect guarantees, agreements to be jointly liable or similar agreements by
such Person in respect of, and obligations or liabilities 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), and (vi) any and all deferrals,
renewals, extensions, refinancings and refundings of, or amendments,
modifications or supplements to, any indebtedness, obligation or liability of
the kind described in clauses (i) through (v).

“Initial Conversion Price” has the meaning set
forth in Section 4.1.

“Instrument” has the meaning set forth in
Section 7.1.

“Maker” has the meaning set forth in the first
paragraph hereof.

 

5

 

“Maker Conversion Price” has the meaning set
forth in Section 4.1.

“Maker’s Election Notice” has the meaning set
forth in Section 4.2.

“Market Price” means, with respect to a particular
security, on any given day, the last reported sales price or, in case no such
reported sale takes place on such date, the average of the reported closing bid
and asked prices in either case on the NNM or, if the security is not listed or
admitted to trading on the NNM, on the principal national securities exchange
on which the security is listed or admitted to trading or, if not listed or
admitted to trading on the NNM or any national securities exchange, the last
reported sales price of the security as quoted on NASDAQ or, in case no
reported sales takes place, the average of the closing bid and asked prices as
quoted on NASDAQ or any comparable system or, if the security is not quoted on
NASDAQ or any comparable system, the closing sales price or, in case no
reported sale takes place, the average of the closing bid and asked prices, as
furnished by any two members of the National Association of Securities Dealers,
Inc. selected from time to time by the Maker for that purpose.  If the Common Stock is not listed and traded
in a manner that the quotations referred to above are available for the period
required hereunder, the Market Price per share of Common Stock shall be deemed
to be the fair value per share of such security as determined in good faith by
the Board of Directors.

“Maturity Date” means the tenth (10th)
anniversary of the date of the Initial Closing (as such term is defined in the
Purchase Agreement).

“Maximum Prepayment Event Amount” means the
Maximum Type I Prepayment Event Amount or the Maximum Type II Prepayment Event
Amount, as the case may be.

“Maximum Type I Prepayment Event Amount” means
the total principal amount of this Note outstanding as of a Type I Prepayment
Event Date.

“Maximum Type II Prepayment Event Amount” means
the amount that equals the lesser of the Type II Allocated Prepayment Amount
and the Type II Remaining Prepayment Amount.

“NNM” means the Nasdaq National Market.

“Note” has the meaning set forth in Section 2.

“Officer” means the chairman or any co-chairman
of the board, any vice chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the controller, the
secretary or any assistant controller or assistant secretary of the Maker.

“Officers’ Certificate” means a certificate
signed by two Officers.

“Opinion of Counsel” means a written opinion
from legal counsel, which counsel may be an employee of or counsel to the
Maker.

“Outstanding” means, at any time, the number of
shares of Common Stock then outstanding calculated on a fully diluted basis,
assuming the exercise, exchange or conversion

 

6

 

into Common Stock of all
outstanding securities exercisable, exchangeable or convertible into shares of
Common Stock (whether or not then exercisable, exchangeable or convertible).

“Ownership Threshold” has the meaning set forth
in Section 9.

 “Payment
Blockage Notice” has the meaning set forth in Section 5.2.

“Person” means an individual, corporation,
partnership, other entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act).

“Prepayment Election Amount” has the meaning
set forth in Section 3.1.

“Prepayment Election Date” has the meaning set
forth in Section 3.1.

“Prepayment Election Notice” has the meaning
set forth in Section 3.1.

“Prepayment Event” means a Type I Prepayment
Event or a Type II Prepayment event, as the case may be.

“Prepayment Event Date” means the Type I
Prepayment Event Date or the Type II Prepayment Event Date, as the case may be.

“Prepayment Event Notice” has the meaning set
forth in Section 3.2.

“Promissory Note” has the meaning set forth in
Section 7.1(b).

“Purchase Agreement” means the Securities
Purchase Agreement, dated as of October 15, 2003, between the Maker and AstraZeneca
UK Limited.

“Purchased Shares” has the meaning set forth in
Section 4.3.

“Representative” means the (i) trustee under
any indenture to which Maker is a party or other holder, agent or
representative for any Senior Indebtedness or (ii) with respect to any Senior
Indebtedness that does not have any such trustee, holder, agent or other
representative, (a) in the case of such Senior Indebtedness issued pursuant to
an agreement providing for voting arrangements as amount the holders or owner
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.

“Restricted Conversion Period” has the meaning
set forth in Section 4.1(b)(ii).

“Rights Plan” has the meaning set forth in
Section 4.3.

“SEC” means the United States Securities and
Exchange Commission.

“Securities Act” means the United States
Securities Act of 1933, as amended.

 

7

 

“Senior Indebtedness” means 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 allowed as a claim in any such proceeding) and
rent, if any, payable on or in connection with, and all fees, costs, expenses
and other amounts accrued or due on or in connection with, the Maker’s 3.5%
Convertible Subordinated Notes due March 15, 2007, or any other Indebtedness of
the Maker, whether outstanding on the date of this Note or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Maker (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to this Note or expressly provides that such
Indebtedness is “pari passu” or “junior” to this Note.  Notwithstanding the foregoing, the term
Senior Indebtedness shall not include (i) any Indebtedness of the Maker to any
Subsidiary of the Maker (other than Indebtedness of the Maker to such
Subsidiary arising by reason of guarantees by the Maker of Indebtedness of such
Subsidiary to a Person that is not a Subsidiary of the Maker); (ii) this Note;
or (iii) Indebtedness of or amounts owed by the Maker for compensation to
employees, or for goods or materials purchased in the ordinary course of
business, or for services.  If any payment
made to any holder of any Senior Indebtedness or its Representative with
respect to such Senior Indebtedness is rescinded or must otherwise be returned
by such holder or Representative upon the insolvency, bankruptcy or
reorganization of the Maker or otherwise, the reinstated Indebtedness of the
Maker arising as a result of such rescission or return shall constitute Senior
Indebtedness effective as of the date of such rescission or return.

“Series A-1 Certificate of Designation” has the
meaning set forth in Purchase Agreement.

“Series A-3/A-4 Certificate of Designation” has
the meaning set forth in the Purchase Agreement.

“Significant Subsidiary” means, in respect of
any Person, a Subsidiary of such Person that would constitute a “significant
subsidiary” as such term is defined under Rule 1-02 of Regulation S-X under the
Securities Act and the Exchange Act.

“Subordinated Promissory Note” has the meaning
set forth in Section 9.

“Subsidiary” means, in respect of any Person,
any corporation, association, partnership, or other business entity of which
more than fifty percent (50%) of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers, general partners or holders thereof is at the time owned
or controlled, directly or indirectly, by (i) such Person; (ii) such Person and
one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of
such Person.

“Trading Day” means, with respect to any
security, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any
day on which securities are generally not traded on the principal exchange or
market in which such security is traded.

 

8

 

“Trigger Event” has the meaning set forth in
Section 4.3.

“Triggering Distribution” has the meaning set
forth in Section 4.3.

“Type I Prepayment Event” means a Change in
Control (as such term is defined in the Collaboration Agreement) that occurs at
any time after the last day of the Discovery Period.

“Type I Prepayment Event Date” has the meaning
set forth in Section 3.2(a)(i).

“Type II Allocated Prepayment Amount” means the
amount, if positive, that is derived when the Series A-1 Remaining Redemption Amount
(as such term is defined in the Series A-1 Certificate of Designation) is
subtracted from the Series A-1 Allocated Redemption Amount (as such term is
defined in the Series A-1 Certificate of Designation) and means zero (0) in the
event that such amount is zero (0) or negative.

“Type II Prepayment Event” means the
termination by AstraZeneca UK Limited (or any of its Affiliates) of all
outstanding Research Programs and, in the event that the Antigen Designation
Term has not expired, the Antigen Designation Term, pursuant to Section 16.2 or
Section 16.3.1 of the Collaboration Agreement, which termination occurs at any
time prior to or on the last day of the Discovery Period.

“Type II Prepayment Event Date” means the date
that is thirty (30) Business Days after the date of the applicable Type II
Prepayment Event (or if such day is not a Business Day, then the next Business
Day thereafter).

“Type II Remaining Prepayment Amount” means the
principal amount of this Note outstanding as of the Type II Redemption Event
Date.

2.             Securities Purchase Agreement.  This Convertible Subordinated Promissory
Note (this “Note”) is the Convertible Subordinated Promissory Note of the Maker
referred to in the Purchase Agreement.

3.             Prepayment.

3.1           Maker’s Right to
Prepay.

(a)   Conditions to Prepayment Election.  The principal amount of this Note may be
prepaid (without premium or penalty) from time to time at the election of the
Maker (each such election, a “Prepayment Election”), as a whole or in part (in
increments of $1,000 or multiples thereof), upon at least twenty (20) and not
more than sixty (60) days’ prior notice to the Holder if (i) a shelf
registration statement covering resales of the Common Stock issuable upon
conversion of the principal amount of this Note is effective and available for
use in accordance with Section 8.1 of the Purchase Agreement and is expected to
remain effective and available for use for the thirty (30) days following the
date of the Prepayment Election Notice unless registration is no longer required
pursuant to the terms and conditions of the Purchase Agreement and (ii) the
Common Stock issuable upon conversion of the principal amount of this Note is
listed or

 

9

 

admitted for trading on
an Approved Market and is expected to remain so listed or admitted for trading
for the thirty (30) days following the date of the Prepayment Election
Notice.  Except as set forth in this
Section 3.1, the Maker shall not have the option to prepay the principal amount
of this Note.

 

(b)   Notice of Prepayment.  At least twenty (20) days but not more than
sixty (60) days before the date (the “Prepayment Election Date”) of a proposed
prepayment of the principal amount of this Note pursuant to this Section 3.1,
the Maker shall give notice of prepayment (a “Prepayment Election Notice”) to
the Holder.  The Prepayment Election
Notice shall state:

(i)            the Prepayment Election Date;

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

(iii)          the then-current Conversion Price;

(iv)          that if the Holder wishes to convert
any portion of the principal amount of this Note that is the subject of the
Prepayment Election Notice, the Holder must give notice of such conversion no
later than the close of business on the Business Day immediately preceding the
Prepayment Election Date; and

(v)           that, unless the Maker 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.

(c)   Effect of Notice of Prepayment Election.  Once a Prepayment Election Notice is given,
the principal amount of this Note that is the subject of the Prepayment
Election Notice shall not thereafter be convertible pursuant to Section 4.1(b)
and the Prepayment Election Amount shall become due and payable on the
Prepayment Election Date, except to the extent that all or any portion of the
Prepayment Election Amount is converted in accordance with the provisions of
Section 4.1(a).

3.2           Prepayment upon
Prepayment Event.

(a)   Prepayments at Option of Holder.

(i)            If at any time that any portion of
the principal amount this Note remains unpaid there shall occur a Type I
Prepayment Event, then on the date that is thirty (30) Business Days after the
date of such Prepayment Event (or, if such day is not a Business Day, then the
next Business Day thereafter) (the “Type I Prepayment Event Date”), the Maker
shall either, as it may elect,

                (A) prepay in full so much of the Maximum Type I
Prepayment Event Amount as the Holder may specify in a Prepayment Event Notice
(the “Designated Type I Prepayment Event Amount”), or

 

 

 

10

 

 

                (B) exercise its rights to, and subject to all of the
terms and provisions of, Section 4.1(b) to require the Holder to convert the
Designated Type I Prepayment Event Amount; provided, however,
that if and to the extent, as of the Type I Prepayment Event Date, the Maker is
prevented by the terms of Section 4.1(b)(ii) from requiring the Holder to
convert any principal amount of this Note pursuant to Section 4.1(b)(i), then
the Maker shall notwithstanding any election that it may otherwise have made
pursuant to this Section 3.2(a)(i), prepay to the Holder on the Type I
Prepayment Event Date in accordance with clause (A) above such of the
Designated Type I Prepayment Event Amount as the Maker is prevented by the
terms of Section 4.1(b)(ii) from requiring the Holder to convert as of such
date.

 

(ii)           If at any time that any portion of
the principal amount this Note remains unpaid there shall occur a Type II
Prepayment Event, then on the Type II Prepayment Event Date, the Maker shall
either, as it may elect,

                (A) prepay in full so much of the principal amount of
this Note then remaining unpaid, not to exceed an amount equal to the Maximum
Type II Prepayment Event Amount as the Holder may specify in a Prepayment Event
Notice (the “Designated Type II Prepayment Event Amount”), or

 

                (B) exercise its rights to, and subject to all of the
terms and provisions of, Section 4.1(b) (without giving effect to clause (D) of
Section 4.1(b)(ii)) to require the Holder to convert some or all of the
Designated Type II Prepayment Event Amount; provided, however,
that in the event that the Maker elects to convert less than all of such
Designated Type II Prepayment Event Amount, the Maker shall prepay to the
Holder on the Type II Prepayment Event Date in accordance with clause (A) above
such of the Designated Type II Prepayment Event Amount as the Maker has elected
not to convert; provided, further, that if and to the extent, as
of the Type II Prepayment Event Date, the Maker is prevented by the terms of
Section 4.1(b)(ii) (without giving effect to clause (D) of Section 4.1(b)(ii))
from requiring the Holder to convert any principal amount of this Note pursuant
to Section 4.1(b)(i), then the Maker shall notwithstanding any election that it
may otherwise have made pursuant to this Section 3.2(a)(ii), prepay to the
Holder on the Type II Prepayment Event Date in accordance with clause (A) above
such of the Designated Type II Prepayment Event Amount as the Maker is
prevented by the terms of Section 4.1(b)(ii) (without giving effect to clause
(D) of Section 4.1(d)(ii)) from requiring the Holder to convert as of such
date.

 

(b)   Notice to Holder.  Within ten (10) Business Days after the
occurrence of a Prepayment Event, the Maker shall provide Holder with notice of
the Prepayment Event. The notice shall state:

 

11

 

(i)            the date of such Prepayment Event,
whether the Prepayment Event is a Type I Prepayment Event or a Type II
Prepayment Event, and, briefly, the events causing such Prepayment Event;

(ii)           the date by which the Prepayment
Event Notice pursuant to Section 3.2(c) must be given;

(iii)          the Prepayment Event Date;

(iv)          the Maximum Prepayment Event Amount;

(v)           the Holder’s right to require the
Maker (A) in the case of a Type I Prepayment Event, to prepay or convert (at
the Maker’s election) an amount up to the Maximum Prepayment Event Amount, or
(B) in the case of a Type II Prepayment Event, to prepay or convert (at the
Maker’s election) an amount up to the Maximum Prepayment Event Amount;

(vi)          in the case of (x) a Type I Prepayment
Event, whether the Maker is electing to prepay or exercise its rights to
convert the Designated Type I Prepayment Event Amount specified by the Holder,
and (y) a Type II Prepayment Event, whether the Maker is electing to prepay or
exercise its rights to convert the Designated Type II Prepayment Event Amount
specified by the Holder (and, in either case, in the event that the Maker is
electing to exercise its rights to convert any such amount, the principal
amount that the Maker is electing to convert, and the place or places where
this Note is to be surrendered for issuance of certificates representing shares
of Common Stock);

(vii)         the then-current Conversion Price and
the then-current Maker Conversion Price;

(viii)        that the principal amount of this Note
that is the subject of prepayment 
pursuant to a Prepayment Event Notice may be converted into Common Stock
pursuant to Section 4.1 only to the extent that the Prepayment Event Notice has
been withdrawn in accordance with the terms of this Note;

(ix)           the procedures that the Holder must
follow to exercise rights under this Section 3.2; and

(x)            the procedures for withdrawing a
Prepayment Event Notice.

(c)   Exercise by Holder of Right to Receive
Prepayment.  The Holder may exercise
its rights specified in this Section 3.2 by delivery of a written notice (a
“Prepayment Event Notice”) to the Maker at any time prior to the close of
business on the Business Day next preceding the Prepayment Event Date
specifying the Designated Prepayment Event Amount.  The Holder may specify a Designated Prepayment Event Amount that
is less than the Maximum Prepayment Event Amount only if the amount so
designated is $1,000 or an integral multiple thereof.  Provisions of this Note that apply to the prepayment of the
Maximum Prepayment Event Amount also apply to the prepayment of a Designated
Prepayment Event Amount that is

 

12

 

less than the Maximum
Prepayment Event Amount. 
Notwithstanding anything herein to the contrary, the Holder shall have
the right to withdraw any Prepayment Event Notice in whole or in a portion
thereof, so long as the remaining Designated Prepayment Event Amount, if any,
is $1,000 or in an integral multiple thereof, at any time prior to the close of
business on the Business Day next preceding the Prepayment Event Date by
written notice of withdrawal given to the Maker.

 

(d)   Effect of Prepayment Event Notice.  Upon receipt by the Maker of the Prepayment
Event Notice specified in Section 3.2(c), the Holder shall (unless such Prepayment
Event Notice is withdrawn as specified in Section 3.2(c)) thereafter be
entitled to receive on the Prepayment Event Date (i) in the case of a Type I
Prepayment Event, either the Designated Type I Prepayment Event Amount with
respect to this Note or the certificates and payment amount (if any) to which
it is entitled upon conversion as provided in Section 4.2(b), as applicable, or
(ii) in the case of a Type II Prepayment Event, the Designated Type II
Prepayment Event Amount with respect to this Note.  Any principal amount of this Note in respect of which a Prepayment
Event Notice has been given by the Holder thereof may not be converted into
shares of Common Stock pursuant to Section 4.1 on or after the date of the
delivery of such Prepayment Event Notice unless such Prepayment Event Notice
has first been validly withdrawn.

(e)   Conversion Terms.  In the event that the Maker elects, pursuant
to clause (B) of Section 3.2(a)(i) or clause (B) of Section 3.2(a)(ii), to
exercise its rights to
require the Holder to convert the principal amount of this Note pursuant to
Section 4.1(b)(i) with respect to any portion or all of the Designated
Prepayment Event Amount specified by the Holder, the terms of Section 4 shall
govern the conversion of such shares, except that the notice provisions of
Section 3.2(b) shall apply in lieu of the notice requirements of Section
4.2(a)(ii) such that, upon the Maker’s giving of the notice required pursuant
to Section 3.2(b), the Maker shall be deemed to have exercised its conversion
rights pursuant to Section 4.1(b)(i) with respect to the designated portion or
all the Designated Prepayment Event Amount, as the case may be, and the Maker
shall not be required to provide any additional notice under Section 4.2(a)(ii)
in order to exercise such rights with respect to such amount.

4.             Conversion.

4.1           Right to Convert; Right of Maker to Require
Conversion.

(a)   Voluntary
Conversion at the Option of the Holder.  Subject to the provisions of Section 3 and this Section 4, the
Holder shall have the right, at any time and from time to time, at the Holder’s
option, to convert any or all of the principal amount of this Note (provided
that any partial conversion shall be in whole increments of $1,000) into fully
paid and non-assessable shares of Common Stock at the conversion price equal to
the Initial Conversion Price per share of Common Stock, subject to adjustment
as described in Section 4.3 (as adjusted, the “Conversion Price”).  The number of shares of Common Stock into
which this Note shall be convertible pursuant to this Section 4.1(a)
(calculated as to each conversion to the nearest 1/100th of a share) shall be
determined by dividing the principal amount being converted by the Conversion
Price in effect at the time of conversion. 
The “Initial Conversion Price” shall be Thirty United States Dollars
(U.S. $30.00) per share. 
Notwithstanding the foregoing provisions of this Section 4.1(a), if all
or any part of the principal amount of this Note is to be prepaid

 

13

 

pursuant to Section 3,
the conversion right specified in this Section 4.1(a) 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 or the Prepayment Event
Date, as the case may be (unless the Maker shall default in paying the
Prepayment Election Amount or the Designated Prepayment Event Amount, as the
case may be, when due, in which case the conversion right shall terminate at
the close of business on the date such default is cured).

 

(b)   Mandatory Conversion at the
Option of the Maker.

(i)            Subject to the
provisions of Section 3 and this Section 4, including Sections 4.1(b)(ii) and
(iii), the Maker shall have the right to require the Holder of this Note, at
the Maker’s option, to convert any or all of the principal amount of this Note
into fully paid non-assessable shares of Common Stock at a conversion price
equal to the lower of (i) the Average Market Price for Maker’s Conversion
Option or (ii) the Conversion Price determined in accordance with Section
4.1(a) (the lower of (i) or (ii), the “Maker Conversion Price”).  The number of shares of Common Stock into
which this Note shall be convertible pursuant to this Section 4.1(b)(i)
(calculated as to each conversion to the nearest 1/100th of a share) shall be
determined by dividing the principal amount being converted by the Maker
Conversion Price.

(ii)           Notwithstanding anything contained herein to the
contrary, in no event shall the Maker have the right to require the Holder of
this Note to convert any or all of the principal amount of this Note into
shares of Common Stock pursuant to Section 4.1(b)(i):  (A) at any time during the period commencing on the date of the
Initial Closing (as such term is defined in the Purchase Agreement) and ending
on the third anniversary thereof (the “Restricted Conversion Period”), except
to the extent permitted by the terms and conditions of Section 4.1(b)(iii); (B)
unless (1) a shelf registration statement covering resales of the Common Stock
issuable upon conversion of the principal amount of this Note is effective and
available for use in accordance with Section 8.1 of the Purchase Agreement and
is expected to remain effective and available for use for the thirty (30) days
following the Conversion Date unless registration is no longer required
pursuant to the terms and conditions of the Purchase Agreement and (2) the
Common Stock issuable upon conversion of the principal amount of this Note is
listed or admitted for trading on an Approved Market and is expected to remain
so listed or admitted for trading for the thirty (30) days following the
Conversion Date; (C) if there exists and is continuing an Event of Default; (D)
if any member of Maker’s senior management is, to the knowledge of Maker, at
the time of the giving of Maker’s Election Notice (or, in the event of a
conversion by the Maker pursuant to an election under clause (B) of Section
3.2(a)(i), at the time of the Maker’s giving of the notice required pursuant to
Section 3.2(b)), prohibited or restricted from trading in shares of Common
Stock under Maker’s internal rules and procedures relating to insider trading
in Maker’s securities; or (E) if any Preferred Stock issued by the Maker
pursuant to the terms of the Purchase Agreement remains outstanding and has not
been converted in full into Common Stock or redeemed by the Maker pursuant to
the terms of the applicable Certificate of

 

14

 

Designation
(unless such shares of Preferred Stock shall be converted by the Maker in full
into Common Stock, or redeemed, concurrently with the conversion of this Note).

(iii)          During the Restricted Conversion Period, the Maker
shall have no right to require the Holder to convert in any three month period
any principal amount of this Note that yields shares of Common Stock exceeding
the greater of (A) one percent of the shares of Common Stock outstanding as of
the beginning of such three month period and (B) the average weekly trading
volume on the NNM for shares of Common Stock during the four weeks ending on
the first day of such three month period, in each case as such amounts are
determined pursuant to Rule 144 of the Securities Act.

4.2           Mechanics of Conversion.

(a)   Procedures to Exercise
Conversion Rights.  The Holder
of this Note or the Maker, as the case may be, that elects to exercise its
conversion rights pursuant to Section 4.1 shall provide notice to the other
party as follows:

(i)            Holder’s Notice and
Surrender.  To
exercise its conversion right pursuant to Section 4.1(a), the Holder shall
surrender this Note at the office of the Maker (or any transfer agent of the
Maker previously designated by the Maker to the Holder for this purpose) with a
written notice of election to convert, completed and signed, specifying the
principal amount to be converted.

(ii)           Maker’s Notice.  Subject to Section 3.2(e), to exercise its conversion right
pursuant to Section 4.1(b), the Maker shall deliver written notice to the
Holder (a “Maker’s Election Notice”), at least twenty (20) days and no more
than forty-five (45) days prior to the Conversion Date (as defined below),
specifying: (A) the principal amount to be converted; (B) the Conversion Date;
and (C) the place or places where this Note is to be surrendered for issuance
of certificates representing shares of Common Stock.

(b)   Surrender and Delivery of Note.  Unless the shares issuable upon conversion
are to be issued in the same name as the name in which this Note is registered,
this Note shall be accompanied by instruments of transfer, in form reasonably
satisfactory to the Maker, duly executed by the Holder or the Holder’s duly
authorized attorney and an amount sufficient to pay any transfer or similar tax
in accordance with Section 4.2(f).  As
promptly as practicable after the surrender by the Holder of this Note as
aforesaid, the Maker shall issue and shall deliver to the Holder, or on the
Holder’s written order to the Holder’s transferee, a certificate or
certificates for the whole number of shares of Common Stock issuable upon the
conversion of this Note and a check payable in an amount corresponding to any
fractional interest in a share of Common Stock as provided in Section 4.2(g),
and, in the case of a conversion pursuant to Section 4.1(b), a certificate of
an executive officer of the Maker setting forth the Maker Conversion Price and,
in reasonable detail, the determination thereof and the number of shares of
Common Stock issued in respect of the converted principal amount of this Note.

 

15

 

(c)   Effective Date of Conversion.  Each conversion shall be deemed to have been
effected immediately prior to the close of business on (i) in the case of
conversion pursuant to Section 4.1(a), the first Business Day on which this
Note shall have been surrendered and such notice received by the Maker as
aforesaid or (ii) in the case of conversion pursuant to Section 4.1(b), the
date specified as the Conversion Date in the Maker’s notice of conversion delivered
to each holder pursuant to Section 4.2(a)(ii) (in each case, the “Conversion
Date”); provided, however, that in the event of a conversion by
the Maker under Section 4.1(b) pursuant to an election made by the Maker under
clause (B) of Section 3.2(a)(i) or clause (B) of Section 3.2(a)(ii), the
“Conversion Date” shall be the Prepayment Event Date.  At such time on the Conversion Date:  (A) the person in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder of record of the shares of Common
Stock represented thereby at such time; and (B) the principal amount of this
Note so converted shall no longer be deemed to be outstanding, and all rights
of the Holder with respect to this Note, in the event of conversion pursuant to
Section 4.1(a), surrendered for conversion and, in the event of conversion
pursuant to Section 4.1(b), covered by the Maker’s notice of conversion, shall
immediately terminate except the right to receive the Common Stock and other
amounts payable pursuant to this Section 4.

(d)   Duly Issued Shares.  All shares of Common Stock delivered upon
conversion of this Note shall, upon delivery, be duly and validly authorized
and issued, fully paid and nonassessable, free from all preemptive rights and
free from all taxes, liens, security interests and charges (other than liens or
charges created by or imposed upon the holder or taxes in respect of any
transfer occurring contemporaneously therewith).

(e)   Reservation and
Listing of Shares.  The Maker
shall at all times reserve and keep available, free from preemptive rights, out
of its authorized but unissued Common Stock, solely for the purpose of
effecting conversions of the principal amount of this Note, the aggregate
number of shares of Common Stock issuable upon conversion of the then unpaid
principal amount of this Note pursuant to Section 4.1(a).  The Maker shall, promptly following the
issuance of this Note, take such action to cause the shares of Common Stock
initially issuable upon conversion of this Note to be listed on the NNM as
promptly as possible but no later than the effective date of the Registration
Statement providing for the resale by the Holder of shares of Common Stock
issuable upon conversion hereof as contemplated by Section 8 of the Purchase
Agreement.  The Maker further agrees
that if it applies to have its Common Stock or other securities traded on any
other stock exchange or market it will include in such application all shares
of Common Stock to be issued upon the conversion of this Note and will take all
such other actions as may be necessary to cause such shares of Common Stock to
be so listed.  During the period
beginning on the date hereof and ending on the Final Date (as such term is
defined in the Purchase Agreement), the Maker shall take all actions necessary
to continue the listing and trading of its Common Stock on an Approved Market
and will comply in all material respects with the Maker’s reporting, filing and
other obligations under the bylaws and rules of each such exchange or market on
which shares of the Common Stock may from time to time be listed to the extent
necessary to ensure the continued eligibility for trading of shares of Common
Stock.  The Maker shall take all
commercially reasonable action as may be necessary to ensure that the shares of
Common Stock may be issued without violation of any applicable law or
regulation or of any requirement of any securities exchange or inter-dealer
quotation system on which the shares of Common Stock are listed or traded.

 

16

 

(f)    Fees and Taxes.  Issuances of certificates for shares of
Common Stock upon conversion of the principal amount of this Note shall be made
without charge to the Holder for any issue or transfer tax (other than taxes in
respect of any transfer occurring contemporaneously therewith or as a result of
the Holder being a non-U.S. person) or other incidental expense in respect of
the issuance of such certificates, all of which taxes and expenses shall be
paid by the Maker; provided, however, that the Maker shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance or delivery of shares of Common Stock in a name other
than that of the Holder, and no such issuance or delivery shall be made unless
and until the person requesting such issuance or delivery has paid to the Maker
the amount of any such tax or has established, to the satisfaction of the
Maker, that such tax has been paid.

(g)   Fractions of
Shares.  In connection with the
conversion of the principal amount of this Note, no fractions of shares of
Common Stock shall be issued, but in lieu thereof the Maker shall pay a cash
adjustment in respect of such fractional interest in an amount equal to such
fractional interest multiplied by the Market Price per share of Common Stock on
the Conversion Date.

(h)   Requisite
Antitrust Approvals For Conversion.  In no event shall any conversion be effected pursuant to this
Section 4 unless and until the waiting period applicable to any HSR (as such
term is defined in the Purchase Agreement) filing necessary in order to effect
such conversion has terminated or expired.

4.3           Adjustments to Conversion Price.  The Conversion Price shall be adjusted from
time to time pursuant to the following provisions.

(a)   Stock Splits, Etc.  In case the Maker shall (i) pay a dividend
on its Common Stock in shares of Common Stock, (ii) make a distribution on its
Common Stock in shares of Common Stock, (iii) subdivide its outstanding Common
Stock into a greater number of shares, or (iv) combine its outstanding Common
Stock into a smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the Holder shall upon
conversion of the unpaid principal amount of this Note be entitled to receive
that number of shares of Common Stock which it would have owned had the unpaid
principal amount been converted immediately prior to the happening of such
event. An adjustment made pursuant to this subsection (a) shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of subdivision or combination.

(b)   Rights to Purchase Common Stock.  In case the Maker shall issue rights or
warrants to all or substantially all holders of its Common Stock entitling them
(for a period commencing no earlier than the record date described below and
expiring not more than sixty (60) days after such record date) to subscribe for
or purchase shares of Common Stock (or securities convertible into Common
Stock) at a price per share (or having a conversion price per share) less than
the Current Average Market Price per share of Common Stock on the record date
for the determination of stockholders entitled to receive such rights or warrants,
the Conversion Price in effect immediately prior thereto shall be adjusted so
that the same shall equal the price determined by multiplying the Conversion
Price in effect immediately prior to such record date

 

17

 

by a fraction of which
the numerator shall be the number of shares of Common Stock outstanding on such
record date plus the number of shares which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
price of the convertible securities so offered, which shall be determined by
multiplying the number of shares of Common Stock issuable upon conversion of
such convertible securities by the conversion price per share of Common Stock
pursuant to the terms of such convertible securities) would purchase at the
Current Average Market Price per share of Common Stock on such record date, and
of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock offered (or into which the convertible securities so offered are
convertible).  Such adjustment shall be
made successively whenever any such rights or warrants are issued, and shall
become effective immediately after such record date. If at the end of the
period during which such rights or warrants are exercisable not all rights or
warrants shall have been exercised, the adjusted Conversion Price shall be
immediately readjusted to what it would have been based upon the number of
additional shares of Common Stock actually issued (or the number of shares of
Common Stock issuable upon conversion of convertible securities actually
issued).

 

(c)   Distributions to Holders of Common Stock.

(i)            In case the Maker shall distribute
to all or substantially all holders of its Common Stock any shares of Capital
Stock of the Maker (other than Common Stock), evidences of indebtedness or
other non-cash assets (including securities of any person other than the Maker
but excluding (A) dividends or distributions paid exclusively in cash or (B)
dividends or distributions referred to in Section 4.3(a)), or shall distribute
to all or substantially all holders of its Common Stock rights or warrants to
subscribe for or purchase any of its securities (excluding those rights and
warrants referred to in Section 4.3(b) and also excluding the distribution of
rights to all holders of Common Stock pursuant to the adoption of a
stockholders rights plan or the detachment of such rights under the terms of
such stockholder rights plan), then in each such case the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the current Conversion Price by a fraction of which the numerator
shall be the Current Average Market Price per share of the Common Stock on the
record date mentioned below less the fair market value on such record date (as
reasonably determined by the Board of Directors, whose determination shall be
conclusive evidence of such fair market value and which shall be evidenced by
an Officers’ Certificate delivered to the Holder) of the portion of the Capital
Stock, evidences of indebtedness or other non-cash assets so distributed or of
such rights or warrants applicable to one share of Common Stock (determined on
the basis of the number of shares of Common Stock outstanding on the record
date), and of which the denominator shall be the Current Average Market Price
per share of the Common Stock on such record date. Such adjustment shall be made
successively whenever any such distribution is made and shall become effective
immediately after the record date for the determination of shareholders
entitled to receive such distribution.

 

18

 

(ii)           In the event the then fair market
value (as so determined) of the portion of the Capital Stock, evidences of
indebtedness or other non-cash assets so distributed or of such rights or
warrants applicable to one share of Common Stock is equal to or greater than
the Current Average Market Price per share of the Common Stock on such record
date, in lieu of the foregoing adjustment, adequate provision shall be made so
that the Holder has the right to receive upon conversion the amount of Capital
Stock, evidences of indebtedness or other non-cash assets so distributed or of
such rights or warrants the Holder would have received had the Holder converted
the then-unpaid principal amount of this Note on such record date.  In the event that such dividend or
distribution is not so paid or made, the Conversion Price shall again be
adjusted to be the Conversion Price which 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 4.3(c) 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 Average Market Price of the Common
Stock.

(iii)          In the event that the Maker has
implemented or implements a preferred shares rights plan (“Rights Plan”), upon
conversion of the unpaid principal amount of this Note into Common Stock, to
the extent that the Rights Plan has been implemented and is still in effect
upon such conversion, the Holder shall 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 the Rights Plan. Any distribution of rights or warrants 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 4.3(c).

(iv)          Rights or warrants distributed by the
Maker to all holders of Common Stock entitling the holders thereof to subscribe
for or purchase shares of the Maker’s Capital Stock (either initially or under
certain circumstances), which rights or warrants, until the occurrence of a
specified event or events (“Trigger Event”): (A) are deemed to be transferred
with such shares of Common Stock; (B) are not exercisable; and (C) are also
issued in respect of future issuances of Common Stock, shall be deemed not to
have been distributed for purposes of this Section 4.3 (and no adjustment to
the Conversion Price under this Section 4.3 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 4.3(c).
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

 

19

 

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
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 4.3
was made, (1) in the case of any such rights or warrants which 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 which
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.

(v)           In case the Maker shall, by dividend
or otherwise, at any time distribute (a “Triggering Distribution”) to all or
substantially all holders of its Common Stock cash in an aggregate amount that,
together with the aggregate amount of (A) any cash and the fair market value
(as reasonably determined by the Board of Directors, whose determination shall
be conclusive evidence thereof and which shall be evidenced by an Officers’
Certificate delivered to the Holder) of any other consideration payable in
respect of any tender offer by the Maker or a Subsidiary of the Maker for
Common Stock consummated within the twelve (12) months preceding the date of
payment of the Triggering Distribution and in respect of which no Conversion
Price adjustment pursuant to this Section 4.3 has been made and (B) all other
cash distributions to all or substantially all holders of its Common Stock made
within the twelve (12) months preceding the date of payment of the Triggering
Distribution and in respect of which no Conversion Price adjustment pursuant to
this Section 4.3 has been made, exceeds an amount equal to ten percent (10%) of
the product of the Current Average Market Price per share of Common Stock on
the Business Day (the “Determination Date”) immediately preceding the day on
which such Triggering Distribution is declared by the Maker multiplied by the
number of shares of Common Stock outstanding on the Determination Date
(excluding shares held in the treasury of the Maker), the Conversion Price
shall be reduced so that the same shall equal the price determined by
multiplying such Conversion Price in effect immediately prior to the
Determination Date by a fraction of which the numerator shall be the Current
Average Market Price per share of the Common Stock on the Determination Date
less the sum of the aggregate amount of cash and the aggregate fair market
value (determined as aforesaid in this Section 4.3(c)) of any such other
consideration so distributed, paid or payable within such twelve (12) months
(including the Triggering Distribution) applicable to one share of Common Stock
(determined on the basis of the number of shares of Common Stock outstanding on
the Determination Date) and the denominator shall be such Current Average
Market

 

20

 

Price
per share of the Common Stock on the Determination Date, such reduction to
become effective immediately prior to the opening of business on the day
following the date on which the Triggering Distribution is paid.

(vi)          In case any tender offer made by the
Maker or any of its Subsidiaries for Common Stock shall expire and such tender
offer (as amended upon the expiration thereof) shall involve the payment of
aggregate consideration in an amount (determined as the sum of the aggregate
amount of cash consideration and the aggregate fair market value (as reasonably
determined by the Board of Directors, whose determination shall be conclusive
evidence thereof and which shall be evidenced by an Officers’ Certificate
delivered to the Holder) of any other consideration) that, together with the
aggregate amount of (A) any cash and the fair market value (as reasonably
determined by the Board of Directors, whose determination shall be conclusive
evidence thereof and which shall be evidenced by an Officers’ Certificate
delivered to the Holder) of any other consideration payable in respect of any
other tender offers by the Maker or any Subsidiary of the Maker for Common
Stock consummated within the twelve (12) months preceding the date of the
Expiration Date (as defined below) and in respect of which no Conversion Price
adjustment pursuant to this Section 4.3 has been made and (B) all cash
distributions to all or substantially all holders of its Common Stock made
within the twelve (12) months preceding the Expiration Date and in respect of
which no Conversion Price adjustment pursuant to this Section 4.3 has been
made, exceeds an amount equal to ten percent (10%) of the product of the
Current Average Market Price per share of Common Stock as of the last date (the
“Expiration Date”) tenders could have been made pursuant to such tender offer
(as it may be amended) (the last time at which such tenders could have been
made on the Expiration Date is hereinafter sometimes called the “Expiration
Time”) multiplied by the number of shares of Common Stock outstanding (including
tendered shares but excluding any shares held in the treasury of the Maker) at
the Expiration Time, then, immediately prior to the opening of business on the
day after the Expiration Date, the Conversion Price shall be reduced so that
the same shall equal the price determined by multiplying the Conversion Price
in effect immediately prior to the close of business on the Expiration Date by
a fraction of which the numerator shall be the product of the number of shares
of Common Stock outstanding (including tendered shares but excluding any shares
held in the treasury of the Maker) at the Expiration Time multiplied by the
Current Average Market Price per share of the Common Stock on the Trading Day
next succeeding the Expiration Date and the denominator shall be the sum of (x)
the aggregate consideration (determined as aforesaid) payable to stockholders
based on the acceptance (up to any maximum specified in the terms of the tender
offer) of all shares validly tendered 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 and excluding any shares held in
the treasury of the Maker) at the Expiration Time and the Current Average
Market Price per share of Common Stock on the Trading Day next succeeding the
Expiration Date, such reduction to become effective

 

21

 

immediately
prior to the opening of business on the day following the Expiration Date. In
the event that the Maker is obligated to purchase shares pursuant to any such
tender offer, but the Maker is permanently prevented by applicable law from
effecting any or all such purchases or any or all such purchases are rescinded,
the Conversion Price shall again be adjusted to be the Conversion Price which
would have been in effect based upon the number of shares actually purchased.
If the application of this Section 4.3(c)(vi) to any tender offer would result
in an increase in the Conversion Price, no adjustment shall be made for such
tender offer under this Section 4.3(c)(vi).

(vii)         For purposes of this Section 4.3(c),
the term “tender offer” shall mean and include both tender offers and exchange
offers, all references to “purchases” of shares in tender offers (and all
similar references) shall mean and include both the purchase of shares in
tender offers and the acquisition of shares pursuant to exchange offers, and
all references to “tendered shares” (and all similar references) shall mean and
include shares tendered in both tender offers and exchange offers.

(d)   Deferral.  In any case in which this Section 4.3 shall require that an
adjustment be made following a record date or a Determination Date or
Expiration Date, as the case may be, established for purposes of this Section
4.3, the Maker may elect to defer (but only until five Business Days following
the giving by the Maker to the Holder the certificate described in Section 4.3(g))
issuing to the Holder, with respect to any principal amount converted after
such record date or Determination Date or Expiration Date, the shares of Common
Stock and other Capital Stock of the Maker issuable upon such conversion over
and above the shares of Common Stock and other Capital Stock of the Maker
issuable upon such conversion only on the basis of the Conversion Price prior
to adjustment; and, in lieu of the shares the issuance of which is so deferred,
the Maker shall issue or cause its transfer agents to issue due bills or other
appropriate evidence prepared by the Maker of the right to receive such shares.
If any distribution in respect of which an adjustment to the Conversion Price
is required to be made as of the record date or Determination Date or
Expiration Date therefor is not thereafter made or paid by the Maker for any
reason, the Conversion Price shall be readjusted to the Conversion Price which
would then be in effect if such record date had not been fixed or such
effective date or Determination Date or Expiration Date had not occurred.

(e)   No Adjustment.  No adjustment in the Conversion Price shall
be required unless the adjustment would require an increase or decrease of at
least one half of one percent (.5%) in the Conversion Price as last adjusted;
provided, however, that any adjustments which by reason of this Section 4.3(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 4 shall be made
to the nearest cent or to the nearest one-hundredth (1/100th) of a share, as
the case may be.  No adjustment need be
made for issuances of Common Stock pursuant to a Maker plan for reinvestment of
dividends or interest or for a change in the par value or a change to no par
value of the Common Stock.  To the
extent that this Note becomes convertible into the right to receive cash, no
adjustment need be made thereafter as to the cash.

 

22

 

(f)    Adjustment for Tax Purposes.  The Maker shall be entitled to make such
reductions in the Conversion Price, in addition to those required by the
preceding sections of this Section 4.3, as it in its discretion shall determine
to be advisable in order that any stock dividends, subdivisions of shares,
distributions of rights to purchase stock or securities or distributions of
securities convertible into or exchangeable for stock hereafter made by the
Maker to its stockholders shall not be taxable.

(g)   Notice of Adjustment.  Whenever the Conversion Price or conversion
privilege is adjusted, the Maker shall promptly notify the Holder of the
adjustment and provide the Holder with an Officers’ Certificate briefly stating
the facts requiring the adjustment and the manner of computing it.

(h)   Notice of Certain Transactions.  In the event that:

(i)            the Maker takes any action which would require an
adjustment in the Conversion Price;

(ii)           the Maker consolidates or merges
with, or transfers all or substantially all of its property and assets to,
another corporation and shareholders of the Maker must approve the transaction;
or

(iii)          there is a dissolution or liquidation
of the Maker,

then the Maker shall
notify the Holder of the proposed transaction and the related record or
effective date, as the case may be.  The
Maker shall give the notice at least ten (10) days before such date.  Failure to give such notice or any defect
therein shall not affect the validity of any transaction referred to in clause
(i), (ii) or (iii) of this Section 4.3(h).

 

(i)    Provisions to be Given Effect from
Initial Closing Date. 
Notwithstanding anything contained in this Note to the contrary, the
provisions of this Section 4.3 shall be given effect as though this Note had
been issued by the Maker to the Holder on the Initial Closing Date (as such
term is defined in the Purchase Agreement), such that upon issue of this Note
the Conversion Price shall, immediately upon issue and without any further
action by the Holder, be adjusted to take account of all events occurring from
the Initial Closing Date until the date of issue of this Note as though the
entire principal amount of this Note had been outstanding continuously during
such period.

4.4           Effect of Reclassification, Consolidation, Merger or
Sale on Conversion Privilege.  If
any of the following shall occur, namely:

(a)   any reclassification or change of shares of
Common Stock issuable upon conversion of this Note (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination, or any other change for which an
adjustment is provided in Section 4.3);

(b)   any consolidation or merger or combination to
which the Maker is a party other than a merger in which the Maker is the
continuing corporation and which does not result in any reclassification of, or
change (other than in par value, or from par value to no par value, or

 

23

 

from no par value to par
value, or as a result of a subdivision or combination) in, outstanding shares
of Common Stock; or

 

(c)   any sale or conveyance as an entirety or
substantially as an entirety of the property and assets of the Maker, directly
or indirectly, to any person;

then the Maker, or such
successor, purchasing or transferee corporation, as the case may be, shall, as
a condition precedent to such reclassification, change, combination,
consolidation, merger, sale or conveyance, execute and deliver to the Holder a
supplemental instrument providing that (i) the Holder shall have the right to
convert this Note into the kind and amount of shares of stock and other
securities and property (including cash) receivable upon such reclassification,
change, combination, consolidation, merger, sale or conveyance by a holder of
the number of shares of Common Stock deliverable upon conversion of this Note,
at a conversion price equal to the Conversion Price specified in Section
4.1(a), immediately prior to such reclassification, change, combination,
consolidation, merger, sale or conveyance, and (ii) in the event of any
exercise by the Maker of its right to convert any principal amount of this Note
pursuant to Section 4.1(b), such principal amount shall be convertible into the
kind and amount of shares of stock and other securities and property (including
cash) receivable upon such reclassification, change, combination,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock deliverable upon conversion of such principal amount, at a conversion
price equal to the Maker Conversion Price determined pursuant to Section
4.1(b), immediately prior to such reclassification, change, combination,
consolidation, merger, sale or conveyance. 
Any such supplemental instrument shall provide for adjustments of the
Conversion Price which shall be as nearly equivalent as may be practicable to
the adjustments of the Conversion Price provided for in Section 4.3. If, in the
case of any such consolidation, merger, combination, sale or conveyance, the
stock or other securities and property (including cash) receivable thereupon by
a holder of Common Stock include shares of stock or other securities and
property of a person other than the successor, purchasing or transferee
corporation, as the case may be, in such consolidation, merger, combination,
sale or conveyance, then such supplemental instrument shall also be executed by
such other person and shall contain such additional provisions to protect the
interests of the Holder as the Board of Directors shall reasonably consider
necessary by reason of the foregoing. The provisions of this Section 4.4 shall
similarly apply to successive reclassifications, changes, combinations,
consolidations, mergers, sales or conveyances. 
In the event the Maker shall execute a supplemental instrument pursuant
to this Section 4.4, the Maker shall promptly file with the Holder (A) an
Officers’ Certificate briefly stating the reasons therefor, the kind or amount
of shares of stock or other securities or property (including cash) receivable
by Holder upon the conversion of this Note after any such reclassification,
change, combination, consolidation, merger, sale or conveyance, any adjustment
to be made with respect thereto and that all conditions precedent have been
complied with and (B) an Opinion of Counsel that all conditions precedent have
been complied with.  Notwithstanding
anything contained in this Note to the contrary, the provisions of this Section
4.4 shall be given effect as though this Note had been issued by the Maker to the
Holder on the Initial Closing Date (as such term is defined in the Purchase
Agreement), such that upon issue of this Note the Holder shall, immediately
upon issue and without any further action by the Holder, be entitled to the
benefit of all provisions of this Section 4.4 with respect to any and all
events occurring from the Initial Closing Date until the date of issue of this
Note as though the entire principal amount had been outstanding continuously
during such period.

 

 

24

 

 

4.5           Voluntary Reduction.  The Maker from time to time may reduce the
Conversion Price by any amount for any period of time if the period is at least
twenty (20) days and if the reduction is irrevocable during the period if the
Board of Directors determines that such reduction would be in the best interest
of the Maker or to avoid or diminish income tax to holders of shares of the
Common Stock in connection with a dividend or distribution of stock or similar
event, and the Maker provides fifteen (15) days’ prior notice of any reduction
in the Conversion Price; provided, however, that in no event may
the Maker reduce the Conversion Price to be less than the par value of a share
of Common Stock.

4.6           Miscellaneous.

(a)   Except as
otherwise explicitly contemplated by this Section 4, no adjustment in respect
of any dividends or other payments or distributions made to Holder in respect
of this Note or securities issuable upon the conversion of this Note will be
made during the term of this Note or upon the conversion of this Note.  The provisions of this clause (a) are
without prejudice to the right of the Holder to receive interest at the Default
Rate in the event that the principal sum of this Note is not paid in full by
the Maturity Date.

(b)   If any event
occurs of the type contemplated by the provisions of Section 4.3, 4.4, or 4.5
but not expressly provided for by such provisions (including the granting of
stock appreciation rights, phantom stock rights or other rights with equity
features), then the Board of Directors shall make any appropriate adjustment in
the Conversion Price necessary to protect the rights of the Holder as and to
the extent contemplated by Sections 4.3, 4.4 and 4.5; provided, that no
such adjustment shall increase the Conversion Price as otherwise determined
pursuant to this Section 4 or decrease the number of shares of Common Stock
issuable upon any conversion of this Note.

(c)   If the Maker
shall enter into any transaction for the purpose of avoiding the application of
the provisions of Sections 4.3, 4.4 or 4.5 or this Section 4.6, the benefits of
such provisions shall nevertheless apply and be preserved.

(d)   Any dividend or
distribution that was paid or distributed to, or otherwise made available to or
set aside for, the holders of this Note (pursuant to Section 4.3 or otherwise)
shall not also result in an adjustment to the Conversion Price pursuant to
Section 4.

5.             Subordination.

5.1           Agreement of Subordination.

(a)   Note Subject to Section 5.  The Maker covenants and agrees, and the
Holder by its acceptance of this Note likewise covenants and agrees, that this
Note shall be issued subject to the provisions of this Article 5; and each
transferee of this Note accepts and agrees to be bound by such provisions.

(b)   Subordination.  The payment of the principal of, premium, if
any, and interest on this Note (including any Prepayment Election Amount or
Designated Prepayment Event 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 in cash or payment satisfactory to the holders of

 

25

 

Senior Indebtedness of
all Senior Indebtedness, whether outstanding at the date of this Note or
thereafter incurred.

 

(c)   No Effect on Default.  No provision of this Article 5 shall prevent
the occurrence of any default or Event of Default hereunder.

5.2           Payments to
Holder.

(a)   Payment Blockage.  No payment shall be made with respect to the
principal of, or premium, if any, or interest on this Note (including any
Prepayment Election Amount or Designated Prepayment Event Amount), if:

(i)            a default in the payment of
principal, premium, interest, rent or other obligations due on any Designated
Senior Indebtedness occurs and is continuing (or, in the case of Designated
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 Designated Senior Indebtedness), unless and
until such default shall have been cured or waived or shall have ceased to
exist; or

(ii)           a default, other than a payment
default, on Designated Senior Indebtedness occurs and is continuing that then
permits holders of such Designated Senior Indebtedness to accelerate its
maturity and the Holder receives a notice of the default (a “Payment Blockage
Notice”) from a Representative or holder of Designated Senior Indebtedness or
the Maker.

(b)   Limit on Payment Blockage.  If the Holder receives any Payment Blockage
Notice pursuant to clause (a)(ii) above, no subsequent Payment Blockage Notice
shall be effective for purposes of this Section unless and until (i) at least
three hundred sixty-five (365) days shall have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice; and (ii) all
scheduled payments on this Note that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Holder (unless such default was
waived, cured or otherwise ceased to exist and thereafter subsequently
reoccurred) shall be, or be made, the basis for a subsequent Payment Blockage
Notice.

(c)   Resumption of Payments.  The Maker may and shall resume payments on
and distributions in respect of this Note upon the earlier of:

(i)            in the case of a default referred to
in clause (a)(i) above, the date upon which the default is cured or waived or
ceases to exist, or

(ii)           in the case of a default referred to
in clause (a)(ii) above, the earlier of the date on which such default is cured
or waived or ceases to exist or one hundred seventy-nine (179) days pass after
the date on which the applicable Payment Blockage Notice is received, if the
maturity of such Designated Senior Indebtedness has not been accelerated,
unless this Section 5 otherwise prohibits the payment or distribution at the
time of such payment or distribution.

 

26

 

(d)   Payments Upon Dissolution.  Upon any payment by the Maker, or
distribution of assets of the Maker 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 Maker (whether voluntary or involuntary)
or in bankruptcy, insolvency, receivership or similar proceedings, all amounts
due or to become due upon all Senior Indebtedness shall first be paid in full
in cash, or other payments satisfactory to the holders of Senior Indebtedness
before any payment is made on account of the principal of, premium, if any, or
interest on this Note; and upon any such dissolution or winding-up or
liquidation or reorganization of the Maker or bankruptcy, insolvency,
receivership or other proceeding, any payment by the Maker, or distribution of
assets of the Maker of any kind or character, whether in cash, property or
securities, to which the Holder would be entitled, except for the provisions of
this Section 5, shall (except as aforesaid) be paid by the Maker 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, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
Senior Indebtedness in full in cash, or other payment satisfactory to the
holders of Senior Indebtedness, 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 in respect of this Note.

(e)   Certain Distributions Excluded.  For purposes of this Section 5, the words,
“cash, property or securities” shall not be deemed to include shares of stock
of the Maker as reorganized or readjusted, or securities of the Maker 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 5 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, 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 Maker 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 Maker with, or the
merger of the Maker into, another corporation or the liquidation or dissolution
of the Maker following the conveyance, transfer or lease of its property as an
entirety, or substantially as an entirety, to another corporation 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 5.2 if such other corporation shall, as a part of such consolidation,
merger, conveyance, transfer or lease, comply with the conditions stated in
Section 6.

(f)    Acceleration.  In the event of the acceleration of this
Note because of an Event of Default, no payment or distribution shall be made
to the Holder in respect of the principal of, premium, if any, or interest on
this Note by the Maker (including any Prepayment Election Amount or Designated
Prepayment Event Amount) until all Senior Indebtedness has been paid in full in
cash or other payment satisfactory to the holders of Senior Indebtedness 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 Maker
shall promptly notify holders of Senior

 

27

 

Indebtedness of such
acceleration.  In the event that,
notwithstanding the foregoing provisions, any payment or distribution of assets
of the Maker of any kind or character, whether in cash, property or securities
(including by way of setoff or otherwise), prohibited by the foregoing, shall
be received by the Holder before all Senior Indebtedness is paid in full, in
cash or other payment satisfactory to the holders of Senior Indebtedness, or
provision is made for such payment thereof in accordance with its terms in cash
or other payment satisfactory to the holders of Senior Indebtedness, 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, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated
by the Maker, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in
full, in cash or other payment satisfactory to the holders of Senior
Indebtedness, after giving effect to any concurrent payment or distribution to
or for the holders of such Senior Indebtedness.

 

5.3           Subrogation. 
Subject to the payment in full, in cash or other payment satisfactory to
the holders of Senior Indebtedness, of all Senior Indebtedness, the rights of
the Holder 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 5 (equally and ratably with the holders of all
indebtedness of the Maker which by its express terms is subordinated to other
indebtedness of the Maker to substantially the same extent as this 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 Maker applicable to the Senior Indebtedness
until the principal, premium, if any, and interest on this Note shall be paid
in full in cash or other payment satisfactory to the holders of Senior
Indebtedness; 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 5, and no payment over pursuant to the provisions of this
Section 5, to or for the benefit of the holders of Senior Indebtedness by the
Holder, shall, as between the Maker, its creditors other than holders of Senior
Indebtedness, and the Holder, be deemed to be a payment by the Maker 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 5, which would otherwise have been paid
to the holders of Senior Indebtedness shall be deemed to be a payment by the
Maker to or for the account of this Note. It is understood that the provisions
of this Section 5 are and 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.

5.4           No Impairment of Obligations.  Nothing contained in this Section 5 or
elsewhere in this Note is intended to or shall impair, as among the Maker, its
creditors other than the holders of Senior Indebtedness, and the Holder, the
obligation of the Maker, which is absolute and unconditional, to pay to the
Holder the principal of (and premium, if any) and interest on this Note as and
when the same shall become due and payable in accordance with their terms, or
is intended to or shall affect the relative rights of the Holder and creditors
of the Maker other than the holders of the Senior Indebtedness, nor shall
anything herein or therein 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 5 of the holders of Senior

 

28

 

Indebtedness in respect
of cash, property or securities of the Maker received upon the exercise of any
such remedy.

 

5.5           Reliance on Order of Court.  Upon any payment or distribution of assets
of the Maker referred to in this Section 5, the Holder shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, or a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, 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 distribution, the holders of the Senior
Indebtedness and other indebtedness of the Maker, the amount thereof or payable
thereon and all other facts pertinent thereto or to this Section 5.

5.6           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 Maker or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Maker 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.

5.7           Payments and Deliveries Upon Conversion.  For the purposes of this Section 5 only, (a)
the issuance and delivery of junior securities upon conversion of this Note in
accordance with Section 4 shall not be deemed to constitute a payment or
distribution on account of the principal of (or premium, if any) or interest on
this Note, and (b) the payment, issuance or delivery of cash (except in
satisfaction of fractional shares pursuant to Section 4.2(g)), property or
securities (other than junior securities) upon conversion of this Note shall be
deemed to constitute payment on account of the principal of this Note. For the
purposes of this Section 5.7, the term “junior securities” means (i) shares of
any stock of any class of the Maker, or (ii) securities of the Maker which are
subordinated in right of payment to all Senior Indebtedness which 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, the Securities
are so subordinated as provided in this Section 5. Nothing contained in this
Section 5 or elsewhere in this Note is intended to or shall impair, as among
the Maker, its creditors other than holders of Senior Indebtedness and the
Holder, the right, which is absolute and unconditional, of the Holder to
convert this Note in accordance with Section 4.

5.8           Senior Indebtedness Entitled to Rely.  The holders of Senior Indebtedness
(including Designated Senior Indebtedness) shall have the right to rely upon
this Section 5, 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.

5.9           Holder’s Agreement to Effectuate Subordination of Note.  The Holder by its acceptance
of this Note agrees to take such actions as may be necessary or appropriate to
effectuate, as between the holders of Senior Indebtedness and the Holder, the
subordination provided in this Section 5.

 

29

 

6.             Consolidation,
Merger, Conveyance, Transfer or Lease.

6.1           Maker May
Consolidate, Etc., Only On Certain Terms. 
The Maker shall not consolidate with or merge into any other Person (in
a transaction in which the Maker is not the surviving corporation) or convey,
transfer or lease its properties and assets substantially as an entirety to any
Person, unless:

(a)   in case the Maker shall consolidate with or
merge into another Person (in a transaction in which the Maker is not the
surviving corporation) or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Maker is merged or the Person which acquires by
conveyance or transfer, or which leases, the properties and assets of the Maker
substantially as an entirety shall be a corporation organized and validly
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall expressly assume, by an instrument
supplemental hereto, executed and delivered to the Holder, in form reasonably
satisfactory to the Holder, the due and punctual payment of the principal of
and any premium and interest on this Note and the performance or observance of
every covenant of this Note on the part of the Maker to be performed or
observed and the conversion rights shall be provided for in accordance with
Section 4, by supplemental instrument satisfactory in form to the Holder,
executed and delivered to the Holder by the Person (if other than the Maker)
formed by such consolidation or into which the Maker shall have been merged or
by the Person which shall have acquired the Maker’s assets;

(b)   immediately after giving effect to such transaction, 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; and

(c)   the Maker has delivered to the Holder an
Officers’ Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplement
instrument is required in connection with such transaction, such supplemental
instrument comply with this Section 6 and that all conditions precedent herein
provided for relating to such transaction have been complied with.

6.2           Successor Substituted.  Upon any consolidation of the Maker with, or merger of the Maker
into, any Person or any conveyance, transfer or lease of the properties and
assets of the Maker substantially as an entirety in accordance with Section
6.1, the successor Person formed by such consolidation or into which the Maker
is merged or to which such conveyance, transfer or lease is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Maker under this Note with the same effect as if such successor Person had been
named as the Maker herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under
this Note.

7.             Default and Remedies.

7.1           Events of Default. 
Subject to Section 7.2, an “Event of Default” shall occur if:

 

30

 

(a)   the Maker (i) defaults in the payment of any
principal of (including any premium, if any, on) (A) this Note when the same
becomes due and payable (whether at maturity, on a Prepayment Election Date, on
a Prepayment Event Date, or otherwise), whether or not such payment shall be
prohibited by the provisions of Section 5, or (B) any Promissory Note (as such
term is defined in the Purchase Agreement) held by the Holder or any of its
Affiliates; or (ii) fails to redeem, and to pay to any holder of Preferred
Stock the Redemption Price (as such term is defined in the applicable
Certificate of Designation) for, each share of Preferred Stock that the Maker
is required to redeem from such holder on the date specified for such
redemption under the terms of the applicable Certificate of Designation;

(b)   the Maker fails to comply with any of its
obligations under (i) this Note, (ii) any Promissory Note held by the Holder or
any of its Affiliates or (iii) Section 5.6(a) or Section 5.8 of the Purchase
Agreement, in each case other than any obligation specified in Section 7.1(a);

(c)   the Maker fails to provide notice of a
Prepayment Event to the Holder when required by Section 3.2(b) for a period of
thirty (30) days after notice of failure to do so;

(d)   any indebtedness under any bond, debenture,
note or other evidence of indebtedness for money borrowed by the Maker or any
Significant Subsidiary (all or substantially all of the outstanding voting
securities of which are owned, directly or indirectly, by the Maker) or under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness for money borrowed by
the Maker or any Significant Subsidiary (all or substantially all of the
outstanding voting securities of which are owned, directly or indirectly, by the
Maker) (excluding, however, this Note and any Subordinated Promissory Note) (an
“Instrument”) with an aggregate outstanding principal amount then outstanding
in excess of Twenty-Five Million United States Dollars (U.S. $25,000,000),
whether such indebtedness now exists or shall hereafter be created, is not paid
at final maturity of the Instrument (either at its stated maturity or upon
acceleration thereof), and such indebtedness is not discharged, or such
acceleration is not rescinded or annulled, within a period of thirty (30) days
after there shall have been given to the Maker by the Holder a written notice
specifying such default and requiring the Maker to cause such indebtedness to
be discharged or cause such default to be cured or waived or such acceleration
to be rescinded or annulled and stating that such notice is a “Notice of
Default” hereunder;

(e)   the Maker shall default in respect of any of
its obligations under the Preferred Stock other than any obligation specified
in Section 7.1(a) and the default continues for the period and after the notice
specified in Section 7.2;

(f)    this Note, the Purchase Agreement, or any
other agreement or instrument contemplated by the Purchase Agreement shall be
asserted by the Maker not to be a legal, valid and binding obligation of the
Maker, enforceable against the Maker in accordance with its terms;

(g)   the Maker or any Significant Subsidiary,
pursuant to or within the meaning of any Bankruptcy Law:

(i)            commences a voluntary case or
proceeding;

 

31

 

(ii)           consents to the entry of an order for
relief against it in an involuntary case or proceeding;

(iii)          consents to the appointment of a
Custodian of it or for all or substantially all of its property; or

(iv)          makes a general assignment for the
benefit of its creditors; or

(h)   a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:

(i)            is for relief against the Maker or
any Significant Subsidiary in an involuntary case or proceeding;

(ii)           appoints a Custodian of the Maker or
any Significant Subsidiary or for all or substantially all of the property of
the Maker or any Significant Subsidiary; or

(iii)          orders the liquidation of the Maker or
any Significant Subsidiary;

and in each case the order
or decree remains unstayed and in effect for sixty (60) consecutive days.

 

The term “Bankruptcy Law” means Title 11 of the United
States Code (or any successor thereto) or any similar federal or state law for
the relief of debtors. The term “Custodian” means any receiver, holder,
assignee, liquidator, sequestrator or similar official under any Bankruptcy
Law.

7.2           Notice and Cure.

(a)   A default under Section 7.1(b) or (e) above is not an Event of
Default until the Holder notifies the Maker in writing of the default and the
Maker does not cure the default within sixty (60) days after receipt of such
notice.  The notice given pursuant to
this Section 7.2 must specify the default, demand that it be remedied and state
that the notice is a “Notice Of Default.”

(b)   When any Event of Default under Section 7.1
is cured, it ceases.

(c)   The Maker shall immediately notify Holder
upon becoming aware of the existence of any condition or event which
constitutes a default or an Event of Default hereunder by written notice which
specifies the nature and period of existence of such default or Event of
Default and what action the Maker is taking or proposes to take with respect
thereto.  The Holder shall not be
charged with knowledge of any Event of Default unless written notice thereof
shall have been given to the Holder or any agent of the Holder.

7.3           Acceleration. 
If an Event of Default (other than an Event of Default specified in
Section 7.1(g) or (h)) occurs and is continuing, the Holder may, by notice to
the Maker, declare all unpaid principal to the date of acceleration on this
Note then outstanding (if

 

32

 

not then due and
payable), together with unpaid interest, if any, to the date of acceleration,
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 7.1(g) or (h) occurs, all unpaid
principal of this Note then outstanding, together with unpaid interest, shall
ipso facto become and be immediately due and payable without any declaration or
other act on the part of the Holder. 
The Holder may at any time, by notice to the Maker, rescind an
acceleration and its consequences.  No
such rescission shall affect any subsequent default or impair any right
consequent thereto.

 

7.4           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 of or interest on this Note or to enforce the performance of any
provision of the Purchase Agreement or this Note.

(b)   Remedies Not Exclusive.  The Holder may maintain a proceeding even if
it does not possess this Note or does not produce it in the proceeding.  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.

7.5           Collection Suit By Holder.  If an Event of Default in the payment of
principal specified in Section 7.1(a) occurs and is continuing or if any interest
due and payable hereunder is not paid when due and thereafter remains unpaid,
the Holder may recover judgment against the Maker for the whole amount of
principal and accrued interest remaining unpaid, together with, to the extent
that payment of such interest is lawful, interest on overdue principal and on
overdue installments of interest, in each case at the Default Rate and such
further amount as shall be sufficient to cover the costs and expenses of
collection, including reasonable attorneys’ fees and disbursements.

8.             Voting Rights. 
The Holder of this Note shall have no voting rights with respect to
Maker.

9.             Aggregate Ownership
Limitation.  If upon
any proposed conversion of this Note pursuant to Section 4.1, the Holder
would be entitled to receive Common Stock that, taken together with all other
shares of Common Stock Beneficially Owned by such holder and its Affiliates,
would result in the Holder and its Affiliates acquiring Beneficial Ownership of
more than 19.9% of the Common Stock then outstanding immediately following such
conversion (the “Ownership Threshold”), then:

(a)   the Holder shall instead receive upon
conversion a number of shares of Common Stock up to the Ownership Threshold;
and

(b)   to the extent the Holder would have otherwise
received shares of Common Stock in excess of the Ownership Threshold, the
Holder shall instead receive from the Maker (i) in the case of any such
proposed conversion other than a proposed conversion resulting from an election
by the Maker pursuant to clause (B) of Section 3.2(a)(i) or clause (B) of
3.2(a)(ii), a

 

33

 

two-year, interest free
Subordinated Promissory Note in the form attached to this Note as Exhibit A
(a “Subordinated Promissory Note”) (and, in the event that multiple
Subordinated Promissory Notes shall be made pursuant hereto, mutatis mutandis as necessary to provide
for any prepayment due in respect of a Type II Prepayment Event among the
successive Subordinated Promissory Notes sequentially in the order in which
such Subordinated Promissory Notes were made), in the amount equal to the
product of (x) such number of shares of Common Stock in excess of the Ownership
Threshold times (y) the Current Average Market Price on the relevant
Conversion Date, and (ii) in the case of any such proposed conversion resulting
from an election by the Maker pursuant to clause (B) of Section 3.2(a)(i) or
clause (B) of 3.2(a)(ii), a payment in immediately available funds in the
amount equal to the product of (x) such number of shares of Common Stock in
excess of the Ownership Threshold times (y) the Current Average Market
Price on the relevant Conversion Date.

 

10.           Waiver.  No
delay or omission on the part of the Holder in exercising any right under this
Note shall operate as a waiver of such right or of any other right of the
Holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion.  The Maker hereby forever waives presentment,
demand, presentment for payment, protest, notice of protest, notice of dishonor
of this Note and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note.

11.           Miscellaneous.

11.1         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 Maker expressly referring to this Note and
setting forth the provision so excluded, modified or amended.

11.2         Costs.     If
action is successfully instituted to collect on this Note, the Maker promises
to pay all costs and expenses, including reasonable attorneys’ fees, incurred
in connection with such action.

11.3         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.

11.4         Governing Law.  This Note shall be governed by, and
construed in accordance with, the laws of the State of New York.

11.5         Service of
Process; Consent to Jurisdiction; Venue.

(a)   The Maker agrees that service of any process,
summons, notice or document by registered mail to its address set forth in
Section 11.4 of the Purchase Agreement, or any other lawful means, shall
be effective service of process for any action, suit or proceeding brought
against it with respect to this Note in any court identified in clause (b)
below.

(b)   The Maker hereby irrevocably and
unconditionally consents to the exclusive jurisdiction of the courts of the
State of New York and the United States District Court for the

 

34

 

Southern District of New
York for any action, suit or proceeding (other than appeals therefrom) arising
out of or relating to this Agreement, and agrees not to commence any action,
suit or proceeding (other than appeals therefrom) related thereto except in
such courts.  The Maker further hereby irrevocably
and unconditionally waives any objection to the laying of venue of any action,
suit or proceeding (other than appeals therefrom) arising out of or relating to
this Note in the courts of the State of New York or the United States District
Court for the Southern District of New York, and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.

 

11.6         Notices.  All
notices hereunder shall be given by a party in writing and shall be deemed
received by the other party hereto, in each case in accordance with the terms
of Section 11.4 of the Purchase Agreement as if any such notice were a notice
thereunder.

11.7 Transferability.  This Note may not be transferred or assigned
by the Holder except as permitted by Section 7 of the Purchase Agreement.  For the avoidance of doubt, the parties
acknowledge and agree that, in the event that the Holder merges into or
consolidates with any other Person, or that any other Person acquires
securities of the Holder, such merger, consolidation or acquisition (as the
case may be) shall not be deemed for purposes of this Section 11.7 to be, or to
trigger, a transfer or assignment of the Holder’s rights and obligations
hereunder.

11.8         Maximum Rate. 
Any provisions contained in this Note to the contrary notwithstanding,
Holder shall not be entitled to receive, collect or apply, as interest on the
obligations evidenced hereunder, any amount in excess of the maximum rate of
interest permitted to be charged by applicable law, and, in the event any
amount is ever received, collected, or applied as interest in excess of this
maximum allowable rate by Holder, any such amount which would be excessive
interest shall be applied to the reduction of the principal amount owed by the
Maker.  If such principal amount is paid
in full, any such excess shall be promptly paid over to the Maker.  In determining whether or not the interest
paid or payable under any specific circumstances exceeds the maximum rate
allowed by law, Holder may, to the maximum extent allowed by law, characterize
any nonprincipal payment as an expense, fee or premium rather than interest;
exclude voluntary prepayments and the effects of them; and apportion the total
amount of interest throughout the entire contemplated term of the this Note so
that the interest rate is uniform throughout.

11.9         Binding Effect. 
This Note shall be binding upon the successors or assigns of the Maker
and shall inure to the benefit of the successors and assigns of the Holder.

[The
remainder of this page was left blank intentionally.]

 

 

 

35

 

 

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

	
   

  	
   

  	
  ABGENIX, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
							

 

 

 

36

Exhibit A

FORM OF SUBORDINATED PROMISSORY NOTE ISSUABLE TO HOLDER ON

ACCOUNT OF THE OWNERSHIP
THRESHOLD

 

 

 

 

 

 

 

EXHIBIT A

 

 

THE SECURITIES REPRESENTED BY THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH
LAWS AND, IF REQUESTED BY THE MAKER, UPON DELIVERY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE MAKER THAT THE PROPOSED TRANSFER IS EXEMPT FROM THE ACT OR
SUCH LAWS.  THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN TRANSFER
RESTRICTIONS CONTAINED IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS
OF OCTOBER 15, 2003, BETWEEN THE MAKER AND THE HOLDER.

SUBORDINATED PROMISSORY NOTE

 

	
  U.S. $[________]

  	
   

  	
  ___________, 20__

  
	
   

  	
   

  	
  New York, New York

  

 

FOR VALUE RECEIVED, Abgenix, Inc., a Delaware
corporation (the “Maker”), hereby unconditionally promises to pay to the order
of [__________________] (the “Holder”), or its permitted assigns, the original
aggregate principal sum of [_________] United States Dollars (U.S. $[________])
on the Maturity Date, subject to prior prepayment in accordance with the
provisions hereof.

Upon the occurrence and during the continuation
uncured of any Event of Default described in Section 6.1(a), such principal
amount of this Note as from time to time remains unpaid shall bear interest at
the Default Rate.  Such interest shall
be payable in arrears on the last day of each March, June, September and
December and at the time of the final payment of the principal amount
hereof.  Interest shall be calculated on
the basis of a three hundred sixty-five (365)-day year for the number of days
elapsed.

For purposes of determining the person entitled to
payment of the principal of and interest on this Note, the Maker is entitled to
pay the person in whose name this Note is registered at the close of business
on the fifteenth day (whether or not a Business Day) next preceding the date
for such payment.  All payments of
principal and interest on this Note shall be payable at the principal executive
office of such registered holder or at such other place as such registered
holder may from time to time in writing appoint at least fifteen (15) days
before the date such payment is due. 
All payments required to be made by the Maker under this Note shall be
made in cash in immediately available funds.

 

 

 

Subject to the Holder’s compliance with Section 7 of
the Purchase Agreement and with applicable law, this Note is transferable on
the note register of the Maker upon surrender of this Note for transfer at the
principal executive offices of the Maker duly endorsed by or accompanied by a
written instrument of transfer in form satisfactory to the Maker and duly
executed by the registered 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 Maker 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.

1.             Definitions.

1.1           General.  Terms used herein and not otherwise defined
are used herein with the same meanings given to them in the Purchase Agreement.  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.

1.2           Defined Terms.  Unless the context otherwise requires, when
used herein the following terms shall have the meaning indicated:

“Affiliate” means with respect to any Person,
any other Person directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person.  For purposes of this definition, the term
“control” (and correlative terms “controlling,” “controlled by” and “under
common control with”) means possession of the power, whether by contract,
equity ownership or otherwise, to direct the policies or management of a
Person.

“Bankruptcy Law” has the meaning set forth in
Section 6.1.

“Capital Stock” of any Person means any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such
Person, but excluding any debt securities convertible into such equity.

“Certificate(s) of Designation” means the
Series A-1 Certificate of Designation, the Series A-2 Certificate of
Designation, and the Series A-3/A-4 Certificate of Designation.

“Collaboration Agreement” means the
Collaboration Agreement, dated as of October 15, 2003, between the Maker and
AstraZeneca UK Limited.

2

 

“Common Stock” means the common stock, par
value $0.0001 per share, of Maker.

“Convertible Note” has the meaning set forth in
the Purchase Agreement.

“Custodian” has the meaning set forth in
Section 6.1.

“Default Rate” means (i) during the period
commencing on the date hereof and ending on the fifth anniversary of such date,
an interest rate equal to the 10-Year United States Treasury Bond yield rate as
reported in The Wall Street Journal Western edition on the date hereof,
plus an additional three percent (3%) compounded annually, and (ii) during the
period commencing on the date following the fifth anniversary of the date
hereof and continuing until the last date on which the entire principal amount
of this Note has been converted or repaid and any interest owing hereon has
been paid, an interest rate equal to the 10-Year United States Treasury Bond
yield rate as reported in The Wall Street Journal Western edition on the
first day of such period, plus an additional three percent (3%) compounded
annually; provided, however, that if The Wall Street Journal ceases to
be published, then the 10-Year United States Treasury Bond yield rate to be
used shall be that reported in such other business publication of national
circulation in the United States as the Maker and the Holder reasonably agree.

“Designated Prepayment Event Amount” means the
Designated Type I Prepayment Event Amount or the Designated Type II Prepayment
Event Amount, as the case may be.

“Designated Senior Indebtedness” means any
particular Senior Indebtedness of the Maker in which the instrument creating or
evidencing the same or the assumption or guarantee thereof (or any related
agreements or documents to which the Maker is a party) expressly provides that
such Senior Indebtedness shall be “Designated Senior Indebtedness” for purposes
of this Note (provided that such instrument, agreement or other document
creating or evidencing the Indebtedness may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of Designated
Senior Indebtedness).  If any payment
made to any holder of any Designated Senior Indebtedness or its Representative
with respect to such Designated Senior Indebtedness is rescinded or must
otherwise be returned by such holder or Representative upon the insolvency,
bankruptcy or reorganization of the Maker or otherwise, the reinstated
Indebtedness of the Maker arising as a result of such rescission or return
shall constitute Designated Senior Indebtedness effective as of the date of
such rescission or return.

“Designated Type I Prepayment Event Amount” has
the meaning set forth in Section 3.2(a)(i).

“Designated Type II Prepayment Event Amount”
has the meaning set forth in Section 3.2(a)(ii).

“Discovery Period” means the period
commencing on the effective date of the Collaboration Agreement and ending on
the later to occur of (a) the date of expiration or termination of the Antigen
Designation Term (as such term is defined in the Collaboration Agreement) and
(b) the date of expiration or termination of the Research Program Term (as such
term is defined in the Collaboration Agreement) with respect to the Research
Program (as such

 

3

 

term is defined in the
Collaboration Agreement) that is the last such program to terminate or expire
pursuant to the Collaboration Agreement.

“Event of Default” has the meaning set forth in
Section 6.1.

“Exchange Act” means the United States
Securities Exchange Act of 1934, as amended.

“GAAP” means generally accepted accounting
principles in the United States of America as in effect as of the date of this
Note, including those set forth in (i) the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (ii) the statements and pronouncements of the Financial Accounting
Standards Board, (iii) such other statements by such other entity as approved
by a significant segment of the accounting profession and (iv) the rules and
regulations of the SEC governing the inclusion of financial statements
(including pro forma financial statements) in registration statements filed
under the Securities Act and periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting staff
of the SEC.

“Holder” has the meaning set forth in the first
paragraph hereof.

“Indebtedness” means, with respect to any
Person, without duplication, (i) all indebtedness, obligations and other
liabilities (contingent or otherwise) of such Person (A) for borrowed money
(including obligations of such Person in respect of overdrafts, foreign
exchange 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 (B) evidenced by credit or loan agreements,
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 accounts 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) of such Person (A) in
respect of (1) leases of such Person required, in conformity with GAAP, to be
accounted for as capitalized lease obligations on the balance sheet of such
Person (as determined by the Maker), and (2) ground leases the Maker may enter
into in the future with respect to the Maker’s facilities in Fremont,
California, or (B) under any lease or related document (including a purchase
agreement, conditional sale or other title retention agreement) in connection
with the lease of real property or improvement thereon (or any personal
property included as part of any such lease) which provides that such Person is
contractually obligated to purchase or cause a third party to purchase the
leased property or pay an agreed upon residual value of the leased property to
the lessor (whether or not such lease transaction is characterized as an
operating lease or a capitalized lease in accordance with GAAP), (iv) all
obligations (contingent or otherwise) of such Person with respect to any
interest rate or other swap, cap, floor or collar agreement, hedge agreement,
forward contract, or other similar instrument or agreement or foreign currency
hedge, exchange, purchase or similar instrument or agreement; (v) all direct or
indirect guarantees, agreements to be jointly liable or similar agreements by
such Person in respect of, and obligations or liabilities of such Person to

 

4

 

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

“Instrument” has the meaning set forth in
Section 6.1.

“Maker” has the meaning set forth in the first
paragraph hereof.

“Maturity Date” means the second (2nd)
anniversary of the date of issuance of this Note.

“Maximum Prepayment Event Amount” means the
Maximum Type I Prepayment Event Amount or the Maximum Type II Prepayment Event
Amount, as the case may be.

“Maximum Type I Prepayment Event Amount” means
the total principal amount of this Note outstanding as of a Type I Prepayment
Event Date.

“Maximum Type II Prepayment Event Amount” means
the amount that equals the lesser of the Type II Allocated Prepayment Amount
and the Type II Remaining Prepayment Amount.

“Note” has the meaning set forth in Section 2.

“Officer” means the chairman or any co-chairman
of the board, any vice chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the controller, the
secretary or any assistant controller or assistant secretary of the Maker.

“Officers’ Certificate” means a certificate
signed by two Officers.

“Opinion of Counsel” means a written opinion
from legal counsel, which counsel may be an employee of or counsel to the
Maker.

“Payment Blockage Notice” has the meaning set
forth in Section 4.2.

“Person” means an individual, corporation,
partnership, other entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act).

“Prepayment Event” means a Type I Prepayment
Event or a Type II Prepayment event, as the case may be.

“Prepayment Event Date” means the Type I
Prepayment Event Date or the Type II Prepayment Event Date, as the case may be.

“Prepayment Event Notice” has the meaning set
forth in Section 3.2.

“Purchase Agreement” means the Securities
Purchase Agreement, dated as of October 15, 2003, between the Maker and
AstraZeneca UK Limited.

 

5

 

“Representative” means the (i) trustee under
any indenture to which Maker is a party or other holder, agent or
representative for any Senior Indebtedness or (ii) with respect to any Senior
Indebtedness that does not have any such trustee, holder, agent or other
representative, (a) in the case of such Senior Indebtedness issued pursuant to
an agreement providing for voting arrangements as amount the holders or owner
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.

“SEC” means the United States Securities and
Exchange Commission.

“Securities Act” means the United States
Securities Act of 1933, as amended.

“Senior Indebtedness” means 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 allowed as a claim in any such proceeding) and
rent, if any, payable on or in connection with, and all fees, costs, expenses
and other amounts accrued or due on or in connection with, the Maker’s 3.5%
Convertible Subordinated Notes due March 15, 2007, or any other Indebtedness of
the Maker, whether outstanding on the date of this Note or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Maker (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to this Note or expressly provides that such
Indebtedness is “pari passu” or “junior” to this Note.  Notwithstanding the foregoing, the term
Senior Indebtedness shall not include (i) any Indebtedness of the Maker to any
Subsidiary of the Maker (other than Indebtedness of the Maker to such
Subsidiary arising by reason of guarantees by the Maker of Indebtedness of such
Subsidiary to a Person that is not a Subsidiary of the Maker); (ii) this Note;
or (iii) Indebtedness of or amounts owed by the Maker for compensation to
employees, or for goods or materials purchased in the ordinary course of
business, or for services.  If any
payment made to any holder of any Senior Indebtedness or its Representative
with respect to such Senior Indebtedness is rescinded or must otherwise be
returned by such holder or Representative upon the insolvency, bankruptcy or
reorganization of the Maker or otherwise, the reinstated Indebtedness of the
Maker arising as a result of such rescission or return shall constitute Senior
Indebtedness effective as of the date of such rescission or return.

“Series A-1 Certificate of Designation” has the
meaning set forth in Purchase Agreement.

“Series A-2 Certificate of Designation” has the
meaning set forth in Purchase Agreement.

“Series A-3/A-4 Certificate of Designation” has
the meaning set forth in the Purchase Agreement.

 

6

 

“Significant Subsidiary” means, in respect of
any Person, a Subsidiary of such Person that would constitute a “significant
subsidiary” as such term is defined under Rule 1-02 of Regulation S-X under the
Securities Act and the Exchange Act.

“Subsidiary” means, in respect of any Person,
any corporation, association, partnership, or other business entity of which
more than fifty percent (50%) of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of directors,
managers, general partners or holders thereof is at the time owned or
controlled, directly or indirectly, by (i) such Person; (ii) such Person and
one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of
such Person.

“Type I Prepayment Event” means a Change in
Control (as such term is defined in the Collaboration Agreement) that occurs at
any time after the last day of the Discovery Period.

“Type I Prepayment Event Date” has the meaning
set forth in Section 3.2(a)(i).

“Type II Allocated Prepayment Amount” means
either (i) in the event that, as of the Type II Redemption Event Date, there is
no principal amount outstanding under any Subordinated Promissory Note issued
pursuant to Section 9(b) of the Series A-1 Certificate of Designation, the
amount that equals the greater of (x) the amount, if positive, that is derived
when the Series A-2 Remaining Redemption Amount (as such term is defined in the
Series A-2 Certificate of Designation) is subtracted from the Series A-2
Allocated Redemption Amount (as such term is defined in the Series A-2
Certificate of Designation), which amount shall be zero (0) in the event that
such amount is zero (0) or negative, or (y) the amount, if positive, that is
derived when the Type II Remaining Prepayment Amount (as such term is defined
in the Convertible Note) is subtracted from the Type II Allocated Prepayment
Amount (as such term is defined in the Convertible Note), which amount shall be
zero (0) in the event that such amount is zero (0) or negative; provided, that,
in the event that the amount in each of clause (x) and (y) is zero (0), the
“Type II Allocated Prepayment Amount” under clause (i) means zero (0); or (ii)
in the event that, as of the Type II Redemption Event Date, there is any
principal amount outstanding under any Subordinated Promissory Note issued
pursuant to Section 9(b) of the Series A-1 Certificate of Designation, the
amount, if positive, that is derived when the Type II Remaining Prepayment
Amount (as such term is defined in such other Subordinated Promissory Note) is
subtracted from the Type II Allocated Prepayment Amount (as such term is
defined in such other Subordinated Promissory Note), which amount shall be zero
(0) in the event that such amount is zero (0) or negative.

“Type II Prepayment Event” means the
termination by AstraZeneca UK Limited (or any of its Affiliates) of all
outstanding Research Programs and, in the event that the Antigen Designation
Term has not expired, the Antigen Designation Term, pursuant to Section 16.2 or
Section 16.3.1 of the Collaboration Agreement, which termination occurs at any
time prior to or on the last day of the Discovery Period.

“Type II Prepayment Event Date” has the meaning
set forth in Section 3.2(a)(ii).

 

7

 

 “Type II
Remaining Prepayment Amount” means the principal amount of this Note
outstanding as of the Type II Redemption Event Date.

2.             Securities Purchase Agreement.  This Subordinated Promissory Note (this
“Note”) is one of the Promissory Notes of the Maker referred to in the Purchase
Agreement.

3.             Payments.

3.1           Maker’s Right to Prepay.  The principal amount of this Note may be
prepaid (without premium or penalty) at any time and from time to time at the
election of the Maker, as a whole or in part.

3.2   Prepayment upon
Prepayment Event.

(a)   Prepayments
at Option of Holder.

(i)            If at any time that any portion of
the principal amount this Note remains unpaid there shall occur a Type I
Prepayment Event, then on the date that is thirty (30) Business Days after the
date of such Prepayment Event (or, if such day is not a Business Day, then the
next Business Day thereafter) (the “Type I Prepayment Event Date”), the Maker
shall prepay in full so much of the Maximum Type I Prepayment Event Amount as the
Holder may specify in a Prepayment Event Notice (the “Designated Type I
Prepayment Event Amount”).

(ii)           If at any time that any portion of
the principal amount this Note remains unpaid there shall occur a Type II
Prepayment Event, then on the date that is thirty (30) Business Days after the
date of such Prepayment Event (or, if such day is not a Business Day, then the
next Business Day thereafter) (the “Type II Prepayment Event Date”), the Maker
shall prepay in full so much of the principal amount of this Note then
remaining unpaid, not to exceed an amount equal to the Maximum Type II
Prepayment Event Amount, as the Holder may specify in a Prepayment Event Notice
(the “Designated Type II Prepayment Event Amount”).

(b)   Notice to Holder.  Within ten (10) Business Days after the
occurrence of a Prepayment Event, the Maker shall provide Holder with notice of
the Prepayment Event. The notice shall state:

(i)            the date of such Prepayment Event,
whether the Prepayment Event is a Type I Prepayment Event or a Type II Prepayment
Event, and, briefly, the events causing such Prepayment Event;

(ii)           the date by which the Prepayment
Event Notice pursuant to Section 3.2(c) must be given;

(iii)          the Prepayment Event Date;

(iv)          the Maximum Prepayment Event Amount;

 

8

 

(v)           the Holder’s right to require the
Maker to prepay an amount up to the Maximum Prepayment Event Amount;

(vi)          the procedures that the Holder must
follow to exercise rights under this Section 3.2; and

(vii)         the procedures for withdrawing a
Prepayment Event Notice.

(c)   Exercise by Holder of Right to Receive
Prepayment.  The Holder may exercise
its rights specified in this Section 3.2 by delivery of a written notice (a
“Prepayment Event Notice”) to the Maker at any time prior to the close of
business on the Business Day next preceding the Prepayment Event Date
specifying the Designated Prepayment Event Amount.  The Holder may specify a Designated Prepayment Event Amount that
is less than the Maximum Prepayment Event Amount.  Provisions of this Note that apply to the prepayment of the
Maximum Prepayment Event Amount also apply to the prepayment of a Designated
Prepayment Event Amount that is less than the Maximum Prepayment Event Amount.  Notwithstanding anything herein to the
contrary, the Holder shall have the right to withdraw any Prepayment Event
Notice in whole or in a portion thereof, at any time prior to the close of
business on the Business Day next preceding the Prepayment Event Date by
written notice of withdrawal given to the Maker.

(d)   Effect of Prepayment Event Notice.  Upon receipt by the Maker of the Prepayment
Event Notice specified in Section 3.2(c), the Holder shall (unless such
Prepayment Event Notice is withdrawn as specified in Section 3.2(c)) thereafter
be entitled to receive on the Prepayment Event Date the Designated Type I
Prepayment Event Amount or the Designated Type II Prepayment Event Amount with
respect to this Note, as the case may be.

4.             Subordination.

4.1           Agreement of Subordination.

(a)   Note Subject to Section 4.  The Maker covenants and agrees, and the
Holder by its acceptance of this Note likewise covenants and agrees, that this
Note shall be issued subject to the provisions of this Article 4; and each
transferee of this Note accepts and agrees to be bound by such provisions.

(b)   Subordination.  The payment of the principal of, premium, if
any, and interest on this Note (including any amount prepayable pursuant to
Section 3) 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 in
cash or payment satisfactory to the holders of Senior Indebtedness of all
Senior Indebtedness, whether outstanding at the date of this Note or thereafter
incurred.

(c)   No Effect on Default.  No provision of this Article 4 shall prevent
the occurrence of any default or Event of Default hereunder.

 

9

 

4.2           Payments to Holder.

(a)   Payment Blockage.  No payment shall be made with respect to the
principal of, or premium, if any, or interest on this Note (including any
amount prepayable pursuant to Section 3), if:

(i)            a default in the payment of
principal, premium, interest, rent or other obligations due on any Designated
Senior Indebtedness occurs and is continuing (or, in the case of Designated
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 Designated Senior Indebtedness), unless and
until such default shall have been cured or waived or shall have ceased to
exist; or

(ii)           a default, other than a payment
default, on Designated Senior Indebtedness occurs and is continuing that then
permits holders of such Designated Senior Indebtedness to accelerate its
maturity and the Holder receives a notice of the default (a “Payment Blockage
Notice”) from a Representative or holder of Designated Senior Indebtedness or
the Maker.

(b)   Limit on Payment Blockage.  If the Holder receives any Payment Blockage
Notice pursuant to clause (a)(ii) above, no subsequent Payment Blockage Notice
shall be effective for purposes of this Section unless and until (i) at least
three hundred sixty-five (365) days shall have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice; and (ii) all
scheduled payments on this Note that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Holder (unless such default was
waived, cured or otherwise ceased to exist and thereafter subsequently
reoccurred) shall be, or be made, the basis for a subsequent Payment Blockage
Notice.

(c)   Resumption of Payments.  The Maker may and shall resume payments on
and distributions in respect of this Note upon the earlier of:

(i)            in the case of a default referred to
in clause (a)(i) of Section 4.2 above, the date upon which the default is cured
or waived or ceases to exist, or

(ii)           in the case of a default referred to
in clause (a)(ii) of Section 4.2 above, the earlier of the date on which such
default is cured or waived or ceases to exist or one hundred seventy-nine (179)
days pass after the date on which the applicable Payment Blockage Notice is
received, if the maturity of such Designated Senior Indebtedness has not been
accelerated, unless this Section 4 otherwise prohibits the payment or
distribution at the time of such payment or distribution.

(d)   Payments Upon Dissolution.  Upon any payment by the Maker, or
distribution of assets of the Maker 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 Maker (whether voluntary or involuntary)
or in bankruptcy, insolvency, receivership or similar

10

 

proceedings,
all amounts due or to become due upon all Senior Indebtedness shall first be
paid in full in cash, or other payments satisfactory to the holders of Senior
Indebtedness before any payment is made on account of the principal of,
premium, if any, or interest on this Note; and upon any such dissolution or
winding-up or liquidation or reorganization of the Maker or bankruptcy, insolvency,
receivership or other proceeding, any payment by the Maker, or distribution of
assets of the Maker of any kind or character, whether in cash, property or
securities, to which the Holder would be entitled, except for the provisions of
this Section 4, shall (except as aforesaid) be paid by the Maker 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, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
Senior Indebtedness in full in cash, or other payment satisfactory to the
holders of Senior Indebtedness, 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 in respect of this Note.

(e)   Certain Distributions Excluded.  For purposes of this Section 4, the words,
“cash, property or securities” shall not be deemed to include shares of stock
of the Maker as reorganized or readjusted, or securities of the Maker 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 4 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, 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 Maker 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 Maker with, or the
merger of the Maker into, another corporation or the liquidation or dissolution
of the Maker following the conveyance, transfer or lease of its property as an
entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Section 5 shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 4.2 if such other corporation shall, as a part of such consolidation,
merger, conveyance, transfer or lease, comply with the conditions stated in
Section 5.

(f)    Acceleration.  In the event of the acceleration of this
Note because of an Event of Default, no payment or distribution shall be made
to the Holder in respect of the principal of, premium, if any, or interest on
this Note by the Maker (including any amount prepayable pursuant to Section 3)
until all Senior Indebtedness has been paid in full in cash or other payment
satisfactory to the holders of Senior Indebtedness 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 Maker shall promptly notify
holders of Senior Indebtedness of such acceleration.  In the event that, notwithstanding the foregoing provisions, any
payment or distribution of assets of the Maker of any kind or character,
whether in cash, property or securities (including by way of setoff or
otherwise), prohibited by the foregoing, shall be received by the Holder before
all Senior Indebtedness is paid in full, in cash or other payment satisfactory
to the holders of Senior

 

11

 

Indebtedness,
or provision is made for such payment thereof in accordance with its terms in
cash or other payment satisfactory to the holders of Senior Indebtedness, 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, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, as calculated
by the Maker, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in
full, in cash or other payment satisfactory to the holders of Senior
Indebtedness, after giving effect to any concurrent payment or distribution to
or for the holders of such Senior Indebtedness.

4.3           Subrogation.  Subject to the payment in full, in cash or
other payment satisfactory to the holders of Senior Indebtedness, of all Senior
Indebtedness, the rights of the Holder 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 4 (equally and ratably
with the holders of all indebtedness of the Maker which by its express terms is
subordinated to other indebtedness of the Maker to substantially the same
extent as this 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 Maker
applicable to the Senior Indebtedness until the principal, premium, if any, and
interest on this Note shall be paid in full in cash or other payment
satisfactory to the holders of Senior Indebtedness; 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 4, and no payment over
pursuant to the provisions of this Section 4, to or for the benefit of the
holders of Senior Indebtedness by the Holder, shall, as between the Maker, its
creditors other than holders of Senior Indebtedness, and the Holder, be deemed
to be a payment by the Maker 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 4,
which would otherwise have been paid to the holders of Senior Indebtedness
shall be deemed to be a payment by the Maker to or for the account of this
Note. It is understood that the provisions of this Section 4 are and 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.

4.4           No Impairment of Obligations.  Nothing contained in this Section 4 or
elsewhere in this Note is intended to or shall impair, as among the Maker, its creditors
other than the holders of Senior Indebtedness, and the Holder, the obligation
of the Maker, which is absolute and unconditional, to pay to the Holder the
principal of (and premium, if any) and interest on this Note as and when the
same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the Holder and creditors of
the Maker other than the holders of the Senior Indebtedness, nor shall anything
herein or therein 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 4 of the holders of Senior Indebtedness in
respect of cash, property or securities of the Maker received upon the exercise
of any such remedy.

 

12

 

4.5           Reliance on Order of Court.  Upon any payment or distribution of assets
of the Maker referred to in this Section 4, the Holder shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, or a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, 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 distribution, the holders of the Senior
Indebtedness and other indebtedness of the Maker, the amount thereof or payable
thereon and all other facts pertinent thereto or to this Section 4.

4.6           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 Maker or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Maker 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.

4.7           Senior Indebtedness Entitled to
Rely.  The holders of Senior
Indebtedness (including Designated Senior Indebtedness) shall have the right to
rely upon this Section 4, 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.

4.8           Holder’s Agreement to Effectuate
Subordination of Note.  The Holder by its acceptance of
this Note agrees to take such actions as may be necessary or appropriate to
effectuate, as between the holders of Senior Indebtedness and the Holder, the
subordination provided in this Section 4.

5.             Consolidation, Merger, Conveyance, Transfer or Lease.

5.1           Maker May Consolidate, Etc., Only
On Certain Terms.  The Maker shall
not consolidate with or merge into any other Person (in a transaction in which
the Maker is not the surviving corporation) or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, unless:

(a)   in case the Maker shall consolidate with or
merge into another Person (in a transaction in which the Maker is not the
surviving corporation) or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Maker is merged or the Person which acquires by
conveyance or transfer, or which leases, the properties and assets of the Maker
substantially as an entirety shall be a corporation organized and validly
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall expressly assume, by an instrument
supplemental hereto, executed and delivered to the Holder, in form reasonably
satisfactory to the Holder, the due and punctual payment of the principal of
and any premium and interest on this Note and the performance or observance of
every covenant of this Note on the part of the Maker to be performed or
observed, by supplemental instrument satisfactory in form to the Holder,
executed and delivered to the Holder by the Person (if other than the Maker)
formed by such

 

13

 

consolidation
or into which the Maker shall have been merged or by the Person which shall
have acquired the Maker’s assets;

(b)   immediately
after giving effect to such transaction, 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; and

(c)   the Maker has delivered to the Holder an
Officers’ Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplement
instrument is required in connection with such transaction, such supplemental
instrument comply with this Section 5 and that all conditions precedent herein
provided for relating to such transaction have been complied with.

5.2           Successor Substituted.  Upon any consolidation of the Maker with, or
merger of the Maker into, any Person or any conveyance, transfer or lease of
the properties and assets of the Maker substantially as an entirety in
accordance with Section 5.1, the successor Person formed by such consolidation
or into which the Maker is merged or to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Maker under this Note with the same effect as if such
successor Person had been named as the Maker herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Note.

6.             Default and Remedies.

6.1           Events of Default.  Subject to Section 6.2, an “Event of
Default” shall occur if:

(a)   the Maker (i) defaults in the payment of any
principal of (including any premium, if any, on) (A) this Note when the same
becomes due and payable (whether at maturity, on a mandatory prepayment date,
or otherwise), whether or not such payment shall be prohibited by the
provisions of Section 4, or (B) any Promissory Note (as such term is defined in
the Purchase Agreement) held by the Holder or any of its Affiliates; or (C) the
Convertible Note (as such term is defined in the Purchase Agreement); or (ii)
fails to redeem, and to pay to any holder of Preferred Stock the Redemption
Price (as such term is defined in the applicable Certificate of Designation)
for, each share of Preferred Stock that the Maker is required to redeem from
such holder on the date specified for such redemption under the terms of the
applicable Certificate of Designation;

(b)   the Maker fails to comply with any of its
obligations under (i) this Note, (ii) any Promissory Note held by the Holder or
any of its Affiliates, (iii) the Convertible Note or (iv) Section 5.6(a) or
Section 5.8 of the Purchase Agreement, in each case other than any obligation
specified in Section 6.1(a);

(c)   the Maker fails to provide notice of a
Prepayment Event to the Holder when required by Section 3.2(b) for a period of
thirty (30) days after notice of failure to do so;

(d)   any indebtedness under any bond, debenture,
note or other evidence of indebtedness for money borrowed by the Maker or any
Significant Subsidiary (all or

 

14

 

substantially
all of the outstanding voting securities of which are owned, directly or
indirectly, by the Maker) or under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Maker or any Significant Subsidiary (all
or substantially all of the outstanding voting securities of which are owned,
directly or indirectly, by the Maker) (excluding, however, this Note, any
Promissory Note and the Convertible Note) (an “Instrument”) with an aggregate
outstanding principal amount then outstanding in excess of Twenty-Five Million
United States Dollars (U.S. $25,000,000), whether such indebtedness now exists
or shall hereafter be created, is not paid at final maturity of the Instrument
(either at its stated maturity or upon acceleration thereof), and such
indebtedness is not discharged, or such acceleration is not rescinded or
annulled, within a period of thirty (30) days after there shall have been given
to the Maker by the Holder a written notice specifying such default and
requiring the Maker to cause such indebtedness to be discharged or cause such
default to be cured or waived or such acceleration to be rescinded or annulled
and stating that such notice is a “Notice of Default” hereunder;

(e)   the Maker shall default in respect of any of
its obligations under the Preferred Stock other than any obligation specified
in Section 6.1(a) and the default continues for the period and after the notice
specified in Section 6.2;

(f)    this Note, the Purchase Agreement, or any
other agreement or instrument contemplated by the Purchase Agreement shall be
asserted by the Maker not to be a legal, valid and binding obligation of the
Maker, enforceable against the Maker in accordance with its terms;

(g)   the Maker or any Significant Subsidiary,
pursuant to or within the meaning of any Bankruptcy Law:

(i)            commences a voluntary case or
proceeding;

(ii)           consents to the entry of an order for
relief against it in an involuntary case or proceeding;

(iii)          consents to the appointment of a
Custodian of it or for all or substantially all of its property; or

(iv)          makes a general assignment for the
benefit of its creditors; or

(h)   a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:

(i)            is for relief against the Maker or
any Significant Subsidiary in an involuntary case or proceeding;

(ii)           appoints a Custodian of the Maker or
any Significant Subsidiary or for all or substantially all of the property of
the Maker or any Significant Subsidiary; or

(iii)          orders the liquidation of the Maker or
any Significant Subsidiary;

 

15

 

and in each case the order or decree remains unstayed
and in effect for sixty (60) consecutive days.

The term “Bankruptcy Law” means Title 11 of the United
States Code (or any successor thereto) or any similar federal or state law for
the relief of debtors. The term “Custodian” means any receiver, holder,
assignee, liquidator, sequestrator or similar official under any Bankruptcy
Law.

6.2           Notice and Cure.

(a)   A default
under Section 6.1(b) or (e) above is not an Event of Default until the Holder
notifies the Maker in writing of the default and the Maker does not cure the
default within sixty (60) days after receipt of such notice.  The notice given pursuant to this Section
6.2 must specify the default, demand that it be remedied and state that the
notice is a “Notice Of Default.”

(b)   When any Event of Default under Section 6.1
is cured, it ceases.

(c)   The Maker shall immediately notify Holder
upon becoming aware of the existence of any condition or event which
constitutes a default or an Event of Default hereunder by written notice which
specifies the nature and period of existence of such default or Event of
Default and what action the Maker is taking or proposes to take with respect
thereto.  The Holder shall not be
charged with knowledge of any Event of Default unless written notice thereof
shall have been given to the Holder or any agent of the Holder.

6.3           Acceleration.  If an Event of Default (other than an Event
of Default specified in Section 6.1(g) or (h)) occurs and is continuing, the
Holder may, by notice to the Maker, declare all unpaid principal on this Note
then outstanding (if not then due and payable), together with unpaid interest,
if any, to the date of acceleration, 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
6.1(g) or (h) occurs, all unpaid principal of this Note then outstanding,
together with unpaid interest, shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the
Holder.  The Holder may at any time, by
notice to the Maker, rescind an acceleration and its consequences.  No such rescission shall affect any
subsequent default or impair any right consequent thereto.

6.4           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 of or interest on this Note or to enforce the performance of any
provision of the Purchase Agreement or this Note.

(b)   Remedies Not Exclusive.  The Holder may maintain a proceeding even if
it does not possess this Note or does not produce it in the proceeding.  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

 

16

 

exclusive
of any other remedy.  All available
remedies are cumulative to the extent permitted by law.

6.5           Collection Suit By Holder.  If an Event of Default in the payment of
principal specified in Section 6.1(a) occurs and is continuing or if any
interest due and payable hereunder is not paid when due and thereafter remains
unpaid, the Holder may recover judgment against the Maker for the whole amount
of principal and accrued interest remaining unpaid, together with, to the
extent that payment of such interest is lawful, interest on overdue principal
and on overdue installments of interest, in each case at the Default Rate and
such further amount as shall be sufficient to cover the costs and expenses of
collection, including reasonable attorneys’ fees and disbursements.

7.             Voting Rights. 
The Holder of this Note shall have no voting rights with respect to
Maker.

8.             Waiver. 
No delay or omission on the part of the Holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right
of the Holder, nor shall any delay, omission or waiver on any one occasion be deemed
a bar to or waiver of the same or any other right on any future occasion.  The Maker hereby forever waives presentment,
demand, presentment for payment, protest, notice of protest, notice of dishonor
of this Note and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Note.

9.             Miscellaneous.

9.1           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 Maker expressly referring to this Note and
setting forth the provision so excluded, modified or amended.

9.2           Costs.     If action is successfully instituted to collect on this Note,
the Maker promises to pay all costs and expenses, including reasonable
attorneys’ fees, incurred in connection with such action.

9.3           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.

9.4           Governing Law.  This Note shall be governed by, and
construed in accordance with, the laws of the State of New York.

9.5           Service of Process; Consent to
Jurisdiction; Venue.

(a)   The Maker agrees that service of any process,
summons, notice or document by registered mail to its address set forth in
Section 11.4 of the Purchase Agreement, or any other lawful means, shall
be effective service of process for any action, suit or proceeding brought
against it with respect to this Note in any court identified in clause (b)
below.

 

17

 

(b)   The Maker hereby irrevocably and
unconditionally consents to the exclusive jurisdiction of the courts of the
State of New York and the United States District Court for the Southern
District of New York for any action, suit or proceeding (other than appeals
therefrom) arising out of or relating to this Agreement, and agrees not to
commence any action, suit or proceeding (other than appeals therefrom) related
thereto except in such courts.  The
Maker further hereby irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding (other than appeals
therefrom) arising out of or relating to this Note in the courts of the State
of New York or the United States District Court for the Southern District of
New York, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.

9.6           Notices.  All notices hereunder shall be given by a
party in writing and shall be deemed received by the other party hereto, in
each case in accordance with the terms of Section 11.4 of the Purchase
Agreement as if any such notice were a notice thereunder.

9.7   Transferability.  This Note may not be transferred or assigned
by the Holder except as permitted by Section 7 of the Purchase Agreement.  For the avoidance of doubt, the parties
acknowledge and agree that, in the event that the Holder merges into or
consolidates with any other Person, or that any other Person acquires
securities of the Holder, such merger, consolidation or acquisition (as the
case may be) shall not be deemed for purposes of this Section 9.7 to be, or to
trigger, a transfer or assignment of the Holder’s rights and obligations
hereunder.

9.8           Maximum Rate.  Any provisions contained in this Note to the
contrary notwithstanding, Holder shall not be entitled to receive, collect or
apply, as interest on the obligations evidenced hereunder, any amount in excess
of the maximum rate of interest permitted to be charged by applicable law, and,
in the event any amount is ever received, collected, or applied as interest in
excess of this maximum allowable rate by Holder, any such amount which would be
excessive interest shall be applied to the reduction of the principal amount
owed by the Maker.  If such principal
amount is paid in full, any such excess shall be promptly paid over to the
Maker.  In determining whether or not
the interest paid or payable under any specific circumstances exceeds the
maximum rate allowed by law, Holder may, to the maximum extent allowed by law,
characterize any nonprincipal payment as an expense, fee or premium rather than
interest; exclude voluntary prepayments and the effects of them; and apportion
the total amount of interest throughout the entire contemplated term of the
this Note so that the interest rate is uniform throughout.

9.9           Binding Effect.  This Note shall be binding upon the
successors or assigns of the Maker and shall inure to the benefit of the
successors and assigns of the Holder.

[The
remainder of this page was left blank intentionally.]

 

 

 

18

 

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

	
   

  	
   

  	
  ABGENIX, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
							

 

 

 

 

19

EXHIBIT B

 

 

THE SECURITIES REPRESENTED BY THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED, SOLD, ASSIGNED,
PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH
LAWS AND, IF REQUESTED BY THE MAKER, UPON DELIVERY OF AN OPINION OF COUNSEL
SATISFACTORY TO THE MAKER THAT THE PROPOSED TRANSFER IS EXEMPT FROM THE ACT OR
SUCH LAWS.  THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO CERTAIN TRANSFER
RESTRICTIONS CONTAINED IN THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS
OF OCTOBER 15, 2003, BETWEEN THE MAKER AND THE HOLDER.

SUBORDINATED PROMISSORY NOTE

 

	
  U.S. $[________]

  	
   

  	
  ___________, 20__

  
	
   

  	
   

  	
  New York, New York

  

 

FOR VALUE RECEIVED, Abgenix, Inc., a Delaware
corporation (the “Maker”), hereby unconditionally promises to pay to the order
of [__________________] (the “Holder”), or its permitted assigns, the original
aggregate principal sum of [_________] United States Dollars (U.S. $[________])
on the Maturity Date, subject to prior prepayment in accordance with the
provisions hereof.

Upon the occurrence and during the continuation
uncured of any Event of Default described in Section 6.1(a), such principal
amount of this Note as from time to time remains unpaid shall bear interest at
the Default Rate.  Such interest shall
be payable in arrears on the last day of each March, June, September and
December and at the time of the final payment of the principal amount
hereof.  Interest shall be calculated on
the basis of a three hundred sixty-five (365)-day year for the number of days
elapsed.

For purposes of determining the person entitled to
payment of the principal of and interest on this Note, the Maker is entitled to
pay the person in whose name this Note is registered at the close of business
on the fifteenth day (whether or not a Business Day) next preceding the date
for such payment.  All payments of
principal and interest on this Note shall be payable at the principal executive
office of such registered holder or at such other place as such registered
holder may from time to time in writing appoint at least fifteen (15) days
before the date such payment is due. 
All payments required to be made by the Maker under this Note shall be
made in cash in immediately available funds.

 

 

 

Subject to the Holder’s compliance with Section 7 of
the Purchase Agreement and with applicable law, this Note is transferable on
the note register of the Maker upon surrender of this Note for transfer at the
principal executive offices of the Maker duly endorsed by or accompanied by a written
instrument of transfer in form satisfactory to the Maker and duly executed by
the registered 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 Maker 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.

1.             Definitions.

1.1           General.  Terms used herein and not otherwise defined
are used herein with the same meanings given to them in the Purchase
Agreement.  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.

1.2           Defined Terms.  Unless the context otherwise requires, when
used herein the following terms shall have the meaning indicated:

“Affiliate” means with respect to any Person,
any other Person directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person.  For purposes of this definition, the term
“control” (and correlative terms “controlling,” “controlled by” and “under
common control with”) means possession of the power, whether by contract,
equity ownership or otherwise, to direct the policies or management of a
Person.

“Bankruptcy Law” has the meaning set forth in
Section 6.1.

“Capital Stock” of any Person means any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) equity of such
Person, but excluding any debt securities convertible into such equity.

“Certificate(s) of Designation” means the
Series A-1 Certificate of Designation, the Series A-2 Certificate of
Designation, and the Series A-3/A-4 Certificate of Designation.

“Collaboration Agreement” means the
Collaboration Agreement, dated as of October 15, 2003, between the Maker and
AstraZeneca UK Limited.

2

 

“Common Stock” means the common stock, par
value $0.0001 per share, of Maker.

“Convertible Note” has the meaning set forth in
the Purchase Agreement.

“Custodian” has the meaning set forth in
Section 6.1.

“Default Rate” means (i) during the period
commencing on the date hereof and ending on the fifth anniversary of such date,
an interest rate equal to the 10-Year United States Treasury Bond yield rate as
reported in The Wall Street Journal Western edition on the date hereof,
plus an additional three percent (3%) compounded annually, and (ii) during the
period commencing on the date following the fifth anniversary of the date
hereof and continuing until the last date on which the entire principal amount
of this Note has been converted or repaid and any interest owing hereon has
been paid, an interest rate equal to the 10-Year United States Treasury Bond
yield rate as reported in The Wall Street Journal Western edition on the
first day of such period, plus an additional three percent (3%) compounded
annually; provided, however, that if The Wall Street Journal ceases to
be published, then the 10-Year United States Treasury Bond yield rate to be
used shall be that reported in such other business publication of national
circulation in the United States as the Maker and the Holder reasonably agree.

“Designated Prepayment Event Amount” means the
Designated Type I Prepayment Event Amount or the Designated Type II Prepayment
Event Amount, as the case may be.

“Designated Senior Indebtedness” means any
particular Senior Indebtedness of the Maker in which the instrument creating or
evidencing the same or the assumption or guarantee thereof (or any related
agreements or documents to which the Maker is a party) expressly provides that
such Senior Indebtedness shall be “Designated Senior Indebtedness” for purposes
of this Note (provided that such instrument, agreement or other document
creating or evidencing the Indebtedness may place limitations and conditions on
the right of such Senior Indebtedness to exercise the rights of Designated
Senior Indebtedness).  If any payment
made to any holder of any Designated Senior Indebtedness or its Representative
with respect to such Designated Senior Indebtedness is rescinded or must
otherwise be returned by such holder or Representative upon the insolvency,
bankruptcy or reorganization of the Maker or otherwise, the reinstated
Indebtedness of the Maker arising as a result of such rescission or return
shall constitute Designated Senior Indebtedness effective as of the date of
such rescission or return.

“Designated Type I Prepayment Event Amount” has
the meaning set forth in Section 3.2(a)(i).

“Designated Type II Prepayment Event Amount”
has the meaning set forth in Section 3.2(a)(ii).

“Discovery Period” means the period
commencing on the effective date of the Collaboration Agreement and ending on
the later to occur of (a) the date of expiration or termination of the Antigen
Designation Term (as such term is defined in the Collaboration Agreement) and
(b) the date of expiration or termination of the Research Program Term (as such
term is defined in the Collaboration Agreement) with respect to the Research
Program (as such

 

3

 

term is defined in the
Collaboration Agreement) that is the last such program to terminate or expire
pursuant to the Collaboration Agreement.

“Event of Default” has the meaning set forth in
Section 6.1.

“Exchange Act” means the United States
Securities Exchange Act of 1934, as amended.

“GAAP” means generally accepted accounting
principles in the United States of America as in effect as of the date of this
Note, including those set forth in (i) the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants, (ii) the statements and pronouncements of the Financial Accounting
Standards Board, (iii) such other statements by such other entity as approved
by a significant segment of the accounting profession and (iv) the rules and
regulations of the SEC governing the inclusion of financial statements
(including pro forma financial statements) in registration statements filed
under the Securities Act and periodic reports required to be filed pursuant to
Section 13 of the Exchange Act, including opinions and pronouncements in staff
accounting bulletins and similar written statements from the accounting staff
of the SEC.

“Holder” has the meaning set forth in the first
paragraph hereof.

“Indebtedness” means, with respect to any
Person, without duplication, (i) all indebtedness, obligations and other
liabilities (contingent or otherwise) of such Person (A) for borrowed money
(including obligations of such Person in respect of overdrafts, foreign
exchange 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 (B) evidenced by credit or loan agreements,
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 accounts 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) of such Person (A) in
respect of (1) leases of such Person required, in conformity with GAAP, to be
accounted for as capitalized lease obligations on the balance sheet of such
Person (as determined by the Maker), and (2) ground leases the Maker may enter
into in the future with respect to the Maker’s facilities in Fremont, California,
or (B) under any lease or related document (including a purchase agreement,
conditional sale or other title retention agreement) in connection with the
lease of real property or improvement thereon (or any personal property
included as part of any such lease) which provides that such Person is
contractually obligated to purchase or cause a third party to purchase the
leased property or pay an agreed upon residual value of the leased property to
the lessor (whether or not such lease transaction is characterized as an
operating lease or a capitalized lease in accordance with GAAP), (iv) all
obligations (contingent or otherwise) of such Person with respect to any
interest rate or other swap, cap, floor or collar agreement, hedge agreement,
forward contract, or other similar instrument or agreement or foreign currency
hedge, exchange, purchase or similar instrument or agreement; (v) all direct or
indirect guarantees, agreements to be jointly liable or similar agreements by
such Person in respect of, and obligations or liabilities of such Person to

 

4

 

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

“Instrument” has the meaning set forth in
Section 6.1.

“Maker” has the meaning set forth in the first
paragraph hereof.

“Maturity Date” means the second (2nd)
anniversary of the date of issuance of this Note.

“Maximum Prepayment Event Amount” means the
Maximum Type I Prepayment Event Amount or the Maximum Type II Prepayment Event
Amount, as the case may be.

“Maximum Type I Prepayment Event Amount” means
the total principal amount of this Note outstanding as of a Type I Prepayment
Event Date.

“Maximum Type II Prepayment Event Amount” means
the amount that equals the lesser of the Type II Allocated Prepayment Amount
and the Type II Remaining Prepayment Amount.

“Note” has the meaning set forth in Section 2.

“Officer” means the chairman or any co-chairman
of the board, any vice chairman of the board, the chief executive officer, the
president, any vice president, the chief financial officer, the controller, the
secretary or any assistant controller or assistant secretary of the Maker.

“Officers’ Certificate” means a certificate
signed by two Officers.

“Opinion of Counsel” means a written opinion
from legal counsel, which counsel may be an employee of or counsel to the
Maker.

“Payment Blockage Notice” has the meaning set
forth in Section 4.2.

“Person” means an individual, corporation,
partnership, other entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act).

“Prepayment Event” means a Type I Prepayment
Event or a Type II Prepayment event, as the case may be.

“Prepayment Event Date” means the Type I
Prepayment Event Date or the Type II Prepayment Event Date, as the case may be.

“Prepayment Event Notice” has the meaning set
forth in Section 3.2.

“Purchase Agreement” means the Securities
Purchase Agreement, dated as of October 15, 2003, between the Maker and
AstraZeneca UK Limited.

 

5

 

“Representative” means the (i) trustee under
any indenture to which Maker is a party or other holder, agent or
representative for any Senior Indebtedness or (ii) with respect to any Senior
Indebtedness that does not have any such trustee, holder, agent or other
representative, (a) in the case of such Senior Indebtedness issued pursuant to
an agreement providing for voting arrangements as amount the holders or owner
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.

“SEC” means the United States Securities and
Exchange Commission.

“Securities Act” means the United States
Securities Act of 1933, as amended.

“Senior Indebtedness” means 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 allowed as a claim in any such proceeding) and
rent, if any, payable on or in connection with, and all fees, costs, expenses
and other amounts accrued or due on or in connection with, the Maker’s 3.5%
Convertible Subordinated Notes due March 15, 2007, or any other Indebtedness of
the Maker, whether outstanding on the date of this Note or thereafter created,
incurred, assumed, guaranteed or in effect guaranteed by the Maker (including
all deferrals, renewals, extensions or refundings of, or amendments,
modifications or supplements to, the foregoing), unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to this Note or expressly provides that such
Indebtedness is “pari passu” or “junior” to this Note.  Notwithstanding the foregoing, the term
Senior Indebtedness shall not include (i) any Indebtedness of the Maker to any
Subsidiary of the Maker (other than Indebtedness of the Maker to such
Subsidiary arising by reason of guarantees by the Maker of Indebtedness of such
Subsidiary to a Person that is not a Subsidiary of the Maker); (ii) this Note;
or (iii) Indebtedness of or amounts owed by the Maker for compensation to
employees, or for goods or materials purchased in the ordinary course of
business, or for services.  If any
payment made to any holder of any Senior Indebtedness or its Representative
with respect to such Senior Indebtedness is rescinded or must otherwise be
returned by such holder or Representative upon the insolvency, bankruptcy or
reorganization of the Maker or otherwise, the reinstated Indebtedness of the
Maker arising as a result of such rescission or return shall constitute Senior
Indebtedness effective as of the date of such rescission or return.

“Series A-1 Certificate of Designation” has the
meaning set forth in Purchase Agreement.

“Series A-2 Certificate of Designation” has the
meaning set forth in Purchase Agreement.

“Series A-3/A-4 Certificate of Designation” has
the meaning set forth in the Purchase Agreement.

 

6

 

“Significant Subsidiary” means, in respect of
any Person, a Subsidiary of such Person that would constitute a “significant
subsidiary” as such term is defined under Rule 1-02 of Regulation S-X under the
Securities Act and the Exchange Act.

“Subsidiary” means, in respect of any Person,
any corporation, association, partnership, or other business entity of which
more than fifty percent (50%) of the total voting power of shares of Capital
Stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers, general partners or holders thereof is at the time owned
or controlled, directly or indirectly, by (i) such Person; (ii) such Person and
one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of
such Person.

“Type I Prepayment Event” means a Change in
Control (as such term is defined in the Collaboration Agreement) that occurs at
any time after the last day of the Discovery Period.

“Type I Prepayment Event Date” has the meaning
set forth in Section 3.2(a)(i).

“Type II Allocated Prepayment Amount” means
either (i) in the event that, as of the Type II Redemption Event Date, there is
no principal amount outstanding under any Subordinated Promissory Note issued
pursuant to Section 9(b) of the Series A-1 Certificate of Designation, the
amount that equals the greater of (x) the amount, if positive, that is derived
when the Series A-2 Remaining Redemption Amount (as such term is defined in the
Series A-2 Certificate of Designation) is subtracted from the Series A-2
Allocated Redemption Amount (as such term is defined in the Series A-2
Certificate of Designation), which amount shall be zero (0) in the event that
such amount is zero (0) or negative, or (y) the amount, if positive, that is
derived when the Type II Remaining Prepayment Amount (as such term is defined
in the Convertible Note) is subtracted from the Type II Allocated Prepayment
Amount (as such term is defined in the Convertible Note), which amount shall be
zero (0) in the event that such amount is zero (0) or negative; provided, that,
in the event that the amount in each of clause (x) and (y) is zero (0), the
“Type II Allocated Prepayment Amount” under clause (i) means zero (0); or (ii)
in the event that, as of the Type II Redemption Event Date, there is any
principal amount outstanding under any Subordinated Promissory Note issued
pursuant to Section 9(b) of the Series A-1 Certificate of Designation, the
amount, if positive, that is derived when the Type II Remaining Prepayment
Amount (as such term is defined in such other Subordinated Promissory Note) is
subtracted from the Type II Allocated Prepayment Amount (as such term is defined
in such other Subordinated Promissory Note), which amount shall be zero (0) in
the event that such amount is zero (0) or negative.

“Type II Prepayment Event” means the
termination by AstraZeneca UK Limited (or any of its Affiliates) of all
outstanding Research Programs and, in the event that the Antigen Designation
Term has not expired, the Antigen Designation Term, pursuant to Section 16.2 or
Section 16.3.1 of the Collaboration Agreement, which termination occurs at any
time prior to or on the last day of the Discovery Period.

“Type II Prepayment Event Date” has the meaning
set forth in Section 3.2(a)(ii).

 

7

 

 “Type II
Remaining Prepayment Amount” means the principal amount of this Note
outstanding as of the Type II Redemption Event Date.

2.             Securities Purchase Agreement.  This Subordinated Promissory Note (this
“Note”) is one of the Promissory Notes of the Maker referred to in the Purchase
Agreement.

3.             Payments.

3.1           Maker’s Right to Prepay.  The principal amount of this Note may be
prepaid (without premium or penalty) at any time and from time to time at the
election of the Maker, as a whole or in part.

3.2   Prepayment upon
Prepayment Event.

(a)   Prepayments
at Option of Holder.

(i)            If at any time that any portion of
the principal amount this Note remains unpaid there shall occur a Type I
Prepayment Event, then on the date that is thirty (30) Business Days after the
date of such Prepayment Event (or, if such day is not a Business Day, then the
next Business Day thereafter) (the “Type I Prepayment Event Date”), the Maker
shall prepay in full so much of the Maximum Type I Prepayment Event Amount as
the Holder may specify in a Prepayment Event Notice (the “Designated Type I
Prepayment Event Amount”).

(ii)           If at any time that any portion of
the principal amount this Note remains unpaid there shall occur a Type II
Prepayment Event, then on the date that is thirty (30) Business Days after the
date of such Prepayment Event (or, if such day is not a Business Day, then the
next Business Day thereafter) (the “Type II Prepayment Event Date”), the Maker
shall prepay in full so much of the principal amount of this Note then
remaining unpaid, not to exceed an amount equal to the Maximum Type II
Prepayment Event Amount, as the Holder may specify in a Prepayment Event Notice
(the “Designated Type II Prepayment Event Amount”).

(b)   Notice to Holder.  Within ten (10) Business Days after the
occurrence of a Prepayment Event, the Maker shall provide Holder with notice of
the Prepayment Event. The notice shall state:

(i)            the date of such Prepayment Event,
whether the Prepayment Event is a Type I Prepayment Event or a Type II
Prepayment Event, and, briefly, the events causing such Prepayment Event;

(ii)           the date by which the Prepayment Event
Notice pursuant to Section 3.2(c) must be given;

(iii)          the Prepayment Event Date;

(iv)          the Maximum Prepayment Event Amount;

 

8

 

(v)           the Holder’s right to require the
Maker to prepay an amount up to the Maximum Prepayment Event Amount;

(vi)          the procedures that the Holder must
follow to exercise rights under this Section 3.2; and

(vii)         the procedures for withdrawing a
Prepayment Event Notice.

(c)   Exercise by Holder of Right to Receive
Prepayment.  The Holder may exercise
its rights specified in this Section 3.2 by delivery of a written notice (a
“Prepayment Event Notice”) to the Maker at any time prior to the close of
business on the Business Day next preceding the Prepayment Event Date
specifying the Designated Prepayment Event Amount.  The Holder may specify a Designated Prepayment Event Amount that
is less than the Maximum Prepayment Event Amount.  Provisions of this Note that apply to the prepayment of the
Maximum Prepayment Event Amount also apply to the prepayment of a Designated
Prepayment Event Amount that is less than the Maximum Prepayment Event
Amount.  Notwithstanding anything herein
to the contrary, the Holder shall have the right to withdraw any Prepayment
Event Notice in whole or in a portion thereof, at any time prior to the close
of business on the Business Day next preceding the Prepayment Event Date by
written notice of withdrawal given to the Maker.

(d)   Effect of Prepayment Event Notice.  Upon receipt by the Maker of the Prepayment
Event Notice specified in Section 3.2(c), the Holder shall (unless such
Prepayment Event Notice is withdrawn as specified in Section 3.2(c)) thereafter
be entitled to receive on the Prepayment Event Date the Designated Type I
Prepayment Event Amount or the Designated Type II Prepayment Event Amount with
respect to this Note, as the case may be.

4.             Subordination.

4.1           Agreement of Subordination.

(a)   Note Subject to Section 4.  The Maker covenants and agrees, and the
Holder by its acceptance of this Note likewise covenants and agrees, that this
Note shall be issued subject to the provisions of this Article 4; and each
transferee of this Note accepts and agrees to be bound by such provisions.

(b)   Subordination.  The payment of the principal of, premium, if
any, and interest on this Note (including any amount prepayable pursuant to
Section 3) 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 in
cash or payment satisfactory to the holders of Senior Indebtedness of all
Senior Indebtedness, whether outstanding at the date of this Note or thereafter
incurred.

(c)   No Effect on Default.  No provision of this Article 4 shall prevent
the occurrence of any default or Event of Default hereunder.

 

9

 

4.2           Payments to Holder.

(a)   Payment Blockage.  No payment shall be made with respect to the
principal of, or premium, if any, or interest on this Note (including any
amount prepayable pursuant to Section 3), if:

(i)            a default in the payment of
principal, premium, interest, rent or other obligations due on any Designated
Senior Indebtedness occurs and is continuing (or, in the case of Designated
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 Designated Senior Indebtedness), unless and
until such default shall have been cured or waived or shall have ceased to exist;
or

(ii)           a default, other than a payment
default, on Designated Senior Indebtedness occurs and is continuing that then
permits holders of such Designated Senior Indebtedness to accelerate its
maturity and the Holder receives a notice of the default (a “Payment Blockage
Notice”) from a Representative or holder of Designated Senior Indebtedness or
the Maker.

(b)   Limit on Payment Blockage.  If the Holder receives any Payment Blockage
Notice pursuant to clause (a)(ii) above, no subsequent Payment Blockage Notice
shall be effective for purposes of this Section unless and until (i) at least
three hundred sixty-five (365) days shall have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice; and (ii) all
scheduled payments on this Note that have come due have been paid in full in
cash. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Holder (unless such default was
waived, cured or otherwise ceased to exist and thereafter subsequently
reoccurred) shall be, or be made, the basis for a subsequent Payment Blockage
Notice.

(c)   Resumption of Payments.  The Maker may and shall resume payments on
and distributions in respect of this Note upon the earlier of:

(i)            in the case of a default referred to
in clause (a)(i) of Section 4.2 above, the date upon which the default is cured
or waived or ceases to exist, or

(ii)           in the case of a default referred to
in clause (a)(ii) of Section 4.2 above, the earlier of the date on which such
default is cured or waived or ceases to exist or one hundred seventy-nine (179)
days pass after the date on which the applicable Payment Blockage Notice is
received, if the maturity of such Designated Senior Indebtedness has not been
accelerated, unless this Section 4 otherwise prohibits the payment or
distribution at the time of such payment or distribution.

(d)   Payments Upon Dissolution.  Upon any payment by the Maker, or
distribution of assets of the Maker 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 Maker (whether voluntary or involuntary)
or in bankruptcy, insolvency, receivership or similar

10

 

proceedings,
all amounts due or to become due upon all Senior Indebtedness shall first be
paid in full in cash, or other payments satisfactory to the holders of Senior
Indebtedness before any payment is made on account of the principal of,
premium, if any, or interest on this Note; and upon any such dissolution or
winding-up or liquidation or reorganization of the Maker or bankruptcy,
insolvency, receivership or other proceeding, any payment by the Maker, or
distribution of assets of the Maker of any kind or character, whether in cash,
property or securities, to which the Holder would be entitled, except for the
provisions of this Section 4, shall (except as aforesaid) be paid by the Maker
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, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Indebtedness may have been issued,
as their respective interests may appear, to the extent necessary to pay all
Senior Indebtedness in full in cash, or other payment satisfactory to the
holders of Senior Indebtedness, 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 in respect of this Note.

(e)   Certain Distributions Excluded.  For purposes of this Section 4, the words,
“cash, property or securities” shall not be deemed to include shares of stock
of the Maker as reorganized or readjusted, or securities of the Maker 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 4 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, 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 Maker 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 Maker with, or the merger
of the Maker into, another corporation or the liquidation or dissolution of the
Maker following the conveyance, transfer or lease of its property as an
entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Section 5 shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 4.2 if such other corporation shall, as a part of such consolidation,
merger, conveyance, transfer or lease, comply with the conditions stated in
Section 5.

(f)    Acceleration.  In the event of the acceleration of this
Note because of an Event of Default, no payment or distribution shall be made
to the Holder in respect of the principal of, premium, if any, or interest on
this Note by the Maker (including any amount prepayable pursuant to Section 3)
until all Senior Indebtedness has been paid in full in cash or other payment
satisfactory to the holders of Senior Indebtedness 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 Maker shall promptly notify
holders of Senior Indebtedness of such acceleration.  In the event that, notwithstanding the foregoing provisions, any
payment or distribution of assets of the Maker of any kind or character,
whether in cash, property or securities (including by way of setoff or
otherwise), prohibited by the foregoing, shall be received by the Holder before
all Senior Indebtedness is paid in full, in cash or other payment satisfactory
to the holders of Senior

 

11

 

Indebtedness,
or provision is made for such payment thereof in accordance with its terms in
cash or other payment satisfactory to the holders of Senior Indebtedness, 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, or to the trustee or trustees under any indenture
pursuant to which any instruments evidencing any Senior Indebtedness may have
been issued, as their respective interests may appear, as calculated by the
Maker, for application to the payment of all Senior Indebtedness remaining
unpaid to the extent necessary to pay all Senior Indebtedness in full, in cash
or other payment satisfactory to the holders of Senior Indebtedness, after
giving effect to any concurrent payment or distribution to or for the holders
of such Senior Indebtedness.

4.3           Subrogation.  Subject to the payment in full, in cash or
other payment satisfactory to the holders of Senior Indebtedness, of all Senior
Indebtedness, the rights of the Holder 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 4 (equally and ratably
with the holders of all indebtedness of the Maker which by its express terms is
subordinated to other indebtedness of the Maker to substantially the same
extent as this 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 Maker
applicable to the Senior Indebtedness until the principal, premium, if any, and
interest on this Note shall be paid in full in cash or other payment
satisfactory to the holders of Senior Indebtedness; 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 4, and no payment over
pursuant to the provisions of this Section 4, to or for the benefit of the
holders of Senior Indebtedness by the Holder, shall, as between the Maker, its
creditors other than holders of Senior Indebtedness, and the Holder, be deemed
to be a payment by the Maker 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 4,
which would otherwise have been paid to the holders of Senior Indebtedness
shall be deemed to be a payment by the Maker to or for the account of this
Note. It is understood that the provisions of this Section 4 are and 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.

4.4           No Impairment of Obligations.  Nothing contained in this Section 4 or
elsewhere in this Note is intended to or shall impair, as among the Maker, its
creditors other than the holders of Senior Indebtedness, and the Holder, the
obligation of the Maker, which is absolute and unconditional, to pay to the
Holder the principal of (and premium, if any) and interest on this Note as and
when the same shall become due and payable in accordance with their terms, or
is intended to or shall affect the relative rights of the Holder and creditors
of the Maker other than the holders of the Senior Indebtedness, nor shall
anything herein or therein 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 4 of the holders of Senior Indebtedness
in respect of cash, property or securities of the Maker received upon the
exercise of any such remedy.

 

12

 

4.5           Reliance on Order of Court.  Upon any payment or distribution of assets
of the Maker referred to in this Section 4, the Holder shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, or a certificate of the receiver, trustee in
bankruptcy, liquidating trustee, 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 distribution, the holders of the Senior
Indebtedness and other indebtedness of the Maker, the amount thereof or payable
thereon and all other facts pertinent thereto or to this Section 4.

4.6           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 Maker or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by the Maker 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.

4.7           Senior Indebtedness Entitled to Rely.  The holders of Senior Indebtedness
(including Designated Senior Indebtedness) shall have the right to rely upon
this Section 4, 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.

4.8           Holder’s Agreement to Effectuate
Subordination of Note.  The Holder by its acceptance of
this Note agrees to take such actions as may be necessary or appropriate to
effectuate, as between the holders of Senior Indebtedness and the Holder, the
subordination provided in this Section 4.

5.             Consolidation, Merger, Conveyance, Transfer or Lease.

5.1           Maker May Consolidate, Etc., Only
On Certain Terms.  The Maker shall
not consolidate with or merge into any other Person (in a transaction in which
the Maker is not the surviving corporation) or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, unless:

(a)   in case the Maker shall consolidate with or
merge into another Person (in a transaction in which the Maker is not the
surviving corporation) or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, the Person formed by such
consolidation or into which the Maker is merged or the Person which acquires by
conveyance or transfer, or which leases, the properties and assets of the Maker
substantially as an entirety shall be a corporation organized and validly
existing under the laws of the United States of America, any state thereof or the
District of Columbia and shall expressly assume, by an instrument supplemental
hereto, executed and delivered to the Holder, in form reasonably satisfactory
to the Holder, the due and punctual payment of the principal of and any premium
and interest on this Note and the performance or observance of every covenant
of this Note on the part of the Maker to be performed or observed, by
supplemental instrument satisfactory in form to the Holder, executed and
delivered to the Holder by the Person (if other than the Maker) formed by such

 

13

 

consolidation
or into which the Maker shall have been merged or by the Person which shall
have acquired the Maker’s assets;

(b)   immediately
after giving effect to such transaction, 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; and

(c)   the Maker has delivered to the Holder an
Officers’ Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplement
instrument is required in connection with such transaction, such supplemental
instrument comply with this Section 5 and that all conditions precedent herein
provided for relating to such transaction have been complied with.

5.2           Successor Substituted.  Upon any consolidation of the Maker with, or
merger of the Maker into, any Person or any conveyance, transfer or lease of
the properties and assets of the Maker substantially as an entirety in
accordance with Section 5.1, the successor Person formed by such consolidation
or into which the Maker is merged or to which such conveyance, transfer or
lease is made shall succeed to, and be substituted for, and may exercise every
right and power of, the Maker under this Note with the same effect as if such
successor Person had been named as the Maker herein, and thereafter, except in
the case of a lease, the predecessor Person shall be relieved of all
obligations and covenants under this Note.

6.             Default and Remedies.

6.1           Events of Default.  Subject to Section 6.2, an “Event of
Default” shall occur if:

(a)   the Maker (i) defaults in the payment of any
principal of (including any premium, if any, on) (A) this Note when the same
becomes due and payable (whether at maturity, on a mandatory prepayment date,
or otherwise), whether or not such payment shall be prohibited by the
provisions of Section 4, or (B) any Promissory Note (as such term is defined in
the Purchase Agreement) held by the Holder or any of its Affiliates; or (C) the
Convertible Note (as such term is defined in the Purchase Agreement); or (ii)
fails to redeem, and to pay to any holder of Preferred Stock the Redemption
Price (as such term is defined in the applicable Certificate of Designation)
for, each share of Preferred Stock that the Maker is required to redeem from
such holder on the date specified for such redemption under the terms of the
applicable Certificate of Designation;

(b)   the Maker fails to comply with any of its
obligations under (i) this Note, (ii) any Promissory Note held by the Holder or
any of its Affiliates, (iii) the Convertible Note or (iv) Section 5.6(a) or
Section 5.8 of the Purchase Agreement, in each case other than any obligation
specified in Section 6.1(a);

(c)   the Maker fails to provide notice of a
Prepayment Event to the Holder when required by Section 3.2(b) for a period of
thirty (30) days after notice of failure to do so;

(d)   any indebtedness under any bond, debenture,
note or other evidence of indebtedness for money borrowed by the Maker or any
Significant Subsidiary (all or

 

14

 

substantially
all of the outstanding voting securities of which are owned, directly or
indirectly, by the Maker) or under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Maker or any Significant Subsidiary (all
or substantially all of the outstanding voting securities of which are owned,
directly or indirectly, by the Maker) (excluding, however, this Note, any
Promissory Note and the Convertible Note) (an “Instrument”) with an aggregate
outstanding principal amount then outstanding in excess of Twenty-Five Million
United States Dollars (U.S. $25,000,000), whether such indebtedness now exists
or shall hereafter be created, is not paid at final maturity of the Instrument
(either at its stated maturity or upon acceleration thereof), and such
indebtedness is not discharged, or such acceleration is not rescinded or
annulled, within a period of thirty (30) days after there shall have been given
to the Maker by the Holder a written notice specifying such default and
requiring the Maker to cause such indebtedness to be discharged or cause such
default to be cured or waived or such acceleration to be rescinded or annulled
and stating that such notice is a “Notice of Default” hereunder;

(e)   the Maker shall default in respect of any of
its obligations under the Preferred Stock other than any obligation specified
in Section 6.1(a) and the default continues for the period and after the notice
specified in Section 6.2;

(f)    this Note, the Purchase Agreement, or any
other agreement or instrument contemplated by the Purchase Agreement shall be
asserted by the Maker not to be a legal, valid and binding obligation of the
Maker, enforceable against the Maker in accordance with its terms;

(g)   the Maker or any Significant Subsidiary,
pursuant to or within the meaning of any Bankruptcy Law:

(i)            commences a voluntary case or
proceeding;

(ii)           consents to the entry of an order for
relief against it in an involuntary case or proceeding;

(iii)          consents to the appointment of a
Custodian of it or for all or substantially all of its property; or

(iv)          makes a general assignment for the
benefit of its creditors; or

(h)   a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that:

(i)            is for relief against the Maker or
any Significant Subsidiary in an involuntary case or proceeding;

(ii)           appoints a Custodian of the Maker or
any Significant Subsidiary or for all or substantially all of the property of
the Maker or any Significant Subsidiary; or

(iii)          orders the liquidation of the Maker or
any Significant Subsidiary;

 

15

 

and in each case the order or decree remains unstayed
and in effect for sixty (60) consecutive days.

The term “Bankruptcy Law” means Title 11 of the United
States Code (or any successor thereto) or any similar federal or state law for
the relief of debtors. The term “Custodian” means any receiver, holder,
assignee, liquidator, sequestrator or similar official under any Bankruptcy
Law.

6.2           Notice and Cure.

(a)   A default
under Section 6.1(b) or (e) above is not an Event of Default until the Holder
notifies the Maker in writing of the default and the Maker does not cure the
default within sixty (60) days after receipt of such notice.  The notice given pursuant to this Section
6.2 must specify the default, demand that it be remedied and state that the
notice is a “Notice Of Default.”

(b)   When any Event of Default under Section 6.1
is cured, it ceases.

(c)   The Maker shall immediately notify Holder
upon becoming aware of the existence of any condition or event which
constitutes a default or an Event of Default hereunder by written notice which
specifies the nature and period of existence of such default or Event of
Default and what action the Maker is taking or proposes to take with respect
thereto.  The Holder shall not be
charged with knowledge of any Event of Default unless written notice thereof
shall have been given to the Holder or any agent of the Holder.

6.3           Acceleration.  If an Event of Default (other than an Event
of Default specified in Section 6.1(g) or (h)) occurs and is continuing, the
Holder may, by notice to the Maker, declare all unpaid principal on this Note
then outstanding (if not then due and payable), together with unpaid interest,
if any, to the date of acceleration, 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
6.1(g) or (h) occurs, all unpaid principal of this Note then outstanding,
together with unpaid interest, shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of the
Holder.  The Holder may at any time, by
notice to the Maker, rescind an acceleration and its consequences.  No such rescission shall affect any
subsequent default or impair any right consequent thereto.

6.4           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 of or interest on this Note or to enforce the performance of any
provision of the Purchase Agreement or this Note.

(b)   Remedies Not Exclusive.  The Holder may maintain a proceeding even if
it does not possess this Note or does not produce it in the proceeding.  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

 

16

 

exclusive
of any other remedy.  All available
remedies are cumulative to the extent permitted by law.

6.5           Collection Suit By Holder.  If an Event of Default in the payment of
principal specified in Section 6.1(a) occurs and is continuing or if any
interest due and payable hereunder is not paid when due and thereafter remains
unpaid, the Holder may recover judgment against the Maker for the whole amount
of principal and accrued interest remaining unpaid, together with, to the
extent that payment of such interest is lawful, interest on overdue principal
and on overdue installments of interest, in each case at the Default Rate and
such further amount as shall be sufficient to cover the costs and expenses of collection,
including reasonable attorneys’ fees and disbursements.

7.             Voting Rights. 
The Holder of this Note shall have no voting rights with respect to
Maker.

8.             Waiver. 
No delay or omission on the part of the Holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right
of the Holder, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future
occasion.  The Maker hereby forever
waives presentment, demand, presentment for payment, protest, notice of
protest, notice of dishonor of this Note and all other demands and notices in
connection with the delivery, acceptance, performance and enforcement of this
Note.

9.             Miscellaneous.

9.1           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 Maker expressly referring to this Note and
setting forth the provision so excluded, modified or amended.

9.2           Costs.     If action is successfully instituted to collect on this Note,
the Maker promises to pay all costs and expenses, including reasonable
attorneys’ fees, incurred in connection with such action.

9.3           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.

9.4           Governing Law.  This Note shall be governed by, and
construed in accordance with, the laws of the State of New York.

9.5           Service of Process; Consent to
Jurisdiction; Venue.

(a)   The Maker agrees that service of any process,
summons, notice or document by registered mail to its address set forth in
Section 11.4 of the Purchase Agreement, or any other lawful means, shall
be effective service of process for any action, suit or proceeding brought
against it with respect to this Note in any court identified in clause (b)
below.

 

17

 

(b)   The Maker hereby irrevocably and
unconditionally consents to the exclusive jurisdiction of the courts of the
State of New York and the United States District Court for the Southern
District of New York for any action, suit or proceeding (other than appeals
therefrom) arising out of or relating to this Agreement, and agrees not to
commence any action, suit or proceeding (other than appeals therefrom) related
thereto except in such courts.  The
Maker further hereby irrevocably and unconditionally waives any objection to
the laying of venue of any action, suit or proceeding (other than appeals
therefrom) arising out of or relating to this Note in the courts of the State
of New York or the United States District Court for the Southern District of
New York, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or
proceeding brought in any such court has been brought in an inconvenient forum.

9.6           Notices.  All notices hereunder shall be given by a
party in writing and shall be deemed received by the other party hereto, in
each case in accordance with the terms of Section 11.4 of the Purchase
Agreement as if any such notice were a notice thereunder.

9.7   Transferability.  This Note may not be transferred or assigned
by the Holder except as permitted by Section 7 of the Purchase Agreement.  For the avoidance of doubt, the parties
acknowledge and agree that, in the event that the Holder merges into or
consolidates with any other Person, or that any other Person acquires
securities of the Holder, such merger, consolidation or acquisition (as the
case may be) shall not be deemed for purposes of this Section 9.7 to be, or to
trigger, a transfer or assignment of the Holder’s rights and obligations
hereunder.

9.8           Maximum Rate.  Any provisions contained in this Note to the
contrary notwithstanding, Holder shall not be entitled to receive, collect or
apply, as interest on the obligations evidenced hereunder, any amount in excess
of the maximum rate of interest permitted to be charged by applicable law, and,
in the event any amount is ever received, collected, or applied as interest in
excess of this maximum allowable rate by Holder, any such amount which would be
excessive interest shall be applied to the reduction of the principal amount
owed by the Maker.  If such principal
amount is paid in full, any such excess shall be promptly paid over to the
Maker.  In determining whether or not
the interest paid or payable under any specific circumstances exceeds the
maximum rate allowed by law, Holder may, to the maximum extent allowed by law,
characterize any nonprincipal payment as an expense, fee or premium rather than
interest; exclude voluntary prepayments and the effects of them; and apportion the
total amount of interest throughout the entire contemplated term of the this
Note so that the interest rate is uniform throughout.

9.9           Binding Effect.  This Note shall be binding upon the
successors or assigns of the Maker and shall inure to the benefit of the
successors and assigns of the Holder.

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18

 

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

	
   

  	
   

  	
  ABGENIX, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
							

 

 

 

 

19

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