Incentive Agreement - Monksland Holdings BV, Elan International Services Ltd. and Ligand Pharmaceuticals Inc.
INCENTIVE AGREEMENT
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This incentive agreement (this "Agreement"), dated as of December 31, 1999,
by and among Monksland Holdings, BV, a Dutch corporation ("Monksland"), Elan
International Services, Ltd., a Bermuda corporation ("EIS"), and Ligand
Pharmaceuticals Incorporated, a Delaware corporation ("Ligand").
Recitals
WHEREAS, Ligand issued to Monksland on August 31, 1999 a Zero Coupon
Convertible Senior Note due 2008 in the amount of $41,137,581 at maturity (the
"Note") under a Securities Purchase Agreement, dated as of November 6, 1998 (the
"Purchase Agreement") by and among Ligand, EIS and Elan Corporation, plc, a
public limited company organized under the laws of Ireland ("Elan"); and
WHEREAS, Ligand has requested that Monksland convert the Note to shares of
Ligand common stock prior to January 1, 2000 and Monksland concurrent with this
Agreement is converting the Note to shares of Ligand common stock.
NOW, THEREFORE, in consideration of the covenants and mutual agreements set
forth herein and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
Agreement
Section 1. Agreement to Convert
In consideration for 188,572 shares of Ligand common stock (the "Incentive
Shares") to be issued by Ligand to EIS, an affiliate of Monksland, at the
request of Monksland, and subject to the terms and conditions of this Agreement,
Monksland hereby agrees to convert the Note under its terms and conditions as of
the date hereof. Also, at the request of Monksland, the shares to be issued by
Ligand upon conversion of the Note shall be issued to EIS at the request of
Monksland.
Section 2. Representations & Warranties of Ligand
(i) Except as otherwise set forth in the Schedule of Exceptions (as updated
on December 30, 1999) attached hereto as Exhibit A, the representations and
warranties of Ligand contained in the Purchase Agreement that are qualified by
Material Adverse Effect or materiality are true and correct in all respects and
the representations and warranties of Ligand contained in the Purchase Agreement
that are not so qualified are true and correct in all material respects, in
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each case, on and as of the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date, and Ligand
has performed all covenants and agreements and satisfied all conditions on its
part to be performed or satisfied under the Purchase Agreement at or prior to
the date hereof;
(ii) As of the date hereof and since June 30, 1998, except as set forth in
the Additional SEC Reports, no event or development has occurred, and no
information has become known, that, individually or in the aggregate, has or
would be reasonably likely to have a Material Adverse Effect;
(iii) The issuance of the Incentive Shares has not been enjoined
(temporarily or permanently);
(iv) Each of the Purchase Agreement, the Registration Rights Agreement or
the New Registration Rights Agreement, as the case may be, the License Agreement
and, to the extent outstanding, the Securities, are, and after giving effect to
the issuance of the Incentive Shares, will be, valid and enforceable against
Ligand, except that (A) the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity and the discretion of the court before which any proceeding
therefor may be brought and (B) any rights to indemnity or contribution under
the Registration Rights Agreement or the New Registration Rights Agreement, as
the case may be, may be limited by federal and state securities laws and public
policy considerations, and no event that constitutes a breach of or a default
under (or an event which, with notice or passage of time or both would
constitute a default under) this Agreement, the Registration Rights Agreement or
the New Registration Rights Agreement, as the case may be, the License Agreement
or, to the extent outstanding, the Securities, by Ligand has occurred and is
continuing or, after giving effect to the issuance and sale of the Incentive
Shares, will have occurred and be continuing;
(v) Under the Preferred Share Rights Agreement, dated as of September 13,
1996, between Ligand and Wells Fargo Bank, N.A., as amended (the "Rights
Agreement"), no event has occurred that has caused or will cause, and none of
the execution of this Agreement or the consummation of the transactions
contemplated hereby, including the issuance of the Incentive Shares, will cause,
rights issued thereunder to become exercisable or a "Distribution Date" to
occur, assuming compliance by Elan and its Affiliates with the provisions of
Section 14(c) of the Purchase Agreement; and
(vi) The Registration Rights Agreement has been duly amended to include the
Incentive Shares within the definition of Registrable Securities thereunder.
Section 3. Representations & Warranties of EIS
(i) EIS acknowledges that the Incentive Shares will not be registered under
the
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Securities Act or any other applicable securities laws, will be issued in
transactions not requiring registration under the Securities Act and, unless so
registered, may not be offered, sold or otherwise transferred except in
compliance with the registration requirements of the Securities Act or any other
applicable securities law, pursuant to an exemption therefrom or in a
transaction not subject thereto and in each case in compliance with the
conditions for transfer set forth in paragraph (iii) below;
(ii) EIS is outside the United States and is not a "U.S. person" (as such
term is defined in Regulation S);
(iii) Until the expiration of the "one-year distribution compliance period"
within the meaning of Rule 903 of Regulation S, EIS will not sell or otherwise
transfer the Incentive Shares, except (i) to Ligand or its Subsidiaries, (ii)
pursuant to an effective registration statement which has been declared
effective under the Securities Act, (iii) in an offshore transaction in
accordance with Rule 904 of Regulation S or (iv) pursuant to any other available
exemption from the registration requirements of the Securities Act, including
Rule 144. After the expiration of such "one-year distribution compliance
period," EIS will not sell or otherwise transfer the Incentive Shares, except
pursuant to registration under the Securities Act or an available exemption
therefrom and, in any case, in accordance with the provisions of Regulation S
and applicable state securities laws;
(iv) EIS understands that the certificates representing the Incentive
Shares will, so long as appropriate, bear the legend set forth in clause (vi) of
Section 4(a) of the Purchase Agreement;
(v) EIS agrees that Ligand shall be entitled to make a notation on its
records and give instructions to any transfer agent of the Common Stock in order
to implement the restrictions on transfer set forth in the Purchase Agreement;
(vi) EIS believes that it has received all information it considers
necessary or appropriate and has had an opportunity to ask questions and receive
answers from Ligand regarding the terms and conditions of the issuance and sale
of the Incentive Shares and the business, properties, prospects and financial
condition of Ligand; provided that this clause (vi) shall in no way limit or
modify the representations and warranties of Ligand set forth in Section 3 of
the Purchase Agreement or the right of EIS to rely thereon; it is a
sophisticated investor and that an investment in the Incentive Shares involves a
high degree of risk; and that the valuation price of the Incentive Shares may or
may not exceed the last publicly quoted per share "asked" price of the Common
Stock on the date hereof;
(vii) EIS will be acquiring the Incentive Shares for its own account for
the purpose of investment and not (i) with a view to, or for sale in connection
with, any distribution thereof or (ii) for the account or on behalf of any "U.S.
person" (as such term is defined in Regulation S); EIS understands, acknowledges
and agrees that it must bear the economic risk of its investment in the
Incentive Shares for an indefinite period of time and that prior to any offer or
sale of such securities, Ligand may require, as a condition to effecting a
transfer of the Incentive Shares, an
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opinion of its counsel, acceptable to Ligand, as to the registration or
exemption therefrom under the Securities Act;
(viii) EIS was not formed specifically for the purpose of acquiring the
Incentive Shares under this Agreement;
(ix) EIS nor any of its Affiliates has, directly or indirectly, within the
past 90 days nor will such persons until the expiration of the "one-year
distribution compliance period" within the meaning of Rule 903 of Regulation S
commencing from the later to occur of (i) the last Additional Closing occurring
on or before December 31, 1999 and (ii) the last License Share Issuance
occurring on or before the expiration or termination of the License Agreement
directly or indirectly, enter into any short selling of any equity security of
Ligand (including, without limitation, the Common Stock) or any hedging
transaction with respect to any equity security of Ligand, including, without
limitation, puts, calls, or other option transactions, option writing and equity
swaps, unless in compliance with the Securities Act;
(x) EIS acknowledges that, until November 9, 2000, it shall not, directly
or indirectly, without the prior written consent of Ligand, Transfer the
Incentive Shares; provided that EIS may Transfer the Incentive Shares to any of
its Affiliates and any Affiliate of EIS may Transfer the Incentive Shares to EIS
or any Affiliate of EIS, subject to EIS's agreements set forth herein; and
(xi) EIS acknowledges that the issuance of the Incentive Shares shall not
result in an adjustment to the Conversion Price of the Notes under Section 6(i)
thereof.
Section 4. Acknowledgment of Ligand
Ligand acknowledges notwithstanding anything in the Purchase Agreement, the
acquisition of the Incentive Shares by EIS, shall not be violative of any
standstill provision contained in the Purchase Agreement, including Section
14(c), or otherwise applicable to EIS, and that the Incentive Shares shall be
afforded all of the rights and exceptions afforded the Shares under such
applicable provisions; provided that Ligand shall have no obligation to amend
the Rights Agreement with respect to the Incentive Shares.
Section 5. Miscellaneous
(i) APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND
THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE
AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS
THEREOF RELATING TO CONFLICTS OF LAW.
(ii) Waiver. No failure or delay on the part of a party hereto in
exercising any right,
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power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder.
(iii) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(iv) Terms. Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to them in the Purchase Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto and delivered as of the date first written above.
MONKSLAND HOLDINGS, BV
By: /s/Kevin Insley
Name: Kevin Insley
Title: Authorized Signatory
ELAN INTERNATIONAL SERVICES, LTD.
By: /s/Kevin Insley
Name: Kevin Insley
Title: President & CFO
LIGAND PHARMACEUTICALS INCORPORATED
By: /s/David Robinson
Name:
Title:
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