-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OS8bYOU4B0Sc7xIZ9/5R2DufrU7/XGiBa3JVm6BLRs+f3fnplA2R7YRTWFassUAQ MYFBwyWxx6nZMyDx6YciHg== 0000912057-01-506536.txt : 20010409 0000912057-01-506536.hdr.sgml : 20010409 ACCESSION NUMBER: 0000912057-01-506536 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 31 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUBIST PHARMACEUTICALS INC CENTRAL INDEX KEY: 0000912183 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 223192085 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21379 FILM NUMBER: 1592057 BUSINESS ADDRESS: STREET 1: 24 EMILY ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6075761999 MAIL ADDRESS: STREET 1: 24 EMILY ST CITY: CAMBRIDGE STATE: MA ZIP: 02139 10-K 1 a2042768z10-k.txt 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: DECEMBER 31, 2000 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from: _________________ to _________________ Commission file number: 0-21379 CUBIST PHARMACEUTICALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-3192085 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 24 EMILY STREET, CAMBRIDGE, MA 02139 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ( ZIP CODE) Registrant's telephone number, including area code: (617) 576-1999 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.001 PAR VALUE (TITLE OF CLASS) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-X is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the registrant's common stock, $.001 par value per share ("Common Stock"), held by non-affiliates of the registrant as of March 28, 2001 was approximately $654,799,928, based on 26,932,091 shares held by such non-affiliates at the closing price of a share of Common Stock of $24.313 as reported on the Nasdaq National Market on such date. Affiliates of the Company (defined as officers, directors and owners of 10 percent or more of the outstanding share of Common Stock) owned 1,026,363 shares of Common Stock outstanding on such date. The number of outstanding shares of Common Stock of the Company on March 28, 2001 was 27,958,454. -2- CUBIST PHARMACEUTICALS, INC. ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
ITEM PAGE PART I 1. Business 3 2. Description of Property 28 3. Legal Proceedings 29 4. Submission of Matters to a Vote of Security Holders 29 PART II 5. Market For Registrant's Common Stock and Related Stockholder Matters 29 6. Selected Financial Data 30 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 31 7A. Quantitative and Qualitative Disclosures About Market Risk 37 8. Financial Statements and Supplementary Data 38 9. Changes in and Disagreements With Accountants on Accounting And Financial Disclosure 63 PART III 10. Directors and Executive Officers of the Registrant 63 11. Executive Compensation 63 12. Security Ownership of Certain Beneficial Owners Management 63 13. Certain Relationships and Related Transactions 63 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Signatures 63
-3- SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA This annual report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding our drug development and discovery programs, clinical trials, receipt of regulatory approval, capital needs, collaborative agreements, intellectual property, expectations and intentions. Forward-looking statements may be identified or qualified by words such as "likely," "will," "suggests," "may," "would," "could," "should," "expects," "anticipates," "estimates," "plans," "projects," "believes," or similar expressions and variants of those words or expressions. Forward-looking statements necessarily involve risks and uncertainties, and our actual results could differ materially from those anticipated in the forward-looking statements due to a number of factors, including those set forth above under "Risk Factors" and elsewhere in this annual report. The factors set forth above in the "Risk Factors" section and other cautionary statements made in this annual report should be read and understood as being applicable to all related forward-looking statements wherever they appear in this annual report. The forward-looking statements contained in this annual report represent our judgment as of the date of this annual report. We caution readers not to place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. Information regarding market and industry statistics contained in this annual report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications. We have not independently verified all data and cannot assure you of the accuracy of the data we have included. PART I PART I ITEM 1. BUSINESS CORPORATE OVERVIEW Cubist Pharmaceuticals, Inc. is a specialty pharmaceutical company focused on the research, development and commercialization of novel antimicrobial drugs to combat serious and life-threatening bacterial and fungal infections. Cidecin (daptomycin for injection), our lead product candidate and the first in a new class of antimicrobial drug candidates called lipopeptides, has demonstrated the unique ability IN VITRO to rapidly kill virtually all clinically significant Gram-positive bacteria, including those that have become resistant to current therapies. Multiple Phase III trials are currently underway examining the safety and efficacy of Cidecin in the treatment of complicated skin and soft tissue infection, community-acquired pneumonia and complicated urinary tract infection. An open-label Phase II trial using Cidecin for the treatment of bacteremia was recently completed and future trials are planned in the treatment of endocarditis and certain resistant infections. Assuming the successful completion of Phase III clinical trials, we plan to file with the United States Food and Drug Administration by mid-2002 a New Drug Application. We recently expanded our product pipeline by announcing the development of an oral formulation of daptomycin and by acquiring the worldwide rights to research, develop, manufacture and sell oral ceftriaxone, the first orally active version of Rocephin, the largest-selling intravenous antibiotic worldwide. Each of these programs is in the pre-clinical stage of development. In addition, our internal research and drug discovery activities are focused on the discovery of new drug candidates from the lipopeptide class, including a 'next generation' daptomycin, and entirely new classes of antimicrobial drug candidates, while we continue to be involved in multiple, strategic partnerships with other pharmaceutical companies, including Novartis Pharma AG and Merck & Co., for the discovery and development of novel antiinfectives. We utilize our VITA, ChemInformatics, NatGen, NatChem and BioDiversity technologies to identify additional novel compounds with a broad spectrum of activity against a variety of infections. -4- OVERVIEW OF INFECTIOUS DISEASE AND DRUG RESISTANCE Infectious diseases are caused by pathogens present in the environment, such as bacteria and fungi, that enter the body through the skin or mucous membranes of the lungs, nasal passages or gastrointestinal tract, and overwhelm the body's immune system. These pathogens then establish themselves in various tissues and organs throughout the body and cause a number of serious and, in some cases, lethal infections, including those of the bloodstream, skin and soft tissue, heart, lung and urinary tract. According to The World Health Report, 1999, infectious diseases remained the leading cause of death worldwide. According to industry sources, in 1999 the global systemic antibiotic market was estimated to be valued at $25 billion and there were at least 13 branded antimicrobials with more than $300 million in annual sales worldwide. Emerging infections contribute substantially to the ongoing burden of infectious disease in the U.S. According to a 1994 CDC report, infectious diseases account for 25% of all visits to physicians each year, and antimicrobial agents are the second most frequently prescribed class of drugs. Over the past several years, there has been a rise in the incidence of infectious diseases caused by bacteria and fungi that have developed resistance to existing antimicrobial drugs. The increasing prevalence of drug-resistant bacterial and fungal pathogens has led to significantly higher mortality rates, prolonged hospitalizations, and higher health care costs from infectious disease. Antimicrobial drugs have, in many cases, proven highly successful in controlling the serious morbidity and mortality that accompany these infections. These drugs work by binding to specific targets in a bacterial or fungal pathogen, thereby inhibiting a cell function essential to the cell's survival. During the 1970's and the 1980's, many antimicrobials were developed and introduced into the market. Most of these antimicrobials were from existing antimicrobial classes such as semi-synthetic penicillins, cephalosporins, macrolides, quinolones and carbapenems. Many of these antimicrobials proved to be effective in treating infectious diseases and pharmaceutical companies shifted their resources to other areas of drug discovery and development. As a result, only one new antimicrobial agent has been introduced from a new chemical class in the past 25 years. Over the past several years, there has been a rise in the incidence of serious and life-threatening infections caused by Gram-positive bacteria, particularly in hospitalized patients. Gram-positive and Gram-negative bacteria have fundamentally different cell surface characteristics. These cell surface characteristics greatly affect the ability of an antibiotic to penetrate the bacteria and reach its target site. The rising incidence of serious and life-threatening infections in hospitals is believed to be caused by the changing nature of the hospital patient population and by the emergence of bacteria and fungi that are resistant to existing antimicrobial drugs. In recent years, the proportion of hospital patients that have compromised immune systems has risen sharply. This trend is the result of, among other things, the rising incidence of cancer and the associated use of chemotherapy, the general aging of the patient population and the increased use of complex surgical procedures such as organ transplants. Hospital patients with compromised immune systems are more susceptible to serious and life-threatening infections. The rise in the incidence of infectious diseases caused by bacteria and fungi that have developed resistance to existing antimicrobial drugs is a natural outcome of the use and overuse of antimicrobial drugs. When bacteria or fungi are exposed to an antimicrobial drug, the drug kills or inhibits the growth of the susceptible pathogen. However, any variant in the bacterial population that has spontaneously undergone a genetic change that confers drug resistance will have a selective growth advantage, known in evolutionary terms as natural selection. Thus, the antimicrobial drug does not cause the resistance but creates an environment in which the resistant pathogen can multiply in the presence of the drug, increasing the population of the resistant pathogen and making it the predominant pathogen. These resistant pathogens can then spread rapidly throughout the community. Certain pathogens have developed resistance to all currently available drugs. Examples of such Gram-positive resistant pathogens include: o METHICILLIN RESISTANT STAPHYLOCOCCUS AUREUS, OR MRSA: STAPHYLOCOCCUS AUREUS is a common bacterial pathogen that causes serious and life-threatening infections, and routinely acquires characteristics of drug resistance, virulence and toxicity. MRSA strains can cause severe tissue damage to existing wounds and can cause bacteremia, both of which have a high mortality rate. -5- o VANCOMYCIN RESISTANT ENTEROCOCCI, OR VRE: The emergence of VRE strains in the 1990's has led to infections for which only very limited commercially available therapy exists. Hospital-based VRE has continued to rapidly rise in the United States, resulting in increased mortality rates. o GLYCOPEPTIDE INTERMEDIATELY SUSCEPTIBLE STAPHYLOCOCCUS AUREUS, OR GISA: The first reports of STAPHYLOCOCCUS AUREUS infections with decreased susceptibility to vancomycin occurred in 1998. Such bacterial strains have been found in a wide geographical area throughout Japan and North America and have recently emerged in Europe. The medical community expects that fully drug-resistant STAPHYLOCOCCUS AUREUS strains will emerge from GISA as additional resistance to vancomycin develops. SHORTCOMINGS OF CURRENT THERAPIES Current therapies do not provide adequate treatment for some serious and life-threatening infections for the following reasons: o Some existing antimicrobial drugs do not kill the pathogens that cause the infection but merely inhibit their growth (called bacteriostatic agents) thereby allowing the immune system to destroy the pathogen. Bacteriostatic drugs are less effective in immunocompromised patients than antimicrobial drugs that kill the pathogens (called bactericidal agents) because their weakened immune systems cannot rid their bodies of the pathogens. o Many antimicrobials are effective against some serious and life-threatening infections but not others. This may be because the antimicrobial drug is not active against a particular type of pathogen or because a strain of this pathogen has developed resistance to the antimicrobial drug. Many of the serious and life-threatening infections occur in hospital patients whose immune systems are compromised. These infections are complicated and may be caused by more than one kind of pathogen. In addition, since these infections are life threatening, physicians treating these patients cannot wait for the test results necessary to identify the exact nature of the pathogen or pathogens causing the infection. o Some pathogens have become resistant to all antimicrobials and there are no available antimicrobial drugs to effectively treat the infections caused by these drug-resistant pathogens. Vancomycin is the current treatment of choice for patients that have serious and life-threatening infections that have failed to respond to all other antimicrobials. However, it has been widely reported in recent years that several strains of enterococci have developed resistance to vancomycin. Currently, there are limited commercially available therapeutic alternatives to treat these strains of VRE. o Many existing antimicrobial drugs used to treat serious and life-threatening infections are difficult or inconvenient to administer. Most of these antimicrobial drugs must be administered multiple times a day in order to be effective, are not well tolerated by patients or require lengthy infusion times when administered in a single daily dose. Moreover, intravenous administration of some of these antimicrobial drugs does not occur through the veins in the arm but through catheters in the central venous system. The difficulty or inconvenience of administration of these drugs make them less attractive choices for home therapy or other therapy outside the hospital. Existing antimicrobial drugs may cause side effects in some patients, such as severe allergic reaction, lower blood pressure, inflammation and swelling at the site of injection and headaches. Some of these side effects may be significant enough to require that therapy be discontinued. OUR BUSINESS STRATEGY Our objective is to be a worldwide leader in the research, development and commercialization of new antimicrobial drugs to combat serious and life-threatening Gram-positive bacterial and fungal infections, including those caused by drug-resistant pathogens. The principal elements of our strategy to achieve this objective include the following: DEVELOP AND COMMERCIALIZE CIDECIN. We are developing Cidecin (daptomycin for injection) to treat serious and life-threatening bacterial infections, including those caused by drug-resistant pathogens. Assuming the successful completion of Phase III human clinical trials, we intend to file a new drug application with the FDA by mid-2002. We have the exclusive right to develop, manufacture and market Cidecin and are evaluating strategies for its worldwide commercialization. -6- DEVELOP PRE-CLINICAL CANDIDATES. As a result of corporate development efforts in 2000, we now have two drug candidates in pre-clinical development: an oral formulation of daptomycin and an oral formulation of ceftriaxone, the first orally active version of Rocephin, the largest-selling intravenous antibiotic worldwide. If the pre-clinical studies planned throughout 2001 are successful, we anticipate filing Investigational New Drug Applications, or IND's, with the FDA and beginning human clinical trials on oral ceftriaxone and oral daptomycin in 2002. LICENSE NEW DRUGS AND NEW DRUG CANDIDATES. Our internal expertise allows us to recognize viable licensing opportunities and to save time and money in successfully developing antimicrobials by capitalizing on research initially conducted and funded by others. We intend to continue to review and acquire compounds with promising characteristics as antimicrobial drug candidates. DISCOVER AND DEVELOP NEW ANTIMICROBIAL DRUGS. We focus our research and drug discovery activities on identifying new classes of antimicrobial drugs and on developing one or more antimicrobial drugs from each of these new classes. We believe that antimicrobial drugs from new classes will be effective against drug-resistant bacterial and fungal pathogens because these pathogens have not had an opportunity to develop resistance specific to these drugs. We have a research and development effort underway focused on a new class of antimicrobials called lipopeptides. Daptomycin is a member of the lipopeptide class and, as a result of our work with daptomycin, we have developed expertise in the chemistry and biology of lipopeptides. Our proprietary lipopeptide program is focused on identifying new lipopeptide antimicrobial compounds for the treatment of a broad spectrum of serious and life-threatening bacterial infections. UTILIZE OUR VITA FUNCTIONAL GENOMICS, NATURAL PRODUCTS AND CHEMINFORMATICS TECHNOLOGIES TO ACCELERATE THE DISCOVERY OF ANTIMICROBIAL DRUGS. We utilize our VITA, Natural Products and ChemInformatics technologies in our internal research programs to identify novel compounds with a broad spectrum of activity against life-threatening infectious organisms including resistant strains such as MRSA and VRE. Our technologies attempt to accelerate the generation of leads for medicinal chemistry programs resulting in faster development of antimicrobial drugs and lower costs by efficiently using resources throughout the drug discovery process. LICENSE OUR VITA FUNCTIONAL GENOMICS AND OTHER TECHNOLOGIES TO PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES. We plan to continue to generate revenues by licensing our VITA functional genomics, our natural products and other technologies as drug discovery platforms. DEVELOPMENT PIPELINE I. CIDECIN (DAPTOMYCIN FOR INJECTION) OVERVIEW. Daptomycin is the first member of a new class of antimicrobial drugs called lipopeptides. Under laboratory conditions, or IN VITRO, daptomycin rapidly kills virtually all clinically significant Gram-positive bacteria, including the resistant strains of VRE, MRSA and GISA. The Gram-positive bacteria targeted by daptomycin cause serious infections, including endocarditis or infection of the valves of the heart, osteomyelitis or infection of bone or bone marrow, complicated skin and soft tissue infections, bacteremia, complicated urinary tract infections and pneumoniae. In November 1997, we licensed from Eli Lilly & Company the exclusive rights to manufacture and market daptomycin. We are currently evaluating the efficacy and safety of an intravenous version of daptomycin, which we have branded as "Cidecin", in a clinical program with Phase I, Phase II and Phase III trials currently underway. CIDECIN ADVANTAGES. We believe that Cidecin could provide the following key benefits: o ACTIVE AGAINST GRAM-POSITIVE BACTERIA. Cidecin is effective IN VITRO against virtually all clinically significant Gram-positive bacteria, including VRE, MRSA and GISA. We believe that Cidecin's broad spectrum of IN VITRO activity could give it a clinical therapeutic advantage in treating serious and life-threatening infections because Cidecin could be used to treat these infections regardless of which Gram-positive bacterium is causing the infection. o RAPIDLY KILLS BACTERIA (BACTERICIDAL). Cidecin rapidly kills virtually all clinically significant Gram-positive bacteria IN VITRO. We believe this could give Cidecin a clinical therapeutic advantage in treating serious and life-threatening infections, particularly in patients that have compromised immune systems, as compared to other drugs that do not kill the bacteria but rather only inhibit their growth and rely on the immune system to destroy the -7- bacteria. Use of the growth-inhibiting rather than bacteria-killing drugs to treat serious and life-threatening infections is riskier because, even if the growth-inhibiting drug works, it is possible that the immune system will not be able to destroy the bacteria causing the infection. o EFFECTIVE AGAINST DRUG-RESISTANT BACTERIA. Studies have shown that Cidecin is effective IN VITRO against drug-resistant bacteria, including VRE and GISA. Vancomycin, a glycopeptide, we believe could become the treatment of choice for patients that have serious Gram-positive infections that have failed to respond to all other drugs. Recently, however, several strains of enterococci have developed resistance to vancomycin and strains of STAPHYLOCOCCUS AUREUS have become intermediately susceptible to vancomycin. Currently, there are limited therapeutic alternatives to treat VRE and GISA strains. We believe that Cidecin will become the therapy of choice to treat infections caused by drug-resistant Gram-positive bacteria. o EASE OF ADMINISTRATION. In our current clinical trials, Cidecin is administered in a single daily dose, intravenously, over approximately 30 minutes. Cidecin should have an advantage over several other antimicrobial drugs that require administration in multiple doses each day, that take longer than 30 minutes to administer or that are administered through a central venous catheter located in parts of the body other than the arm. CIDECIN CLINICAL DATA. In the late 1980's Eli Lilly conducted 19 Phase I safety trials and 2 Phase II efficacy and dosing trials of intravenous daptomycin for the treatment of skin and soft tissue infections and bacteremia. A total of 352 patients participated in these trials. On the basis of daptomycin's IN VITRO activity against clinically significant bacteria, its bacteria-killing mode of action and its promising profile in the Eli Lilly Phase I and Phase II trials, we began further clinical evaluation of intravenous daptomycin. In December 1998, we filed an IND with the FDA and began Phase II and Phase III trials in February 1999 in order to evaluate the safety and efficacy of intravenous daptomycin in patients with complicated skin and soft tissue infections and in patients with bacteremia. On March 5, 2000, we presented the results from two dose-ranging Phase II open-label trials at the CDC's conference on Nocosomial and Healthcare-Associated Infections. The objective of these Phase II trials was to investigate dose selection based on clinical efficacy and safety. The first trial was focused on patients diagnosed with bacteremia. The second trial was focused on patients who had failed or were unable to tolerate other therapies for the treatment of serious Gram-positive infections, including bacteremia, complicated skin and soft tissue, complicated urinary tract infection, intra-abdominal infection and pneumonia, which we call the RRC study. The Phase II trial data combined for both studies included 56 patients and showed that Cidecin administered once-a-day at 4 mg/kg had a 91% clinical success rate. In addition, Cidecin administered once-a-day at 4 mg/kg demonstrated an 86% clinical success rate in the subset of patients infected with a vancomycin-resistant pathogen or who were refractory or intolerant to vancomycin. Cidecin also had a safety profile similar to standard therapies. On May 31, 2000, additional data were presented from the two ongoing Phase II open-label trials at the European Congress of Clinical Microbiology and Infectious Diseases. The combined data included 101 enrolled patients. At a dose of 4 mg/kg in a once-daily regimen, Cidecin had an overall clinical success rate of 92% in the modified intent-to-treat population and 100% on the clinically evaluable patients. In terms of microbiologic eradication, Cidecin demonstrated a 75% success rate in the modified intent-to-treat population and a 93% success rate in microbiologically evaluable patients. Notably, the data show that in the RRC study, Cidecin demonstrated a clinical success rate of 86%. As a result of the data collected thus far, a dose of 4 mg/kg was chosen for all Phase III pivotal trials. On September 18, 2000, further data were presented at the Interscience Conference on Antimicrobial Agents and Chemotherapy combining the data from the 4 mg/kg once-daily dosing regimens in the bacteremia and RRC studies completed to date. Cidecin had an overall clinical success rate of 93% in the modified intent-to-treat population and 100% on the clinically evaluable patients. In terms of microbiologic eradication, Cidecin demonstrated a 75% success rate in the modified intent-to-treat population and a 100% success rate in microbiologically evaluable patients. Comparable vancomycin data in the bacteremia trial demonstrated a 64% clinical success rate in the modified intent-to-treat population. These additional data presented were consistent with the data announced earlier in the year. Also at the Interscience Conference on Antimicrobial Agents and Chemotherapy, results were announced from a Cidecin Phase I dose escalation study intended to assess the safety, tolerability and pharmacokinetics of Cidecin given once a -8- day at increasing doses. In the study, volunteers received once-daily doses of Cidecin at 4 mg/kg, 6 mg/kg or 8 mg/kg for up to 14 days. The results of the study showed that no serious adverse events occurred in any patients at any of the doses studied. On March 14, 2001, we announced preliminary results from our first, pivotal Phase III trial examining the safety and efficacy of Cidecin in the treatment of complicated skin and soft tissue infection caused by Gram-positive bacteria. We were able to announce that the primary endpoint of demonstrating equivalency to comparator agents was achieved as per the protocol previously reviewed by the FDA. More detailed results from this study will be available after April 3, 2001, when the safety and efficacy data are expected to be presented at the European Congress of Clinical Microbiology and Infectious Diseases in Istanbul, Turkey. CIDECIN SAFETY PROFILE. In our clinical trials to date, observed side effects in patients treated with Cidecin have been comparable to those observed in patients treated with standard therapies. CIDECIN CLINICAL PLAN. The clinical plan for Cidecin is designed to enroll a sufficient number of patients necessary for the safety and efficacy analysis to obtain FDA approval. The following table shows our clinical studies currently completed, underway and planned.
GEOGRAPHIC INFECTION STATUS TIMING SCOPE Bacteremia Phase II Completed in 4Q:00 U.S. Resistant, Refractory Phase II Completed in 3Q:00 U.S. or Contraindicated Complicated Skin Phase III Completed in 1Q:01 International and Soft Tissue Infection Complicated Skin Phase III Commenced in 2Q:99 Worldwide and Soft Tissue Infection Community-Acquired Phase III Commenced in 1Q:01 Worldwide Pneumonia (CAP 1) Community Acquired Phase III Expected to Commence Worldwide Pneumonia (CAP 2) in 2Q:01 Complicated Urinary Tract Phase III Commenced in 4Q:00 Worldwide Infection Endocarditis Phase II/III Expected to Commence U.S. in mid-2001 VRE Infection Phase III Expected to Commence U.S. in mid-2001
We are considering additional clinical trials designed to expand the indications and commercial opportunity for Cidecin to other clinical applications, including osteomyelitis. II. ORAL CEFTRIAXONE In late November 2000, we announced that we had acquired worldwide rights to research, develop, manufacture and sell oral ceftriaxone from International Health Management Associates, Inc., a privately held company located in Illinois. The formulation is the first orally active version of the largest-selling intravenous (IV) antibiotic worldwide, Hoffmann-LaRoche's Rocephin, which had sales of over $1.2 billion in 1999. Terms of the acquisition were not disclosed. -9- Gram-positive and Gram-negative bacteria are responsible for the majority of community-based infections, which include upper and lower respiratory tract infections (including otitis media, sinusitis, bronchitis and community-acquired pneumonia) and skin and soft tissue infections. These infections result in nearly 80 million treated patients annually in the United States. Intravenous ceftriaxone is a third-generation cephalosporin and has demonstrated a broad spectrum of bactericidal antimicrobial activity against Gram-positive and Gram-negative bacteria. To date, intravenous ceftriaxone has been primarily used to treat hospital in-patients due to the lack of an oral version. Nonetheless, intravenous ceftriaxone has been successfully and safely prescribed for over 15 years in both adults and children. If successfully developed, we believe that an oral formulation could greatly expand the utility and revenue potential of ceftriaxone through community-based prescribing. In addition, we believe oral ceftriaxone could also be used for the continuation of antibiotic therapy by converting intravenous therapy to oral therapy, otherwise known as step-down therapy. Step-down therapy provides multiple benefits, including convenience and cost savings, potential earlier hospital discharge, the reduction of associated healthcare costs and increased physician confidence in an optimal therapeutic outcome given that a discharged patient is receiving the same therapy that was taken intravenously in the hospital setting. Our oral formulation of ceftriaxone is currently in pre-clinical development. If pre-clinical studies proceed positively, we expect to file an IND to begin human clinical trials during the first half of 2002. III. ORAL DAPTOMYCIN In November 2000, Cubist and Emisphere Technologies of Tarrytown, New York, announced a research agreement to develop an oral formulation of daptomycin. The agreement followed successful completion of proof-of-principle feasibility studies using Emisphere carrier molecules and daptomycin. At that time, we announced that we had been able to show that after oral administration, the degree to which oral daptomycin became available was sufficient to achieve efficacy in an infected rodent model. If successfully developed, oral daptomycin would enable Cubist to compete in the market for step-down therapy from IV to oral, should the IV formulation also receive FDA approval. The ability to treat infected patients with daptomycin on an outpatient basis could be an important contributor to a reduction in healthcare costs. Pre-clinical testing of oral daptomycin is ongoing. If development continues with positive results, we anticipate filing an IND to begin human clinical trials in the first half of 2002. IV. LIPOPEPTIDE PROGRAM Daptomycin is the first member of a new class of chemical molecules called lipopeptides. With traditional classes of antimicrobials, such as the penicillins, multiple antimicrobial drugs have been developed. Therefore, we expect there will be additional clinically useful lipopeptides with the potential for commercialization. We are engaged in a comprehensive lipopeptide drug discovery and development program based on our expertise on the chemistry and biology of lipopeptides that we have acquired through our development work with daptomycin. We have initiated a research program focused on the design, synthesis and evaluation of new lipopeptides with improved properties over daptomycin including increased IN VITRO potency, particularly against the enterococcus, and with the ability to kill laboratory-developed daptomycin-resistant strains of bacteria. We have filed multiple patent applications on several different series of novel analogs. We expect to select a novel lipopeptide IND candidate by mid-2001. OUR DRUG DISCOVERY PROGRAMS AND TECHNOLOGIES Our drug discovery technologies are an integral part of our mission to accelerate the discovery of novel antiinfectives. Through experience and acquisition, we have amassed a comprehensive portfolio of proprietary methods for both discovering novel pharmaceuticals and also validating novel antiinfective targets. Through our acquisition of TerraGen Discovery Inc. of Vancouver, British Columbia, we have increased our focus on the use of biodiversity as a means of natural product drug discovery, while also using traditional ChemInformatics techniques. Over 40% of the largest-selling pharmaceuticals on the market today are derived from naturally existing substances. In the area of antiinfectives, there are four natural products with annual sales over $1 billion--Augmentin, Zithromax, Biaxin and -10- Rocephin. The majority of these natural products have been derived from microorganisms called microbes that live in soil and other environments. As part of their daily existence, microbes produce substances--both proteins and small molecules--that are known to have a variety of functions, including signaling to other microbes and as defense mechanisms against other species. It is these substances that are of interest pharmaceutically, because they are already biologically active by definition. Due to previous technical limitations, only about 1% of existing microbes has been accessible to scientists for evaluation. However, this 1% is responsible for tens of billions of dollars in annual pharmaceutical sales. The technology we acquired from TerraGen Discovery enables the evaluation of the remaining 99% of microbes; an untapped pool of natural diversity that we hope will prove to be a rich source of pharmaceutical leads and products. We have developed and continue to implement novel technologies to accelerate the process of drug discovery. To discover new antimicrobials for clinical development, our discovery platform integrates the scientific disciplines and technologies required for target validation and assay development, high-throughput screening and medicinal chemistry. OUR PROPRIETARY NATURAL PRODUCTS DRUG DISCOVERY TECHNOLOGIES As a result of the acquisition by Cubist of TerraGen Discovery Inc, a privately held company headquartered in Vancouver, BC, Canada, in October 2000, we acquired multiple proprietary technologies in the area of natural products drug discovery. These technologies create a comprehensive portfolio of drug discovery technologies, that, when used in conjunction with sophisticated fermentation and extraction methods, quickly eliminate the bottlenecks that currently exist in the natural products drug discovery process. This technology portfolio includes natural products technologies including NatPure, NatChem, NatGen, and biosynthesis technologies, which encompass capabilities including chemical library generation, high-throughput screening and chemical analysis to generate purified, fully chemically characterized lead compounds with biological activity against specific therapeutic targets. o NAT PURE. The NatPure library contains semi-purified extracts derived from our NatChem and NatGen libraries. The advantage of this library arises from its ability to reduce the time required to advance from hit to identification of a lead structure. Extracts are selected for inclusion on the basis of chemical profile, biological activity and taxonomy. o NATCHEM. Our NatChem library comprises compound extracts from a unique collection of rare, diverse fungi and actinomycetes. Designed for maximum chemical diversity, a range of fermentation conditions are employed for each organism. The resource is continually evaluated and improved by replacing the most heavily screened extracts with new extracts derived from previously unexploited organisms. The library consists of 54,000 partially characterized extracts. o NATGEN. Our NatGen library is under continuous construction. Using proprietary technologies, large fragments of DNA that encode metabolic pathways from both uncultivable and cultivable organisms are cloned into surrogate hosts to generate recombinant strains producing novel secondary metabolites. These novel metabolites may result entirely from the randomly cloned metabolic pathway or by Combinatorial Biosynthesis, where interactions of the cloned metabolic pathway with the host's own metabolic pathways yield novel chemical compounds that are not found in Nature. o DIRECTED BIOSYNTHESIS. Using Directed Biosynthesis the metabolic pathway for a specific natural product is genetically modified to produce novel natural product analogs. This directed evolution of metabolic pathways also produces new chemical classes of compounds not found in Nature. OUR PROPRIETARY VITA FUNCTIONAL GENOMICS TECHNOLOGY Our Validation IN VIVO of Targets and Assays for Antiinfectives, or VITA, technology is a functional genomics tool that quickly generates biological information useful for identifying the most valuable drug discovery targets from clinically important pathogens such as STAPHYLOCOCCUS AUREUS. The technology allows validated targets to be rapidly enabled for high-throughput -11- screening assays used for the identification of quality lead compounds for medicinal chemistry programs. VITA is broadly applicable to both validation IN VIVO and screening IN VITRO of drug discovery targets with diverse functions, including those targets that the scientific community has not previously been able to screen. An antimicrobial drug acts during an infection by binding to a specific target and inhibiting its function. Target inhibition leads to impaired pathogen growth or pathogen cell death; consequently the infected subject survives the infection. The method by which novel targets are validated using the VITA technology is analogous to how an antibiotic inhibits its target during an established infection. A target is validated if a causal link is established between the target and a cellular response important in a disease process. Utilizing VITA, a target is validated by initially identifying a peptide that specifically binds to the target and subsequently regulating the production of the peptide in the pathogen during an established infection in mice. If the target is essential for pathogen survival, production of the peptide will inhibit target function and prevent pathogen growth, and the mice will survive. If the inhibition of the target is not essential for pathogen survival, the pathogen will continue to thrive and the mice will die from the infection. The peptide used to specifically inhibit the target can then be used in a high-throughput screening assay to identify small molecule compounds. We have filed patent applications in connection with our VITA technology. In February 1999, we entered into a collaborative research and license agreement with Novartis in which we granted Novartis a non-exclusive license to the VITA technology. As of this filing, two novel, validated antiinfective targets and screening assays had been delivered to Novartis, triggering milestone payments to Cubist by Novartis. OUR PROPRIETARY CHEMINFORMATICS TECHNOLOGY To enhance our ability to use high-throughput screening and data from target-based assays, we have designed and implemented a discovery approach called ChemInformatics. Industry-wide experience has demonstrated that having high-throughput screening assays and large numbers of compounds to screen does not consistently yield lead compounds suitable for medicinal chemistry. This problem is especially acute in antimicrobials where, to be effective, lead compounds need to be active against multiple pathogen species and to have properties that permit pathogen cell-wall penetration. Our ChemInformatics approach bridges the gap between high-throughput screening and medicinal chemistry and serves as the drug discovery engine that fuels our medicinal chemistry programs. ChemInformatics integrates high-throughput screening, enzymology, combinatorial chemistry and computational chemistry to generate three-dimensional models that are predictive for biological activity. Using these models, many novel series of compounds can be designed to have the proper chemical properties to be antimicrobial agents. We are currently applying our ChemInformatics technology to a number of different target-based programs that utilize high-throughput screening. Our ChemInformatics technology has produced two classes of novel antimicrobial compounds that have been exclusively licensed to Merck. HIGH-THROUGHPUT SCREENING We utilize automation, robotics and assay technologies to perform high-throughput screening of compound libraries to identify novel inhibitors. Thousands of compounds a day may be screened in VITA-generated target-based and whole cell assays. Inhibitors may be further characterized using our secondary screening assays where increasingly stringent selection criteria are applied to identify lead candidates with the greatest potential for successful medicinal chemistry programs. In natural products screening, our proprietary macrodroplet screening technology eliminates the need to ferment, extract and assay individual cultures. The technology is a miniaturized ultra high-throughput system that integrates library production and screening into one system. It can efficiently screen millions of recombinant strains annually against a broad panel of antibacterial and antifungal bioassays and can be adapted for different host organisms for a wide range of applications. The technology provides for the rapid determination of desired biological activities, temporal and spatial detection of secondary metabolite synthesis, easy recovery of active recombinant clones, application of mammalian cell-based assays, and further automation for clone detection and sorting. MEDICINAL CHEMISTRY Medicinal chemistry refers to an iterative process where lead series of compounds are optimized to yield new drug candidates. We have implemented systems that allow for the optimization of many series of compounds for any given target. In each compound series, we place an emphasis on extensively evaluating the profile of compounds including microbiological and IN VIVO properties. Our integrated chemistry and biology teams focus on the key parameters that need improvement for a series to advance to drug development. By utilizing many chemical series for each target, we increase the chances that these series will -12- overcome the IN VIVO hurdles to pre-clinical development. To accelerate this process, we have put into place high-throughput systems for preparing, purifying and testing compounds. OUR COLLABORATIVE AGREEMENTS We seek to enter into drug discovery and development collaboration agreements to discover, develop and commercialize novel antimicrobials. In addition to providing us with funding, our collaborations give us access to libraries of diverse compounds and to the clinical development, manufacturing and commercialization capabilities of the partners. NOVARTIS In February 1999 we announced the signing of a research and license collaboration agreement with Novartis Pharma to use our proprietary VITA technology to validate and develop assays for antiinfective targets and to identify new compounds for development as antiinfective agents. Novartis was granted a non-exclusive license to the VITA technology and exclusive licenses to specific targets, assays and compounds. Under certain circumstances, we will have co-exclusive rights with Novartis to particular targets and assays. Upon the signing of the collaboration, Novartis made an up-front, $4 million equity investment in us. The collaboration agreement contemplated that Novartis would provide us with research funding annually for three years, with an option to terminate at the end of two years. The total value of the collaboration to Cubist based on the equity investment, research funding and potential milestone payments could exceed $33 million, assuming that two products are ultimately developed. In addition, we will receive royalties on net sales of each product stemming from the collaboration. In October 2000, we announced the achievement of the first milestone in the collaboration with Novartis and received a payment of $500,000 for the delivery of a validated target and a high-throughput screening assay for antiinfective drug discovery. Shortly thereafter, as a result of the success of the collaboration, in November 2000, Novartis agreed to extend the collaboration to its full three years, or until February 2002. Then in January 2001, we announced the achievement of a second milestone in the collaboration through the delivery of another validated antiinfective target and high-throughput screening assay. Both parties are screening their respective compound libraries against the assays developed in the collaboration. Novartis will optimize any candidates and will conduct appropriate pre-clinical testing. The work conducted under the collaboration is reviewed by a management committee composed of representatives from both companies. Products resulting from this effort will be clinically developed and commercialized worldwide by Novartis. MERCK In June 1996, Merck and Cubist signed a partnership to discover novel antibiotics targeting specific aminoacyl-tRNA synthetase enzymes. These enzymes, which are required for protein synthesis, are essential for bacterial survival. In the first phase of the alliance, Cubist and Merck screened certain Merck chemical libraries to identify inhibitors of specific aminoacyl-tRNA synthetase targets. Merck paid an up-front technology license fee and provided research funding to us throughout the three years of the agreement. In October 1997, we announced the expansion of the alliance to include additional Cubist drug targets and Merck's natural products compound library. The expanded agreement added three Cubist synthetase targets, bringing the total to six, and expanded the screening libraries to include Merck's collection of natural extracts in addition to prototypical small molecules. Merck began paying additional research support beyond the original agreement. In May 1998, the agreement was again expanded to enable Merck to license Cubist compounds and data for inclusion in the collaborative research program. It was agreed that we could contribute compounds we had discovered independently in our internal drug discovery programs to the collaboration for further optimization and development. Cubist could also conduct medicinal chemistry and perform pre-clinical development of compounds active against bacterial pathogens utilizing Merck's proprietary database mining tools and compound collection. In August 1999, we received an undisclosed milestone payment from Merck for achieving a medicinal chemistry research milestone under the agreement. We also announced that we had exclusively licensed to Merck two chemical classes of -13- novel, antiinfective compounds for a second undisclosed payment. The parties amended the existing agreement to incorporate these compounds into the collaboration. From that point on, Merck has conducted all of the medicinal chemistry efforts, with Cubist providing technical support. Merck is funding all of the research and clinical development efforts. Merck has exclusive, worldwide rights to manufacture and sell compounds resulting from the collaboration and will pay Cubist a royalty on drug sales if successfully developed. BIOTECHNOLOGY ALLIANCES To expand our access to novel small molecule libraries and other technologies for screening, target and drug discovery, we have formed and are currently engaged in alliances with biotechnology companies including Neurogen Corporation, Phylos, Cetek Corporation, Coelacanth Corporation and Xenogen Corporation. PATENTS AND PROPRIETARY TECHNOLOGY We seek to protect our cloned targets, expressed proteins, assays, organic synthetic processes, lead compounds, screening technology and other technologies by, among other things, filing, or causing to be filed on our behalf, patent applications. We have 22 issued U.S. patents, 35 pending U.S. patent applications, 18 issued foreign patents and 56 pending foreign patent applications. We have licensed, from the Massachusetts Institute of Technology, three U.S. patents related to research technologies. We have licensed from Eli Lilly a portfolio of eight issued U.S. patents and 17 foreign patents related to the composition, manufacture, administration and use of daptomycin. In addition, Eli Lilly has agreed to assign to Cubist an additional two U.S. issued patents, 62 issued foreign patents and two pending foreign patent applications. This portfolio also covers the composition, manufacture and use of daptomycin. We have also filed a number of patent applications in our name relating to the composition, manufacture, administration and use of daptomycin and other lipopeptides. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our technology. Our commercial success will depend in part on not infringing patents or proprietary rights of others. We cannot be sure that we will be able to obtain a license to any third-party technology we may require to conduct our business or that if obtainable, such technology can be licensed at reasonable cost. Failure by us to obtain a license to technology that we may require to utilize our technologies or commercialize our products may have a material adverse effect on our business, operating results and financial condition. In some cases, litigation or other proceedings may be necessary to defend against or assert claims of infringement, to enforce patents issued to us, to protect our trade secrets, know-how or other intellectual property rights, or to determine the scope and validity of the proprietary rights of third parties. Any potential litigation could result in substantial costs to us and diversion of our resources and could have a material adverse effect on our business, operating results and financial condition. We cannot be sure that any of our issued or licensed patents would ultimately be held valid and enforceable or that efforts to defend any of our patents, trade secrets, know-how or other intellectual property rights would be successful. An adverse outcome in any such litigation or proceeding could affect our commercial success, subject us to significant liabilities, require us to cease using the subject technology or require us to license the subject technology from the third party, which license may not be available, all of which could have a material adverse effect on our business, operating results and financial condition. Much of the know-how of importance to our technology and many of our processes are dependent upon the knowledge, experience and skills, which are not patentable, of key scientific and technical personnel. To protect our rights to and to maintain the confidentiality of trade secrets and proprietary information, we require employees, advisors, consultants and collaborators to execute confidentiality and invention assignment agreements upon commencement of a relationship with us. These agreements prohibit the disclosure of confidential information to anyone outside our company and require disclosure and assignment to us of ideas, developments, discoveries and inventions made by employees, advisors, consultants and collaborators. We cannot be sure, however, that these agreements will not be breached or that our trade secrets or proprietary information will not otherwise become known or developed independently by others. -14- MANUFACTURING We currently engage ACS Dobfar of Italy to manufacture bulk clinical grade daptomycin drug substance for our clinical trials. We currently obtain our finished clinical grade vialed formulation of daptomycin from Abbott Laboratories (Hospital Products Division) and Cook Sterile Solutions, Inc. In April 2000, we entered into a development and supply agreement with Abbott Laboratories (Abbott) pursuant to which Abbott has agreed to assist Cubist in the development of daptomycin as a parenteral formulation and to manufacture and sell exclusively to Cubist, daptomycin as a parenteral formulation. Under the terms of this agreement, Cubist has agreed to make certain milestone payments to Abbott for their development efforts and assistance in obtaining an approved New Drug Application, or an NDA, for daptomycin. If the FDA approves the daptomycin NDA, Cubist will purchase minimum annual quantities of drug product from Abbott over a five year period beginning in 2002. In June 2000, Cubist entered into a services agreement with Gist-brocades Holding A.G. (DSM), an affiliated company of DSM Capua pursuant to which DSM has agreed to provide supervisory and advisory services to Cubist relating to the equipping of the manufacturing facility at DSM Capua. Cubist has also entered into a manufacturing and supply agreement with DSM Capua pursuant to which DSM Capua has agreed to manufacture and supply to Cubist bulk daptomycin drug substance for commercial purposes. Under the terms of the manufacturing and supply agreement, DSM Capua is required to prepare its manufacturing facility in Italy to manufacture bulk daptomycin drug substance in accordance with Good Manufacturing Practices standards. Under the terms of the service agreements, Cubist will make a series of scheduled payments to DSM over a five year period beginning in 2000 in order to reimburse DSM for certain costs to be incurred by DSM Capua in connection with the preparation, testing and validation of its manufacturing facility. In addition, in consideration for the implementation of the Cubist technology in the facility by DSM Capua, Cubist has agreed to make milestone payments to DSM if specific phases of the preparation of its manufacturing facility are completed within specified periods of time. Cubist is accruing these milestone payments on a quarterly basis. Upon completion of the preparation of DSM Capua's manufacturing facility and a determination by the FDA that the manufacturing facility complies with Good Manufacturing Practices standards, Cubist will purchase minimum annual quantities of bulk daptomycin drug substance from DSM over a five-year period beginning in 2002. We have no experience in clinical or commercial scale manufacture of daptomycin, or any other drug. We currently rely on ACS Dobfar, Abbott and Cook Sterile Solutions, Inc. for the manufacture of daptomycin for our clinical trials. Commercial daptomycin and any other drugs we may commercialize will have to be manufactured in facilities and by processes that comply with FDA and other regulations. It may take substantial time to begin producing antimicrobial drugs in compliance with such regulations. If we are unable to establish and maintain compliant manufacturing facilities within a planned time frame and cost parameters, the development and sales of our products and our financial performance may be adversely affected. SALES AND MARKETING We have the exclusive worldwide rights to commercialize daptomycin, in both intravenous and oral formulations, and any analogs of daptomycin to which we have intellectual property rights, and oral ceftriaxone. While it is too early to begin developing commercialization strategies for our pre-clinical development programs, we are evaluating various strategies for the worldwide commercialization of Cidecin (daptomycin for injection). In January 2001, Cubist and Gilead Sciences jointly announced the signing of a licensing agreement for the exclusive rights to commercialize Cidecin and an oral formulation of daptomycin in 16 European countries following regulatory approval. Gilead paid us an up-front licensing fee of $13 million, and we are entitled to receive additional cash payments of up to $31 million upon achievement of certain clinical and regulatory milestones. Gilead will also pay us a fixed royalty on net sales. We will continue to be responsible for worldwide clinical development of Cidecin, while Gilead will be responsible for any regulatory filings in the covered territories. Gilead's sales force will market the products in Europe. We will provide Cubist-employed European medical science liaisons to support the product by providing medical education services to infectious disease specialists and other international opinion leaders. We are currently investigating commercialization strategies for Cidecin in Asia and the rest of the world. We expect to be able to announce our marketing strategy for the U.S. in mid-2001. The strategic alternatives being considered in the U.S. include: -15- o Partnering with a pharmaceutical company with an established sales force o Partnering with a contract sales organization with an established sales force o Partnering with a contract sales organization to establish a sales force o Establishing a Cubist sales force In the U.S., it is our plan to establish a medical science liaison team of 20-30 representatives to provide medical education services to infectious disease specialists and other opinion leaders. To this end, in February 2001, we announced the hiring of 10 medical science liaisons. Should Cidecin gain FDA approval, this team will form the basis for the larger educational marketing team. Until such time, the team is leveraging its current relationships with thought leaders in the antiinfective space to aid in the recruitment and education of clinical trial physicians involved in the development of Cidecin. The group is also playing a key role in the strategic direction of Cubist--identifying antibiotic resistance and trends, initiating medical affairs efforts, providing input on Phase IIIb/Phase IV clinical studies, guiding the advancement of early-stage clinical candidates and assisting in the assessment of potential product and technology acquisitions. GOVERNMENT REGULATION OVERVIEW The development, manufacture and marketing of drugs, including antibiotics, developed by us or our collaborative partners are subject to regulation by numerous governmental agencies in the U.S., principally the FDA, by state and local governments, and in some instances by foreign governments. Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the FDA regulates the pre-clinical and clinical trials, safety, effectiveness, manufacture, labeling, storage, record keeping, distribution, and promotion of drugs. Product development and approval within the FDA regulatory framework usually takes a significant number of years, involves the expenditure of substantial capital resources and is uncertain. FDA PROCESS Before testing in the United States of any compounds with potential therapeutic value in human subjects may begin, stringent government requirements for pre-clinical data must be satisfied. Pre-clinical testing includes both IN VITRO and IN VIVO laboratory evaluation and characterization of the safety and efficacy of a drug and its formulation. Pre-clinical testing results obtained from studies in several animal species, as well as from IN VITRO studies, are submitted to the FDA as part of an IND (Investigational New Drug Application) and are reviewed by the FDA prior to the commencement of human clinical trials. These pre-clinical data must provide an adequate basis for evaluating both the safety and the scientific rationale for the initial studies in human volunteers. Unless the FDA objects to an IND, the IND becomes effective 30 days following its receipt by the FDA. Once trials have commenced, the FDA may stop the trials by placing them on "clinical hold" because of concerns about, for example, the safety of the product being tested. Clinical trials involve the administration of the drug to healthy human volunteers or to patients under the supervision of a qualified investigator, usually a physician, pursuant to an FDA-reviewed protocol. Human clinical trials are typically conducted in three sequential phases, although the phases may overlap with one another. Clinical trials must be conducted under protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol must be submitted to the FDA as part of the IND. Each clinical trial must be conducted under the auspices of an Institutional Review Board that considers, among other things, ethical factors, the safety of human subjects, the possible liability of the institution and the informed consent disclosure which must be made to participants in the clinical trial. Phase I clinical trials represent the initial administration of the investigational drug to a small group of healthy human subjects or, more rarely, to a group of selected patients with the targeted disease or disorder. The goal of Phase I clinical trials is typically to test for safety, dose tolerance, absorption, biodistribution, metabolism, excretion and clinical pharmacology and, if possible, to gain early evidence regarding efficacy. Phase II clinical trials involve a small sample of the actual intended patient population and seek to assess the efficacy of the drug for specific targeted indications, to determine dose response and the optimal dose range and to gather additional information relating to safety and potential adverse effects. -16- Once an investigational drug is found to have some efficacy and an acceptable safety profile in the targeted patient population, Phase III clinical trials are initiated to establish further clinical safety and efficacy of the investigational drug in a broader sample of the general patient population at geographically dispersed study sites in order to determine the overall risk-benefit ratio of the drug and to provide an adequate basis for product labeling. The Phase III clinical development program consists of expanded, large-scale studies of patients with the target disease or disorder, to obtain definitive statistical evidence of the efficacy and safety of the proposed product and dosing regimen. All of the phases of clinical studies must be conducted in conformance with the FDA's bioresearch monitoring regulations. All data obtained from a comprehensive development program including research and product development, manufacturing, pre clinical and clinical trials and related information are submitted in an NDA to the FDA and the corresponding agencies in other countries for review and approval. In addition to reports of the trials conducted under the IND application, the NDA includes information pertaining to the preparation of the new drug or antibiotic, analytical methods, details of the manufacture of finished products and proposed product packaging and labeling. Although the FDC Act requires the FDA to review NDAs within 180 days of their filing, in practice, longer times may be required. The FDA also frequently requests that additional information be submitted, requiring significant additional review time. Any of our proposed products likely would be subject to demanding and time-consuming NDA approval procedures in virtually all countries where marketing of the products is intended. These regulations define not only the form and content of safety and efficacy data regarding the proposed product but also impose specific requirements regarding manufacture of the product, quality assurance, packaging, storage, documentation and record keeping, labeling, advertising and marketing procedures. In some cases, drug approvals may proceed under the accelerated approval or "fast track" provisions of the Food and Drug Administration Modernization Act. The accelerated approval provisions largely codified FDA's accelerated approval regulations. While the statutory provisions expand upon the regulations, the FDA continues to rely on its regulations to implement the statutory provision. The accelerated approval regulations apply to products used in the treatment of serious or life-threatening illnesses that appear to provide meaningful therapeutic benefits over existing treatments. These regulations permit approval of such products before clinical research is completed based on the product's effect on a clinical endpoint or surrogate endpoint. When a product is approved under the accelerated approval regulations, the sponsor may be required to conduct additional adequate and well-controlled studies to verify that the effect the surrogate endpoint correlates with improved clinical outcome or to otherwise verify the clinical benefit. In the event such post-marketing studies do not verify the drug's anticipated clinical benefit, or if there is other evidence that the drug product is not shown to be safe and effective, expedited withdrawal procedures permit the FDA, after a hearing, to remove a product from the market. Significant uncertainty exists as to the extent to which these accelerated approval regulations will result in accelerated review and approval. The FDA retains considerable discretion to determine eligibility for accelerated review and approval. OTHER REGULATORY PROCESSES We are also subject to regulation under other federal laws and regulation under state and local laws, including laws relating to occupational safety, laboratory practices, the use, handling and disposition of radioactive materials, environmental protection and hazardous substance control. Although we believe that our safety procedures for handling and disposing of radioactive compounds and other hazardous materials used in our research and development activities comply with the standards prescribed by federal, state and local regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of any such accident, we could be held liable for any damages that result and any such liability could exceed our resources. OUR EMPLOYEES As of March 26, 2001, we had 176 full-time employees, 135 of whom were engaged in research and development and 41 of whom were engaged in management, marketing, administration and finance. Doctorates are held by 54 of our employees. Our employees are not covered by a collective bargaining agreement. We have never experienced an employment-related work stoppage and we consider our employee relations to be good. OUR FACILITIES We are headquartered at 24 Emily Street in Cambridge, Massachusetts, where we lease approximately 24,000 square feet of commercial space pursuant to a term lease that expires in September 2003, subject to a 5-year renewal option. We have leased an additional 11,000 square feet of commercial space at 125 Sidney Street in Cambridge, Massachusetts, pursuant to a -17- term lease that expires in December 2003. We have also leased an additional 15,000 square feet of commercial space at 148 Sidney Street in Cambridge Massachusetts, pursuant to a term lease that expires in October 2010. In September 2000, we acquired a new corporate headquarters containing 88,000 square feet of commercial office and laboratory space in Lexington, Massachusetts pursuant to a purchase and sale agreement. We plan to relocate to the facility during the third quarter of 2001. The facilities in Lexington are adequate for our current business requirements. In connection with the acquisition of TerraGen Discovery in October 2000, we acquired the office space of former TerraGen subsidiaries in Canada and the United Kingdom. We currently lease 9,265 square feet of commercial office and laboratory space in Vancouver, Canada pursuant to a term lease that expires May 2001. In addition, we also lease 18,000 square feet of commercial office and laboratory space in Slough, England pursuant to a term lease that expires in April 2002. LEGAL PROCEEDINGS We are not party to any material legal proceedings. OUR EXECUTIVE OFFICERS AND DIRECTORS Our directors and executive officers and their ages as of March 30, 2001 are as follows: Scott M. Rocklage, Ph.D. 46 Chairman of Board of Directors and Chief Executive Officer Dinendra "Dinu" Sen 51 President and Chief Operating Officer Francis P. Tally, M.D. 60 Executive Vice President, Scientific Affairs Julian M. Davies, Ph.D. 69 Executive Vice President, Technology Development Robert J. McCormack, Ph.D. 47 Senior Vice President, Drug Development Alan D. Watson, Ph.D., M.B.A. 48 Senior Vice President, Corporate Development Thomas A. Shea, M.B.A. 41 Vice President, Finance & Administration, Chief Financial Officer and Treasurer Michael F. DeBruin, M.D. 46 Vice President, Clinical Research Dennis D. Keith, Ph.D. 57 Vice President, Chemical Development Frederick B. Oleson, Jr., D.Sc. 51 Vice President, Pre-Clinical Development George H. Shimer, Jr., Ph.D. 48 Vice President, Research Thomas J. Slater 45 Vice President, Commercial Development Susan Bayh 41 Director Barry Bloom, Ph.D.(1) 72 Director John K. Clarke(2) 47 Director David W. Martin, Jr., M.D.(2) 60 Director Walter Maupay(2) 62 Director Paul R. Schimmel, Ph.D.(1) 60 Director John Zabriskie, Ph.D.(1) 61 Director
- ----------------------- (1) Member of Audit Committee (2) Member of Compensation Committee -18- DR. ROCKLAGE was elected Chairman of the Board of Directors in March 2000. Dr. Rocklage has served as our Chief Executive Officer and as a member of the board of directors since July 1994. He served as our President from July 1994 until March 2001. From 1990 to 1994, Dr. Rocklage served as President and Chief Executive Officer of Nycomed Salutar, Inc., a diagnostic imaging company. From 1992 to 1994, he also served as President and Chief Executive Officer and Chairman of Nycomed Interventional, Inc., a medical device company. From 1986 to 1990, he served in various positions at Nycomed Salutar, Inc. and was responsible for designing and implementing research and development programs that resulted in three drug products in human clinical trials, including the approved drugs Omniscan and Teslascan. Dr. Rocklage received his B.S. in Chemistry from the University of California, Berkeley and his Ph.D. in Chemistry from the Massachusetts Institute of Technology. MR. SEN has served as our President and Chief Operating Officer since March 2001. From January 2000 to December 2000, Mr. Sen served as Senior Vice President, Sales and Marketing at Pathogenesis Corporation, which was acquired by Chiron Corporation in October 2000. From early 1998 through 1999, Mr. Sen was Vice President, Marketing and Sales at Schwarz Pharma. Prior to that, he held several senior marketing positions from 1992 to 1998 at Amgen, Inc., where he played a role in the marketing of Epogen and Neupogen, which are considered by most to be the first successfully commercialized biotechnology products. From 1990 to 1992, Mr. Sen was a Consultant at The Alexander Group, a firm specializing in marketing and sales effectiveness and sales force compensation. Mr. Sen has also held a variety of marketing and finance positions at Abbott Laboratories. Mr. Sen is a fellow of the Institute of Chartered Accountants of England and Wales. He received his BA from the University of Delhi in India and his Master's Degree in Management from Northwestern University's Kellogg Graduate School of Management. DR. TALLY has served as our Executive Vice President, Scientific Affairs since January 1997. From March 1995 to January 1997, he served as our Vice President of Research and Development. From 1986 to February 1995, Dr. Tally served as Executive Director of Infectious Disease, Molecular Biology and Natural Products Research at the Lederle Laboratories of American Cyanamid/American Home Products, where he was responsible for worldwide clinical studies for piperacillin/tazobactam which was registered for sales in Europe in 1992, approved by the FDA in 1993 and marketed as Zosyn. From 1975 to 1986, he served as Senior Physician in Infectious Disease at the New England Medical Center and Associate Professor of Medicine at Tufts Medical Center. Dr. Tally received his A.B. in Biology from Providence College and his M.D. from George Washington University School of Medicine. DR. DAVIES was appointed Executive Vice President of Technology Development following Cubist's October 2000 acquisition of TerraGen Discovery Inc. Dr. Davies founded TerraGen in 1996 where he served as Chief Scientific Officer. From 1992 to 1996, he served as Head of Microbiology and Immunology at the University of British Columbia and was Research Director and President of Biogen (Geneva) from 1980 to 1985. Dr. Davies has held academic positions at the University of Wisconsin, University of Geneva and Institut Pasteur and is a past President of the American Society of Microbiology. He is a Fellow of the Royal Society (London) and the Royal Society of Canada and Emeritus Professor of Microbiology and Immunology. Dr. Davies received a B.Sc. and Ph.D. in Chemistry from the University of Nottingham. DR. MCCORMACK has served as our Senior Vice President of Drug Development since March 2000. From 1997 until 2000, Dr. McCormack was Vice President, Regulatory Affairs at Target Research Associates. Prior to that, he served as Vice President, Regulatory Affairs from 1993 to 1997 and as Director, Regulatory Affairs from 1987 to 1993 at Oxford Research International Corporation, a large contract research organization. Dr. McCormack has also served in various positions at Knoll Pharmaceuticals, Morristown Memorial Hospital and Sandoz, Inc. During his career, Dr. McCormack has participated in gaining approval for drugs in the CNS, cardiovascular, dermatological and oncological therapeutic areas. He has a B.A. in Biology from William Patterson College and a Ph.D. in Molecular Immunology from Rutgers University. DR. WATSON has served as our Senior Vice President, Corporate Development since September 1999. From October 1997 to August 1999, he served as Senior Vice President, Intellectual Property and Licensing at Nycomed Amersham plc., a diagnostic imaging and life sciences company. From January 1995 to September 1997, he served as Senior Vice President, -19- Technology Development at Nycomed ASA. From January 1994 to June 1995, he served as Senior Vice President, Research and Development at Nycomed Salutar, Inc. where he also served as a Board Director. Prior to 1994, Dr. Watson served in various senior positions at Salutar, Inc. From 1983 to 1986 while at DuPont Pharmaceuticals, Dr. Watson invented the stroke-imaging drug Neurolite. Dr. Watson received his B.Sc. from the University of U.S.W., Sydney, Australia; his M.B.A. from Northeastern University; and his Ph.D. in Bioinorganic Chemistry from the Australia National University. MR. SHEA has served as our Vice President, Finance and Administration and Chief Financial Officer since December 1998. He has also served as our Treasurer and Chief Accounting Officer since June 1996. From December 1997 to December 1998 he served as our Senior Director of Finance and Administration, and from 1993 to November 1997, as our Director of Finance and Administration. From 1987 to 1993, he served as Manager of Accounting/MIS and Budget and Financial Analyst at ImmuLogic Pharmaceutical Corporation, a biotechnology company. Mr. Shea received his B.S. in Accounting/Law from Babson College and his M.B.A. from Suffolk University. DR. DEBRUIN has served as our Vice President, Clinical Research since September 1999. From March 1998 to May 1999, he served as Therapeutic Area Head-Infectious Diseases at Wyeth-Ayerst Research and Genetics Institute. From March 1993 to February 1998, he served as Director of Clinical Development at Genetics Institute. From 1988 to 1993, Dr. DeBruin served in various positions at Pfizer, Inc. Dr. DeBruin was on the faculty at the University of Connecticut School of Medicine, and was also in private practice treating infectious diseases from 1988 to 1991. Dr. DeBruin received his B.A. from Cornell University and his M.D. from New York Medical College. DR. KEITH has served as our Vice President, Chemical Development since July 2000. From October 1997 to July 2000, he served as our Vice President, Drug Discovery. From 1971 to October 1997, Dr. Keith was with Hoffman-La Roche Inc. where he served in various positions, including Director of Antiinfective Chemistry, Senior Director of Medicinal Chemistry and Research Director of Oncology. Dr. Keith received his B.S. in Chemistry from Bates College and his Ph.D. in Organic Chemistry from Yale University. DR. OLESON has served as our Vice President, Pre-Clinical Development since July 2000. From November 1997 to July 2000, he served as our Vice President, Drug Development. Prior to joining us, Dr. Oleson was an independent consultant from June 1997 to November 1997. From January 1997 to June 1997, Dr. Oleson served as Director of Preclinical Research at AutoImmune, Inc., a biotechnology company. From 1992 to January 1997, Dr. Oleson served as Director, Toxicology and Preclinical Pharmacology at Biogen, Inc., a biotechnology company. Dr. Oleson also held various positions at Bristol-Myers Squibb from 1983 to 1992. Dr. Oleson was a key contributor in the development of the Biogen drug Avonex and a key consultant in the development of Angiomax for The Medicines Company. Dr. Oleson received his B.S. in Biochemistry from Princeton University and a Doctor of Science in Physiology/ Radiation Biology from Harvard University School of Public Health. DR. SHIMER has served as our Vice President, Research since July 2000. From January 2000 to July 2000, he served as our Vice President, Biology. Prior to joining us, Dr. Shimer was Senior Director, Pathogen Genomics at Genome Therapeutics Corp. from February 1995 through January 2000. Dr. Shimer received his B.S. in Biochemistry from North Carolina State University and his Ph.D. in Biochemistry from Colorado State University. MR. SLATER has served as our Vice President, Commercial Development since May 1999. From July 1998 to April 1999, he served as Senior Vice President of Business Development for Newport Strategies, a consulting company. From January 1996 to June 1998, he served as Vice President, Biomaterials Business for Genzyme Corporation, a biotechnology company. From 1988 to January 1996, Mr. Slater served in various sales and marketing positions for Genzyme Corporation. Prior to 1988, Mr. Slater served in marketing and sales positions for pharmaceutical companies Hoffmann LaRoche and Upjohn. Mr. Slater received his B.S. in Biology from Upsala College. MS. BAYH has served as one of our directors since June 2000. From 1994 to present, Ms. Bayh has served as the Commissioner of the International Joint Commission (IJC), a bi-national organization between the United States and Canada focusing on environmental issues of the Great Lakes. Ms. Bayh served as an attorney in Eli Lilly's Pharmaceutical Division handling federal regulatory issues for marketing and medical clients from 1989 to 1994 and, from 1984 until 1989, Ms. Bayh practiced law, focusing on litigation, utility and corporate law, and antitrust. She is also a director of Anthem, Inc., (a Blue Cross/Blue Shield company), Corvas International, Inc., a biotechnology company, Emmis Communications, and Golden State Foods. Ms. Bayh has a B.A. from the University of California at Berkeley and a J.D. from the University of Southern California Law Center. -20- DR. BLOOM has served as a one of our directors since September 1993. Dr. Bloom has more than 40 years experience in the pharmaceutical industry. From 1952 to 1993, Dr. Bloom served in various positions at Pfizer Inc., including Executive Vice President of Research & Development. He is a director of Vertex Pharmaceuticals, Inc. and Neurogen Corp., biotechnology companies; Microbia, a biotechnology company; and Incyte Pharmaceuticals, Inc., a genomics company. Dr. Bloom received his S.B. in Chemistry and his Ph.D. in Organic Chemistry from the Massachusetts Institute of Technology. MR. CLARKE is one of our founders and served as Chairman of the Board of Directors from our incorporation to March 2000. Mr. Clarke has served as one of our directors since our incorporation. From 1992 to 1994, Mr. Clarke served as our acting President and Chief Executive Officer. Since 1982, he has been a general partner of DSV Management in Princeton, New Jersey, the general partner of DSV Partners IV. He is a founder and director of Alkermes, Inc. and a director of VISICU, Inc., Parkstone Medical Information Systems, Inc., MedContrax, Inc., Molecular Mining, Inc. and TechRx, Inc. Mr. Clarke is the Managing General Partner for Cardinal Partners, founded in 1997. Mr. Clarke received his B.A. in Biology and Economics from Harvard College and his M.B.A. from The Wharton School of the University of Pennsylvania. DR. MARTIN has served as one of our directors since October 1997. Since July 1997, Dr. Martin has served as President, Chief Executive Officer and a founder of Eos Biotechnology, Inc. Dr. Martin was a Professor of Medicine, Professor of Biochemistry and an Investigator of the Howard Hughes Medical Institute at the University of California San Francisco until 1983 when he became the first Vice President and subsequently Senior Vice President of Research and Development at Genentech, Inc., a position he held until 1990. He was Executive Vice President of DuPont Merck Pharmaceutical Company from 1991 through 1993 and then returned to California in 1994 where he was Senior Vice-President of Chiron Corp., a biotechnology company, and President of Chiron Therapeutics. In May 1995, he assumed the position of President and Chief Executive Officer of Lynx Therapeutics, Inc., a biotechnology company, and served until November 1996. Dr. Martin is also a Director of Varian Medical Systems, Inc., a medical equipment and software supplier, and of Talik, Inc., a biopharmaceutical development company. MR. MAUPAY has served as one of our directors since June 1999. Since 1988, Mr. Maupay has served as President of Calgon Vestal Laboratories, a division of Merck & Co., Inc. until January 1995, when it was sold to Bristol-Myers Squibb. Since June 1995, Mr. Maupay has also served as Group Executive of Calgon Vestal Laboratories after the sale to Bristol-Myers Squibb. From 1984 to 1988 Mr. Maupay served as Vice-President, Healthcare at Calgon Vestal Laboratories. Mr. Maupay is a director of Life Medical Sciences, Inc., a medical device company, Kensey Nash Corporation, a medical device company, Neshaminy Golf Club, Inc. and Warwick Golf Farm. Mr. Maupay received his Bachelor of Science in Pharmacy from Temple University and his M.B.A. from Lehigh University. DR. SCHIMMEL is one of our scientific founders and has served as one of our directors since our incorporation. From 1967 to 1998, Dr. Schimmel served as a Professor of Biochemistry and Biophysics at the Massachusetts Institute of Technology and as the John D. and Catherine T. MacArthur Professor of Biochemistry and Biophysics at the Massachusetts Institute of Technology from 1992 to 1997. He has been a Professor and member of the Skaggs Institute for Chemical Biology of the Scripps Research Institute since 1997. Dr. Schimmel is an expert in molecular biology, protein translation and aminoacyl-tRNA synthetases. He is a member of the National Academy of Sciences and the American Academy of Arts and Sciences. Dr. Schimmel was a founder and is a director of Repligen Corporation and Alkermes, Inc., each a biotechnology company. Dr. Schimmel received his A.B. in Pre-Medicine from Ohio Wesleyan University and his Ph.D. in Biochemistry from the Massachusetts Institute of Technology. DR. ZABRISKIE has served as one of our directors since June 1999. From July 1997 to July 2000, Dr. Zabriskie has served as Chairman of the Board of NEN Life Science Products, Inc., a laboratory supply company. From July 1997 to December 1999, Dr. Zabriskie also served as President and Chief Executive Officer of NEN Life Science Products, Inc. From November 1995 to January 1997, he was President and Chief Executive Officer of Pharmacia & Upjohn. From 1994 to November 1995, he served as President, Chief Executive Officer and Chairman of Upjohn Co. -21- RISK FACTORS INVESTING IN OUR STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY THE RISKS DESCRIBED BELOW, TOGETHER WITH THE OTHER INFORMATION IN THIS ANNUAL REPORT, BEFORE YOU MAKE A DECISION TO INVEST IN OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED. THIS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE, AND COULD CAUSE YOU TO LOSE ALL OR PART OF YOUR INVESTMENT. RISKS RELATING TO OUR BUSINESS OUR OPERATING RESULTS FOR THE FORESEEABLE FUTURE WILL DEPEND SIGNIFICANTLY ON OUR ABILITY TO OBTAIN REGULATORY APPROVAL OF, AND TO SUCCESSFULLY COMMERCIALIZE, CIDECIN, DAPTOMYCIN FOR INJECTION. Cidecin is currently our only drug candidate in clinical trials. We may not receive revenues or royalties from commercial sales of Cidecin or any other drug in the foreseeable future, if at all. Our development of Cidecin involves a high degree of risk. Many important factors affect our ability to successfully develop and commercialize Cidecin, including our ability to: o demonstrate safety and efficacy of Cidecin at each stage of the clinical trial process; o meet applicable regulatory standards and receive required regulatory approvals; o obtain and maintain necessary patents and licenses; o produce Cidecin in commercial quantities at reasonable costs; o obtain reimbursement coverage for Cidecin; o compete successfully against other products; and o market Cidecin successfully. We cannot be sure that we will successfully develop and commercialize Cidecin or that we will obtain required regulatory approvals for its commercialization. As a result, we may never generate revenues from Cidecin sales. WE HAVE INCURRED SUBSTANTIAL LOSSES IN THE PAST AND EXPECT TO INCUR ADDITIONAL LOSSES OVER THE NEXT SEVERAL YEARS. Since we began operations, we have incurred substantial net losses in every fiscal period. We had net losses of $14.4 million in 1998, $24.1 million in 1999 and $44.3 million in 2000. We had an accumulated deficit of $108.2 million through December 31, 2000. These losses have resulted principally from costs in conducting research and development activities, commencing clinical trials and associated administrative costs. We expect to incur significant additional operating losses over the next several years as we expand our research and development efforts, pre-clinical testing and clinical trials and we implement manufacturing, marketing and sales programs. As a result, we cannot predict when we will become profitable, if at all, and if we do, we may not remain profitable for any substantial period of time. If we fail to achieve profitability within the time frame expected by investors, the market price of the common stock may decline. WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE TERRAGEN DISCOVERY INC. AND ACHIEVE THE BENEFITS EXPECTED TO RESULT FROM THE ACQUISITION. On October 23, 2000, we concluded the acquisition of TerraGen Discovery Inc. We consummated the transaction with the expectation that it will result in mutual benefits including, among other things, benefits relating to expanded and complementary product offerings, increased market opportunity, new technology and the addition of research and development personnel. Achieving the benefits of the acquisition will depend in part on the integration of our technology, operations and personnel in a timely and -22- efficient manner so as to minimize the risk that the merger will result in the loss of market opportunity or key employees or the diversion of the attention of management. In addition, TerraGen's principal offices are located in Vancouver, British Columbia, Canada, with a facility in Slough, England, and our principal offices are located in Cambridge, Massachusetts. We intend to maintain the operations of the Canadian and English facilities. We must successfully integrate operations and personnel in these offices with our operations and personnel in Cambridge for the acquisition to be successful. We cannot assure you that we will successfully integrate or manage this process. In addition, we cannot assure you that, following the transaction, our businesses will achieve revenues, specific net income or loss levels, efficiencies or synergies that justify the acquisition or that the acquisition will result in increased earnings, or reduced losses, for the combined company in any future period. IF WE DO NOT INTEGRATE TERRAGEN'S OPERATIONS QUICKLY AND EFFECTIVELY, SOME OR ALL OF THE POTENTIAL BENEFITS OF THE ACQUISITION MAY NOT OCCUR. We must make TerraGen's technology, products and services operate together with our technologies, products and services. If we do not integrate their operations and technologies quickly and smoothly, serious harm to the combined company's business, financial condition and prospects may result. Integrating the two businesses will entail significant diversion of management's time and attention. We may be required to spend additional time or money on integration that would otherwise be spent on developing their business and services or other matters. THE LOSS OF KEY TERRAGEN PERSONNEL COULD MAKE IT DIFFICULT TO COMPLETE EXISTING PROJECTS AND UNDERTAKE NEW PROJECTS. The success of the combined company will depend on its ability to identify, hire and retain employees, and a significant component of the value of the merger is in the know-how and experience of TerraGen employees that we employ. If key TerraGen employees were to leave, we may be unable to complete existing TerraGen projects or to undertake new projects, each of which could materially impair our future earnings and results of operations. We do not have employment agreements with any of the key employees of TerraGen that provide for a fixed term of employment. A VARIETY OF RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS. Because we have operations in Canada and the United Kingdom, we are subject to additional risks related to operating in foreign countries. Our Canadian and English operations are organized as separate legal entities. Associated risks include: o unexpected changes in tariffs, trade barriers and regulatory requirements; o economic weakness, including inflation, or political instability in particular foreign economies and markets; o compliance with tax, employment immigration and labor laws for employees living and traveling abroad; o foreign taxes including withholding of payroll taxes; and o foreign currency fluctuations, which could result in increased operating expenses and reduced revenues; and other obligations incident to doing business or operating a subsidiary in another country These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations. WE DEPEND ON THIRD PARTIES FOR MANUFACTURING OF DAPTOMYCIN, AND OUR COMMERCIALIZATION OF DAPTOMYCIN COULD BE STOPPED, DELAYED OR MADE LESS PROFITABLE IF THOSE THIRD PARTIES FAIL TO PROVIDE US WITH SUFFICIENT QUANTITIES AT ACCEPTABLE PRICES. We have no experience in manufacturing. We lack the facilities and personnel to manufacture products in accordance with the Good Manufacturing Practices prescribed by the FDA or to produce an adequate supply of compounds to meet future requirements for clinical trials and commercialization of daptomycin. Drug manufacturing facilities are subject to an inspection -23- before the FDA will issue an approval to market a new drug product, and all of the manufacturers that we intend to use must adhere to the current Good Manufacturing Practice regulations prescribed by the FDA. We currently depend entirely on one company, ACS Dobfar, to manufacture bulk daptomycin drug substance for our clinical trials, and on two companies, Abbott Laboratories (Hospital Products Division) and Cook Sterile Solutions, Inc., to manufacture clinical grade vialed formulation of daptomycin. We have entered into a manufacturing and supply agreement with DSM Capua to manufacture and supply to us bulk daptomycin drug substance for commercial purposes. We have also entered into a development and supply agreement with Abbott Laboratories to manufacture and supply final vialed daptomycin commercial drug product. We may not be able to enter into definitive agreements on acceptable terms for the expanded commercial scale manufacturing of daptomycin. If we are unable to do so, or if we are required to transfer manufacturing processes to other third-party manufacturers, we would be required to satisfy various regulatory requirements and we could experience significant delays in supply. If we are unable to maintain, develop or contract for manufacturing capabilities on acceptable terms at any time, our ability to conduct clinical trials and to make any commercial sales would be adversely affected. IF WE ARE UNABLE TO DEVELOP SATISFACTORY SALES AND MARKETING CAPABILITIES, WE MAY NOT SUCCEED IN COMMERCIALIZING CIDECIN OR ANY OTHER PRODUCT CANDIDATE. We have no experience in marketing and selling drug products. We have entered into a marketing, distribution and development agreement with Gilead Sciences, Inc. for the development and commercialization of Cidecin and oral daptomycin in the European Community. We have not entered into other arrangements for the sale and marketing of Cidecin or any other product in North America. We may seek to collaborate with a third party to market our drugs or may seek to market and sell our drugs by ourselves. If we seek to collaborate with a third party in North America, we cannot be sure that a collaborative agreement can be reached on terms acceptable to us. If we seek to market and sell our drugs directly in North America, we will need to hire additional personnel skilled in marketing and sales. We cannot be sure that we will be able to acquire, or establish third-party relationships to provide, any or all of these marketing and sales capabilities in North America. EVEN IF WE OBTAIN REGULATORY APPROVALS TO COMMERCIALIZE CIDECIN OR ANY OTHER DRUG, OUR DRUG PRODUCTS MAY NOT BE ACCEPTED BY PHYSICIANS, PATIENTS, THIRD-PARTY PAYORS OR THE MEDICAL COMMUNITY IN GENERAL. We cannot be sure that Cidecin or any other drug successfully developed by us, independently or with our collaborative partners, will be accepted by the pharmaceutical market. Cidecin and any future products we develop will compete with a number of antimicrobial drugs manufactured and marketed by major pharmaceutical companies. The degree of market acceptance of any drugs we develop depends on a number of factors, including: - our demonstration of the clinical efficacy and safety of our drugs; - the advantages and disadvantages of our drugs compared to existing therapies; and - the reimbursement policies of government and third-party payors. We cannot be sure that physicians, patients, third-party payors or the medical community in general will accept and utilize any drugs we develop. OUR APPROACH TO DRUG DISCOVERY IS UNPROVEN, AND WE MAY NOT SUCCEED IN IDENTIFYING ANY DRUG CANDIDATES WITH CLINICAL BENEFITS. Our approach requires the development of multiple novel technologies to create a successful drug candidate. While we have demonstrated that some compounds have the ability to inhibit the activity of some molecular targets, we have not proven that this activity can be utilized clinically as a therapeutic drug. We cannot be certain that any preliminary potential demonstrated in primary screening will continue to be encouraging in further screening or drug discovery studies. We have not tested any drug candidates developed from our drug discovery program in humans, and we cannot assure you that there will be clinical benefits associated with any drug candidates we do develop. Our failure to develop new drug candidates would have a material adverse effect on our business, operating results and financial condition. -24- OUR RESEARCH AND DEVELOPMENT PROGRAM FOR DRUG PRODUCTS OTHER THAN CIDECIN IS AT AN EARLY STAGE, AND WE CANNOT BE CERTAIN OUR PROGRAM WILL RESULT IN THE COMMERCIALIZATION OF ANY DRUG. Except for our development program for Cidecin, our research and development program is at an early stage. To date, we have not, independently or with our collaborative partners, optimized any lead drug candidates generated in our research program. Any drug candidates we develop will require significant additional research and development efforts prior to commercial sale, including extensive pre-clinical and clinical testing and regulatory approval. This may require increases in spending on internal projects, the acquisition of third party technologies or products and other types of investments. We cannot be sure our approach to drug discovery, acting independently or with our collaborative partners, will be effective or will result in the development of any drug. We cannot expect that any drug products that do result from our research and development efforts will be commercially available for many years. We have limited experience in conducting pre-clinical testing and clinical trials. Even if we receive initially positive pre-clinical or clinical results, those results will not mean that similar results will be obtained in the later stages of drug development. All of our potential drug candidates are prone to the risks of failure inherent in pharmaceutical product development, including the possibility that none of our drug candidates will be: o safe, non-toxic and effective; o approved by regulatory authorities; o developed into a commercially viable drug; o manufactured or produced economically; o successfully marketed; or o accepted widely by customers. WE FACE SIGNIFICANT COMPETITION FROM OTHER BIOTECHNOLOGY AND PHARMACEUTICAL COMPANIES, AND OUR OPERATING RESULTS WILL SUFFER IF WE FAIL TO COMPETE EFFECTIVELY. The biotechnology and pharmaceutical industries are intensely competitive. We have many competitors both in the United States and internationally, including major multinational pharmaceutical and chemical companies, biotechnology companies and universities and other research institutions. Competition for Cidecin, in particular, includes commercially available drugs such as vancomycin, Zyvox and drug candidates in clinical development. Many of our competitors have greater financial and other resources, such as larger research and development staffs and more effective marketing and manufacturing organizations. Our competitors may succeed in developing or licensing on an exclusive basis technologies and drugs that are more effective or less costly than any which we are currently developing, which could render our technology and future drug products obsolete and noncompetitive. It is possible for our competitors to obtain FDA or other regulatory approvals for drug candidates before we can. In general, companies that begin commercial sale of their drugs before their competitors have a significant competitive advantage in the marketplace, including the ability to obtain patent and FDA marketing exclusivity rights that would delay our ability to market specific products. Even if our drug candidates are approved for sale, we may not be able to compete successfully with competitors' existing products or products under development. DECISIONS BY OUR COLLABORATIVE PARTNERS COULD IMPAIR OR PROHIBIT OUR DEVELOPMENT OF NEW PRODUCTS AND OTHERWISE ADVERSELY AFFECT OUR REVENUES. A key element of our strategy is to enhance our drug discovery and development programs, and to fund a portion of our capital requirements, by entering into collaborative agreements with pharmaceutical and biotechnology companies. Our receipt of revenues, whether in the form of continued research funding, drug development milestone payments or royalty payments on sales of drugs, from these collaborative agreements is dependent upon the decisions made by our collaborative partners. The amount and timing of resources dedicated by our collaborative partners to their respective collaborations with us is not under our control. -25- Some drug candidates discovered by us may be viewed by our collaborative partners as competitive with their drugs or drug candidates. Accordingly, our collaborative partners may not elect to proceed with the development of drug candidates that we believe to be promising. In addition, our collaborative partners may pursue their existing or alternative technologies in preference to our drug candidates. As a result: - the interests and goals of our collaborative partners might not always coincide with ours; - some of our collaborative partners might develop independently, or with others, drugs that could compete with ours; or - disagreements over proprietary rights might lead to delays in research or in the development and commercialization of product candidates and might result in litigation or arbitration, either of which would be time consuming and expensive. If any of our collaborative partners breaches or terminates its agreement with us or otherwise fails to conduct its collaborative activities in a timely manner: o the development or commercialization of any drug candidate or research program under these collaborative agreements may be delayed; o we may be required to undertake unforeseen additional responsibilities or to devote unforeseen additional resources to such development or commercialization; or o the development or commercialization could be terminated. We cannot be sure that we will be able to establish additional collaborative relationships on terms acceptable to us or to continue our existing collaborative arrangements. OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS. Our success depends to a significant degree upon our ability to obtain United States and foreign patent protection for our drug candidates and processes, preserve our trade secrets, and operate without infringing the proprietary rights of third parties. Legal standards relating to the validity of patents covering pharmaceutical and biotechnological inventions, and the scope of claims made under such patents, are still developing. Our patent position is highly uncertain and involves complex legal and factual questions. We cannot be certain that the named applicants or inventors of the subject matter covered by our patent applications or patents, whether directly owned by us or licensed to us, were the first to invent or the first to file patent applications for such inventions. Third parties may challenge, infringe upon, circumvent or seek to invalidate existing or future patents owned by or licensed to us. A court or other agency with jurisdiction may find our patents unenforceable. Even if we have valid patents, these patents still may not provide sufficient protection against competing products or processes. If our drug candidates or processes are found to infringe upon the patents of others or are found to impermissibly utilize the intellectual property of others, our development, manufacture and sale of our infringing drug candidates could be severely restricted or prohibited. In this case, we may have to obtain licenses from third parties to continue utilizing the patents or proprietary rights of others. Obtaining these licenses may be expensive, if we are able to obtain them at all. If we become involved in litigation involving our intellectual property rights or the intellectual property rights of others, the potential costs of such litigation and the potential damages that we could be required to pay could be substantial. In addition to patent protection, we rely on trade secrets, proprietary know-how, and confidentiality provisions in agreements with our collaborative partners, employees and consultants to protect our intellectual property. We also rely on invention assignment provisions in agreements with employees and some consultants. It is possible that these agreements could be breached or that we might not have adequate remedies for any such breaches. Third parties may learn of or independently discover our trade secrets, proprietary know-how and intellectual property, which could have a material adverse effect on our business, financial condition and results of operations. Moreover, the laws of foreign countries in which we market our drug products may afford little or no effective protection of our intellectual property. -26- IF WE LOSE THE SERVICES OF SCOTT M. ROCKLAGE, PH.D., DINENDRA SEN, FRANCIS P. TALLY, M.D., OR OTHER KEY PERSONNEL, OUR BUSINESS WILL SUFFER. We believe that our ability to successfully implement our business strategy is highly dependent on our senior management and scientific team, including Scott M. Rocklage, Ph.D., our Chairman of the Board of Directors and Chief Executive Officer, Dinendra Sen, our President and Chief Operating Officer and Francis P. Tally, M.D., our Executive Vice President, Scientific Affairs. Although Dr. Rocklage has entered into an employment agreement with us, he may terminate his employment at any time upon thirty days' written notice. No other senior executive officer or key employee has entered into an employment agreement with us. Losing the services of one or more of these individuals might hinder our ability to achieve our business objectives. WE MUST HIRE AND RETAIN QUALIFIED PERSONNEL IN A COMPETITIVE LABOR MARKET. Our success in large part depends upon our ability to attract, train, motivate and retain qualified scientific personnel. Qualified personnel are in great demand throughout the biotechnology and pharmaceutical industries, and the competition for these employees therefore is intense. If we fail to attract and retain qualified personnel for our scientific and technical teams, the rate at which we can discover, develop and commercialize drugs will be limited. This could have a material adverse effect on our business, operating results and financial condition. WE MAY REQUIRE ADDITIONAL FUNDS. We may require substantial additional funds in order to: o finance our drug discovery and development programs; o fund our operating expenses; o pursue regulatory approvals; o license or acquire additional drug candidates or technologies; o develop manufacturing, marketing and sales capabilities; and o prosecute and defend our intellectual property rights. We may seek additional funding through public or private financing or other arrangements with collaborative partners. If we raise additional funds by issuing equity securities, further dilution to existing stockholders may result. In addition, as a condition to giving additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. We cannot be sure, however, that additional financing will be available from any of these sources or, if available, will be available on acceptable or affordable terms. If adequate additional funds are not available, we may be required to delay, reduce the scope of, or eliminate one or more of our research and development programs. In order to obtain additional funding, we may be required to relinquish rights to technologies or drug candidates that we would not otherwise relinquish in order to continue independent operations. WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS RELATING TO OUR DRUG PRODUCTS. The nature of our business exposes us to potential liability risks inherent in the testing, manufacturing and marketing of pharmaceutical products. Using our drug candidates in clinical trials may expose us to product liability claims and possible adverse publicity. These risks will expand with respect to drugs, if any, that receive regulatory approval for commercial sale. Product liability insurance is expensive and may not be available in the future. We cannot be sure that we will be able to maintain or obtain insurance coverage at acceptable costs or in a sufficient amount, that our insurer will not disclaim coverage as to a future claim or that a product liability claim would not otherwise adversely affect our business, operating results or financial condition. -27- OUR ABILITY TO GENERATE FUTURE REVENUES FROM DRUG PRODUCTS WILL DEPEND ON REIMBURSEMENT AND DRUG PRICING. Acceptable levels of reimbursement of costs of developing and manufacturing of drugs and treatments related to those drugs by government authorities, private health insurers and other organizations, such as HMOs, will have an effect on the successful commercialization of, and attracting collaborative partners to invest in the development of, our drug candidates. We cannot be sure that reimbursement in the United States or elsewhere will be available for any drugs we may develop or, if already available, will not be decreased in the future. Also, we cannot be sure that reimbursement amounts will not reduce the demand for, or the price of, our drugs. Any reduction in demand would adversely affect our business. If reimbursement is not available or is available only to limited levels, we may not be able to obtain collaborative partners to manufacture and commercialize drugs, and may not be able to obtain a satisfactory financial return on our own manufacture and commercialization of any future drugs. Third-party payors increasingly are challenging prices charged for medical products and services. Also, the trend toward managed health care in the United States and the concurrent growth of organizations such as HMOs, as well as legislative proposals to reform health care or reduce government insurance programs, may result in lower prices for pharmaceutical products, including any products that may be offered by us in the future. Cost-cutting measures that health care providers are instituting, and the effect of any health care reform, could materially adversely affect our ability to sell any drugs that are successfully developed by us and approved by regulators. Moreover, we are unable to predict what additional legislation or regulation, if any, relating to the health care industry or third-party coverage and reimbursement may be enacted in the future or what effect such legislation or regulation would have on our business. WE MAY UNDERTAKE ADDITIONAL STRATEGIC ACQUISITIONS IN THE FUTURE AND ANY DIFFICULTIES FROM INTEGRATING SUCH ACQUISITIONS COULD DAMAGE OUR ABILITY TO ATTAIN OR MAINTAIN PROFITABILITY. We may acquire additional businesses and technologies that complement or augment our existing business and technologies. Integrating any newly acquired businesses or technologies could be expensive and time-consuming. We may not be able to integrate any acquired business successfully. Moreover, we may need to raise additional funds through public or private debt or equity financing to acquire any businesses, which may result in dilution for stockholders and the incurrence of indebtedness. We may not be able to operate acquired businesses profitably or otherwise implement our growth strategy successfully. RISKS RELATED TO GOVERNMENTAL APPROVALS IF WE DO NOT OBTAIN REGULATORY APPROVALS, WE WILL NOT BE ABLE TO MARKET CIDECIN OR ANY FUTURE DRUG CANDIDATES. The FDA and comparable regulatory agencies in foreign countries impose substantial requirements upon the commercial introduction of drug products to establish their safety and efficacy. These include lengthy and detailed pre-clinical, laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. All of our drug candidates will require governmental approvals for commercialization, none of which have been obtained. Pre-clinical testing and clinical trials and manufacturing of our drug candidates will be subject to rigorous and extensive regulation by the FDA and corresponding foreign regulatory authorities. Satisfaction of these requirements typically takes a significant number of years and can vary substantially based upon the type, complexity and novelty of the product. We are currently testing Cidecin in human clinical trials to determine whether Cidecin is safe and effective and, if so, to what degree. Many drugs in human clinical trials fail to demonstrate the desired safety and efficacy characteristics. Drugs in later stages of clinical development may fail to show the desired safety and efficacy traits despite having progressed through initial human testing. Our failure to demonstrate the safety and efficacy of Cidecin could delay or prevent required approvals from regulatory authorities. This would prevent us from commercializing Cidecin and would substantially impair our business, operating results and financial condition. We cannot be sure when we, independently or with our collaborative partners, might submit additional drug candidates for FDA or other regulatory review. Government regulation also affects the manufacturing and marketing of pharmaceutical products like ours. The effects of governmental regulations may be to: o delay the marketing of our potential drugs for a considerable or indefinite period of time; -28- o impose costly procedural requirements upon our activities; and o furnish a competitive advantage to larger companies or companies more experienced in regulatory affairs. Delays in obtaining governmental regulatory approval could adversely affect our marketing as well as our ability to generate significant revenues from commercial sales. We cannot be sure that FDA or other regulatory approvals for any drug candidates developed by us will be granted on a timely basis or at all. Moreover, if regulatory approval to market a drug candidate is granted, the approval may impose limitations on the indicated use for which the drug may be marketed. WE HAVE LIMITED EXPERIENCE IN CONDUCTING THE PRE-CLINICAL AND CLINICAL TESTING NECESSARY FOR US TO OBTAIN REGULATORY APPROVALS OF OUR DRUG CANDIDATES. Before we receive regulatory approvals for the commercial sale of any of our potential drugs, our drug candidates will be subject to extensive pre-clinical testing and clinical trials to demonstrate their safety and efficacy in humans. We depend on our collaborative partners to conduct clinical trials for the drug candidates resulting from the collaborative agreements, and we may become dependent on third parties to conduct future clinical trials of our internally developed drug candidates. We have limited experience in conducting pre-clinical testing or clinical trials. Clinical trials have been commenced only with respect to Cidecin and not with respect to any of our other drug candidates or any drug candidates being developed jointly by us and our collaborative partners. Furthermore, we cannot be sure that pre-clinical testing or clinical trials of any drug candidates will demonstrate the safety and efficacy of our drug candidates at all or to the extent necessary to obtain regulatory approvals. Companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after demonstrating promising results in earlier trials. The failure to demonstrate the safety and efficacy of a drug candidate under development would delay or prevent regulatory approval of the drug candidate and could have a material adverse effect on our business, operating results and financial condition. IF WE FAIL TO COMPLY WITH EXTENSIVE REGULATIONS AFTER ANY REGULATORY APPROVAL OF A DRUG PRODUCT OR IF A REGULATORY AUTHORITY WITHDRAWS ITS APPROVAL OF A DRUG PRODUCT, WE MAY BE FORCED TO SUSPEND THE SALE OF THE PRODUCT. Even if initial regulatory approvals for our drug candidates are obtained, our company, our drugs and the manufacturing facilities for our drugs would be subject to continual review and periodic inspection. Later discovery of previously unknown problems with a drug, manufacturer or facility may result in restrictions on the drug, the manufacturer or us, including withdrawal of the drug from the market. The FDA stringently applies regulatory standards. Failure to comply can, among other things, result in fines, denial or withdrawal of regulatory approvals, product recalls or seizures, operating restrictions and criminal prosecution. In addition, our manufacturing facilities will be subject to FDA inspections for adherence to Good Manufacturing Practices prior to marketing clearance and periodically during the manufacturing process. The FDA may also require post-marketing testing and surveillance to monitor the effects of an approved product. In addition, if there are any modifications to a drug, further regulatory approval will be required. ITEM 2. DESCRIPTION OF PROPERTY We are headquartered at 24 Emily Street in Cambridge, Massachusetts, where we lease approximately 24,000 square feet of commercial space pursuant to a term lease that expires in September 2003, subject to a 5-year renewal option. We have leased an additional 11,000 square feet of commercial space at 125 Sidney Street in Cambridge, Massachusetts, pursuant to a term lease that expires in December 2003. We have also leased an additional 15,000 square feet of commercial space at 148 Sidney Street in Cambridge Massachusetts, pursuant to a term lease that expires in October 2010. In September 2000, we acquired a new corporate headquarters containing 88,000 square feet of commercial office and laboratory space in Lexington, Massachusetts pursuant to a purchase and sale agreement. We plan to relocate to the facility during the third quarter of 2001. The facilities in Lexington are adequate for our current business requirements. In connection with the acquisition of TerraGen Discovery in October 2000, we acquired the office space of former TerraGen subsidiaries in Canada and the United Kingdom. We currently lease 9,265 square feet of commercial office and laboratory space in Vancouver, Canada pursuant to a term lease that expires in May 2001. In addition, we also lease 18,000 square feet of commercial office and laboratory space in Slough, England pursuant to a term lease that expires in April 2002. -29- ITEM 3. LEGAL PROCEEDINGS We are not party to any material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the last quarter of the fiscal year ended December 31, 2000. PART II ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Cubist's common stock is traded on the Nasdaq National Market under the symbol "CBST". The following table sets forth, for the period indicated, the high and low sale prices per share of Cubist's common stock as reported by the Nasdaq National Market.
PRICE RANGE OF COMMON STOCK ------------------- HIGH LOW ---- --- Year Ended December 31, 1999: First Quarter....................................... $ 4.87 $ 2.68 Second Quarter...................................... $ 4.87 $ 2.87 Third Quarter....................................... $ 11.12 $ 2.93 Fourth Quarter...................................... $ 21.50 $ 7.37 Year Ended December 31, 2000: First Quarter....................................... $ 71.50 $16.25 Second Quarter...................................... $ 52.50 $16.87 Third Quarter....................................... $ 64.12 $41.00 Fourth Quarter...................................... $ 52.12 $22.68 Year Ended December 31, 2001: First Quarter (through March 23, 2001) ............. $ 35.93 $12.00
HOLDERS As of March 23, 2001, Cubist had 277 stockholders of record. This does not reflect persons or entities who hold their stock in nominee or "street" name through various brokerage firms. DIVIDENDS We have never declared or paid cash dividends on our capital stock and do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to operate and expand our business. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, cash needs and growth plans. Our bank term loan contains a restrictive covenant that prohibits us from paying cash dividends or making stock redemptions or repurchases without the prior written consent of the lender bank. -30- RECENT SALES OF UNREGISTERED SECURITIES Described below is information regarding all securities we sold during the fiscal year ended December 31, 2000, which, unless otherwise noted below, were not registered under the Securities Act. In January 2000, we issued and sold an aggregate of 2,200,000 shares of common stock at a purchase price of $25.00 per share. The issuance and sale of such shares of common stock were made in reliance on Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act. The resale of these shares was subsequently registered with the SEC. In September 2000, in connection with the purchase of our new headquarters in Lexington, Massachusetts, we issued senior convertible promissory notes in favor of entities affiliated with John Hancock Life Insurance Company in the aggregate principal amount of $39 million. The notes are convertible into shares of Cubist common stock. In October 2000, in connection with the acquisition of TerraGen Discovery Inc., we issued an aggregate of 495,584 shares of common stock to acquire the fully diluted capitalization of TerraGen. The issuance and sale of such shares of common stock were made in reliance on Section 3(a)(10) of the Securities Act and Rule 506 of Regulation D promulgated under Section 4(2) of the Securities Act. The resale of these shares was subsequently registered with the SEC. ITEM 6. SELECTED FINANCIAL DATA The selected financial data are presented below for the years ended December 31 1998, 1999 and 2000 and Statement of Operations for 1997 are derived from our audited consolidated financial statements. The selected data for the year ended December 31, 1996 and the balance sheet information as of December 31, 1996 and 1997 has been prepared by us to reflect the combination of Cubist with TerraGen using the pooling-of-interests method of accounting and is unaudited. The following selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the notes thereto, included elsewhere in this report.
YEAR ENDED DECEMBER 31, ----------------------- 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Sponsored research revenues........... $5,022 $2,767 $1,674 $6,846 $5,223 Operating expenses: Research and development expenses.. 7,459 10,799 12,357 25,539 44,638 General and administrative expenses........................ 2,116 3,618 4,451 6,397 12,113 Total operating expenses...... 9,575 14,417 16,808 31,936 56,751 Interest income....................... 315 1,098 931 905 8,464 Interest expense...................... (229) (244) (361) (1,059) (2,314) Other income.......................... -- 1,833 (1) 197 578 Income tax benefit related to Canadian operations................ -- -- 175 925 499 Net loss........................... $(4,467) $(8,963) $(14,390) $(24,122) $(44,301) Basic and diluted net loss per common share....................... $ (1.72) $ (0.89) $ (1.16) $ (1.31) $ (1.68) Weighted average number of common shares outstanding for basic and diluted net loss per common share.. 2,595 10,115 12,395 18,456 26,415
YEAR ENDED DECEMBER 31, ----------------------- 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- (IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and investments....................... 19,506 20,197 21,327 26,829 139,783 Working capital................... 18,033 10,238 16,046 21,938 110,146 Total assets...................... 23,898 24,384 26,178 42,595 193,370 Long-term liabilities............. 1,062 1,366 1,523 6,392 46,075 Stockholders' equity.............. 20,516 21,345 22,658 29,441 133,020 Dividends......................... -- -- -- -- --
-31- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS ANNUAL REPORT. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE FUTURE RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" AND ELSEWHERE IN THIS ANNUAL REPORT. ALSO, SEE "SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA." OVERVIEW Since our incorporation on May 1, 1992 and commencement of operations in February 1993, we have been engaged in the research, development and commercialization of novel antimicrobial drugs to combat serious and life-threatening bacterial and fungal infections, including those caused by bacteria and fungi resistant to commercially available drugs. We have a limited history of operations and have experienced significant net losses since inception. We had an accumulated deficit of $108.2 million through December 31, 2000. We expect to incur significant additional operating losses over the next several years and expect cumulative losses to increase due to expanded research and development efforts, pre-clinical testing and clinical trials and the development of manufacturing, marketing and sales capabilities. On October 23, 2000, C&T Acquisition Corporation, a subsidiary of Cubist, acquired TerraGen Discovery Inc., ("TerraGen") a natural products discovery company with operations in Vancouver, Canada and Slough, England. Following the acquisition, the name of TerraGen was changed to Cubist Pharmaceuticals Inc. TerraGen conducts its Slough, England operations through a wholly owned subsidiary. With the acquisition, we acquired proprietary technologies and expertise in the area of small molecule drug discovery from natural products. Pursuant to the acquisition, we indirectly through C&T Acquisition Corporation acquired all of the issued and outstanding common and preferred shares of TerraGen, and assumed all of the outstanding options, warrants and convertible debentures of TerraGen, by issuing 334,933 shares of our common stock and causing C&T Acquisition Corporation to issue 178,491 exchangeable shares. The exchangeable shares are exchangeable at any time at the option of the holder, on a one-for-one basis, subject to certain adjustments, for shares of our common stock. All exchangeable shares that remain outstanding will be automatically exchanged for shares of our common stock on October 23, 2002. The options, warrants and convertible debentures of TerraGen assumed by us pursuant to the acquisition are exercisable or convertible for 94,605 shares of our common stock. This acquisition had been accounted for using the pooling-of-interests method of accounting. This Management's Discussion and Analysis of Financial Condition and Results of Operations and the accompanying Consolidated Financial Statements of Cubist have been restated to include the results and balances of C&T Acquisition Corporation and TerraGen and its subsidiaries for all periods presented. In recent years we have enhanced our drug discovery and development programs and funded a portion of our capital requirements by entering into collaborative agreements with pharmaceutical and biotechnology companies. We have entered into collaborative agreements based specifically on our aminoacyl-tRNA synthetase program with Merck and Bristol-Myers Squibb, and a collaborative agreement with Novartis based on our VITA functional genomics technology. Under these collaborative agreements, we have received sponsored research payments and, if drug development milestones are achieved, we are entitled to milestone payments. In addition, we will be entitled to receive royalties on worldwide sales of any drug developed and commercialized from these collaborations. We have received all of the sponsored research payments that we were entitled to under our collaborative agreements with Merck and Bristol-Meyers Squibb, although Merck and Bristol-Myers Squibb are still required to make milestone payments and pay royalties to us for any drug developed and commercialized from these collaborations. On November 7, 1997, we entered into a license agreement with Eli Lilly and Company, pursuant to which we acquired exclusive worldwide rights to develop, manufacture and market daptomycin. In exchange for such license, we paid to Eli Lilly an upfront license fee in cash, and if drug development milestones are achieved, have agreed to pay milestone payments in cash or by issuing shares of our common stock to Eli Lilly. In addition, we will be required to pay royalties to Eli Lilly on worldwide sales of Cidecin. On February 19, 1999, we issued to Eli Lilly 56,948 shares of our common stock as a milestone payment which was due upon commencement of Phase III clinical trials of Cidecin. The value of the common stock issued was $250,000 and was recorded as research and development expense. On October 6, 2000, we entered into a restated assignment and license agreement whereby we will obtain expanded rights under the Eli Lilly patents including an exclusive license to make, use and sell daptomycin for use in the field of infectious disease no longer excluding induced colitis and complete ownership, control and all rights to other Eli Lilly Assigned Patents relating to daptomycin subject matter claimed therein for all compounds and all uses. -32- In September 1998, our Canadian subsidiary entered into a research collaboration agreement with Schering-Plough Research Institute to access our recombinant library to discover novel leads with potential activity in the anti-infective area. As part of the agreement, we would provide library screening services to Schering-Plough for those strains provided. In exchange for these services, Schering-Plough is making rsearch payments to us. Schering-Plough was granted an exclusive, worldwide license to use any recombinant microorganism that produces a lead and an exclusive, worldwide license to all of its rights and ownership in any resulting patents. In May 1999, our Canadian subsidiary entered into a second collaboration agreement with Schering-Plough under which Schering-Plough was granted an exclusive, worldwide license to manufacture and sell compounds resulting from screening Cubist's natural product library. In exchange for the license, Schering-Plough is making research payments and, if scientific and development milestones are achieved, Schering-Plough will make milestone payments to us. In addition, Schering-Plough will be required to pay royalties to us on worldwide sales of any drug developed and commercialized from any products derived from this collaboration. On February 3, 1999, we entered into a collaborative research and license agreement with Novartis Pharma AG to use our VITA functional genomics technology to validate and develop assays for antimicrobial targets and to identify new compounds for development as antimicrobial agents. In exchange for the license, Novartis is making research payments and, if scientific and development milestones are achieved, Novartis will make milestone payments to us. In addition, Novartis will be required to pay royalties to us on worldwide sales of any drug developed and commercialized from any products derived from this collaboration. Upon the signing of the research and license agreement, Novartis purchased, and we issued to Novartis, 797,448 shares of our common stock for a total purchase price of $4.0 million in cash. On March 17, 1999, our Canadian subsidiary purchased the assets of ChromaXome Corporation for $5.7 million, excluding acquisition costs, by paying $2 million in cash, issuing notes payable of approximately $3 million and issuing 18,231 shares of our common stock. The acquisition was accounted for using the purchase method of accounting with the results of operations included in our financial statements from the date of acquisition. On April 8, 1999, our Canadian subsidiary purchased the assets of Xenova Discovery Ltd. for $5.2 million, excluding acquisition costs, by paying $400,000 in cash, issuing notes payable of approximately $3.6 million and issuing 30,386 shares of our common stock. The acquisition was accounted for using the purchase method of accounting with the results of operations included in our financial statements from the date of acquisition. On November 18, 1999, our Canadian subsidiary entered into a cross-license agreement with Diversa Corporation. Under the terms of the agreement, we granted a co-exclusive world-wide non-royalty bearing license to certain patented technology, subject to certain restrictions. The license may not be sublicensed and Diversa cannot use the macrodroplet screening technology for the term of the agreement. Under the agreement, Diversa paid an upfront license fee of $2,500,000 and will pay annual license maintenance fees of $100,000 beginning in 2000, until the patents expire. We are required to repay the license fee if we merge or are acquired prior to November 18, 2004 by a company whose primary business is DNA shuffling. On December 1, 1999, we entered into a Clinical Services Master Agreement with Omnicare Clinical Research, Inc. f/k/a IBAH, Inc. pursuant to which Omnicare has agreed to provide various clinical research services for our Cidecin clinical trials, including bacteremia; resistant, refractory or contraindicated; complicated skin and soft tissue; complicated urinary tract; and community acquired pneumonia. The related costs are being accrued over the life of the clinical trials. On January 10, 2000, we entered into a Monitoring Services Agreement with Clindev (Proprietary) Limited, pursuant to which Clindev has agreed to provide monitoring services for our Cidecin international complicated skin and soft tissue trial. Under the terms of this agreement, the specific responsibilities and obligations to be performed by Clindev include study management, clinical trial initiation and management and clinical data management. The related costs are being accrued over the life of the clinical trial. On August 1, 2000, we entered into a Contract Research Agreement with Target Research Associates, Inc. pursuant to which Target has agreed to provide various clinical research services for our Cidecin Community Acquired Pneumonia trial. Under the terms of this agreement, the specific responsibilities and obligations to be performed by Target include study management, clinical trial initiation and management and clinical data management. The related costs are being accrued over the life of the clinical trial. In April 2000, we entered into a development and supply agreement with Abbott Laboratories pursuant to which Abbott has agreed to assist us in the development of daptomycin as a parenteral formulation and to manufacture and sell exclusively to us, daptomycin as a parenteral formulation. Under the terms of this agreement, we agreed to make certain milestone payments to Abbott for their development efforts and assistance in obtaining an approved New Drug Application, or NDA, for daptomycin. We made payments totalling $325,000 during the year ended December 31, 2000 which were expensed as research and development. If the FDA approves the daptomycin NDA, we will purchase minimum annual quantities of drug product from Abbott over a five year period beginning in 2002. -33- In June 2000, Cubist entered into a services agreement with Gist-brocades Holding A.G. (DSM), an affiliated company of DSM Capua pursuant to which DSM has agreed to provide supervisory and advisory services to Cubist relating to the equipping of the manufacturing facility at DSM Capua. Cubist has also entered into a manufacturing and supply agreement with DSM Capua pursuant to which DSM Capua has agreed to manufacture and supply to Cubist bulk daptomycin drug substance for commercial purposes. Under the terms of the manufacturing and supply agreement, DSM Capua is required to prepare its manufacturing facility in Italy to manufacture bulk daptomycin drug substance in accordance with Good Manufacturing Practices standards. Under the terms of the service agreements, Cubist will make a series of scheduled payments to DSM over a five year period beginning in 2000 in order to reimburse DSM for certain costs to be incurred by DSM Capua of approximately $7.5 million in connection with the preparation, testing and validation of its manufacturing facility. During 2000, Cubist reimbursed $750,000 of these costs to DSM Capua and accrued an additional $846,000. These costs are being recorded as other assets and will begin to be amortized upon completion of the facility and commencement of manufacturing daptomycin for commercial purposes. In addition, in consideration for the implementation of the Cubist technology in the facility by DSM Capua, Cubist has agreed to make milestone payments of $1,400,000 to DSM if specific phases of the preparation of its manufacturing facility are completed within specified periods of time. Cubist is accruing these estimated milestone payments over the expected duration of the preparation work and recorded research and development expense of $627,000 in 2000. Upon completion of the preparation of DSM Capua's manufacturing facility and a determination by the FDA that the manufacturing facility complies with Good Manufacturing Practices standards, Cubist will purchase minimum annual quantities of bulk daptomycin drug substance from DSM over a five-year period beginning in 2002. On September 8, 2000, we announced the purchase of a new corporate headquarters building in Lexington, Massachusetts. The new facility is 88,000 square feet, approximately 35,000 of which is constructed as laboratory space. We believe this should increase our operating efficiencies to better meet our corporate goals and objectives and plans to relocate to the facilities in the third quarter of 2001. To finance the purchase, we issued $39 million of convertible notes to John Hancock Life Insurance Company. This financing covers the building purchase price of approximately $34 million and includes $5 million for facility improvements. The five-year notes carry a coupon rate of 8.5% and can be converted at any time at the option of the holder into our common stock at $63.8625 per share. We retain the right to redeem these notes after three years at 103% of its principal amount outstanding. RESULTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000 AND 1999 REVENUES. Total revenues in the year ended December 31, 2000 were $5,223,000 compared to $6,846,000 in the year ended December 31, 1999, a decrease of $1,623,000 or 23.7%. The revenues earned in the year ended December 31, 2000, consisted of $4,775,000 in research support funding from the Novartis, Schering-Plough and other strategic collaborations and $448,000 in Small Business Innovation Research funding. The revenues earned in the year ended December 31, 1999 consisted of $6,535,000 in research support funding from the Bristol-Myers Squibb, Merck, Schering-Plough, Novartis and other strategic collaborations and $311,000 in Small Business Innovation Research funding. The decrease in revenues in the year ended December 31, 2000 as compared to the year ended December 31, 1999 was primarily due to the completion of research support funding phases of the Merck and Bristol-Myers Squibb collaborations, partially offset by increased funding from SBIR grants and revenues associated with the Schering-Plough collaboration. RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses in the year ended December 31, 2000, were $44,638,000 compared to $24,786,000 in the year ended December 31, 1999, an increase of $19,852,000 or 80.1%. The increase was largely due to increased clinical and manufacturing costs related to Cidecin development, including the additional personnel costs and purchases that were required by such development. WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSES. We incurred a write-off of acquired in-process research and development costs in the year ended December 31, 1999 of $752,000 relating to the acquisitions of ChromaXome and Xenova in 1999. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in the year ended December 31, 2000, were $12,113,000 compared to $6,397,000 in the year ended December 31, 1999, an increase of $5,716,000 or 89.4%. The increase was largely due to increased personnel costs and recruiting expenses, increased costs associated with our marketing program, as well as increased legal and other professional services costs that were expensed under pooling of interests accounting treatment related to the acquisition of TerraGen. INTEREST INCOME AND EXPENSE. Interest income in the year ended December 31, 2000, was $8,464,000 compared to $905,000 in the year ended December 31, 1999, an increase of $7,559,000 or 835.2%. The increase in interest income was due primarily to higher average cash, cash equivalent and investment balances during the year ended December 31, 2000 as a result of the private -34- placement financings and secondary public offering completed during 2000. Interest expense in the year ended December 31, 2000 was $2,314,000 as compared to $1,059,000 during the year ended December 31, 1999, an increase of $1,255,000 or 118.5%. The increase in interest expense was primarily due to the convertible debt financing of the new corporate headquarters building in Lexington, Massachusetts. OTHER INCOME. Other income in the year ended December 31, 2000 was $579,000 compared to $197,000 in the year ended December 31, 1999, an increase of $382,000 or 193.9%. The increase in other income was due to foreign currency gains and losses related to our subsidiaries in Canada and the United Kingdom. INCOME TAX BENEFIT. Income tax benefit in the year ended December 31, 2000, was $499,000 compared to $926,000 in the year ended December 31, 1999, a decrease of $427,000 or 46.1%. The decrease in income tax benefit was due to the decreased availability of investment tax credits related to our Canadian operations during the year ended December 31, 2000. NET LOSS. Our net loss for the year ended December 31, 2000 was $44,301,000 compared to $24,122,000 during the year ended December 31, 1999, an increase of $20,179,000 or 83.7%. The increase was primarily due to an increase in expenses incurred associated with the development of Cidecin, increased costs associated with our marketing program, increased costs related to personnel and recruiting expenses and increased legal and other professional services costs that were expensed under pooling of interests accounting treatment related to the acquisition of TerraGen. YEARS ENDED DECEMBER 31, 1999 AND 1998 REVENUES. Total revenues in the year ended December 31, 1999 were $6,846,000 compared to $1,674,000 in the year ended December 31, 1998, an increase of $5,172,000 or 309.0%. The revenues earned in the year ended December 31, 1999, consisted of $6,535,000 in research support funding from the Bristol-Myers Squibb, Merck, Novartis and other strategic collaborations and $311,000 in Small Business Innovation Research funding. The revenues earned in the year ended December 31, 1998 consisted of $1,146,000 in research support funding from the Bristol-Myers Squibb, Merck and other strategic collaborations and $528,000 in Small Business Innovation Research funding. The increase in revenues in the year ended December 31, 1999 as compared to the year ended December 31, 1998 was primarily due to the increase of milestone payments and research support funding from the Merck, Novartis and other strategic collaborations during 1999. RESEARCH AND DEVELOPMENT EXPENSES. Total research and development expenses in the year ended December 31, 1999, were $24,786,000 compared to $12,357,000 in the year ended December 31, 1998, an increase of $12,429,000 or 100.6%. The increase was largely due to increased clinical and manufacturing costs related to Cidecin development, the additional personnel and purchases that were required by such development and the expanded research and development activities after the acquisitions of ChromaXome and Xenova which were accounted for under the purchase method of accounting. WRITE-OFF OF ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT EXPENSES. The write-off of acquired in-process research and development costs in the year ended December 31, 1999 of $752,000 related to the acquisitions of ChromaXome and Xenova in 1999. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses in the year ended December 31, 1999, were $6,397,000 compared to $4,452,000 in the year ended December 31, 1998, an increase of $1,945,000 or 43.7%. The increase was largely due to increased investor and public relations expenses, increased legal and other professional services expenses and expanded activities after the acquisitions of ChromaXome and Xenova which were accounted for under the purchase method of accounting. INTEREST INCOME AND EXPENSE. Interest income in the year ended December 31, 1999, was $905,000 compared to $931,000 in the year ended December 31, 1998, a decrease of $26,000 or 2.8%. The decrease in interest income was due primarily to lower average cash, cash equivalent and investment balances during the year ended December 31, 1999 as compared to the year ended December 31, 1998. Interest expense in the year ended December 31, 1999 was $1,059,000 as compared to $361,000 during the year ended December 31, 1998, an increase of $698,000 or 193.4%. The increase in interest expense was primarily due to the debt financing of the ChromaXome and Xenova acquisitions and deemed discounts related to convertible debentures. OTHER INCOME. Other income in the year ended December 31, 1999 was $197,000 compared to ($1,000) in the year ended December 31, 1998, an increase of $198,000. The increase in other income was due to foreign currency gains and losses related to our subsidiaries in Canada and the United Kingdom. -35- INCOME TAX BENEFIT. Income tax benefit in the year ended December 31, 1999, was $926,000 compared to $175,000 in year ended December 31, 1998, an increase of $751,000 or 429.1%. The increase in income tax benefit was due to investment tax credits for increased research and development expenditures related to our Canadian operations during the year ended December 31, 1999 as compared to the year ended December 31, 1998. NET LOSS. Our net loss for the year ended December 31, 1999 was $24,122,000 compared to $14,390,000 during the year ended December 31, 1998, an increase of $9,732,000 or 67.6%. The increase was primarily due to an increase in expenses incurred associated with the development of Cidecin, increased costs associated with our marketing and investor relations program and the expanded operations after the acquisitions of ChromaXome and Xenova, which were accounted for under the purchase method of accounting. LIQUIDITY AND CAPITAL RESOURCES Since inception, we have financed our operations through the sale of equity securities, convertible debt securities, equipment financing, sponsored research revenues, license revenues and interest earned on invested capital. Our total cash, cash equivalent and investments balance at December 31, 2000 was $139,783,000 compared to $26,829,000 at December 31, 1999. From inception through December 31, 2000, we had invested an aggregate of $47,106,000 (of which $37,032,000 was invested during 2000) in property and equipment, primarily in building, leasehold improvements and laboratory equipment under capital leases. The obligations under capital leases at December 31, 2000 were $934,000. Minimum annual principal payments due under capital leases total $696,000 in 2001. Principal payments are scheduled to decline each year thereafter until expiration in 2003. We made principal payments under our capital lease obligations of $685,000 in the year ended December 31, 2000. We expect our capital expenditures in 2001 to be approximately $13,000,000, consisting of leasehold improvements, laboratory equipment and information technology purchases. On September 23, 1998, we completed a private placement financing with investors and raised net proceeds of $12.7 million by issuing 6,065,560 shares of our common stock at $2.25 per share, along with 3,032,783 warrants exercisable for our common stock at $2.25 per share. During the twelve months ended December 31, 1999, we issued 285,644 shares of our common stock upon the exercise of 326,668 warrants issued in connection with the private placement financing completed on September 23, 1998. Such warrants are exercisable at $2.25 per share or pursuant to a standard cashless net issue provision. Of the 285,644 shares issued, 160,000 shares were issued for an aggregate purchase price of $360,000 and 125,644 shares were issued upon cashless net issue exercise pursuant to which the holders of such warrants surrendered the right to acquire 41,024 additional shares of our common stock. During the twelve months ended December 31, 2000, we issued 1,219,540 shares of our common stock upon the exercise of 1,261,669 warrants issued in connection with the private placement financing completed on September 23, 1998. Such warrants were exercisable at $2.25 per share or pursuant to a standard cashless net issue provision. Of the 1,219,540 shares issued, 650,558 shares were issued for an aggregate purchase price of $1,463,756 and 568,982 shares were issued upon cashless net issue exercise pursuant to which the holders of such warrants surrendered the right to acquire 42,129 additional shares of our stock. On October 8, 1998, our Canadian subsidiary completed a private placement financing with investors and raised net proceeds of $3.2 million by issuing 88,848 shares of our common stock, along with warrants exercisable for 44,424 shares of our common stock. On March 15, 1999, our Canadian subsidiary completed a private placement financing with investors and raised net proceeds of $5.2 million by issuing 142,157 shares of our common stock. Upon the signing of the research and license agreement with Novartis in February 1999, we issued to Novartis, 797,448 shares of our common stock for a total purchase price of $4.0 million in cash. On March 17, 1999, our Canadian subsidiary purchased the assets of ChromaXome Corporation for $5.7 million, excluding acquisition costs, by paying approximately $2 million in cash, issuing notes payable of approximately $3 million and issuing 18,231 shares of our common stock. On April 8, 1999, our Canadian subsidiary purchased the assets of Xenova Discovery Ltd. for $5.2 million, excluding acquisition costs, by paying approximately $400,000 in cash, issuing notes payable of approximately $3.6 million and issuing 30,386 shares of our common stock. During March 1999, we entered into a term loan agreement with a bank under which we are able to borrow up to $1,500,000 to finance fixed asset purchases. In March 2000, we increased the term loan by an additional $2,000,000 to finance -36- leasehold improvements and fixed asset purchases. Advances under this facility are to be repaid over a 36-month period, commencing on March 31, 2000. Interest on the borrowings is at the bank's LIBOR rate (9.03% at December 31, 2000). Borrowings under the facility are collateralized by all capital equipment purchased with the funds under this term loan. At December 31, 2000, borrowings outstanding totaled $1,139,578. On October 21, 1999, we completed a private placement financing with investors and raised net proceeds of $17.5 million by issuing 2,503,333 shares of our common stock at $7.50 per share. On November 16, 1999, our Canadian subsidiary issued $1.6 million Cdn of convertible debentures and warrants to purchase 16,458 shares of common stock. The convertible debentures bear interest at a rate of 12% and are payable on March 31, 2000. On March 31, 2000, the convertible debentures and related interest were converted to 30,176 shares of common stock. On January 17, 2000, our Canadian subsidiary issued a note payable totaling $2,006,667 and warrants to purchase 22,790 shares of common stock. The note payable bears interest at 14.4% and is repayable over 36 months to January 17, 2003. The warrants were exercised in 2000 resulting in gross proceeds of $599,000. At December 31, 2000, the note payable balance was $1,062,079. On January 29, 2000, we completed a private placement financing with investors and raised net proceeds of $52.0 million by issuing 2,200,000 shares of our common stock at $25.00 per share. On April 3, 2000, we completed a secondary public offering and raised approximately $82.5 million (less financing costs of $4,957,275) by issuing 2,500,000 shares of common stock at $33.00 per share. In addition, on May 3, 2000, the underwriters exercised their option to purchase an additional 375,000 shares of common stock at $33.00 per share to cover over-allotments, raising an additional $12.4 million (less financing costs of $680,625). On September 8, 2000, we announced the purchase of a new corporate headquarters building in Lexington, Massachusetts. The new facility is 88,000 square feet, approximately 35,000 of which is constructed as laboratory space. To finance the purchase, we issued $39 million of convertible notes to John Hancock Life Insurance Company. This financing covers the building purchase price of approximately $34 million and includes $5 million for facility improvements. The notes carry a coupon rate of 8.5% and can be converted at any time at the option of the holder into our common stock at $63.8625 per share. We retain the right to redeem these notes after three years at 103% of the principal outstanding. We believe that our existing cash resources, existing capital resources, projected interest income and future revenues due under our collaborative agreements, will be sufficient to fund our operating expenses and capital requirements as currently planned through at least the next 12 months. Our actual cash requirements may vary materially from those now planned and will depend on numerous factors. We cannot be sure that our existing cash, cash equivalents, other capital resources, interest income and future revenues due under our collaborative agreements will be sufficient to fund our operating expenses and capital requirements during that period. RECENT PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities," which was amended by SFAS No. 137 and is effective for fiscal years beginning after June 15, 2000. The statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Adoption of this standard is not expected to have a material impact on our financial position or results of operations. -37- ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We currently own financial instruments that are sensitive to market risks as part of our investment portfolio. Our investment portfolio is used to preserve our capital until it is required to fund operations, including our research and development activities. None of these market-risk sensitive instruments are held for trading purposes. Our investment portfolio includes investment grade debt instruments. These bonds are subject to interest rate risk, and could decline in value if interest rates fluctuate. Due to the conservative nature of these instruments, we do not believe that we have a material exposure to interest rate risk. We do not own derivative financial instruments in our investment portfolio. The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to the impact of interest rate changes and foreign currency fluctuations. INTEREST RATE RISK We do not engage in trading market risk sensitive instruments or purchasing hedging instruments or "other than trading" instruments that are likely to expose us to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. We have not purchased options or entered into swaps, forward or futures contracts. Our primary market risk exposure is that of interest rate risk on borrowings under our credit facility, which are subject to interest rates based on the bank's base rate. We also have an outstanding promissory note issued in favor of Xenova Discovery Limited at the LIBOR rate plus one percent and a change in the applicable interest rate on these loans would affect the rate at which we could borrow funds. The aggregate hypothetical loss in earnings for one year of those borrowings held by us at December 31, 2000, which are subject to interest rate risk resulting from a hypothetical 10 percent increase in interest rates is approximately $38,177 after tax. The hypothetical loss was determined by financial instruments held by us at December 31, 2000. Fixed rate financial instruments were not evaluated. FOREIGN CURRENCY RISK We face exposure to adverse movements in foreign currency exchange rates. Our international revenues and expenses are denominated in foreign currencies. The functional currency of each of our foreign subsidiaries is the local currency. Our international business is subject to risks typical of an international business, including, but not limited to differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Based on our overall currency rate exposure at December 31, 2000, A 10% change in foreign exchange rates would have had an immaterial effect on our financial position, results of operations and cash flows. To date, we have not hedged the risks associated with foreign exchange exposure. Although we may do so in the future, we cannot be sure that any hedging techniques we may implement will be successful or that our business, results of operations, financial condition and cash flows will not be materially adversely affected by exchange rate fluctuations. -38- ITEM 8. FINANCIAL STATEMENTS CUBIST PHARMACEUTICALS, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Accountants.......................................................................... 39 Balance Sheets as of December 31, 1999 and 2000............................................................ 41 Consolidated Statements of Operations for the years ended December 31, 1998, 1999 and 2000................. 42 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1999 and 2000................. 43 Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Loss for the years ended December 31, 1998, 1999 and 2000............................................................. 44 Notes to Financial Statements.............................................................................. 46
-39- REPORTS OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Cubist Pharmaceuticals, Inc.: In our opinion, based upon our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders' equity and comprehensive loss and of cash flows present fairly, in all material respects, the financial position of Cubist Pharmaceuticals, Inc. and its subsidiaries (the "Company") at December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These consolidated financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Cubist Pharmaceuticals Inc. (formerly TerraGen Discovery Inc.), a wholly owned subsidiary, at December 31, 1999 and for each of the years ended December 31, 1998 and 1999, which statements reflect total assets constituting 29.1% of consolidated total assets as of December 31, 1999, and total revenue constituting 2.4% and 21.8% of consolidated total revenue for the years ended December 31, 1998 and 1999, respectively. Those statements were audited by other auditors whose report thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Cubist Pharmaceuticals Inc. (formerly TerraGen Discovery Inc.), is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts February 15, 2001 -40- INDEPENDENT AUDITORS' REPORT To the Board of Directors Cubist Pharmaceuticals Inc. (formerly TerraGen Discovery Inc.) We have audited the consolidated balance sheet of Cubist Pharmaceuticals Inc.(formerly TerraGen Discovery Inc.) (the "Company") as at December 31, 1999 and the consolidated statements of operations, stockholders' equity and comprehensive income and cash flows for the years ended December 31, 1999 and 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1999 and the results of its operations and cash flows for the years ended December 31, 1999 and 1998, in conformity with accounting principles generally accepted in the United States of America. Chartered Accountants /s/ KPMG LLP Vancouver, Canada April 3, 2000, except as to the acquisition of the Company described in note A which is as of October 23, 2000 -41- CUBIST PHARMACEUTICALS, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------ 1999 2000 ---- ---- ASSETS Current assets: Cash and cash equivalents.................................... $12,248,607 $46,940,277 Short-term investments....................................... 14,580,515 74,607,683 Accounts receivable.......................................... 380,107 363,412 Investment tax credits receivable............................ 926,699 -- Prepaid expenses and other current assets.................... 564,324 2,509,766 ----------- ----------- Total current assets......................................... 28,700,252 124,421,138 Property and equipment, net..................................... 4,520,051 40,142,080 Intangible assets, net.......................................... 9,195,153 7,280,062 Long-term investments........................................... -- 18,234,857 Other assets.................................................... 179,287 3,291,713 ----------- ------------ Total assets................................................. $42,594,743 $193,369,850 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable............................................. $1,771,995 $4,541,988 Accrued expenses............................................. 1,778,853 7,424,576 Current portion of long-term debt............................ 2,490,231 1,692,340 Current portion of capital lease obligations................. 720,807 615,880 ---------- ---------- Total current liabilities.................................... 6,761,886 14,274,784 Deferred revenue................................................ 2,533,875 2,500,000 Long-term debt, net of current portion.......................... 2,951,864 43,257,329 Capital lease obligations, net of current portion............... 906,079 317,973 ---------- ---------- Total liabilities............................................ 13,153,704 60,350,086 Commitments (Notes H, I, M, N and Q) Stockholders' equity: Preferred stock, non-cumulative; convertible, $.001 par value; authorized 5,000,000 shares 1999 and 2000; issued and outstanding 1999 and 2000 no shares.................................... -- -- Common stock, $.001 par value; authorized 50,000,000 shares; issued and outstanding 1999 20,983,510 shares; issued and outstanding 2000 27,757,900 shares..................................... 20,984 27,758 Additional paid-in capital................................... 93,050,133 241,010,543 Accumulated deficit.......................................... (63,881,456) (108,182,032) Accumulated other comprehensive income....................... 251,378 163,495 ------------ ------------- Total stockholders' equity................................... 29,441,039 133,019,764 ----------- ------------- Total liabilities and stockholders' equity................. $42,594,743 $193,369,850 ============= ============
The accompanying notes are an integral part of the consolidated financial statements. -42- CUBIST PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1998 1999 2000 ---- ---- ---- Revenue........................................................... $1,674,152 $6,846,384 $5,223,009 Operating expenses: Research and development....................................... 12,356,766 24,786,363 44,638,151 Write-off of acquired in process research and development...... -- 752,304 -- General and administrative..................................... 4,451,620 6,397,268 12,112,736 ------------- ------------ ------------- Total operating expenses.................................... 16,808,386 31,935,935 56,750,887 Interest income................................................... 931,345 904,647 8,464,211 Interest expense.................................................. (361,124) (1,059,134) (2,314,225) Other income (expense)............................................ (1,080) 196,584 578,622 -------------- -------------- ------------- Net loss before income taxes................................... $(14,565,093) $(25,047,454) $(44,799,270) Income tax benefit related to Canadian operations................. 175,497 925,593 498,694 -------------- -------------- ------------- Net loss ...................................................... ($14,389,596) ($24,121,861) ($44,300,576) ============== ============== ============= Basic and diluted net loss per common share....................... $(1.16) $(1.31) $(1.68) -------------- -------------- ------------- Weighted average number of common shares outstanding for basic and diluted net loss per common share................ 12,395,003 18,455,568 26,414,826 ============== ============== =============
The accompanying notes are an integral part of the consolidated financial statements. -43- CUBIST PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------- 1998 1999 2000 ---- ---- ---- Cash flows for operating activities: Net loss....................................................... $(14,389,596) $(24,121,861) $(44,300,576) Adjustments to reconcile net loss to net cash used in operating activities: Write-off of acquired in-process research and development...... -- 752,304 -- Depreciation and amortization.................................. 1,370,939 3,112,976 4,367,510 (Gain) loss on the sale of equipment........................... -- 7,776 (8,600) Common stock issued for technology milestone................... -- 250,000 -- Cashless exercise of warrants related to lease agreements...... -- 38,330 -- Fair value of options granted to non-employees................. 44,844 58,202 48,054 Forgiveness of note receivable related to common stock......... -- -- 168,750 Deemed discount amortization on convertible debentures......... -- 372,300 353,400 Unrealized foreign exchange gain, net.......................... -- (209,456) (571,208) Changes in assets and liabilities: Accounts receivable......................................... (40,540) (201,724) 11,945 Investment tax credits receivable........................... (169,348) (757,351) 925,600 Prepaid expenses and other current assets................... (94,674) (296,594) (1,686,028) Other assets................................................ 106,056 (105,049) (2,129,298) Accounts payable and accrued expenses....................... 344,282 2,141,412 8,424,131 Deferred revenue............................................ -- 2,477,626 -- ------------- ------------- ------------- Total adjustments......................................... 1,561,559 7,640,752 9,904,256 ------------- ------------- ------------- Net cash used for operating activities....................... (12,828,037) (16,481,109) (34,396,320) Cash flows for (from) investing activities: Acquisitions, net of cash on hand.............................. -- (3,062,788) -- Purchases of property and equipment............................ (2,161,938) (899,688) (36,886,604) Proceeds from the sale of equipment............................ -- 15,150 8,600 Purchase of intangible assets.................................. (59,822) (131,679) (185,332) Purchases of investments....................................... (12,547,850) (15,192,711) (110,706,986) Maturities of investments...................................... 15,278,730 13,160,046 32,444,961 ------------- ------------- ------------- Net cash provided by (used for) investing activities......... 509,120 (6,111,670) (115,325,361) ------------- ------------- ------------- Cash flows from financing activities: Issuance of common stock and warrants, net..................... 16,017,627 27,575,740 145,256,184 Proceeds from notes receivable................................. 30,000 101,686 -- Repayments of long-term debt................................... (189,736) (3,293,587) (1,761,207) Proceeds from long term debt, net.............................. 941,255 2,232,261 41,526,157 Principal payments of capital lease obligations................ (582,710) (712,464) (684,832) ------------- ------------- ------------- Net cash provided by financing activities.................... 16,216,436 25,903,636 184,336,302 ------------- ------------- ------------- Net increase in cash and cash equivalents......................... 3,897,519 3,310,857 34,614,621 Effect of changes in foreign exchange rates on cash balances...... (36,663) 158,644 77,049 Cash and cash equivalents at beginning of year.................... 4,918,250 8,779,106 12,248,607 ------------- ------------- ------------- Cash and cash equivalents at end of year.......................... $8,779,106 $12,248,607 $46,940,277 ============= ============= ============= Disclosures of cash flow information: Cash paid during the year for interest......................... $361,124 $816,897 $2,314,225 Non-cash investing and financing activities: Cancellation of promissory note in connection with resignation of officer.................................. $37,776 -- -- Issuance of restricted common stock in exchange for a promissory note................................................ -- $506,250 -- Issuance of notes payable related to acquisitions.............. -- $6,632,757 -- Issuance of common stock related to acquisitions............... -- $1,814,166 -- Beneficial conversion feature on convertible debenture......... -- $264,300 -- Warrants issued with long-term debt............................ -- $323,000 $658,606 Issuance of common stock on conversion of long-term debt....... -- -- 1,112,097
The accompanying notes are an integral part of the consolidated financial statements. -44- CUBIST PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
$ ADDITIONAL PAID-IN CAPITAL # OF ISSUANCE $ SHARES $ OF NOTES DEFERRED ACCUMULATED COMMON COMMON SHARES RECEIVABLE COMPENSATION DEFICIT ------ ------ -------- ---------- ------------ ----------- BALANCE AT DECEMBER 31, 1997 10,730,707 $10,731 $46,576,910 ($191,685) ($35,827) ($25,369,999) Exercise of stock options 3,642 4 4,465 - - - Shares issued in connection with employee stock purchase plan 6,341 6 20,553 - - - Repurchase of common stock (2,064) (2) (786) - - - Issuance of common stock, net of offering costs 6,183,720 6,183 16,021,767 - - - Amortization of deferred compensation - - 2,255 22,223 (11,158) - Repayment of promissory notes - - - 30,000 - - Cancellation of promissory note in connection with resignation of officer (10,000) (10) (37,766) 37,776 - - Options granted to non-employees - - 44,844 - - - Net loss - - - - - (14,389,596) Foreign currency translation - - - - - - adjustments ---------- ------ ---------- --------- ---------- ----------- BALANCE AT DECEMBER 31, 1998 16,912,346 16,912 62,632,242 (101,686) (46,985) (39,759,595) Exercise of stock options and warrants 432,626 433 810,983 - - - Shares issued in connection with employee stock purchase plan and 401(k) plan 40,035 40 144,644 - - - Issuance of common stock, net of offering costs 3,549,886 3,550 27,410,670 (506,250) - - Issuance of common stock in connection with acquisitions, net of offering costs 48,617 49 1,814,117 - - - Issuance of warrants for services - - 77,107 - (77,107) - Deferred compensation related to grant of stock options - - 707,797 - (703,125) - Amortization of deferred compensation - - - - 140,538 - Repayment of promissory notes - - - 101,686 - - Options granted to non-employees - - 58,202 - - - Warrants issued in connection with long- term debt - - 323,000 - - - Beneficial conversion feature on - - 264,300 - - - convertible debentures Net loss - - - - - (24,121,861) Foreign currency translation adjustments - - - - - - ---------- ------ ---------- --------- ---------- ----------- BALANCE AT DECEMBER 31, 1999 20,983,510 20,984 94,243,062 (506,250) (686,679) (63,881,456) Exercise of stock options and warrants 1,641,448 1,641 3,610,538 - - - Shares issued in connection with employee stock purchase plan and 401(k) plan 27,766 28 624,033 - - - Issuance of common stock, net of offering costs 5,075,000 5,075 141,014,869 - - -
$ ACC.OTHER $ $ COMPREHENSIVE STOCKHOLDERS COMPREHENSIVE INCOME EQUITY LOSS -------------- ------------ ------------- BALANCE AT DECEMBER 31, 1997 ($44,350) $20,945,780 ($9,006,717) Exercise of stock options - 4,469 - Shares issued in connection with employee stock purchase plan - 20,559 - Repurchase of common stock - (788) - Issuance of common stock, net of offering costs - 16,027,950 - Amortization of deferred compensation - 13,320 - Repayment of promissory notes - 30,000 - Cancellation of promissory note in connection with resignation of officer - - - Options granted to non-employees - 44,844 - Net loss - (14,389,596) (14,389,596) Foreign currency translation adjustments (38,949) (38,949) (38,949) -------- ----------- ----------- BALANCE AT DECEMBER 31, 1998 (83,299) 22,657,589 (14,428,545) ======== =========== =========== Exercise of stock options and warrants - 811,416 - Shares issued in connection with employee stock purchase plan and 401(k) plan - 144,684 - Issuance of common stock, net of offering costs - 26,907,970 - Issuance of common stock in connection with acquisitions, net of offering costs - 1,814,166 - Issuance of warrants for services - - - Deferred compensation related to grant of stock options - 4,672 - Amortization of deferred compensation - 140,538 - Repayment of promissory notes - 101,686 - Options granted to non-employees - 58,202 - Warrants issued in connection with long- term debt - 323,000 - Beneficial conversion feature on - 264,300 - convertible debentures Net loss - (24,121,861) (24,121,861) Foreign currency translation adjustments 334,677 334,677 334,677 -------- ----------- ----------- BALANCE AT DECEMBER 31, 1999 251,378 29,441,039 (23,787,184) ======== =========== =========== Exercise of stock options and warrants - 3,612,179 - Shares issued in connection with employee stock purchase plan and 401(k) plan - 624,061 - Issuance of common stock, net of - offering costs - 141,019,944
-45-
$ ADDITIONAL PAID-IN CAPITAL # OF ISSUANCE $ SHARES $ OF NOTES DEFERRED ACCUMULATED COMMON COMMON SHARES RECEIVABLE COMPENSATION DEFICIT ------ ------ -------- ---------- ------------ ----------- Issuance of common stock upon conversion of convertible debentures 30,176 30 1,112,067 - - - Deferred compensation related to grant - - - - of stock options 2,115,437 (2,115,437) Amortization of deferred compensation - - - - 723,493 - Stock options cancelled (43,838) 43,838 Forgiveness of promissory notes - - - 168,750 - - Options granted to non-employees - - 48,054 - - - Warrants issued in connection with long-term debt - - 658,606 - - - Net loss - - - - - (44,300,576) Foreign currency translation adjustments - - - - - - ---------- ------- ------------ ----------- ------------ ------------- BALANCE AT DECEMBER 31, 2000 27,757,900 $27,758 $243,382,828 ($337,500) ($2,034,785) ($108,182,032) ========== ======= ============ ========= =========== =============
$ ACC. OTHER $ $ COMPREHENSIVE STOCKHOLDERS COMPREHENSIVE INCOME EQUITY LOSS ------------- ------------ ------------- Issuance of common stock upon conversion of convertible debentures - 1,112,097 - Deferred compensation related to grant - of stock options - - Amortization of deferred compensation - 723,493 - Stock options cancelled - Forgiveness of promissory notes - 168,750 - Options granted to non-employees - 48,054 - Warrants issued in connection with long-term debt - 658,606 - Net loss (44,300,576) (44,300,576) Foreign currency translation adjustments (87,883) (87,883) (87,883) --------- ------------ ------------ BALANCE AT DECEMBER 31, 2000 $163,495 $133,019,764 ($44,388,459) ======== ============ ============
The accompanying notes are an integral part of the consolidated financial statements. -46- CUBIST PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. NATURE OF BUSINESS Cubist Pharmaceuticals, Inc. ("Cubist") is a specialty pharmaceutical company founded in May 1992 and is focused on the research, development and commercialization of novel antimicrobial drugs to combat serious and life-threatening bacterial and fungal infections. Cubist has established multiple technology licenses and collaborations and has established a network of advisors and collaborators. Cubist is headquartered in Cambridge, Massachusetts. On October 23, 2000, C&T Acquisition Corporation, a subsidiary of Cubist, acquired TerraGen Discovery Inc., ("TerraGen") a natural products discovery company with operations in Vancouver, Canada and Slough, England. Following the acquisition, the name of TerraGen was changed to Cubist Pharmaceuticals Inc. TerraGen conducts its Slough, England operations through a wholly owned subsidiary. With the acquisition, Cubist acquired proprietary technologies and expertise in the area of small molecule drug discovery from natural products. This transaction was accounted for using the pooling-of-interests method of accounting. The accompanying consolidated financial statements of Cubist have been restated to include the results and balances of C&T Acquisition Corporation and TerraGen and its subsidiaries for all periods presented. Cubist is subject to risks common to companies in the industry including, but not limited to, uncertainty of product development and commercialization, lack of marketing and sales history, dependence on key personnel, market acceptance of products, product liability, protection of proprietary technology, ability to raise additional financing, and compliance with FDA and other governmental regulations. Cubist has a limited history of operations and has experienced significant net losses since inception. At December 31, 2000, Cubist has an accumulated deficit of $108.2 million. Cubist expects to incur significant additional net losses over the next several years and expects cumulative losses to increase due to expanded research and development efforts, preclinical testing and clinical trials and the development of manufacturing, marketing and sales capabilities. As a result, Cubist's business plan indicates that additional financing may be required to support its planned expenditures. Cubist believes that the funds currently available and future revenues due under its collaborative agreements (Note H) will be sufficient to fund operations through at least the next twelve months. B. ACCOUNTING POLICIES BASIS OF PRESENTATION AND CONSOLIDATION The accompanying consolidated financial statements include the accounts of Cubist and its wholly-owned subsidiaries. All significant intercompany amounts and transactions have been eliminated. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash equivalents consist of short-term interest-bearing instruments with original maturities of three months or less. These investments are carried at cost which approximates market value. Cubist invests its cash and cash equivalents primarily in deposits, U.S. Government treasuries and money market funds with financial institutions. Cubist has not recorded any losses to date on its invested cash and cash equivalents. -47- INVESTMENTS Investments, with an original maturity of more than three months when purchased, consisted of certificates of deposit and investment-grade commercial paper at December 31, 1999 and 2000. Investments, all of which are held to maturity, are stated at amortized cost plus accrued interest, which approximates market value. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets, generally three years for computer equipment and five years for laboratory equipment and furniture and fixtures. Leasehold improvements are stated at cost and are amortized over the lesser of the life of the lease or their estimated useful lives. Maintenance and repairs are charged to expense as incurred, while major betterments are capitalized. When assets are retired or otherwise disposed of, the assets and related allowances for depreciation and amortization are eliminated from the accounts and any resulting gain or loss is reflected in income. INTANGIBLE ASSETS Intellectual property and processes represents information databases, and technological process information acquired through Cubist's business acquisitions. These assets are amortized on a straight-line basis over their estimated useful life of four years. Workforce represents the estimated cost savings or value of experienced employees obtained through acquisitions and are amortized on a straight-line basis over two years. Patent costs include costs of obtaining patents directly or through an acquisition transaction. Patent costs are amortized over the lesser of the patent's remaining legal life and its useful life. Amortization of intangible assets are included in research and development expense. IMPAIRMENT OF LONG-LIVED ASSETS Cubist reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down by the amount in which the carrying value of the asset exceeds the related fair value of the asset. No provisions for impairment have been recorded to date. REVENUE RECOGNITION Cubist has entered into various collaborative agreements with pharmaceutical and biotechnology companies. The terms of the collaborative arrangements can include nonrefundable licensing fees, funding of research and development, payments based on the achievement of certain milestones, and royalties on product sales. Nonrefundable licensing fees are recorded as deferred revenue upon receipt and recognized as revenue ratably over the period that the related products or services are delivered or obligations as defined in the agreement are performed. Revenues from research funding are recognized when the related research activities are performed. Revenues from milestone payments which are substantive and whose achievability was not reasonably assured at the inception of the agreement are recognized when the milestone is achieved. However, milestone payments that require future performance are deferred and recognized as revenue ratably over the term of the agreement as the related activities are performed. Any revenue related to royalties is recognized as earned. Cubist's revenue recognition policies are consistent with the principles provided in the Securities and Exchange Commission's Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements." Revenue from Small Business Innovation Research ("SBIR") government grants to conduct research and development is recognized as eligible costs are incurred up to the funding limit. RESEARCH AND DEVELOPMENT All research and development costs are expensed as incurred. The portion of purchase price, if any, on any acquisition allocated to in-process research and development is charged to expense upon acquisition (Note C). -48- INCOME TAXES Cubist accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted rates in effect for the year in which those temporary differences are expected to be recovered or settled. A deferred tax asset is established for the expected future benefit of net operating loss and credit carryforwards. A valuation reserve against net deferred tax assets is required if, based upon available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. INVESTMENT TAX CREDITS Investment tax credits for research and development expenditures incurred by Cubist's Canadian operations are recorded as a reduction of tax expense when collection is reasonably assured. Investment tax credits receivable at December 31, 1999 were received in January 2000. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of Cubist's financial instruments, which include cash and cash equivalents, investments, accounts receivable, accounts payable, and accrued expenses approximates their fair value due to the short-term nature of the items. The estimated fair value of long-term debt and capital lease obligations approximates their carrying value. The estimated fair value of long-term debt and capital lease obligation has been determined using current interest rates for similar instruments. In evaluating the fair value information, considerable judgment is required to interpret the market data used to develop the estimates. The use of different market assumptions and/or different valuation techniques may have a material effect on the estimated fair value amounts. Accordingly, the estimates of fair value presented herein may not be indicative of the amounts that could be realized in a current market exchange. FOREIGN CURRENCY AND INTEREST RATE RISK Cubist operates internationally, which gives rise to a risk that earnings and cash flows may be negatively impacted by fluctuations in interest and foreign exchange rates. To the date of these financial statements, Cubist has not entered into foreign currency hedging arrangements. NET LOSS PER COMMON SHARE Basic net loss per share is computed using the weighted average number of shares of common stock outstanding. Diluted net loss per share does not differ from basic net loss per share since potential common shares from stock options, warrants, convertible debt and notes payable are antidilutive for all periods presented and are therefore excluded from the calculation. During the years ended December 31, 1998, 1999 and 2000, options to purchase 1,535,810, 2,006,829, and 2,920,895 shares of common stock, respectively, warrants for 3,120,314, 2,793,239, and 1,578,652 shares of common stock, respectively, and convertible debt and notes payable convertible into 0, 87,158, and 668,969 shares of common stock, respectively, were not included in the computation of diluted net loss per share since their inclusion would be antidilutive. OTHER COMPREHENSIVE INCOME (LOSS) Comprehensive loss consists of net loss and foreign currency translation adjustments which is presented in the Statement of Stockholders' Equity. ACCOUNTING FOR STOCK BASED COMPENSATION Cubist accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Accordingly, no compensation expense is recorded for options issued to employees in fixed amounts and with fixed exercise prices at least equal to the fair market value of common stock at the date of grant. Cubist applies the provisions of Statement of Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," through disclosure only (Note L). All stock-based awards to non-employees are accounted for at their fair value in accordance with SFAS No. 123. -49- FOREIGN CURRENCY Prior to October 1, 2000 the functional currency of Cubist's subsidiaries, which are located in Canada and United Kingdom, was the Canadian dollar. The remeasurement of the foreign currency balances into the Canadian dollar functional currency was performed as follows, according to the remeasurement method: - Monetary items are remeasured at the rate of exchange in effect at the balance sheet date; - Non-monetary items are remeasured at historical exchange rates; and - Revenue and expense items are remeasured at the average exchange rate prevailing in the period. The translation of the Canadian functional currency financial statements into the United States dollar was performed as follows: - Assets and liabilities were translated at period end exchange rates; and - Revenues and expenses were translated using the average rates prevailing in the period. The resulting effects of foreign currency translation adjustments have been accumulated and are included as other comprehensive income in the statement of stockholders' equity. Effective October 1, 2000 the functional currency for all of Cubist's subsidiaries was changed to the United States dollar. Accordingly, the remeasurement method is used to convert the foreign currency balances from the local currency into the United States dollar. Foreign exchange gains (losses) of ($1,080), $196,584 and $570,022 in the years ended December 31, 1998, 1999 and 2000 are included in the other income (expense) for the period. DEEMED DEBT DISCOUNTS As applicable, the consideration received on debt instruments issued is allocated between the debt, the fair value of detachable warrants issued with the debt and the intrinsic value of beneficial (in-the-money) conversion options. Debt is disclosed net of deemed discounts. Discounts attributable to detachable warrants are amortized to interest expense over the term of the debt. Discounts attributable to a beneficial conversion option are amortized over the period to the initial conversion date. Amortization is calculated by the effective interest method. RECENT ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 ("SFAS") "Accounting for Derivative Instruments and Hedging Activities", which was amended by SFAS No. 137 and is effective for fiscal years beginning after June 15, 2000. The statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Adoption of this standard is not expected to have a material impact on the financial position or results of operations of Cubist. C. BUSINESS COMBINATIONS TERRAGEN DISCOVERY INC. On October 23, 2000, Cubist indirectly through its subsidiary C&T Acquisition Corporation acquired all of the issued and outstanding common and preferred shares of TerraGen, and assumed all of the outstanding options, warrants and convertible debentures of TerraGen, by issuing 334,933 shares of Cubist common stock and causing C&T Acquisition Corporation to issue 178,491 exchangeable shares. Each common share of TerraGen was exchanged, at the election of the holder, for either 0.021323 exchangeable shares or 0.021323 shares of Cubist common stock and each preferred share was exchanged, at the election of the -50- holder, for either 0.030386 exchangeable shares or 0.030386 shares of Cubist common stock. The exchangeable shares are exchangeable at any time at the option of the holder, on a one-for-one basis, for shares of Cubist common stock. All exchangeable shares that remain outstanding will be automatically exchanged for Cubist common stock on October 23, 2002. The options, warrants and convertible debentures of TerraGen assumed by Cubist pursuant to the acquisition are exercisable for 94,605 shares of Cubist common stock. This acquisition had been accounted for using the pooling-of-interests method of accounting. The balances as at December 31, 1999 and the results for the years ended December 31, 1998 and 1999 have been restated to include the balances and results of C&T Acquisition Corporation and TerraGen and its subsidiaries. The financial results for the year ended December 31, 2000 include the results of the previously separate businesses for the nine months ended September 30, 2000 prior to the consummation of the transaction. Revenue and net loss from the previously separate operations of Cubist and TerraGen were revenues of $2,496,247 and $1,760,573 and net loss of $23,171,029 and $3,737,752, respectively in the nine months ended September 30, 2000, which are included in these consolidated financial statements. Results on a stand-alone basis were as follows:
YEAR ENDED COMBINED DECEMBER 31, 1998 CUBIST TERRAGEN RESTATED - ------------------------- ----------------- ------------------- -------------------- Revenue $1,634,199 $39,953 $1,674,152 Operating loss (12,350,323) (2,783,911) (15,134,234) Net loss (11,825,006) (2,564,590) (14,389,596) Net loss per share (0.97) (15.03) (1.16)
YEAR ENDED COMBINED DECEMBER 31, 1999 CUBIST TERRAGEN RESTATED - ------------------------- ----------------- ------------------- -------------------- Revenue $5,353,379 $1,493,005 $6,846,384 Operating loss (18,295,676) (6,793,875) (25,089,551) Net loss (17,813,510) (6,308,351) (24,121,861) Net loss per share (0.99) (15.21) (1.31)
There were no intercompany transactions between the two companies prior to consummation of the transaction. CHROMAXOME CORPORATION On March 17, 1999 Cubist's Canadian subsidiary purchased substantially all of the assets of ChromaXome Corporation under an asset purchase agreement dated March 12, 1999, among Cubist, Trega Biosciences and ChromaXome Corporation ("ChromaXome"). The consideration paid, excluding acquisition costs, for the assets acquired consisted of approximately $2 million in cash, notes payable of approximately $3 million and 18,231 shares of common stock having an estimated fair value of $673,405. The notes payable bore interest at a rate of 9.5% and were repaid prior to December 31, 2000. XENOVA DISCOVERY On April 8, 1999 Cubist's Canadian subsidiary purchased substantially all of the assets of Xenova Discovery Ltd. under an asset purchase agreement dated April 8, 1999, among Cubist, Xenova Group PLC ("Xenova Group") and Xenova Discovery Ltd. ("Xenova"). The consideration paid, excluding acquisition costs, for the assets acquired consisted of $402,250 in cash, notes payable of $3,619,663 and 30,386 shares of common stock having an estimated fair value of $1,140,761. One note payable of $1,375,715 was due and repaid as of December 31,1999. The second note payable bears interest at a rate of LIBOR plus 1% (6.375% at December 31, 2000). The note payable is due April 8, 2002 and is repayable at any time by Cubist and may be converted into 58,282 shares of common stock at any time after 24 months from the date of closing, at the option of either Xenova Group or Cubist. The interest on the second note payable is being repaid quarterly, and at December 31, 2000 the balance outstanding was $2,243,948. The acquisitions of ChromaXome and Xenova have been accounted for by the purchase method with results of operations of the acquired entities included in the financial statements of Cubist from the dates of acquisition. -51-
CHROMAXOME XENOVA TOTAL --------------- --------------- --------------- Capital assets $22,806 $1,060,414 $1,083,220 Intangible assets 5,574,326 4,380,939 9,955,265 In-process research and development 407,310 344,994 752,304 Liabilities assumed (2,511) (278,567) (281,078) ----------- ------------ ------------ Net assets acquired 6,001,931 5,507,780 11,509,711 Consideration: Notes payable (3,013,094) (3,619,663) (6,632,757) Shares issued (673,405) (1,140,761) (1,814,166) ------------ ------------ ------------ Cash (including acquisition costs) $2,315,432 $747,356 $3,062,788 ============ ============ ===========
Acquired in-process research and development materially represents acquired tangible assets having no alternative future use outside of specified research and development activities. The following table reflects, on an unaudited pro forma basis, the combined results of Cubist's operations acquired for the years ended December 31, 1998 and 1999 as if all such acquisitions had taken place immediately prior to the beginning of the respective years presented. Appropriate adjustments have been made to reflect the accounting basis used in recording these acquisitions. No adjustments have been recorded for nonrecurring charges arising on the acquisitions. This pro forma information does not purport to be indicative of the results of operations that would have resulted had the acquisitions been in effect for the entire years presented, and is not intended to be a projection of future results or trends.
1998 1999 TOTAL TOTAL ----- ----- Revenues $ 1,674,152 $ 6,846,384 Net loss $21,153,557 $25,851,246 Net loss per share $ (1.70) $ (1.40)
D. INVESTMENTS At December 31, 1999 and 2000, all investments were classified as held-to-maturity and carried at amortized cost. Investments consisted of the following:
1999 2000 ---- ---- Short-term: Commercial Paper $ 7,855,515 $ 5,444,093 Corporate Bonds 6,725,000 69,163,590 ----------- ----------- $14,580,515 $74,607,683 =========== =========== Long-Term: Corporate Bonds -- $18,234,857 ----------- ----------- $ -- $18,234,857 =========== ===========
At December 31, 2000, maturities of all investments classified as long-term were due after one year through two years. The carrying amounts and estimated fair values of our investments at December 31, 1999 and 2000 were as follows:
1999 2000 ---- ---- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE Cash and cash equivalents $12,248,607 $12,248,607 $46,940,277 $46,995,641 Short-term investments 14,580,515 14,586,000 74,607,683 75,031,075 Long-term investments -- -- 18,234,857 18,324,806
Fair values of all marketable securities are based upon quoted market prices. -52- E. PROPERTY AND EQUIPMENT At December 31, property and equipment consisted of:
1999 2000 ---- ---- Building................................. $ -- $34,000,000 Leasehold improvements................... 2,816,007 3,951,361 Laboratory equipment..................... 5,740,898 7,143,333 Furniture and fixtures................... 575,520 692,104 Computer equipment....................... 941,325 1,319,088 ----------- ----------- 10,073,750 47,105,886 Less accumulated depreciation and amortization....................... (5,553,699) (6,963,806) ----------- ----------- Property and equipment, net.............. $4,520,051 $40,142,080 =========== ===========
Depreciation and amortization expense was $1,292,050, $1,518,511, and $1,634,512 in 1998, 1999 and 2000, respectively. On September 8, 2000, Cubist purchased for $34 million, a new corporate headquarters building in Lexington, Massachusetts. In connection with this purchase, Cubist issued $39 million of senior convertible notes (see Note N). Cubist expects to occupy the new facility during the third quarter of 2001. Accordingly, no depreciation expense has been recorded in 2000. F. INTANGIBLE ASSETS At December 31, intangible assets consisted of:
1999 2000 ---- ---- Patents...................................... $4,917,196 $5,192,577 Intellectual property and processes.......... 5,038,240 4,748,769 Workforce.................................... 637,559 630,628 ----------- ----------- $10,592,995 $10,571,974 Less accumulated amortization................ (1,397,842) (3,291,912) ----------- ----------- Intangible assets, net....................... $9,195,153 $7,280,062 =========== ===========
Amortization expense was $3,340, $1,393,193, and $1,928,476 in 1998, 1999 and 2000, respectively. G. ACCRUED EXPENSES At December 31, accrued expenses consisted of:
1999 2000 ---- ---- Payroll and benefits..................... $559,181 $908,585 Drug development......................... 525,128 4,394,082 Interest................................. 240,997 1,031,333 Other.................................... 453,547 1,090,576 ---------- ----------- Total accrued expenses................... $1,778,853 $7,424,576 ========== ==========
-53- H. COLLABORATIVE RESEARCH AGREEMENTS In June 1996, Cubist entered into a collaborative research agreement with Bristol-Myers Squibb Company ("Bristol-Myers Squibb"). Under the terms of the agreement, Bristol-Myers Squibb purchased from Cubist $4,000,000 of Cubist's preferred stock upon execution of the agreement, which was subsequently converted to common stock and agreed to make payments to Cubist upon the achievement of certain milestones. In addition, Bristol-Myers Squibb reimbursed Cubist a fixed amount for research and development expenses relating to the production of certain targets and also for expenses relating to the screening of Bristol-Myers Squibb compounds against Cubist's targets over three years. Cubist recorded revenue of $1,500,000 and $500,000 in 1998 and 1999, respectively, for certain research and development revenues and milestone payments in accordance with the agreement. Bristol-Myers Squibb's exclusive research period ended in January 2000 and reimbursements of Cubist's research and development costs ceased. In June 1996, Cubist entered into a collaborative research agreement with Merck & Co., Inc. ("Merck"). Under the terms of the agreement, Merck paid Cubist a technology licensing fee upon execution and will pay certain milestone payments if earned. In addition, Merck reimbursed Cubist for research and development expenses relating to the production of certain targets, for expenses relating to the screening of Merck compounds against Cubist's targets, and for expenses relating to compound optimization through August 1999. Cubist recorded revenue of $106,667 and $2,500,000 in 1998 and 1999, respectively, for certain research and development revenues and milestone payments, in accordance with the agreement. In September 1998, Cubist's Canadian subsidiary entered into a research and collaboration agreement with Schering-Plough Research Institute to access Cubist's recombinant library to discover novel leads with potential activity in the anti-infective area. As part of the agreement, Cubist would provide library screening services to Schering-Plough for those strains provided. In exchange for these services, Schering-Plough is making research payments to Cubist. Schering-Plough was granted an exclusive, worldwide license to use any recombinant microorganism that produces a lead and an exclusive, worldwide license to all of its rights and ownership in any resulting patents. Cubist recorded revenue of $394,000 and $397,000 in 1999 and 2000, respectively, for certain research and development revenues in accordance with the agreement. In May 1999, Cubist's Canadian subsidiary entered into a second collaboration agreement with Schering-Plough under which Schering-Plough was granted an exclusive, worldwide license to manufacture and sell compounds resulting from screening Cubist's natural product library. In exchange for the license, Schering-Plough is making research payments and, if scientific and development milestones are achieved, Schering-Plough will make milestone payments to us. In addition, Schering-Plough will be required to pay royalties to Cubist on worldwide sales of any drug developed and commercialized from any products derived from this collaboration. Cubist recorded revenue of $217,000 and $731,000 in 1999 and 2000, respectively, for certain research and development revenues, in accordance with the agreement. On February 3, 1999, Cubist entered into a research and license agreement with Novartis Pharma AG to use Cubist's proprietary VITA functional genomics technology to validate and develop assays for antiinfective targets and to identify new compounds for development as antiinfective agents. In exchange for the license, Novartis will fund a research program for a period of three years. Further, if certain scientific and development milestones are achieved, Novartis will make milestone payments. In addition, Novartis will be required to pay royalties to Cubist on worldwide sales of any drug developed and commercialized from any products derived from this collaboration. Cubist recorded revenue of $2,041,875 and $2,750,000 in 1999 and 2000, respectively, for certain research and development revenues and milestone payments in accordance with the agreement. Upon the signing of the research and license agreement, Novartis purchased, and Cubist issued to Novartis, 797,448 shares of Common Stock for a total purchase price of $4.0 million in cash. On November 6, 2000, Cubist and Emisphere Technologies, entered into a research agreement to develop an oral formulation of daptomycin. Under the terms of the agreement, Cubist will pay a license fee of $500,000 upon execution of a license agreement and could pay milestone payments totaling $30 million should a product be successfully commercialized. In addition, Cubist will fund Emisphere's research and development efforts at a rate of $250,000 per full-time equivalent per year. Cubist would also pay a royalty on sales of any product resulting from the collaboration and would be responsible for drug development and would receive exclusive worldwide commercialization rights to any oral products. Cubist was a party to various other collaborative research agreements that resulted in revenues of $40,000, $882,000 and $897,000 for the years ended December 31, 1998, 1999 and 2000, respectively. At December 31, 2000, accounts receivable of $363,412 is due under one of Cubist's collaborative research agreements. This amount is due from an entity that owns common stock and holds a note payable issued by Cubist. -54- I. LICENSE AGREEMENT On November 7, 1997, Cubist entered into a license agreement with Eli Lilly and Company ("Eli Lilly") which was amended on October 6, 2000, pursuant to which Cubist acquired exclusive worldwide rights to develop, manufacture and market daptomycin. In exchange for such license, Cubist paid an upfront license fee in cash and, if certain drug development milestones are achieved, has agreed to pay milestone payments by issuing shares of common stock to Eli Lilly. In addition, Cubist will be required to pay royalties to Eli Lilly on worldwide sales of daptomycin. On February 19, 1999 Cubist issued 56,948 shares of common stock as a milestone payment pursuant to, and in accordance with, the terms of the agreement. The value of the common stock was $250,000 and was recorded as research and development expense. Cubist's Canadian subsidiary and Diversa Corporation entered into a cross-license ("Cross-license Agreement") dated November 18, 1999, pursuant to which Cubist granted a co-exclusive world-wide non-royalty bearing license to certain patented technology of Cubist, subject to certain restrictions. Under the Cross-license Agreement, Diversa paid an upfront license fee of $2,500,000 and will pay annual license maintenance fees, until the patents expire. Cubist is required to repay the upfront license fee if it were to merge or be acquired prior to November 18, 2004 by a company whose primary business is DNA shuffling. No upfront license issue fee revenue was recognized in 1999 and 2000. Revenue of $100,000 was recognized in 2000 related to the annual license maintenance fee. On November 22, 2000, Cubist and International Health Management Associates, Inc. ("IHMA") signed a license agreement to utilize IHMA's expertise and experience in "bridge" oral drug delivery technologies to research, develop and commercialize oral forms of ceftriaxone. In exchange for such license, Cubist paid an undisclosed upfront license fee which was recorded as research and development expense in 2000, and if certain drug development milestones are achieved, Cubist will pay milestone payments. Cubist will also be required to pay royalties to IHMA on worldwide sales of any oral formulation of ceftriaxone. J. FINANCINGS On May 1, 1997, Cubist's Canadian subsidiary completed a private placement financing with investors and raised net proceeds of $3.5 million (less financing costs of $41,664) by issuing 88,848 shares of common stock, along with 44,424 warrants exercisable for common stock at $56.28 Cdn per share. On October 8, 1998 there was a second closing of this private placement financing resulting in Cubist raising an additional $3.2 million by issuing 88,848 shares of Cubist common stock, along with 44,424 warrants exercisable for Cubist common stock at $56.28 Cdn per share. These warrants were exercisable immediately and expire on May 1, 2001. In connection with the pooling-of-interests transaction consummated on October 23, 2000 between Cubist and TerraGen, the exercise price for all warrants outstanding as of that date was set at a United States dollar equivalent of $37.25 per share. In December 1998, the stockholders of Cubist's Canadian subsidiary authorized the exchange of all the then outstanding warrants to purchase common stock issued in connection with the May 1997 and October 1998 private placement financing for common stock on a 3 for 1 basis, for no additional consideration. Under these terms, 87,936 warrants were exchanged for 29,312 shares of common stock on December 31, 1998. On September 23, 1998, Cubist completed a private placement financing with investors and raised approximately $13.6 million (less financing costs of approximately $901,000) by issuing 6,065,560 shares of common stock at $2.25 per share, along with 3,032,783 warrants exercisable for common stock at $2.25 per share. The warrants are exercisable at any time until September 23, 2003. The values of the warrants and common stock in excess of par value have been reflected in additional paid-in-capital. On March 15, 1999, Cubist's Canadian subsidiary completed a private placement financing with investors and raised net proceeds of $5.2 million, (less financing costs of $9,200,) by issuing 142,157 shares of common stock. On October 21, 1999, Cubist completed a private placement financing with investors and raised approximately $18.8 million (less financing costs of $1,328,892) by issuing 2,503,333 shares of common stock at $7.50 per share. On January 29, 2000, Cubist completed a private placement financing with investors and raised approximately $55.0 million (less estimated financing costs of $3,039,000) by issuing 2,200,000 shares of common stock at $25.00 per share. -55- On April 3, 2000, Cubist completed a secondary public offering and raised approximately $82.5 million (less financing costs of $4,957,275) by issuing 2,500,000 shares of common stock at $33.00 per share. In addition, on May 3, 2000, the underwriters exercised their option to purchase an additional 375,000 shares of common stock at $33.00 per share to cover over-allotments, raising an additional $12.4 million (less financing costs of $680,625). K. STOCKHOLDERS' EQUITY WARRANTS In February 1999, Cubist issued to Bridge Technology Group a warrant exercisable for 25,000 shares common stock at $4.31 per share. The value of the warrant was determined using the Black-Scholes option-pricing model. Cubist recorded general and administrative expense of $70,680 and $6,427 in 1999 and 2000, respectively. The warrant was exercised during the year ended December 31, 2000. NOTES RECEIVABLE FROM RELATED PARTIES Cubist accepted a promissory note from the Chief Executive Officer in consideration for the preferred stock issued to him in 1997. The note fell due in equal quarterly installments of $10,000 commencing on March 31, 1998. On October 14, 1999 the principal amount of this note was paid in full. In September 1999, Cubist accepted a promissory note from a Senior Vice President in consideration for 50,000 shares of restricted common stock issued to him. The aggregate principal amount of this note at December 31, 2000 is $337,500 and is reflected in stockholders' equity as a reduction to paid-in-capital. This note has an annual interest rate of 4% and is due on September 25, 2002. The note is being forgiven in three equal annual installments of $168,750, contingent upon the Senior Vice President's continued employment, until September 2002. On September 18, 2000, Cubist accepted a promissory note of $250,000 from the Chief Executive Officer. This note has an annual interest rate of 6.15% and is due on March 31, 2002. In the event the note is repaid prior to December 31, 2001, no interest will be charged. L. STOCK OPTIONS Under the Cubist 1993 Amended and Restated Stock Option Plan, options to purchase 5,085,181 shares of common stock may be granted to employees, directors, officers or consultants. The options are generally granted at fair market value on the date of the grant, vest ratably over a four-year period and expire ten years from the date of grant. At December 31, 2000, there were 1,156,641 shares available for future grant. Under the Cubist 2000 Nonstatutory Stock Option Plan, options to purchase 1,000,000 shares of common stock may be granted to employees, directors, officers or consultants. The options are generally granted at fair market value on the date of the grant, vest ratably over a four-year period and expire ten years from the date of grant. At December 31, 2000, there were 1,000,000 shares available for future grant. Under the TerraGen Discovery Inc. Employee Stock Option Plan, incentive and non-qualified stock options may be granted to United Kingdom and Canadian employees, directors and consultants. Options typically vest ratably over a maximum four-year period and expire ten years from the date of grant. In connection with the acquisition by Cubist, Cubist assumed the TerraGen plan and all of the TerraGen options were converted at the acquisition exchange ratio of 0.021323 per share of common stock into options to acquire common stock of Cubist. The assumed options are exercisable upon the same terms and conditions as provided in the TerraGen plan except that the assumed options are exercisable for shares of Cubist common stock upon payment of the revised exercise price in United States dollars. Had compensation costs for Cubist's stock-based compensation plan been determined based on the fair value at the grant dates as calculated in accordance with SFAS 123, Cubist's net loss and loss per share for the years ended December 31, 1998, 1999 and 2000 would have been increased to the pro forma amounts indicated below: -56-
1998 1999 2000 ---- ---- ---- NET LOSS BASIC AND NET LOSS BASIC AND NET LOSS BASIC AND -------- ---------- -------- ---------- -------- --------- DILUTED LOSS DILUTED LOSS DILUTED LOSS ------------ ------------ ------------ PER SHARE PER SHARE PER SHARE --------- --------- --------- As Reported....... $(14,389,596) $(1.16) $(24,121,861) $(1.31) $(44,300,576) $(1.68) Pro forma......... $(15,656,293) $(1.26) $(26,713,559) $(1.45) $(59,918,426) $(2.27)
The fair value of each stock option was estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used for fiscal 1998:
CUBIST TERRAGEN ------ -------- Expected stock price volatility 97% 113% Risk free interest rate 4.7% 5.01% Expected annual dividend yield per share 0% 0% Expected life of options 4 years 3.65 years
The following weighted-average assumptions were used for fiscal 1999:
CUBIST TERRAGEN ------ -------- Expected stock price volatility 74% 102% Risk free interest rate 5.3% 5.10% Expected annual dividend yield per share 0% 0% Expected life of options 7 years 3.82 years
The following weighted-average assumptions were used for fiscal 2000:
CUBIST AND TERRAGEN ------------------- Expected stock price volatility 87% Risk free interest rate 6.2% Expected annual dividend yield per share 0% Expected life of options 7 years
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of future amounts. Additional awards in future years are anticipated. A summary of the status of Cubist's stock option plan as of December 31, 1998, 1999 and 2000, and changes during each of the years then ended, is presented below:
1998 1999 2000 ---- ---- ---- WAEP* WAEP* WAEP* NUMBER PER SHARE NUMBER PER SHARE NUMBER PER SHARE ------ --------- ------ --------- ------ --------- Balance at January 1................ 809,910 $4.98 1,535,810 $4.01 2,006,829 $5.11 Granted............................. 1,010,484 4.10 887,866 6.57 1,316,403 36.09 Exercised........................... (3,642) (1.23) (140,420) (2.94) (347,731) (3.94) Canceled............................ (280,942) (7.20) (276,427) (3.97) (54,606) (29.57) ---------- ------ --------- ------ ---------- ------- Balance at December 31.............. 1,535,810 $4.01 2,006,829 $5.11 2,920,895 $18.75 ========= ========= ===== ========= ====== Weighted average grant-date fair value of options granted during the year: Exercise price greater than grant date stock fair value... $20.18 $22.66 -- Exercise price equals grant date stock fair value.............. $2.42 $3.72 $26.70 Exercise price less than grant date stock fair value......... -- $7.94 $30.64 * Weighted-average exercise price
-57- The following table summarizes information about stock options outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------- ------------------- RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER WEIGHTED-AVERAGE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ---------------- ---------------- ----------- ---------------- $.007--$1.96......... 157,736 5.2 years $1.80 157,736 $ 1.80 $2.25--$5.00......... 908,678 8.0 years 3.21 327,314 3.04 $5.25--$7.00......... 310,337 6.9 years 5.80 201,334 5.87 $8.00--$11.625....... 641,244 8.9 years 11.10 142,423 10.83 $30.00--$63.375...... 902,900 9.3 years 47.40 100,557 52.80 ------- --------- ------ -------- ------ 2,920,895 8.3 years $18.75 929,364 $10.02 ========= ========= ====== ======== ======
Cubist records deferred compensation for stock options issued with exercise prices below the fair value of common stock as of the measurement date. Deferred compensation is amortized and recorded as compensation expense ratably over the vesting period of the stock options. Compensation expense of $0, $43,945, and $697,966 was recognized in 1998, 1999 and 2000, respectively. M. COMMITMENTS AND CONTINGENCIES Cubist leases its facilities under operating lease agreements, which extend through 2010. Certain of these leases contain renewal options and provisions that adjust the base payment based upon changes in the consumer price index and require Cubist to pay operating costs, including property taxes, insurance and maintenance. In 1993, Cubist provided a security deposit of $100,000 upon execution of a lease. The security deposit bears interest in a segregated account, and was partially refunded ($79,000 plus interest) on the fifth anniversary, and is fully refundable plus interest within thirty days after the expiration of the lease, provided no event of default has occurred. In 1995, Cubist entered into an agreement with the landlord under which the landlord provided financing of $345,500 to Cubist for expansion of the facility, which was payable in equal monthly installments of $7,685 over five years with an annual interest rate of 12% through February 2000. No additional security deposit was required. At December 31, 2000, there was no outstanding principal balance. Cubist leases certain equipment under long-term capital leases. The cost of this equipment included in fixed assets was approximately $2,395,481 and $1,795,888, with associated accumulated depreciation of approximately $1,335,134 and $1,288,754, at December 31, 1999 and 2000, respectively. Cubist intends to purchase all of the leased equipment at a price to be negotiated at lease end. Future lease payments for non-cancelable leases for the respective years ended December 31 are as follows:
OPERATING LEASES CAPITAL LEASES ---------------- -------------- 2001................................................... 1,364,085 696,400 2002................................................... 1,144,774 340,157 2003................................................... 1,025,382 -- 2004................................................... 562,500 -- 2005 and thereafter.................................... 3,525,000 -- --------- ------ Total minimum lease payments.................... $7,621,741 $1,036,557 ---------- ---------- Less amount representing interest payments...... (102,704) ---------- Present value of minimum lease payments......... 933,853 Less current portion............................ (615,880) ---------- Long-term obligation............................ $ 317,973 ==========
Lease payments under operating leases were $459,481, $763,503 and $906,889 in 1998, 1999 and 2000, respectively are approximately $20 million. -58- Cubist is party to various agreements, including those related to clinical trial management, for which noncancelable minimum future payments due during the year ended December 31, 2001 are approximately $20 million. N. LONG TERM DEBT
1999 2000 ---- ---- Note payable issued in conjunction with the acquisition of ChromaXome (Note C)... $1,000,000 $ -- Note payable issued in conjunction with the acquisition of Xenova (Note C)....... 2,400,440 2,243,948 Convertible debentures, net of deemed discount................................... 886,884 -- Term loan agreement ............................................................. 1,139,578 2,643,642 Notes payable to MM Venture Finance Partnership.................................. -- 1,062,079 Senior convertible notes......................................................... -- 39,000,000 Other............................................................................ 15,193 -- ----------- ----------- 5,442,095 44,949,669 Less current portion...................................................... (2,490,231) (1,692,340) ----------- ----------- Long-term obligation...................................................... $2,951,864 $43,257,329 ---------- -----------
During March 1999, Cubist entered into a term loan agreement with a bank under which Cubist is able to borrow up to $1,500,000 to finance fixed asset purchases. In March 2000, Cubist increased its term loan by an additional $2,000,000 to finance leasehold improvements and fixed asset purchases. Advances under this facility are to be repaid over a 36-month period, commencing on March 31, 2000. Interest on the borrowings is at the bank's LIBOR rate (9.03% at December 31, 2000). Borrowings under the facility are collateralized by all capital equipment purchased with the funds under this term loan. At December 31, 2000, there were no amounts available for borrowing under the term loan agreement. On November 16, 1999, Cubist's Canadian subsidiary issued convertible debentures of $1,625,000 Cdn. The convertible debentures bear interest at a rate of 12% collateralized by all present and after-acquired property of the former TerraGen Discovery Inc. The convertible debentures were convertible into common stock at the option of the holder at $37.25 per share. On March 31, 2000, Cubist issued 30,176 shares of common stock upon conversion of the convertible debentures principal and related interest. In connection with the issuance of the convertible debentures, Cubist issued warrants to purchase 49,377 shares of common stock at $37.25 per share. The warrants became exercisable on December 31, 1999 and expire November 16, 2004. The estimated value of the detachable warrants of $323,000 was recorded as a discount on the convertible debentures and was amortized to interest expense over the term of the debt using the effective interest method. Interest expense of $108,000 and $215,000 was recorded in 1999 and 2000, respectively. The convertible debenture has a beneficial conversion feature valued at $264,300, equal to the aggregate excess market value of the underlying common stock at the agreement date over the conversion rate. The beneficial conversion feature was recorded as additional paid-in capital and recognized on issuance as interest expense, as the debenture was immediately convertible to common stock. On January 17, 2000, Cubist's Canadian subsidiary issued notes payable to MM Venture Finance Partnership ("MM") totaling $2,000,667. The notes payable bear interest at 14.4% and is being repaid over 36 months through January 17, 2003. The assets of the former TerraGen Discovery Inc., including its patents, were pledged as collateral for the loan. In addition, MM received and later exercised warrants to purchase 22,790 shares of common stock for gross proceeds of $606,665. The estimated value of the detachable warrants of $658,606 was recorded as a discount on the notes payable and is being amortized to interest expense over the term of the note payable using the effective interest method. Interest expense of $138,400 was recorded in 2000. On September 8, 2000, Cubist issued $39,000,000 of senior convertible notes to John Hancock Life Insurance company to finance the purchase of a new corporate headquarters building in Lexington, Massachusetts, which serves as the collateral for senior convertible notes. The senior convertible notes are convertible, at the option of the holder, into common stock at a price equal to $63.8625 per share. The senior convertible notes bear interest at a rate of 8.5% per year and Cubist is required to make semi-annual interest payments on the outstanding principal balance. The senior convertible notes are redeemable by Cubist at any time on or after September 8, 2003 at 103% of the principal amount outstanding as of the redemption date. In the event of a change in control, as defined in senior convertible note agreements, the holders could require Cubist to repurchase senior convertible notes at 100% of the outstanding principal and interest. The deferred costs associated with the sale of the senior convertible notes were $1,324,605 of which $81,029 was amortized to interest expense in 2000. -59- At December 31, 2000, payments of principal and interest on existing debt were due as follows: Fiscal year ending December 31, 2001...................................... $ 5,100,848 2002...................................... 7,746,637 2003...................................... 4,158,938 2004...................................... 3,315,000 2005...................................... 41,486,250 ---------- Total payments............................ 61,807,673 Less amounts representing interest........ (16,858,004) ------------ Total debt................................ $44,949,669 Less current portion...................... (1,692,340) ----------- $43,257,329 ===========
O. EMPLOYEE BENEFITS Cubist maintains a 401(k) savings plan in which substantially all of its permanent employees in the United States are eligible to participate. Participants may contribute up to 15% of their annual compensation to the plan, subject to certain limitations. Cubist contributes a matching amount in cash of up to 1.5% of a participant's total compensation or $500 annually, whichever is less, or a match in common stock up to 4.5% of a participant's total compensation or 75% of a participant's total contribution annually, whichever is less. Matches distributed in common stock have immediate vesting. Cubist contributed $6,160, $5,853 and $5,227 during 1998, 1999 and 2000, respectively. Cubist issued 28,420 and 14,939 shares of common stock in 1999 and 2000, respectively, pursuant to this plan. No shares were issued prior to 1999. Cubist maintains a Group Registered Retirement Savings Plan ("RRSP"), independent to each employee, through a nationally recognized funds manager. Substantially all of the permanent employees in Canada are eligible to participate. Participants may contribute up to 18% of their previous years earned income, subject to certain limitations. Cubist will make a matching contribution of up to 3% of an employee's salary. Cubist's Canadian subsidiary contributed $27,639, $33,704 and $23,657 during 1998, 1999 and 2000, respectively. Cubist maintains a Contracted In Money Purchase Scheme for all employees in the United Kingdom. Participants many contribute up to 10% of their annual compensation to the scheme. Cubist matches contributions at a level up to 10% of an employee's salary. Cubist's United Kingdom subsidiary contributed $0, $42,083 and $50,229 during 1998, 1999 and 2000, respectively. Cubist instituted an employee stock purchase plan in 1998, in which substantially all of its permanent employees are eligible to participate. Participants may contribute up to 15% of their annual compensation to the plan, subject to certain limitations. The plan allows participants to purchase Cubist common stock, after a pre-determined six-month period, through payroll deductions at a price 15% less than the lower of the closing price for the beginning or ending date of the purchase period. The plan allows for the issuance of 250,000 shares of common stock to eligible employees. During 1998, 1999 and 2000, Cubist issued 6,341, 11,615 and 12,827 shares of common stock, respectively, pursuant to this plan. P. INCOME TAXES Net income/(loss) before income taxes for domestic and foreign operations is as follows:
YEAR ENDED DECEMBER 31, ----------------------- 1998 1999 2000 ---- ---- ---- Domestic...................... $(11,825,006) $(17,813,510) $(38,938,164) Foreign....................... (2,740,087) (7,233,944) (5,861,106) -------------- -------------- -------------- $(14,565,093) $(25,047,454) $(44,799,270) ============== ============== ==============
Based on Cubist's current financial status, realization of Cubist's deferred tax assets does not meet the "more likely than not" criteria under SFAS No. 109 and, accordingly, a valuation allowance for the entire deferred tax asset amount has been recorded. The components of the net deferred tax asset and the related valuation allowance are as follows: -60-
1999 2000 ---- ---- Deferred income tax assets: Net operating loss carryforwards........... $ 18,654,488 $ 39,231,437 Research and development costs............. 3,754,689 3,414,689 Tax credit carryforwards................... 2,786,000 3,657,017 Deferred revenues.......................... 997,630 997,630 Other, net................................. 1,041,085 963,905 ----------- ---------- Total deferred tax assets.................. 27,233,892 48,264,678 Valuation allowance........................ (27,233,892) (48,264,678) ------------ ------------ Net deferred tax assets.................... $ --- $ --- ============ ============
The following is a reconciliation between the United States federal statutory rate and the effective tax rate:
1998 1999 2000 ---- ---- ---- Federal statutory rate (34.0%) (34.0%) (34.0%) State taxes (5.1%) (4.5%) (5.4%) Foreign rate differential 0.8% 1.2% 0.5% Investment tax credit (1.2%) (3.7%) (1.1%) Valuation allowance 38.3% 37.3% 38.9% ----- ----- ----- Effective tax rate (1.2%) (3.7%) (1.1%) ===== ===== =====
At December 31, 2000, Cubist has U.S. federal net operating loss carryforwards of approximately $90.8 million, which begin to expire in 2007, state net operating loss carryforwards of $82.0 million, which begins to expire in 2001, and $7.5 million of foreign net operating loss carryforwards which begin to expire in 2004. Of the total net operating loss carryforwards $6.2 million relates to the exercise of stock options. The tax benefit of this amount will result in an increase in additional paid-in capital upon realization of these losses. Cubist also has federal, state and foreign credit carryforwards of $1,765,000, $1,546,000, and $170,000, respectively, which begin to expire in 2006. Ownership changes resulting from the issuance of capital stock may limit the amount of net operating loss and tax credit carryforwards that can be utilized annually to offset future taxable income. The amount of the annual limitation is determined based on Cubist's value immediately prior to the ownership change. Subsequent significant changes in ownership could further affect the limitation in future years. Q. VENDOR AGREEMENTS In April 2000, Cubist entered into a development and supply agreement with Abbott Laboratories (Abbott) pursuant to which Abbott has agreed to assist Cubist in the development of daptomycin as a parenteral formulation and to manufacture and sell exclusively to Cubist, daptomycin as a parenteral formulation. Under the terms of this agreement, Cubist has agreed to make certain milestone payments to Abbott for their development efforts and assistance in obtaining an approved New Drug Application (NDA) for daptomycin. Cubist has made payments in 2000 totaling $325,000 which were expensed as research and development. If the FDA approves the daptomycin NDA, Cubist will purchase minimum annual quantities of drug product from Abbott over a five year period beginning in 2002. In June 2000, Cubist entered into a services agreement with Gist-brocades Holding A.G. (DSM), an affiliated company of DSM Capua pursuant to which DSM has agreed to provide supervisory and advisory services to Cubist relating to the -61- equipping of the manufacturing facility at DSM Capua. Cubist has also entered into a manufacturing and supply agreement with DSM Capua pursuant to which DSM Capua has agreed to manufacture and supply to Cubist bulk daptomycin drug substance for commercial purposes. Under the terms of the manufacturing and supply agreement, DSM Capua is required to prepare its manufacturing facility in Italy to manufacture bulk daptomycin drug substance in accordance with Good Manufacturing Practices standards. Under the terms of the service agreements, Cubist will make a series of scheduled payments to DSM over a five year period beginning in 2000 in order to reimburse DSM for certain costs to be incurred by DSM Capua of approximately $7.5 million in connection with the preparation, testing and validation of its manufacturing facility. During 2000, Cubist reimbursed $750,000 of these costs to DSM Capua and accrued an additional $846,000. These costs are being recorded as other assets and will begin to be amortized upon completion of the facility and commencement of manufacturing daptomycin for commercial purposes. In addition, in consideration for the implementation of the Cubist technology in the facility by DSM Capua, Cubist has agreed to make milestone payments of $1,400,000 to DSM if specific phases of technical development of the scaled up manufacturing process to be used in this manufacturing facility are completed within specified periods of time. Cubist is accruing these estimated milestone payments over the expected duration of the preparation work and recorded research and development expense of $627,000 in 2000. Upon completion of the preparation of DSM Capua's manufacturing facility and a determination by the FDA that the manufacturing facility complies with Good Manufacturing Practices standards, Cubist will purchase minimum annual quantities of bulk daptomycin drug substance from DSM over a five-year period beginning in 2002. R. SEGMENT INFORMATION Cubist operates in one business segment, the research, development and commercialization of novel antimicrobial drugs. The following summary discloses total revenues and long-lived assets:
DOMESTIC INTERNATIONAL CONSOLIDATED -------- ------------- ------------ YEAR ENDED DECEMBER 31, 1998 Total revenue....................... $1,634,199 $39,953 $1,674,152 Long-lived assets.................. 3,894,005 385,598 4,279,603 YEAR ENDED DECEMBER 31, 1999 Total revenue....................... $5,353,379 $1,993,005 $6,846,384 Long-lived assets.................. 3,626,174 10,268,317 13,894,491 YEAR ENDED DECEMBER 31, 2000 Total revenue....................... $3,197,766 $2,025,243 $5,223,009 Long-lived assets.................. 42,019,412 8,694,443 50,713,855
S. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following table contains Statement of Operations information for each quarter of 1999 and 2000. Cubist believes that the following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the period presented. The operating results for any quarter are not necessarily indicative of results for any future period. The quarterly financial information has been restated to reflect the acquisition of TerraGen Discovery Inc., which was accounted for using the pooling-of-interests method of accounting:
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 2000 Total revenues....... $ 1,281 $ 1,662 $ 1,314 $ 966 Net loss............. $(8,867) $(8,733) $(9,308) $(17,392) 1999 Total revenues....... $ 623 $ 1,347 $ 3,366 $ 1,510 Net loss............. $(5,319) $(6,703) $(4,654) $(7,446)
-62- U. SUBSEQUENT EVENTS On January 7, 2001, Cubist and Gilead Sciences, Inc. signed a licensing agreement for the exclusive rights to commercialize Cubist's investigational antibacterial drug Cidecin (daptomycin for injection) and an oral formulation of daptomycin in 16 European countries following regulatory approval. Gilead has agreed to pay Cubist an up-front licensing fee of $13 million, and Cubist is entitled to receive additional cash payments of up to $31 million upon achievement of certain clinical and regulatory milestones. Gilead will also pay Cubist a fixed royalty on net sales. Cubist will continue to be responsible for worldwide clinical development of Cidecin, while Gilead will be responsible for any regulatory filings in the covered territories. Gilead's sales force will market the products in Europe. -63- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information with respect to Directors and compliance with Section 16(a) of the Securities Exchange Act may be found in the sections captioned "PROPOSAL NO. 1 - ELECTION OF DIRECTORS", "EXECUTIVE COMPENSATION" and "SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" appearing in the definitive Proxy Statement to be delivered to Stockholders in connection with the Annual Meeting of Stockholders to be held on June 7, 2001. Such information is incorporated herein by reference. Information with respect to Executive Officers may be found under the section captioned "Our Executive Officers and Directors" in Part I of this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION The information required with respect to this item may be found in the sections captioned "EXECUTIVE COMPENSATION" appearing in the definitive Proxy Statement to be delivered to Stockholders in connection with the Annual Meeting of Stockholders to be held on June 7, 2001. Such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required with respect to this item may be found in the section captioned "PRINCIPAL STOCKHOLDERS" and "PROPOSAL NO. 1 - ELECTION OF DIRECTORS" appearing in the definitive Proxy Statement to be delivered to Stockholders in connection with the Annual Meeting of Stockholders to be held on June 7, 2001. Such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Information required with respect to this item may be found in the section captioned "CERTAIN TRANSACTIONS" appearing in the definitive Proxy Statement to be delivered to Stockholders in connection with the Annual Meeting of Stockholders to be held on June 7, 2001. Such information is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) Documents Filed As Part Of Form 10-K 1. FINANCIAL STATEMENTS. The following financial statements and supplementary data are included in Part II Item 8 filed as part of this report: o Report of Independent Accountants o Balance Sheets as of December 31, 2000 and 1999 o Statements of Operations for the years ended December 31, 2000, 1999 and 1998 -64- o Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 o Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 o Notes to Financial Statements 2. FINANCIAL STATEMENT SCHEDULE None. Schedules not listed above have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. 3. LIST OF EXHIBITS 3.1 Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3 to Cubist's Quarterly Report on Form 10-Q filed on August 12, 1999) (File no. 000-21379) 3.2 Amended and Restated By-Laws of the Registrant, as amended to date. (Exhibit 3.4, Registration No. 333-6795) 4.1 Specimen certificate for shares of Common Stock (incorporated by reference to Exhibit 3.4 to Cubist's Registration Statement on Form S-1) (Registration No. 333-6795) 4.2 Rights Agreement dated as of July 21, 1999 between Cubist and BankBoston, N.A. as Rights Agent (incorporated by reference to Exhibit 99.1 to Cubist's Report on Form 8-K filed on July 30, 1999) (File No. 000-21379) 4.3 First Amendment dated as of March 7, 2000 to the Rights Agreement, dated as of July 21, 1999 between Cubist and Fleet National Bank f/k/a BankBoston, N.A. as Rights Agent (incorporated by reference to Exhibit 4.2 to Cubist's Registration Statement on Form 8-A/A filed on March 9, 2000) (File No. 000-21379) +10.1 Patent License Agreement between the Registrant and the Massachusetts Institute of Technology, dated March 10, 1994. (Exhibit 10.1, Registration No. 333-6795) +10.2 License Agreement between the Registrant and the Board of Trustees of Leland Stanford Junior University, dated April 1, 1994. (Exhibit 10.2, Registration No. 333-6795) 10.3 Employment Agreement between the Registrant and Scott M. Rocklage, dated June 20, 1994. (Exhibit 10.3, Registration No. 333-6795) 10.4 Consulting Agreement between the Registrant and Paul R. Schimmel, dated May 1, 1992. (Exhibit 10.4, Registration No. 333-6795) 10.5 Amended and Restated 1993 Stock Option Plan. (Exhibit 10.6, Registration No.333-6795) 10.6 Collaborative Research and License Agreement between the Registrant and Merck & Co., Inc., dated June 13, 1996. (Exhibit 10.8, Registration No. 333-6795) 10.7 Collaborative Research and License Agreement between the Registrant and Bristol-Myers Squibb Company and the Registrant, dated June 25, 1996. (Exhibit 10.9, Registration No. 333-6795) 10.8 Screening Agreement, dated November 28, 1995, between the Registrant and Monsanto Company. (Exhibit 10.11, Registration No. 333-6795) 10.9 Letter Agreement, dated January 18, 1996, between Pharm-Eco Laboratories, Inc. and the Registrant. (Exhibit 10.12, Registration No. 333-6795) -65- +10.10 Research Collaboration and License Agreement with ArQule, Inc., dated October 22, 1997. (Exhibit 10.12, Annual Report on Form 10-K, File No. 000-21379) 10.11 Lease Agreement between Registrant and Stimpson Family Trust dated April 30, 1993, regarding 24 Emily Street, Cambridge, MA., as amended by the First Amendment to Lease, dated September 19, 1994. (Exhibit 10.13, Registration No.333-6795) 10.12 Form of Employee Confidentiality and Nondisclosure Agreement. (Exhibit 10.15, Registration No. 333-6795) 10.13 Master Lease Agreement between the Registrant and Comdisco, Inc., dated as of August 30, 1993, as amended February 7, 1995, and as further amended on February 26, 1996. (Exhibit 10.16, Registration No. 333-6795) 10.14 Series B Convertible Preferred Stock Purchase Warrant between the Registrant and Comdisco, Inc., dated August 30, 1993. (Exhibit 10.17, Registration No. 333-6795) 10.15 Series C Convertible Preferred Stock Purchase Warrants between the Registrant and Comdisco, Inc., dated February 28, 1995 and February 26, 1996. (Exhibit 10.18, Registration No. 333-6795) 10.16 Series C Convertible Preferred Stock Purchase Options issued to Dr. Paul Schimmel and Dr. Julius Rebek in May 1995, as amended by certain Letter Agreements, dated October 23, 1995, between the Registrant and each of Dr. Schimmel and Dr. Rebek. (Exhibit 10.19, Registration No. 333-6795) 10.17 Amended and Restated Stockholders Rights Agreement by and among the Registrant and the parties signatory thereto. (Exhibit 10.20, Registration No. 333-6795) 10.18 Secured Promissory Note, dated as of July 21, 1994, by Scott M. Rocklage to the Registrant. (Exhibit 10.21, Annual Report on Form 10-K, filed March 31, 1997, File No. 000-21379) 10.19 Amendment to Promissory Note, dated as of July 21, 1996, by and between the Registrant and Scott M. Rocklage. (Exhibit 10.22, Annual Report on Form 10-K, filed March 31, 1997, File No. 000-21379) 10.20 Amendment to Promissory Note, dated as of December 23, 1997, by and between the Registrant and Scott M. Rocklage. (Exhibit 10.22, Annual Report on Form 10-K, filed March 20, 1998, File No. 000-21379) 10.21 Promissory Note, dated as of October 18, 1995, by and between the Registrant and Scott M. Rocklage. (Exhibit 10.23, Annual Report on Form 10-K, filed March 20, 1998, File No. 000-21379) +10.22 Compound Library Screening Agreement between the Registrant and Genzyme Corporation, dated February 24, 1997. (Exhibit 10.24, Amendment to Annual Report on Form 10-K/A, filed October 22, 1998, File No. 000-21379) +10.23 Library Sample Evaluation Agreement between the Registrant and Pharmacopeia, Inc., dated as of September 11, 1996. (Exhibit 10.25, Amendment to Annual Report on Form 10-K/A, filed October 22, 1998, File No. 000-21379) 10.24 Stock Purchase Agreement, dated July 18, 1997, between International Biotechnology Trust plc and Cubist. (Exhibit 10.27, Registration No. 333-33883) 10.25 Registration Rights Agreement, dated July 18, 1997, between International Biotechnology Trust plc and Cubist. (Exhibit 10.28, Registration No. 333-33883) 10.26 Registration Rights Agreement, dated July 18, 1997, between each of H&Q Healthcare Investors and H&Q Life Sciences Investors and Cubist. (Exhibit 10.29, Registration No. 333-33883) 10.27 Master Lease Agreement between the Registrant and Transamerica Business Credit, dated as of February 14, 1997. (Exhibit 10.33, Annual Report on Form 10-K, filed March 20, 1998, File No. 000-21379) -66- +10.28 License Agreement, dated November 7, 1997, between Cubist and Eli Lilly. (Exhibit 10.3, Amendment to Quarterly Report on Form 10-Q/A, filed October 22, 1998, File No. 000-21379) +10.29 Amendment No. 1 to Collaborative Research and License Agreement with Merck, dated as of October 30, 1997 (Exhibit 10.1, Quarterly Report on Form 10-Q, filed August 12, 1998, File No. 000-21379) +10.30 Amendment No. 2 to Collaborative Research and License Agreement with Merck, dated as of April 30, 1998 (Exhibit 10.2, Quarterly Report on Form 10-Q, filed August 12, 1998, File No. 000-21379) 10.31 First Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.3, Quarterly Report on Form 10-Q, filed August 12, 1998, File No. 000-21379) 10.32 1997 Employee Stock Purchase Plan. (Exhibit 10.4, Quarterly Report on Form 10-Q, filed August 12, 1998, File No. 000-21379) 10.33 Securities Purchase Agreement, dated as of September 10, 1998 between Cubist and each of the Purchasers listed on Exhibit A thereto (Exhibit 10.1, Quarterly Report on Form 10-Q, filed November 4, 1998, File No. 000-21379) 10.34 Registration Rights Agreement, dated as of September 10, 1998 between Cubist and each person listed on Exhibit A thereto (Exhibit 10.2, Quarterly Report on Form 10-Q, filed November 4, 1998, File No. 000-21379) 10.35 Common Stock Purchase Warrants, dated September 23, 1998, executed by Cubist (Exhibit 10.3, Quarterly Report on Form 10-Q, filed November 4, 1998, File No. 000-21379) 10.36 Collaborative Research and License Agreement between Cubist and Novartis Pharma AG, dated as of February 3, 1999 (Exhibit 10.1, Quarterly Report on Form 10-Q, filed May 13, 1999, File No. 000-21379) 10.37 Stock Purchase Agreement between Cubist and Novartis Pharma AG, dated as of February 3, 1999 (Exhibit 10.2, Quarterly Report on Form 10-Q, filed May 13, 1999, File No. 000-21379) 10.38 Restated Certificate of Incorporation as amended (Exhibit 3, Quarterly Report on Form 10-Q, filed August 12, 1999, File No. 000-21379) 10.39 Registration Rights Agreement, dated as of October 15, 1999 between Cubist and each person listed on Exhibit A thereto (Exhibit 10.1, Quarterly Report on Form 10-Q, filed November 12, 1999, File No. 000-21379) 10.40 Registration Rights Agreement dated as of January 27, 2000 among Cubist and each of the Investors party thereto (Exhibit 10.1, Registration No. 333-96365) 10.41 Second Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.41, Annual Report on Form 10-K, filed March 10, 2000, File No. 000-21379) 10.42 Third Amendment to Amended and Restated 1993 Stock Option Plan (Exhibit 10.42, Annual Report on Form 10-K, filed March 10, 2000, File No. 000-21379) 10.43 Stock Pledge Agreement dated as of September 25, 1999 by and between Alan D. Watson and Cubist (Exhibit 10.43, Annual Report on Form 10-K, filed March 10, 2000, File No. 000-21379) 10.44 Letter Agreement dated September 25, 1999 between Alan D. Watson and Cubist (Exhibit 10.44, Annual Report on Form 10-K, filed March 10, 2000, File No. 000-21379) 10.45 Secured Promissory Note dated as of September 25, 1999 by and between Alan D. Watson and Cubist (Exhibit 10.45, Annual Report on Form 10-K, filed March 10, 2000, File No. 000-21379) +10.46 Manufacturing and Supply Agreement, entered into as of June 22, 2000, by and between Cubist and DSM Capua S.p.A (Exhibit 10.1, Quarterly Report on Form 10-Q, filed August 14, 2000, File No. 000-21379) -67- +10.47 Services Agreement, entered into as of June 22, 2000, by and between Cubist and Gist- brocades Holding A.G. (Exhibit 10.2, Quarterly Report on Form 10-Q, filed August 14, 2000, File No. 000-21379) +10.48 Development and Supply Agreement dated April 3, 2000, by and between Cubist and Abbott Laboratories (Exhibit 10.3, Quarterly Report on Form 10-Q, filed August 14, 2000, File No. 000-21379) 10.49 Clinical Services Master Agreement, dated December 1, 1999, by and between Cubist and Omnicare Clinical Research, Inc. f/k/a IBAH, Inc. 10.50 Exhibit A to the Clinical Services Master Agreement, dated December 21, 2000, by and between Cubist and Omnicare Clinical Research, Inc. f/k/a IBAH, Inc. 10.51 Exhibit B to the Clinical Services Master Agreement, dated April 12, 2000, by and between Cubist and Omnicare Clinical Research, Inc. f/k/a IBAH, Inc. 10.52 Exhibit C to the Clinical Services Master Agreement, dated April 18, 2000, by and between Cubist and Omnicare Clinical Research, Inc. f/k/a IBAH, Inc. 10.53 Exhibit D to the Clinical Services Master Agreement, dated May 10, 2000, by and between Cubist and Omnicare Clinical Research, Inc. f/k/a IBAH, Inc. 10.54 Exhibit E to the Clinical Services Master Agreement, dated October 17, 2000, by and between Cubist and Omnicare Clinical Research, Inc. f/k/a IBAH, Inc. 10.55 Contract of Monitoring Services dated, January 10, 2000, between Cubist and Clindev (Proprietary) Limited 10.56 First Amendment to Contract of Monitoring Services, dated June 22, 2000, between Cubist and Clindev (Proprietary) Limited 10.57 Second Amendment to Contract of Monitoring Services, dated December 20, 2000, between Cubist and Clindev (Proprietary) Limited 10.58 Contract Research Agreement, dated as of August 1, 2000, by and between Target Research Associates, Inc. and Cubist 10.59 Assignment and License Agreement, dated October 6, 2000, by and between Eli Lilly & Company and Cubist 10.60 Note Purchase Agreement, dated September 8, 2000, by and between Cubist and the Purchasers listed on Schedule 1 thereto 10.61 Registration Rights Agreement, dated as of September 8, 2000, by and between John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Signature 4 Limited, Investors Partner Life Insurance Company and Cubist 10.62 Senior Convertible Promissory Note R-1, dated September 8, 2000, by and between Cubist and John Hancock Life Insurance Company 10.63 Senior Convertible Promissory Note R-2, dated September 8, 2000, by and between Cubist and John Hancock Life Insurance Company 10.64 Senior Convertible Promissory Note R-3, dated September 8, 2000, by and between Cubist and John Hancock Life Insurance Company 10.65 Senior Convertible Promissory Note R-4, dated September 8, 2000, by and between Cubist and John Hancock Variable Life Insurance Company -68- 10.66 Senior Convertible Promissory Note R-5, dated September 8, 2000, by and between Cubist and Hare & Co. 10.67 Senior Convertible Promissory Note R-6, dated September 8, 2000, by and between Cubist and Investors Partner Life Insurance Company 10.68 Research & Development Collaboration and Option Agreement, dated as of October 4, 2000, by and between Cubist and Emisphere Technologies, Inc. 10.69 License Agreement, dated as of November 22, 2000, by and between Cubist and International Health Management Associates, Inc. 10.70 Patent Cross-License Agreement, dated as of November 18, 1999, by and between TerraGen Discovery Inc. and Diversa Corporation 10.71 Convertible Promissory Note, dated as of April 8, 1999, by and between TerraGen Diversity Inc. and Xenova Discovery Limited 10.72 Audit Committee Charter 10.73 Fourth Amendment to Amended and Restated 1993 Stock Option Plan 10.74 Fifth Amendment to Amended and Restated 1993 Stock Option Plan 10.75 Sixth Amendment to Amended and Restated 1993 Stock Option Plan 10.76 Cubist Pharmaceuticals, Inc. 2000 Nonstatutory Stock Option Plan 23.1 Consent of PricewaterhouseCoopers LLP 23.2 Consent of KPMG LLP - ------------------------------- Unless otherwise indicated, all of the above-listed Exhibits are incorporated by reference from the Company's filing indicated. + Confidential Treatment granted: Omitted portions filed separately with the Commission. -69- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized. CUBIST PHARMACEUTICALS, INC. By: /s/ Scott M. Rocklage -------------------------------------------- Scott M. Rocklage, Ph.D. Chairman of the Board of Directors and Chief Executive Officer Pursuant to the requirements of the Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ Scott M. Rocklage Chairman of the Board of Directors, Chief March 30, 2001 ------------------------------------ Executive Officer and Director Scott M. Rocklage (Principal Executive Officer) /s/ Thomas A. Shea Vice President and Chief Financial Officer March 30, 2001 ------------------------------------ Thomas A. Shea Director March ___, 2001 ------------------------------------ Susan Bayh /s/ Barry M. Bloom Director March 29, 2001 ------------------------------------ Barry M. Bloom /s/ John K. Clarke Director March 30, 2001 ------------------------------------ John K. Clarke /s/ David Martin Director March 29, 2001 ------------------------------------ David Martin /s/ Walter Maupay Director March 30, 2001 ------------------------------------ Walter Maupay Director March ___, 2001 ------------------------------------ Paul R. Schimmel /s/ John Zabriskie Director March 30, 2001 ------------------------------------ John Zabriskie
EX-10.49 2 a2042768zex-10_49.txt EXHIBIT 10.49 EXHIBIT 10.49 CONFIDENTIAL TREATMENT CLINICAL SERVICES MASTER AGREEMENT THIS CLINICAL SERVICES MASTER AGREEMENT (this "MASTER AGREEMENT") is entered into as of this 1st day of December, 1999 by and between CUBIST PHARMACEUTICALS, INC. ("SPONSOR"), and IBAH, INC. ("IBAH"), a Delaware corporation. WHEREAS, Sponsor requires various clinical research services from time to time in support of various projects (individually, a "Project," and collectively, the "Projects"), which shall be set forth in Exhibits to this Master Agreement: and WHEREAS, IBAH is engaged in the business of providing such services; NOW, THEREFORE, for good and valuable consideration, AND INTENDING TO BE LEGALLY BOUND, Sponsor and IBAH hereby agree as follows: 1. SCOPE OF MASTER AGREEMENT; OBLIGATIONS 1.1. The specific responsibilities and obligations to be performed by IBAH with respect to a Project (the "SERVICES"), as set forth in the applicable Protocol(s), are expressly set forth in Exhibit(s) attached to this Master Agreement, which, together with the Schedule(s) attached hereto, are incorporated by reference herein. The responsibility for the Services is being transferred to IBAH in accordance with 21 C.F.R. Section 312.52. Those responsibilities and obligations not specifically transferred to and assumed by IBAH in this Master Agreement or the Exhibit(s) as constituting part of the Services shall be and remain the sole responsibility of Sponsor. 1.2. IBAH agrees to provide the Services in accordance with (a) all applicable federal laws and regulations, including standards of Good Clinical Practices; and (b) the standards and practices that are generally accepted in the industry and exercised by other persons engaged in performing similar services. *Confidential treatment requested: Material has been omitted and filed with the Commission. -2- 2. PAYMENT 2.1. In consideration of the Services, Sponsor shall pay to IBAH: (a) the Service Fees (as defined in SECTION 2.2); and (b) the Pass-Through Costs (as defined in SECTION 2.3). 2.2. As used in this Master Agreement, the term "SERVICE FEES" means all amounts due for the Services, exclusive of the Pass-Through Costs. The estimated Service Fees and the payment schedule therefor are set forth in the Schedule(s) and the Exhibit(s), and shall be increased to include: (a) the costs of any additional Services required as a result of Project changes by Sponsor; and (b) where a Project requires more time than allotted in the Exhibit(s), and the parties agree to continue such Project beyond the expected conclusion date, any additional costs that may be incurred in order to complete such Project, at the contractual rates set forth in the applicable Exhibit(s). 2.3. As used in this Master Agreement, the term "PASS-THROUGH COSTS" means all investigator, Institutional Review Board or other applicable pass-through costs actually incurred by IBAH under this Master Agreement or the Exhibit(s) in order to expedite successful completion of a Project, which costs are normal and routine to studies similar to such Project (e.g., advancing an investigator's Institutional Review Board fee or reimbursing reasonable additional, unbudgeted patient expenses). In order to enable IBAH to maintain a balance to be applied towards all Pass-Through Costs, IBAH shall invoice Sponsor for all reasonably anticipated Pass-Through Costs (the "ESTIMATED PASS-THROUGH COSTS") in advance of the expected payment date therefor. 2.4. Notwithstanding anything contained herein to the contrary, the estimated Service Fees set forth in the Exhibit(s) shall remain in effect for [ ]*. Thereafter, IBAH reserves the right [ ]*. 3. CONFIDENTIALITY 3.1. That certain Confidentiality Agreement by and between IBAH and Sponsor dated October 18, 1999 (the "CONFIDENTIALITY AGREEMENT") is hereby terminated and of no further force or effect. *Confidential treatment requested: Material has been omitted and filed with the Commission. -3- 3.2. In connection with the performance of the Services, Sponsor shall provide to IBAH, and IBAH shall have access to, Sponsor's Confidential Information. As used in this Master Agreement, "SPONSOR'S CONFIDENTIAL INFORMATION" means any (a) information provided by, or developed for, Sponsor within the framework of this Master Agreement, the Schedule(s), the Exhibit(s) or the Confidentiality Agreement; or (b) data collected during a Project. 3.3. In connection with this Master Agreement, Sponsor will have access to, or become acquainted with, IBAH's Confidential Information. As used in this Master Agreement, "IBAH'S CONFIDENTIAL INFORMATION" means any (a) information generated or obtained in connection with IBAH's pricing, proposals or contracts (including the provisions of this Master Agreement, the Schedule(s) and the Exhibit(s)); (b) of IBAH's procedures, programs, guidelines or policies (including, without limitation, its Standard Operating Procedures); or (c) information designated in writing as "confidential." 3.4. Neither Sponsor's Confidential Information nor IBAH's Confidential Information (collectively, "CONFIDENTIAL INFORMATION") shall include any information that: (a) was known by the receiving party at the time of disclosure to it by the disclosing party, or that is independently developed or discovered by the receiving party, after disclosure by the disclosing party, without the aid, application or use of any item of the disclosing party's Confidential Information, as evidenced by written records; (b) is now or subsequently becomes, through no act or failure to act on the part of the receiving party, generally known or available; (c) is disclosed to the receiving party by a third party authorized to disclose it; or (d) is required by law or by court or administrative order to be disclosed; provided, that the receiving party shall have first given prompt notice to the other party of such required disclosure. *Confidential treatment requested: Material has been omitted and filed with the Commission. -4- 3.5. Each party shall exercise due care to prevent the unauthorized use or disclosure of the other party's Confidential Information, and shall not, without the other party's prior written consent, (a) use the other party's Confidential Information for any purpose other than performing its obligations under this Master Agreement and the Exhibit(s); or (b) disclose or otherwise make available, directly or indirectly, any item of the other party's Confidential Information to any person or entity other than those employees, independent contractors, agents or investigators of such party and/or its affiliated entities (collectively, "REPRESENTATIVES") who reasonably need to know the same in the performance of such party's obligations under this Master Agreement (including the Schedule(s) and the Exhibit(s)), or in order to make decisions or render advice in connection therewith. For the convenience of the parties, each party acknowledges that unless precluded in writing by the other party, Confidential Information may be transmitted to a party and/or its Representatives via the Internet. Each party shall advise its Representatives who have access to the other party's Confidential Information of the confidential nature thereof, and agrees that such Representatives will be bound by terms of confidentiality and restrictions on use with respect thereto that are at least as restrictive as the terms of this SECTION 3. 3.6. The provisions of this SECTION 3 shall survive for a period of five (5) years from the date of any expiration or termination of this Master Agreement, however caused. 4. PROPERTY OF SPONSOR 4.1. All (a) of Sponsor's Confidential Information (including, without limitation, all original Project records and reports), (b) unused clinical supplies provided by Sponsor, and (c) complete and incomplete Case Report Forms, which in any case are in IBAH's possession, shall be and remain Sponsor's property; PROVIDED, HOWEVER, that IBAH-may retain one copy of Sponsor's Confidential Information in its files for archival purposes, as a means of determining any continuing obligations under this Master Agreement (including the Schedule(s) and the Exhibit(s)). 4.2. All inventions, improvements in know-how, new uses, processes and compounds involving the study drug(s) and/or product(s) *Confidential treatment requested: Material has been omitted and filed with the Commission. -5- covered by this Master Agreement and/or the Exhibit(s) that are conceived or reduced to practice as a direct result of the Project(s) ("INVENTIONS") shall be and remain the sole property of Sponsor. IBAH shall cooperate fully with Sponsor in obtaining, at Sponsor's sole cost and expense, any patent protection as may be available for the Inventions, and shall execute all documents reasonably deemed necessary by Sponsor for purposes of procuring such patent protection. IBAH agrees that it shall endeavor to ensure contractually the prompt disclosure to Sponsor by any investigator, employee or other individual retained by IBAH for a Project of any Inventions, as well as the cooperation of such persons in securing patent protection as set forth herein. 4.3. Notwithstanding the foregoing, Sponsor acknowledges that IBAH and its professional staff currently possess certain inventions, processes, know-how, trade' secrets, methods, approaches, analyses, improvements, other intellectual properties and other assets including, but not limited to, clinical trial management analyses, analytical methods, procedures and techniques, computer technical expertise and proprietary software, and technical and conceptual expertise in the area of conducting clinical trials, all of which have been developed independently by IBAH without the benefit of any information provided by Sponsor (collectively, "IBAH PROPERTY"). Sponsor agrees that any IBAH Property which is used, improved, modified or developed by IBAH under or during the term of this Master Agreement shall be and remain the sole and exclusive property of IBAH. 5. RESTRICTIONS ON ANNOUNCEMENTS IBAH shall not make any announcement, oral presentation or publication relating to any Project without Sponsor's prior written consent (which consent shall not be unreasonably withheld), except as required by law or by court or administrative order. Neither party shall employ or use the name of the other party in any publication or promotional material or in any form for public distribution, without the prior written consent of the other party, except as required by law or by court or administrative order. 6. FDA INSPECTION In the event that IBAH receives a Notice of Inspection (a "NOTICE") from the Food and Drug Administration ("FDA") which relates to any Project, IBAH *Confidential treatment requested: Material has been omitted and filed with the Commission. -6- shall: (a) notify Sponsor promptly of such Notice; (b) keep Sponsor informed of the progress of the inspection; and (c) provide to Sponsor a copy of any documents produced to the FDA pursuant to such Notice. Sponsor acknowledges that it is IBAH's obligation to respond to a Notice directed to IBAH. 7. ACCESS TO FACILITIES Sponsor's authorized representatives may visit IBAH's site and facilities at reasonable times and with reasonable frequency during normal business hours and upon reasonable advance written notice, to observe the progress of any Services. All such visits shall be subject to IBAH's restrictions and procedures relating to safety, security and protection of Confidential Information, and in connection therewith, Sponsor's authorized representatives may be required to sign a confidentiality agreement, or an access agreement for special access-controlled areas. 8. INDEMNIFICATION 8.1 Sponsor shall defend, indemnify and hold harmless IBAH, its affiliated entities, and their respective trustees, officers, agents and employees from any and all losses, costs, expenses, liabilities, claims, actions and damages, directly related to the conduct of the clinical trial and/or IBAH's performance of the services provided under this Agreement, subject to the restrictions set forth in Sections 8.2 and 8.3 below. 8.2 The above obligation of Sponsor shall not apply nor shall Sponsor be liable for any indemnification or expenses, and in fact, IBAH shall defend, indemnify, and hold harmless Sponsor, for actions or claims in any way arising from or caused by the willful, reckless, or negligent acts or omissions, of IBAH or any of their agents or employees, or arising from or caused by any of their failures to comply strictly with the Protocol, with good clinical practices, with Sponsor's written recommendations and instructions relative to the conduct of the applicable clinical trial, or with any applicable FDA or other governmental requirements or law. 8.3 The obligation of the indemnifying party hereunder shall apply only if the other party provides prompt written notification upon receipt of notice of any claim or suit, (provided, however, that neither party shall be released from its obligations under this Section 8 if the failure to promptly notify the other party does *Confidential treatment requested: Material has been omitted and filed with the Commission. -7- not materially prejudice the defense of any claim), permits the indemnifying party and its attorneys and personnel to handle and control the defense of such claims or suits, including pretrial, trial or settlement, and the indemnified party fully cooperates and assists in such defense. The indemnified party further agrees that it will not settle or compromise any such claim or suit without the prior written consent of the indemnifying party. 8.4 The indemnifying parties shall secure and maintain in full force and effect through the performance of the applicable Study (and following termination of the applicable Study to cover any claims arising from the applicable Study) insurance coverage in amounts appropriate to the conduct of the parties business activities and the services contemplated by the applicable Study, and shall provide evidence of insurance coverage in an acceptable form upon request. 9. TERMINATION 9.1. Either party may terminate this Master Agreement and/or any Exhibit at any time and for any reason upon a minimum of [ ']* prior notice. Upon any such early termination, Sponsor shall pay to IBAH all Service Fees and Pass-Through Costs due and owing based upon Services completed and costs incurred through the effective date of termination, including costs for materials and/or services previously acquired or contracted for which will not be used for the Services as a result of such termination. 9.2. Any funds held by IBAH which by contract definition or amendment are deemed unearned (including, without limitation, any Estimated Pass-Through Costs not used to satisfy Pass-Through Costs) shall be returned to Sponsor within [ ]* after conclusion of the Project(s) set forth in the applicable Exhibit(s). 9.3. Following completion or termination of any Project, IBAH shall forward all original Project records and reports to Sponsor (or to a repository designated by Sponsor in writing) at Sponsor's sole cost and expense. Thereafter, IBAH shall retain any documentation related to such Project in compliance with IBAH's corporate policy on retention and destruction of records. *Confidential treatment requested: Material has been omitted and filed with the Commission. -8- 10. FORCE MAJEURE If either party's performance of this Master Agreement or any Exhibit is prevented, restricted or delayed (either totally or in part) by reason of any cause beyond the reasonable control of the parties, such as acts of God, explosion, disease, weather, war, insurrection, civil strike, riot or power failure, the party so affected shall, upon giving notice thereof to the other party, be excused from such performance to the extent of such prevention, restriction or delay; PROVIDED, that the affected party shall use its commercially reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed; and PROVIDED FURTHER, that nothing herein shall relieve either party from the obligation to pay promptly in full all payments that may be due to the other party under this Master Agreement or the Exhibit(s). 11. NO CONFLICT Each party represents and warrants that it is authorized to enter into this Master Agreement and that the terms hereof are not inconsistent with or a violation of any contractual or other legal obligation to which it is subject. 12. LIMITATIONS 12.1. Sponsor acknowledges that the results of the Project(s) are inherently uncertain and that, accordingly, there can be no assurance, representation or warranty by IBAH that the study drug(s) and/or product(s) covered by this Master Agreement and/or the Exhibit(s) can, either during the term of this Master Agreement or thereafter, be developed successfully or, if so developed, will receive the required approval(s) from the FDA or other regulatory agency or authority. 12.2. Both parties acknowledge that the Services constitute research and development. Accordingly, Sponsor's sole remedy for any breach or default hereof by IBAH shall be termination of this Master Agreement or the applicable Exhibit as herein provided or a return of any Service Fees and unexpended Pass Through costs paid to IBAH for Services improperly performed or not performed. In no event shall IBAH be liable for any special, indirect, incidental or consequential damages (whether in contract or tort). *Confidential treatment requested: Material has been omitted and filed with the Commission. -9- 13. NON-DEBARMENT 13.1. IBAH represents and warrants that IBAH has never been and is not currently: (a) an individual who has been debarred by the FDA pursuant to 21 U.S.C. Section 335a (a) or (b) (a "DEBARRED INDIVIDUAL") from providing services in any capacity to a person that has an approved or pending drug product application, or an employer, employee or partner of a Debarred Individual; or (b) a corporation, partnership, or association that has been debarred by the FDA pursuant to 21 U.S.C. Section 335a (a) or (b) (a "DEBARRED ENTITY") from submitting or assisting in the submission of an abbreviated new drug application, or an employee, partner, shareholder, member, subsidiary or affiliate of a Debarred Entity. 13.2. IBAH further represents and warrants that IBAH has no knowledge of any circumstances which may affect the accuracy of the representations and warranties set forth in SECTION 13.1 including, but not limited to, FDA investigations of, or debarment proceedings against, IBAH or any person or entity performing, or rendering assistance related to, the Services. IBAH will notify Sponsor promptly upon becoming aware of any such circumstances during the term of this Master Agreement. 14. INDEPENDENT CONTRACTOR The status of the parties under this Master Agreement is that of independent contractors, and, except as specifically set forth herein, or in the Schedule(s) or the Exhibit(s), neither party has any authority to bind or act on behalf of the other party without its express written consent. 15. NOTICES Any notices, requests or other communications given under this Master Agreement shall be in writing and shall be given by personal delivery, or sent by (a) facsimile transmission (with message confirmed during normal business hours); (b) first class mail, postage prepaid; or (c) Federal Express (or equivalent nationally recognized overnight delivery service), delivery charges prepaid. All notices shall be given to a party at its respective address set forth below, or at such other address as such party from time to time may *Confidential treatment requested: Material has been omitted and filed with the Commission. -10- specify by notice in accordance with this SECTION 15. A notice shall be deemed given when actually received; PROVIDED, that if any facsimile notice is received after 5:00 P.M. local time at the place of receipt, it shall be deemed to have been given as of the next following business day. If to IBAH: IBAH, Inc. Four Valley Square 512 Township Line Road Blue Bell, PA 19422 Attention: Controller, U.S. CRO If to Sponsor: Cubist Pharmaceuticals, Inc. 24 Emily Street Cambridge, MA 02139 Attention: David P. Graham 16. ENTIRE AGREEMENT This Master Agreement, together with all corresponding Schedules, Exhibits, Amendments or Change Orders, constitutes the entire agreement between Sponsor and IBAH with respect to the subject matter hereof, and replaces and supersedes any and all prior and contemporaneous agreements and/or understandings, whether oral or written, between Sponsor and IBAH with respect to the subject matter hereof. This Master Agreement (including the Schedule(s) and the Exhibit(s)) may be amended or modified only by a written instrument executed by a duly authorized officer of each party. 17. CONSTRUCTION OF AGREEMENT The descriptive headings of the Sections of this Master Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions of this Master Agreement. The failure of either party to enforce any provision of this Master Agreement (including the Schedule(s) and/or the Exhibit(s)) shall not be construed as a waiver or limitation of that party's subsequent rights to enforce and compel strict compliance with every provision of this Master Agreement. To the extent any provision of this Master Agreement or the application thereof is found by a proper authority to be invalid or unenforceable, it shall be considered deleted herefrom, and the remainder of this Master Agreement shall continue in full force and effect. This Master Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to provisions of conflicts of law. Any lawsuit arising from or related to this Master Agreement shall be brought exclusively before the United States *Confidential treatment requested: Material has been omitted and filed with the Commission. -11- District Court for the Eastern District of Pennsylvania or any Commonwealth court sitting in Montgomery County, Pennsylvania, and each party hereby consents to the jurisdiction of any such court. 18. ASSIGNMENT Neither Sponsor nor IBAH may assign this Master Agreement or any rights hereunder or delegate the performance of any duties hereunder without the prior written approval of the other party, which approval shall not be unreasonably delayed or withheld; PROVIDED, HOWEVER, that without such consent, either party may assign this Master Agreement in connection with the transfer or sale of all or substantially all of its assets, stock or business, or its merger, consolidation or combination with or into another entity. Subject to the foregoing, this Master Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and permitted assigns. 19. SURVIVAL Any terms of this Master Agreement which by their nature extend beyond its performance, expiration or termination (including, without limitation, SECTIONS 2 through 5, 8 through 10, 12 and this SECTION 19) shall remain in effect indefinitely until fulfilled in accordance with their terms. 20. SIGNATORIES This Master Agreement may be executed in counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when joined, shall together constitute one and the same agreement. Any photocopy or facsimile of this Master Agreement, or of any counterpart, shall be deemed the equivalent of an original. *Confidential treatment requested: Material has been omitted and filed with the Commission. -12- IN WITNESS WHEREOF, the parties have executed this Master Agreement by their duly authorized officers as of the date first above written. CUBIST PHARMACEUTICALS, INC. IBAH, INC. By: /s/ FRANCIS P. TALLY, M.D. By: /s/ LEONARD F. STIGLIANO ----------------------------- ------------------------- Name: Francis P. Tally, M.D. Name: Leonard F. Stigliano Title: Ex. VP Scientific Affairs Title: President, US. CRO *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.50 3 a2042768zex-10_50.txt EXHIBIT 10.50 EXHIBIT 10.50 CONFIDENTIAL TREATMENT EXHIBIT A TO THE CLINICAL SERVICES MASTER AGREEMENT BETWEEN CUBIST PHARMACEUTICALS, INC. AND IBAH, INC., DATED DECEMBER 21, 1999. THIS EXHIBIT A is entered into this 21st day of December, 1999, by and between Cubist Pharmaceuticals, Inc. (hereinafter "Cubist") and IBAH, Inc. (hereinafter "IBAH"). WHEREAS, Cubist and IBAH entered into a Clinical Services Master Agreement, dated December 1, 1999 (hereinafter the "Master Agreement"), wherein IBAH agreed to provide clinical services and; WHEREAS, Cubist and IBAH agree that IBAH shall provide the services set forth in this Exhibit A, subject to the terms and conditions set forth in the Master Agreement; NOW, THEREFORE, for good and valuable consideration, and INTENDING TO BE LEGALLY BOUND, Cubist and IBAH agree as follows: Based on the Project Specifications, IBAH has provided a description of services to be performed for the Daptomycin Program (hereinafter "the Project") and associated costs. Changes made in the Project scope, at any time during the Project, will result in a corresponding adjustment to the Project costs. I. PROGRAM PLAN A. PROGRAM STATUS TABLE [ ]* *Confidential treatment requested: Material has been omitted and filed with the Commission. II. PROJECT ROLES AND RESPONSIBILITIES
- ------------------------------------------------------------------------------------------------------------------------ TASK CUBIST IBAH - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ A. STUDY MANAGEMENT - ------------------------------------------------------------------------------------------------------------------------ 1. Facilitate Project Management X o [ ]* o International Project Manager [ ]* - ------------------------------------------------------------------------------------------------------------------------ 2. Manage [ ]* Clindev sites in South Africa X - ------------------------------------------------------------------------------------------------------------------------ 3. Coordinate and conduct team meetings X X - ------------------------------------------------------------------------------------------------------------------------ 4. Standard Operating Procedures (SOPS) X - ------------------------------------------------------------------------------------------------------------------------ 5. Performance tracking X X - ------------------------------------------------------------------------------------------------------------------------ 6. Monitor Project payment schedule X X - ------------------------------------------------------------------------------------------------------------------------ 7. Project problem solving X X - ------------------------------------------------------------------------------------------------------------------------ 8. Clerical and administrative support X - ------------------------------------------------------------------------------------------------------------------------ B. CLINICAL TRIAL INITIATION - ------------------------------------------------------------------------------------------------------------------------ 1. Drug development and study design X - ------------------------------------------------------------------------------------------------------------------------ 2. Patient plan X o CSSTI-[ ]* patients enrolled each U.S./International ([ ]* patients total) o RRC (Companion) [ ]* patients U.S./ [ ]* International ([ ]* patients total) o Bacteremia [ ]* patient U.S. - ------------------------------------------------------------------------------------------------------------------------ 3. Site plan X o Up to [ ]* additional Sites U.S. o [ ]* - ------------------------------------------------------------------------------------------------------------------------ 4. CRF design X o CSSTI -[ ]* estimated pages o RRC -[ ]* estimated pages o Bacteremia -[ ]* estimated pages - ------------------------------------------------------------------------------------------------------------------------ 5. CRF logistics (print, bind, and distribute) X o Material, printing and assembly expenses will be passed through at cost - ------------------------------------------------------------------------------------------------------------------------ 6. Investigator identification, recruitment and qualification X - ------------------------------------------------------------------------------------------------------------------------ 7. Investigator regulatory document management X o Protocol Amendments and IRB submissions billed per site o Informed Consent Forms development - ------------------------------------------------------------------------------------------------------------------------ 8. Certification of Investigator Financial Disclosure X - ------------------------------------------------------------------------------------------------------------------------ 9. Investigator agreement negotiation X - ------------------------------------------------------------------------------------------------------------------------ 10. Coordination of investigators meeting X o One meeting US; three meetings International - ------------------------------------------------------------------------------------------------------------------------ 11. Project team training X X - ------------------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission. -2-
- ------------------------------------------------------------------------------------------------------------------------ TASK CUBIST IBAH - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ C. CLINICAL TRIAL MANAGEMENT - ------------------------------------------------------------------------------------------------------------------------ 1. Clinical monitoring X o IBAH estimates use [ ]* pre-qualified sites (U.S.) [ ]* o (U.S.) and 25 (International) one-day qualification visits o IBAH estimates performance of [ ]* U.S. and [ ]* International initiation visits ([ ]* visits total) o IBAH estimates performance of [ ]* U.S. and [ ]* International interim visits ([ ]* visits total) o IBAH estimates performance of [ ]* U.S. and [ ]* International drug accountability visits ([ ]* visits total) o IBAH estimates [ ]* U.S. and [ ]* International close-out visits [ ]* visits total - ------------------------------------------------------------------------------------------------------------------------ 2. Clinical grant payment administration X - ------------------------------------------------------------------------------------------------------------------------ 3. CRF tracking, filing and archiving X o CSSTI- [ ]* each US/International CRF pages ([ ]* pages total) o RRC- [ ]* US/[ ]* International CRF pages ([ ]* pages total) o Bacteremia- [ ]* CRF Pages - ------------------------------------------------------------------------------------------------------------------------ 4. Medical monitoring X o [ ]* - ------------------------------------------------------------------------------------------------------------------------ 5. Safety review of CRFs X o Based on [ ]* cases reviewed - ------------------------------------------------------------------------------------------------------------------------ 6. SAE Reporting X o CSSTI U.S. [ ]* o RRC U.S. [ ]* o Bacteremia [ ]* - ------------------------------------------------------------------------------------------------------------------------ D. CLINICAL DATA MANAGEMENT - ------------------------------------------------------------------------------------------------------------------------ 1. Project database creation and data entry X Fee based on o CSSTI- [ ]* CRF pages each US/International [ ]* o RRC- [ ]* CRF pages US/[1950]* International [ ]* o Bacteremia -[ ]* CRF pages - ------------------------------------------------------------------------------------------------------------------------ 2. Case report form review and query resolution X Fee based on: o CSSTI- [ ]* CRF pages each US/International [ ]* o RRC- [ ]* CRF pages US/[ ]* International [ ]* o Bacteremia -[ ]* CRF pages - ------------------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission. -3-
- ------------------------------------------------------------------------------------------------------------------------ TASK CUBIST IBAH - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ 3. Dictionary processing X - ------------------------------------------------------------------------------------------------------------------------ 4. Laboratory data processing (central) X IBAH will use Covance as central lab - ------------------------------------------------------------------------------------------------------------------------ 5. Data transfer (standard) X - ------------------------------------------------------------------------------------------------------------------------ 6. Data security procedures X - ------------------------------------------------------------------------------------------------------------------------ 7. GCP audit of final database X - ------------------------------------------------------------------------------------------------------------------------ E. BIOMETRIC ANALYSIS - ------------------------------------------------------------------------------------------------------------------------ 1. Statistical analysis plan-one major one minor revision for each X o CSSTI- U.S. o CSSTI-International o RRC-U. S. o RRC-International o Bacteremia-U.S. - ------------------------------------------------------------------------------------------------------------------------ 2. Randomization X o 3rd Party IVRS - ------------------------------------------------------------------------------------------------------------------------ 3. Project data setup and programming of displays X o CSSTI- [ ]* primary tables and listings and [ ]* secondary tables and listing U.S. and [ ]* secondary tables and listings International o RRC- [ ]* primary tables and listings and [ ]* secondary tables and listing U.S. and [ ]* secondary tables and listings International o Bacteremia [ ]* primary tables and listings and [ ]* secondary tables and listing - ------------------------------------------------------------------------------------------------------------------------ 4. Quality control procedures for displays X - ------------------------------------------------------------------------------------------------------------------------ 5. Patient evaluability and outcome assessment X - ------------------------------------------------------------------------------------------------------------------------ 6. Interim transfer of listings X - ------------------------------------------------------------------------------------------------------------------------ 7. Final statistical analysis X - ------------------------------------------------------------------------------------------------------------------------ 8. Statistical support for table preparation X - ------------------------------------------------------------------------------------------------------------------------ 9. Data loading and review X - ------------------------------------------------------------------------------------------------------------------------ 10. Statistical report X - ------------------------------------------------------------------------------------------------------------------------ 11. GCP compliance audit of final tables and listings X - ------------------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission. -4-
- ------------------------------------------------------------------------------------------------------------------------ TASK CUBIST IBAH - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ F. CLINICAL WRITING - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ 1. Phase II clinical Study report-Bacteremia, RRC(NA), RRC(Companion) X o One major [ ]* and one minor [ ]* revision and up to [ ]* brief patient narratives o Fee does not include collation or compilation of appendices Phase III clinical study report-CSSTI(NA), CSSTI (International), o One major [ ]* and one minor [ ]* revision and up to [ ]* brief patient narratives o Fee does not include collation or compilation of appendices - ------------------------------------------------------------------------------------------------------------------------ 2. GCP audit of final clinical study report X - ------------------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission. -5- III. PROJECT TIMELINE This Project is estimated to start on or about [ ]*. The projected timeline for this Project is as follows: [ ]* *Confidential treatment requested: Material has been omitted and filed with the Commission. -6- IV. IBAH SERVICES A. STUDY MANAGEMENT 1. GLOBAL PROGRAM DIRECTOR/INTERNATIONAL PROJECT MANAGER IBAH's Global Program Director will coordinate the services being provided by all of the disciplines within IBAH and will act as a single point of contact for Cubist until the completion of the Project. The International Project Manager, working in conjunction with the Global Program Director, will manage the international segment of the Project. Key responsibilities of these individuals will include the following: o Prepare detailed Project timelines and ensuring that the major milestones are met o Provide Project status updates at a frequency directed by Cubist o Identify and resolve critical Project issues o Ensure adequate resource allocation across all functions o Oversee Project team meetings o Manage Project financial issues 2. COUNTRY TRIAL MANAGERS IBAH's Country Trial Managers will be dedicated to managing the day-to-day clinical trial activity. They will oversee all site and CRA activities within this Project. Primary responsibilities of these individuals will include the following: o Develop case report forms and monitoring guidelines o Oversee regulatory document management from each of the investigational sites o Review and track CRA activities including scheduling of site visits, site visit reports, monitoring logs, follow-up correspondence, hours worked, routine expense records, and any other pertinent study-related documents o Maintain routine contact with all CRAs to ensure the consistency of program communication and work performed o Provide ongoing quality control of the CRAB performance throughout the Project o Provide Global Program Director and International Project Manager with periodic status reports including progress of site initiations, *Confidential treatment requested: Material has been omitted and filed with the Commission. -7- status of ongoing site visits, patient enrollment updates, site visit reports, data query rates, and other study-related reports 3. ASSOCIATED MANAGEMENT SUPPORT IBAH will dedicate clerical/administrative support to the Project. The clerical/administrative fee will cover costs associated with IBAH's services, as well as management and administration associated with this Project. All travel expenses, Federal Express and/or overnight courier services, and telephone conference costs will be passed through at cost to Cubist. B. CLINICAL TRIAL INITIATION 1. PROJECT TEAM TRAINING IBAH will rely on internal and external experts to provide specific therapeutic area training and orientation to the protocol and the CRF prior to study initiation and on an ongoing basis. This training will be designed to ensure that all team members are familiar with the Project requirements and their role within the team. Items discussed at these meetings will include, but will not be limited to: o Therapeutic area and clinical development background o Protocol and CRF o Discussion of therapeutic implications for this study o Monitoring guidelines 2. IBAH S.T.A.R.T In order to facilitate rapid study site initiations, IBAH has established IBAH S.T.A.R.T (Study Trial Acceleration Resource Teams) in North America. The study start-up functional areas that are included in this group are Investigator Recruitment, Investigator Document Management, Investigator Agreement Negotiation, and Investigator Meeting Coordination. A Coordinator will head each S.T.A.R.T. team and will work with the Managers to devise and implement a working strategy to promote an expeditious action plan. The goal is to provide sites with a streamlined communication channel for all S.T.A.R.T activities. The International Project Manager and the Country Trial Managers, for the international portion of this Project, will perform these study start-up activities. *Confidential treatment requested: Material has been omitted and filed with the Commission. -8- 3. INVESTIGATOR IDENTIFICATION, RECRUITMENT AND QUALIFICATION IBAH will collaborate with Cubist to recruit [ ]* U.S. and [ ]* International additional investigators capable of conducting the Cubist studies. A preliminary telephone interview will be conducted to evaluate a prospective site's interest and potential to meet both patient enrollment and data quality goals for this Project. IBAH anticipates that [ ]* of the proposed sites in the U.S. will not need actual qualification visits because sites qualified, within the past year and experienced in anti-infective protocols, will be given the opportunity to participate in this Project. After obtaining a signed confidentiality agreement from the prospective investigative sites, IBAH will issue a survey form, customized to the protocol. Additional Project information will be distributed to appropriate investigators who are willing to commit to study participation. The outcome of all evaluations, with a final list of proposed investigators, will be forwarded to Cubist for approval prior to final recruitment. If it is necessary to assess the site's ability to achieve study enrollment and data quality goals then a comprehensive pre-study evaluation visit will be scheduled with the selected investigator. Once identified as a qualified study site, an investigator regulatory document package will be sent. 4. INVESTIGATOR REGULATORY DOCUMENT MANAGEMENT In coordination with Cubist, IBAH will develop a template of an informed consent form for the Project, ensuring compliance with all local, state, and federal and international regulatory requirements. Regulatory document packages, with letters of instruction, will be mailed to qualified investigative sites. A dedicated tracking process for regulatory document collection will be utilized. Document collection will cover all criteria required under the principles of Good Clinical Practices (GCP) and International Committee for Harmonization (ICH) guidelines, as well as IBAH Standard Operating Procedures (SOPS). In addition, IBAH S.T.A.R.T., will also collect certification / disclosure information from all investigators and provide this information to Cubist on an ongoing basis. IBAH will track the retrieval of documents on an ongoing basis and provide updates to Cubist as requested. IBAH will prepare copies of all appropriate documents, assemble documents and issue an investigator regulatory binder to all sites, including but not limited to: *Confidential treatment requested: Material has been omitted and filed with the Commission. -9- o Investigator's Brochure o Final Protocol and Sample Copy of the CRF o Institutional Review Board (IRB) Approvals of Protocol and Informed Consent Form(s) o Laboratory Certification and Normal Ranges o Completed FDA Form 1572 o Investigator Curriculum Vitae o Financial Disclosure Certification and/or completed Financial Disclosure Form The binders will be maintained at the sites and reviewed for appropriate updates by CRAB responsible for site management over the course of the study. Certification of Investigator Financial Disclosure will be collected and maintained as agreed upon by IBAH and Cubist. The fee for regulatory document collection, processing, and tracking is based upon the number of sites required for the study. File maintenance and updating will be billed at the rate of $[ ]* per site per year after year one. Protocol amendments, which require informed consent revisions and/or IRB re-submission, will be billed at an additional processing fee of $[ ]* for each site. 5. INVESTIGATOR REGULATORY DOCUMENT COLLECTION (INTERNATIONAL) STUDY MASTER FILES In accordance with GCP, IBAH International Regulatory staff will: o Develop Study Master File according to IBAH SOPS under supervision of the Study Manager o Obtain all relevant critical documents for the Project; design an appropriate Critical Document Receipt List as a supporting instrument for the CRAs; review all incoming investigators' documents; approve/reject these documents according to GCP and internal guidelines o Maintain file, i.e. proper filing of all incoming papers (investigator documents, site visit reports); file audits to assure the completeness of the documents and to identify missing documents o Ship investigator documents to Cubist as required o Arrange for archiving of the Study Master File at the end of the Project *Confidential treatment requested: Material has been omitted and filed with the Commission. -10- PRE-STUDY APPROVALS IBAH International Regulatory staff will prepare the necessary pre-study filings with local regulatory authorities for permission to proceed with the clinical trial, as well as follow-up with these local authorities to expedite the review and approval process. IBAH Regulatory staff will prepare the dossier (document compilation and submission) and necessary study updates. Fees are based on IBAH's staff time to prepare the dossier(s) and interact with the regulatory agencies and IRBs. IBAH would also be responsible for translation of documents into the different local languages. In addition, any direct charges (dossier filing fees, travel to meetings at agencies, etc.) will be passed through to Cubist at cost. 6. INVESTIGATOR AGREEMENT NEGOTIATION IBAH will be responsible for the following activities related to negotiating the clinical site contracts: o Create an investigator agreement and patient budget o Negotiate investigator agreements that satisfy Cubist requirements o Handle investigator agreements, approval by Cubist and signature by, investigators o Incorporate changes and securing re-approval by Cubist o Communicate with IBAH Grants Administration Department when necessary o Handle investigator agreement amendments and/or addenda o Collect excess grants from sites at study end Protocol and study amendments, which require investigator agreement revisions, amendments and/or re-negotiation, will be billed at an additional processing fee of [ ]* for each site. 7. COORDINATOR'S AND INVESTIGATOR'S MEETING COORDINATION AND ATTENDANCE A Meetings Coordinator will be assigned to manage all logistics of the U.S. and International meetings and will schedule necessary travel and hotel arrangements. Specific responsibilities will include the following: o Identify appropriate location(s) for the meetings o Define meeting requirements and outline a meeting agenda *Confidential treatment requested: Material has been omitted and filed with the Commission. -11- o Negotiate, organize, and make all hotel arrangements o Secure discounted travel arrangements and issue tickets to investigators and study coordinators o Prepare necessary meeting materials (e.g., annotated CRFs, presentation materials, etc.) o Coordinate presentations o Manage administrative aspects associated with the meeting IBAH's Project management and clinical trial management staff will be available to conduct or participate in the meetings and will arrive at the location prior to each meeting to assist attendees with any last minute details that may arise. 8. ELECTRONIC MAIL EXCHANGE PRIVATE Upon the mutual written agreement of the parties, IBAH will develop a connection for the exchange of electronic mail between IBAH and Cubist. Upon the mutual agreement of the parties, provisions can be made to allow IBAH staff to access systems on Cubist's network and to allow printing from those systems to be routed and printed on IBAH's printers. PREREQUISITES In order to provide these services, a communications link will need to be established between Cubist and IBAH. Cubist will extend their WAN to IBAH rather than IBAH extending its WAN to Cubist's location because it provides Cubist with a greater degree of security and control. The WAN extension is terminated at the IBAH site with a router that is owned and operated remotely by Cubist. *Confidential treatment requested: Material has been omitted and filed with the Commission. -12- SERVICES Once the communications link has been established, connections will be extended to a NT Server that would act as the electronic mail-relay that forwards mail between the two companies. (See drawing below). CLIENT CONNECTIONS TO THE IBAH NETWORK [GRAPHIC OF CLIENT CONNECTIONS TO THE IBAH NETWORK] IBAH suggests using a VLAN to provide the interconnection between the two networks because it provides the capability to isolate traffic. Because of the switch's filtering capabilities. Cubist will only see the information on the IBAH network that IBAH feels is appropriate, and IBAH will have access to Cubist's information and systems that is provided over the WAN only from the IBAH equipment directly attached to the VLAN switch. Currently, IBAH is using Micro Exchange Server 5.5 as our electronic mail server and Microsoft Outlook for our electronic mail. The electronic mail between Cubist and IBAH will use the Simple Mail Transport Protocol (SMTP) to provide the mail transport. The mail sent from IBAH would be routed over the IBAH network to an NT server running Internet Information Server 4.0 (IIS) which would provide the SMTP-relay function to forward the mail to Cubist. Likewise, electronic mail from Cubist will arrive at IBAH via Cubist WAN and router. It will be routed to the VLAN switch where it will be delivered to the NT Server running IIS. IIS will then forward it to the IBAH Exchange Server for delivery. Remote access to the Cubist systems is similar. IBAH staff will log onto dedicated PCs attached to the VLAN switch and then open a session on the Cubist's server to perform whatever function is required (data entry, document submission, data analysis, etc.). Again, because of the filtering capabilities of the switch, that traffic will only be accessible on the LAN segment containing the dedicated PCs and printer and the LAN segment to which the Cubist WAN is attached. Because there are no other devices on those segments, the communications remain private. To print a document or export information from the Cubist system to a device here at IBAH, the traffic is sent over the Cubist WAN, through the VLAN switch, and onto the printer or server - again with the privacy of the information maintained because of the switch's filtering capabilities. *Confidential treatment requested: Material has been omitted and filed with the Commission. -13- CUBIST RESPONSIBILITIES o Provide IBAH with a list of addresses to be included in the IBAH global address list o Provide technical contact for initial configuration, testing and problem resolution o Order communications link between IBAH and Cubist locations o Assume financial and operational responsibility for the communications link o Purchase, configure and operate router and CSU to be deployed at IBAH location IBAH RESPONSIBILITIES o Establish global address list entry for Cubist organization o Enter e-mail addresses for the individual staff members from that Cubist organization in the global address list. o Initial testing & configuration o Routine monitoring o Global address list maintenance - moves, adds & changes o Mail delivery problem resolution INTERNET-BASED IBAH will use the Internet to communicate with Cubist. The costs are much lower with this option. However, because information is transiting the Internet, there will be severe restrictions on the content of the information that may be sent. Deploying encryption software on each PC that will be communicating with IBAH could solve some of the issues associated with this option. C. CLINICAL TRIAL MANAGEMENT 1. CLINICAL MONITORING IBAH will assign a global team of experienced CRAB to perform pre-study qualification, initiation, interim and closeout site visits. Deployment of CRAB, in terms of number and frequency of visits, will be managed based on Cubist input, geographic location and site-specific enrollment data. IBAH's site management and monitoring procedures will be performed in accordance with GCP to ensure each investigative site's compliance with regulations and protocol requirements and to enhance expeditious enrollment of appropriate patients into the clinical study. Regulatory documents will be reviewed by the CRA on an ongoing basis during the study conduct phase, including verification of signed informed consent forms and investigator IRB notifications. *Confidential treatment requested: Material has been omitted and filed with the Commission. -14- Once all regulatory documents and approvals are received, a site initiation visit will be scheduled. During this visit, the CRA will review the study goals, protocol (with particular attention to inclusion/exclusion criteria, enrollment plan/goal, adverse events, primary efficacy variables and GCP compliance), CRF completion, and clinical supply dispensation/ accountability will be performed with the investigator and his/her staff. CRAs will perform 100% source document verification of CRF data for accuracy and completeness, and will also review source data for appropriate identification, documentation, and reporting of both serious and non-serious adverse events. Drug accountability visits will be performed, as well as reconciliation and removal of clinical supplies at study closeout per Cubist's requirements. In general, the CRAB' efforts will be focused on source document verification and expedient data retrieval. 2. CLINICAL GRANTS ADMINISTRATION As a follow-up to the Investigator Agreement negotiation process, an extension of the IBAH contracts group will administer the clinical grant payments to the site. Included in their responsibilities are the following: o Process financial records for all of the patients in the study o Issue initial and interim payments for each investigator o Reconcile all payments to each of the investigators prior to the final payments o Track account administration with IBAH's finance group o Maintain W9 forms and all relevant and related government reports (U.S. only) Investigator grants, within parameters defined by Cubist, will be passed through at cost to Cubist. A grant administration fee will be applied, based on the number of sites and payments to be managed throughout the duration of the study. 3. CRF TRACKING, FILING AND ARCHIVING Completed CRFs received from investigative sites, ancillary CRF pages, adverse event documentation, and patient-specific correspondence for each study will be logged in and tracked at IBAH. Of these items, CRFs and answered data queries will be entered page-by-page into a computerized tracking system. Fees reflect logging, copying, filing, and ongoing CRF tracking time. A final, complete page listing and original CRFs will be provided to Cubist upon Project completion. Cubist will be billed for the actual number of pages logged/tracked. *Confidential treatment requested: Material has been omitted and filed with the Commission. -15- 4. MEDICAL MONITORING (DURING BUSINESS HOURS) An IBAH U.S. and International Medical Monitor will oversee the medical aspects of Cubist's clinical program. In addition to acting as medical advisors to the Project Team, the Medical Monitors will be responsible for the following: o Project planning o Review of clinical documentation (protocol, CRF, sample informed consent form) o Project-specific medical training o Evaluate patient eligibility (in conjunction with the Medical Director of Cubist) o Participate in team meetings o Review study reports, regulatory submissions and study manuscripts 5. SAFETY REVIEW OF CRFS Prior to data entry, a U.S. and International Safety Officer will review all pages of each case, ancillary laboratory pages and all data clarification requests. Cubist will be notified immediately of serious adverse events (SAEs) that have not been previously reported by the sites. Notification will occur by telephone, as well as by forwarding to Cubist an SAE form. The SAE form will include details of the SAE obtained from the investigative site and will be sent via facsimile to the designated recipient at Cubist. As follow-up information is obtained by IBAH, the SAE form will be updated and forwarded to Cubist. 6. SAE REPORTING Within one IBAH business day of receipt, IBAH will forward to Cubist all SAE information received from site personnel or IBAH CRAs. Notification to Cubist will occur via telephone, as well as by forwarding a comprehensive SAE form via facsimile. Cubist will be responsible for reporting SAES to the FDA. IBAH's International staff will report SAEs to non-U.S. agencies. The fee for SAE reporting includes costs for IBAH to provide all follow-up information and to update SAE forms as necessary. Cubist will be billed for the actual number of SAE reports. 7. SAFETY PHONE COVER (INTERNATIONAL) During business hours, IBAH has a direct number to IBAH's Safety Surveillance Department for receipt of SAE information. During evening *Confidential treatment requested: Material has been omitted and filed with the Commission. -16- hours, weekends and holidays, a designated member of the Safety Surveillance Department will be on call via beeper. All return calls to the sites will be made immediately to obtain the necessary SAE information and to determine the necessity of an SAE report. D. CLINICAL DATA MANAGEMENT 1. DATA MANAGEMENT PLAN IBAH's Clinical Data Manager will develop a Global Data Management Plan. This plan will include the entry and review guidelines, automated edits checks of the data, dictionary coding procedures, and central laboratory loading procedures. Any other data management tasks requested for this Project will also be outlined in this plan. 2. PROJECT DATABASE CREATION Data screens will be developed by IBAH's programming group on an Open VMS System (Alpha 4100) using Domain/CLINTRIAL(R) software. IBAH's Programmers will develop data-entry screens (i.e., CRF data module designs) that mimic the flow of the CRF, thereby improving the ease and integrity of the data-entry process. 3. DATA ENTRY, CASE REPORT FORM REVIEW AND QUERY RESOLUTION IBAH's data-entry specialists will enter all CRF data utilizing a double-entry method. On-line edit checks will be included to provide additional controls against categorically incorrect data. The dual data-entry strategy will utilize numeric and/or text fields that are entered by one member of the data-entry staff and re-entered on-line by a second member of the staff. Cubist will be billed for the actual number of pages entered. IBAH will generate protocol-specific guidelines that are reviewed and approved by Cubist. Using these guidelines, IBAH will conduct a detailed quality control (QC) review of the entire CRF through a combination of manual review and electronic edit checks that will identify conflicting, unclear or incomplete data. IBAH's Clinical Data Analysts (CDAs) will perform this review. IBAH's CQA will oversee these activities and may, in its discretion, perform audits to ensure quality as part of this data service deliverable. If data are unclear, conflicting or incomplete, then queries will be generated and transmitted to the investigative site and IBAH's Client Services Department. All queries (issued and resolved) will be logged into the IBAH tracking system. IBAH's query database will be maintained *Confidential treatment requested: Material has been omitted and filed with the Commission. -17- throughout the Project and can provide Cubist with an up-to-date report on the status of queries on an as-needed basis. Cubist will be billed for the actual number of pages reviewed. In addition, each case will be printed as a data listing with 100% verification of critical data fields and text fields against the hard-copy CRF. Also, [ ]*% of the patients will be verified for 100% of the data fields prior to the closing of the database. Standard and protocol-specific edit checks will be created and results of the edit checks will be reviewed by the CDA during the review process and prior to database closure for the generation of queries. All verification will be documented. 4. DICTIONARY PROCESSING IBAH will use MedDRA for coding adverse events and WHO-DRUG for coding medications. A Cubist-modified dictionary can be accommodated at an additional fee to cover loading and validation of Cubist's dictionaries, as well as development of a mapping code. MedDRA for presenting conditions and diagnoses can be provided at an additional fee. IBAH will use standard coding conventions for the mapping procedure unless otherwise instructed at the Project start. An additional cost will be incurred for changes to coding conventions after Project start. An automated process will be used to map literal text to the corresponding term in the dictionary. Unmapped terms will be researched, coded, and reviewed by a dedicated team. Dictionary reports will be inclusive of automated and manually coded terms and will be reviewed by IBAH's Medical Monitors prior to database closure. 5. LABORATORY DATA PROCESSING (CENTRAL) TRANSFER AND VERIFICATION OF CENTRAL LABORATORY DATA IBAH will develop the programs needed for conversion and integration of central laboratory data. Central lab data sets will be loaded into the clinical database. Accession numbers from the laboratory hard copy received with the case will be entered into the database. Verification will compare the header data received electronically against the case data including the patient number, lab date, date of birth, gender, patient initials, and lab accession numbers. Discrepancies will be communicated to the central lab and/or Cubist. Full lab panel validation will be performed on [ ]*% of the patients to verify accuracy of the load. IBAH assumes that all laboratory results will be forwarded with the appropriate normal range and flag attached at the record level. *Confidential treatment requested: Material has been omitted and filed with the Commission. -18- 6. DATA TRANSFER At the conclusion of the study, IBAH will transfer the Project database to Cubist in standard IBAH SAS data sets using IBAH standard naming conventions and format. Customized data transfers, or interim database closes and transfers, can be accommodated on request at an additional fee. 7. SECURITY PROCEDURES All files, including data and programming, will be backed-up daily and a complete tape will be sent to secure storage off-site on a weekly basis for disaster recovery. All personnel maintain their own log-on IDs and all passwords will be changed monthly. Only authorized personnel will have access to databases, which have additional unique access codes. Data access codes will be changed upon database review and closure to allow only authorized personnel access to the database. As part of routine documentation, a controlled procedure will be used to archive two sets of tapes containing all pertinent system files employed in the Project, (i.e., Domain/CLINTRIAL(R) software, data sets, screen modules, SAS programming, and listing files). 8. MACHINE PROCESSING AND STORAGE IBAH's Database Administrator will maintain the integrity of Cubist's clinical database for the duration of the Project estimated at [ ]*. E. BIOMETRICS ANALYSIS AND TABLE GENERATION 1. STATISTICAL ANALYSIS PLAN/DESIGN OF TABLE SHELLS A statistical analysis plan, including operational definition of endpoints to be analyzed, definition of patient subsets (evaluable and intent-to-treat), visit windows, rules for data handling, and a detailed description of statistical methodology, will be prepared for each study. The statistical plan will include a set of formatted shells for all data displays (data listings, summary tables and graphics) planned for the study, which will be prepared with input from the Clinical Writing Department. If formatted data displays are not required, a detailed table of contents of SAS generated data displays will be included. This plan will be submitted to Cubist for review and approval prior to closing the database for analysis. *Confidential treatment requested: Material has been omitted and filed with the Commission. -19- 2. PROJECT DATA SETUP AND PROGRAMMING OF DATA DISPLAYS Prior to programming actual data displays (data listings, summary tables and graphics), IBAH will develop data display headers and create the status data set and efficacy data set, if needed, which will be used for the data analysis. After approval of the prototype data display formats by Cubist and the IBAH Project Team, IBAH's programming staff will develop the programs required to generate each data display. Programming will be performed using SAS system software, and will incorporate procedure output and customized report writing features. Any changes to data display formats after approval and programming initiation could result in additional charges. 3. QUALITY CONTROL PROCEDURES FOR DATA DISPLAYS IBAH's Biometrics staff will use a combination of independent programming, hand tabulations from supporting listings, and programming verification to ensure the accuracy and completeness of tables, listings, and statistical results. All report data displays will be verified for accuracy and internal consistency among data displays. A quality control binder, including the quality control strategy for each data display and audit trail, will be included in the Project file. 4. PATIENT EVALUABILITY AND OUTCOME ASSESSMENT Patient evaluability, outcome assessment criteria and relevant algorithms will be developed for the Project by IBAH and presented to Cubist for review and approval. These algorithms will be programmed using SAS to identify evaluable patients and outcome assessments. Biostatisticians will verify the accuracy of the output with independent programming and review of individual patient data. Final decisions regarding patient evaluability and outcome assessment will require approval by Cubist; these are performed once for each patient. Data listings for each patient's evaluability status and outcome assessment will be prepared and submitted to Cubist for classification prior to breaking the blind. Data classification meetings may be held either in person or via teleconference. 5. STATISTICAL ANALYSIS Statistical analysis, in accordance with the approved statistical analysis plan, will be performed by IBAH staff biostatisticians. The analysis includes verification of assumptions needed for statistical inference, determination of investigator-by-treatment interaction, and examination of outlying data points. *Confidential treatment requested: Material has been omitted and filed with the Commission. -20- Statistical findings which may not be appropriate for the body of a clinical report (e.g., tests for interaction, data distribution issues, etc.), deviations from the planned analyses, and additional exploratory analyses will be included in a statistical appendix to the clinical report. Fees include one major revision and one minor revision. The Project statistician will also review the clinical reports to ensure appropriate representation of statistical methodology and inference. 6. DATA LISTING AUDIT A percentage of quality-controlled data listings may, at IBAH's discretion, be chosen for an audit. From this, a percentage of patients will be chosen within each selected listing for audit. The data listing information will be verified against the selected patient(s) cases. The audit will take place once the listings are determined to be final by IBAH's Biometrics Department. IBAH's CQA will oversee these activities to ensure quality as part of this service deliverable. 7. SUMMARY TABLES AUDIT Following the generation of tables and listings by Biometrics, IBAH may, at its discretion, review a proportion of the summary tables, focusing on critical data elements, against the supporting data listings to independently verify the accuracy of the data and consistency of format. IBAH's CQA will oversee these activities to ensure quality as part of this service deliverable. F. CLINICAL WRITING 1. PHASE II / III CLINICAL STUDY REPORTS Integrated clinical and statistical summaries will be prepared in accordance with ICH guidelines. Draft clinical reports will be generated within [ ]* after receipt of final summary tables and patient listings. IBAH will prepare a phase II/III clinical report for each of the following studies: o Complicated SSTI U.S. study o Complicated SSTI International study o RRC Companion U.S. study o RRC Companion International study o Bacteremia study *Confidential treatment requested: Material has been omitted and filed with the Commission. -21- The fee for the phase III reports includes up to [ ]* brief patient narratives and [ ]*. One major revision of the draft reports is considered not to take more than [ ]* after receipt of all requests for changes, and a minor revision will consist of changes that can be completed in up to [ ]*. This fee does not include collation and assembly of appendices. IBAH assumes that the methods for the U.S. studies will be completed and reviewed prior to drafting the methods for the International studies. IBAH also assumes that the protocols for the U.S. and International studies are similar and that all reports will be completed according to the same format and presentation. All phase II/ III clinical reports will receive two independent levels of quality control review before they are released. There will be a QC review by IBAH's Clinical Writer for accuracy and consistency, and a review by the writing manager for accuracy, client format consistency, and appropriate regulatory and clinical perspective. Writing fee estimates are based on receipt of final data. If any changes should occur after work on the reports has begun, IBAH assumes that these changes will not impact the production of the report. If database changes occur which require a substantial amount of time [ ]* for rework or repeat quality control, additional fees will be agreed upon with Cubist before proceeding with the reports. 2. CLINICAL AUDIT IBAH may, at its discretion, perform an audit of the clinical study report. The clinical study report audit will examine the consistency between text and figures quoted in the version of the report agreed upon with Cubist, with those appearing in the statistical tables and listings which accompany the report. This audit will include a review of all sections for format consistency and table of contents cross-reference. In addition, text and figures will be verified against the verified tables/listings and any typographical and grammatical errors that are noted. This audit is performed on the final version, following incorporation of Cubist's comments. IBAH's CAQ will oversee these activities to ensure quality as part of this service deliverable. *Confidential treatment requested: Material has been omitted and filed with the Commission. -22- V. FINANCIAL CONSIDERATIONS A. GLOBAL PROJECT BUDGET SUMMARY [ ]* DETAILED BUDGETS 1. U.S. Clinical Monitoring Budget for Complicated SSTI and Companion RRC Study [ ]* 2. International Clinical Monitoring Budget for Complicated SSTI and Companion RRC Study [ ]* 3. Global Clinical Budget for Complicated SSTI [ ]* 4. Global Clinical Budget for Companion RRC Study [ ]* 5. Clinical Budget for Gram Positive Bacteremia Study [ ]* C. PAYMENT SCHEDULES 1. INVOICING PROCESS FOR SERVICE FEES IBAH maintains a project accounting system, whereby all direct project costs (service or passthrough expenses) are coded by project. An initial payment of [ ]*, representing approximately [ ]* of Project costs, is due and payable upon execution of this Exhibit A. Subsequent payments shall be made monthly, based on Services performed and upon submission of an invoice to Cubist by IBAH. The subsequent invoices shall be reduced by a prorated portion from the initial payment such that the initial payment is applied evenly over the term of the Project. All payments shall be processed within [ ]*. If any payment of service fees or pass through expenses is late by more than [ ]*, such payment shall be subject to a penalty fee of [ ]* per month of the outstanding balance. *Confidential treatment requested: Material has been omitted and filed with the Commission. -23- 2. PASS THROUGH EXPENSE INVOICING Grant Payments - IBAH will invoice [ ]* in advance of grant payments due investigators based on estimates. IBAH requires payment from Cubist at least [ ]* in advance of the actual payment to investigators. Payments to investigators will not be released until payments are received by IBAH from Cubist. Upon Cubist's request, IBAH agrees to deposit payments from Cubist into a non-interest bearing bank account. IBAH shall draw upon such account to make the investigator payments. Any remaining funds in the account will be returned to Cubist after the termination of the study, as soon as all contracted obligations to the investigators have been satisfied. In the event payments from Cubist are insufficient to cover the payments to investigators, Cubist will promptly advance funds to IBAH for the amount of grant payments required. IBAH's project accounting system is able to capture and categorize in summary the following key pass-through expenses related to a project: o Travel o Delivery fees o CRF and other printing costs o All other project related expenses that are not related to service fees and any additional detail to support pass-through costs will be provided on a fee basis. 3. ANNUAL PRICE INCREASE Notwithstanding anything contained herein to the contrary, the estimated Service Fees set forth in this Exhibit A shall remain in effect through [ ]*. Thereafter, IBAH reserves the right to increase the price of the remaining Services under this Exhibit A; such increases shall not exceed [ ]*. VI. SIGNATORY AUTHORITY The parties acknowledge and agree that Cubist has authorized IBAH to execute all Clinical Study Agreements with investigators in the Project on behalf of Cubist. Cubist understands and acknowledges that it will be bound by the terms of the investigator agreements. ACCEPTANCE The terms and conditions of the Master Agreement govern this Exhibit A and such document is incorporated herein by reference as if fully set forth herein. *Confidential treatment requested: Material has been omitted and filed with the Commission. -24- BY AND BETWEEN: CUBIST PHARMACEUTICALS, INC. IBAH, INC. BY: /s/ FRANCIS P. TALLY By: /s/ LEONARD F. STIGLIANO ---------------------------------- ---------------------------- Name: Francis P. Tally Name: Leonard F. Stigliano Title: Ex. VP Scientific Affairs Title: President, U.S. CRO Dated: 12/21/99 Dated: 12/20/99 *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.51 4 a2042768zex-10_51.txt EXHIBIT 10.51 EXHIBIT 10.51 CONFIDENTIAL TREATMENT EXHIBIT B TO THE CLINICAL SERVICES MASTER AGREEMENT BETWEEN CUBIST PHARMACEUTICALS, INC. AND IBAH, INC., DATED DECEMBER 1, 1999. THIS EXHIBIT B is entered into this 12th day of April, 2000, by and between Cubist Pharmaceuticals, Inc. (hereinafter "Cubist") an IBAH, Inc. (hereinafter "IBAH"). WHEREAS, Cubist and IBAH entered into a Clinical Services Master Agreement, dated December 1, 1999 (hereinafter the "Master Agreement"), wherein IBAH agreed to provide clinical services and; WHEREAS, Cubist and IBAH agree that IBAH shall provide the services set forth in this Exhibit B, subject to the terms and conditions set forth in the Master Agreement; NOW, THEREFORE, for good and valuable consideration, and INTENDING TO BE LEGALLY BOUND, Cubist and IBAH agree as follows: I. PROJECT PLAN Based on the Project Specifications, IBAH has provided a description of services to be performed for Cubist's complicated urinary tract infection (CUTI) Daptomycin Program, Protocol Number DAP00-03 (hereinafter "the Project") and associated costs. Changes made in the Project scope, at any time during the Project, will result in a corresponding adjustment to the Project costs. A. PROJECT STATUS TABLE [ ]* *Confidential treatment requested: Material has been omitted and filed with the Commission. -2- II. PROJECT ROLES AND RESPONSIBILITIES - ----------------------------------------------------------------------------------------------------------- TASK CUBIST IBAH - ----------------------------------------------------------------------------------------------------------- A. STUDY MANAGEMENT - ----------------------------------------------------------------------------------------------------------- 1. Facilitate Project Management X o Program Director [ ]* o International Project Manager [ ]* o CTM [ ]* - ----------------------------------------------------------------------------------------------------------- 2. Coordinate and conduct team meetings X X - ----------------------------------------------------------------------------------------------------------- 3. Standard Operating Procedures (SOPs) X - ----------------------------------------------------------------------------------------------------------- 4. Performance tracking X - ----------------------------------------------------------------------------------------------------------- 5. Monitor Project payment schedule X X - ----------------------------------------------------------------------------------------------------------- 6. Project problem solving X X - ----------------------------------------------------------------------------------------------------------- 7. Clerical and administrative support X (US - [ ]*) International - [ ]* - ----------------------------------------------------------------------------------------------------------- B. CLINICAL TRIAL INITIATION - ----------------------------------------------------------------------------------------------------------- 1. Drug development and study design X - ----------------------------------------------------------------------------------------------------------- 2. Protocol Development X - ----------------------------------------------------------------------------------------------------------- 3. Patient plan X o CUTI-[ ]* patients enrolled in U.S./[ ]* patients enrolled in International [ ]* patients total - ----------------------------------------------------------------------------------------------------------- 4. Site plan X o Up to [ ]* Sites U.S. o [ ]* sites Internationally - Australia, Belgium, Czech Republic, German Greece Hungary, Poland Russia - ----------------------------------------------------------------------------------------------------------- 5. CRF design X o CUTI -[ ]* estimated pages - ----------------------------------------------------------------------------------------------------------- 6. CRF logistics (print, bind, and distribute) X o Material, printing and assembly expenses will be passed through at cost - ----------------------------------------------------------------------------------------------------------- 7. Investigator identification, recruitment and qualification X - ----------------------------------------------------------------------------------------------------------- 8. Investigator regulatory document management X o Protocol Amendments and IRB submissions billed per site o Informed Consent Forms development - ----------------------------------------------------------------------------------------------------------- 9. Certification of Investigator Financial Disclosure X - ----------------------------------------------------------------------------------------------------------- 10. Investigator agreement negotiation X - ----------------------------------------------------------------------------------------------------------- 11. Coordination of investigators meeting X o One meeting US; Two meetings International - ----------------------------------------------------------------------------------------------------------- 12. Project team training X X - ----------------------------------------------------------------------------------------------------------- *Confidential treatment requested: Material has been omitted and filed with the Commission. -3- - ----------------------------------------------------------------------------------------------------------- TASK CUBIST IBAH - ----------------------------------------------------------------------------------------------------------- C. CLINICAL TRIAL MANAGEMENT - ----------------------------------------------------------------------------------------------------------- 1. Clinical monitoring X o IBAH estimates [ ]* U.S. qualification visits and [ ]* International one-day qualification visits ([ ]* visits total) o IBAH estimates performance of [ ]* U.S. and [ ]* International initiation visits [ ]* visits total o BAH estimates performance of [ ]* U.S. and [ ]* International interim visits ([ ]* visits total) o IBAH estimates [ ]* U.S. and [ ]* International close-out visits [ ]* visits total - ----------------------------------------------------------------------------------------------------------- 2. Clinical grant payment administration (Assumes 4 payments per site) X - ----------------------------------------------------------------------------------------------------------- 3. CRF tracking, filing and archiving X o [ ]* -US [ ]* - International CRF pages [ ]* pages total) - ----------------------------------------------------------------------------------------------------------- 4. Medical monitoring X o [ ]* in US o [ ]* in International - ----------------------------------------------------------------------------------------------------------- 5. Safety review of CRFs X o Based on [ ]* cases reviewed - ----------------------------------------------------------------------------------------------------------- 6. SAE Reporting with Patient Summaries X o CUTI U.S. [ ]*/International [ ]* [ ]* total) - ----------------------------------------------------------------------------------------------------------- D. CLINICAL DATA MANAGEMENT - ----------------------------------------------------------------------------------------------------------- 1. Project database creation and data entry X Fee based on: o CUT1- [8,250] CRF from US & [ ]* CRF pages from International ([ ]* total) - ----------------------------------------------------------------------------------------------------------- 2. Case report form review and query resolution X Fee based on: o CUTI- [ ]* CRF from US & [ ]* CRF pages from International ([ ]* total) - ----------------------------------------------------------------------------------------------------------- 3. Dictionary processing of CRFs X o [ ]* CRFs - ----------------------------------------------------------------------------------------------------------- 4. Laboratory data processing (central) X X o Covance - ----------------------------------------------------------------------------------------------------------- 5. Reconciliation of Safety/Clinical Databases X - ----------------------------------------------------------------------------------------------------------- 6. Data transfer (standard) X - ----------------------------------------------------------------------------------------------------------- 7. Data security procedures X - ----------------------------------------------------------------------------------------------------------- E. BIOMETRIC ANALYSIS - ----------------------------------------------------------------------------------------------------------- 1. o Statistical analysis X o plan-includes one major one minor revision - ----------------------------------------------------------------------------------------------------------- 2. Randomization X - ----------------------------------------------------------------------------------------------------------- 3. Project data setup and programming of displays X o CUTI [ ]* primary tables and listings and [ ]* secondary tables and listing - ----------------------------------------------------------------------------------------------------------- 4. Quality control procedures for displays X - ----------------------------------------------------------------------------------------------------------- 5. Patient evaluability and outcome assessment X - ----------------------------------------------------------------------------------------------------------- 6. Interim transfer of listings X - ----------------------------------------------------------------------------------------------------------- *Confidential treatment requested: Material has been omitted and filed with the Commission. -4- - ----------------------------------------------------------------------------------------------------------- TASK CUBIST IBAH - ----------------------------------------------------------------------------------------------------------- 7. Final statistical analysis X - ----------------------------------------------------------------------------------------------------------- 8. Statistical support for table preparation X - ----------------------------------------------------------------------------------------------------------- 9. Data loading and review X - ----------------------------------------------------------------------------------------------------------- 10. Statistical report - ----------------------------------------------------------------------------------------------------------- F. CLINICAL WRITING - ----------------------------------------------------------------------------------------------------------- 1. Phase III clinical study report-CUTI o [ ]* revision and up to [ ]* brief patient narratives o Fee does not include collation or compilation of appendices - -----------------------------------------------------------------------------------------------------------
III. PROJECT TIMELINE The parties acknowledge that IBAH commenced performance of the Service on or about December 20, 1999. The projected timeline for this Project is as follows: [ ]* (Rest of page intentionally left blank) *Confidential treatment requested: Material has been omitted and filed with the Commission. -5- IV. IBAH SERVICES A. STUDY MANAGEMENT 1. PROGRAM DIRECTOR/INTERNATIONAL PROJECT MANAGER IBAH's Program Director will coordinate the services being provided by all of the disciplines within IBAH and will act as a single point of contact for Cubist until completion of the Project. The International Project Manager, working in conjunction with the Program Director, will manage the international segment of the Project. Key responsibilities of these individuals will include the following: o Prepare detailed Project timelines and ensuring that the major milestones are met o Provide Project status updates o Identify and resolve critical Project issues o Ensure adequate resource allocation across all functions o Oversee Project team meetings o Manage Project financial issues 2. COUNTRY TRIAL MANAGERS/CLINICAL TRIAL MANAGERS IBAH's Country Trial Managers will be dedicated to managing the day-to-day clinical trial activity. They will oversee all site and CRA activities within this Project. Primary responsibilities of these individuals will include the following: o Develop case report forms and monitoring guidelines o Oversee regulatory document management from each of the investigational sites o Review and track CRA activities including scheduling of site visits, site visit reports, monitoring logs, follow-up correspondence, hours worked, routine expense records, and any other pertinent study-related documents o Maintain routine contact with all CRAB to ensure the consistency of program communication and work performed o Provide ongoing quality control of the CRAs performance throughout the Project Provide Program Director and International Project Manager with periodic status reports including progress of site initiations, status of ongoing site visits, patient enrollment updates, site visit reports, data query rates, and other study-related reports *Confidential treatment requested: Material has been omitted and filed with the Commission. -6- 3. ASSOCIATED MANAGEMENT SUPPORT IBAH will dedicate clerical/administrative support to the Project. The clerical/administrative fee will cover costs associated with IBAH's services, as well as management and administration associated with this Project. All travel expenses, Federal Express and/or overnight courier services, and telephone costs will be passed through at cost to Cubist. B. CLINICAL TRIAL INITIATION 1. PROJECT TEAM TRAINING IBAH will rely on internal and external experts to provide specific therapeutic area training and orientation to the protocol and the CRF prior to study initiation and on an ongoing basis. This training will be designed to ensure that all team members are familiar with the Project requirements and their role within the team. Items discussed at these meetings will include, but will not be limited to: o Therapeutic area and clinical development background o Protocol and CRF o Discussion of therapeutic implications for this study Monitoring guidelines 2. CRF DESIGN AND PRINTING IBAH will work in conjunction with Cubist to design a case report form (CRF) for recording pertinent Study data. Data Management, Biometrics, and the CTM will review the CRF and provide input to ensure all relevant data is captured. A review meeting with Cubist will be held to resolve any design questions or other concerns which may arise. IBAH will provide Cubist with bids from independent printing vendors. CRFs will be sent for printing on 3-part NCR after all issues are resolved and final approval from IBAH and Cubist is received. Estimated fees for CRF materials and printing are based on a per case basis. CRFs will be collated into binders with spines and covers, and a protective NCR foldover will be provided with each CRF binder. Actual materials, printing, assembly, and distribution fees will be passed through to Cubist. *Confidential treatment requested: Material has been omitted and filed with the Commission. -7- 3. IBAH S.T.A.R.T In order to facilitate rapid study site initiations, IBAH has established IBAH S.T.A.R.T (Study Trial Acceleration Resource Teams) in North America. The study start-up functional areas that are included in this group are Investigator Recruitment, Investigator Document Management, Investigator Agreement Negotiation, and Investigator Meeting Coordination. A Coordinator will head each S.T.A.R.T. team and will work with the Managers to devise and implement a working strategy to promote an expeditious action plan. The goal is to provide sites with a streamlined communication channel for all S.T.A.R.T activities. The International Project Manager and the Country Trial Managers will perform these study start-up activities for the international portion of this Project. 4. INVESTIGATOR IDENTIFICATION, RECRUITMENT AND QUALIFICATION IBAH will collaborate with Cubist to recruit [ ]* U.S. and [ ]* International investigators capable of conducting the Cubist CUTI study. A preliminary telephone interview will be conducted to evaluate a prospective site's interest and potential to meet both patient enrollment and data quality goals for this Project. After obtaining a signed confidentiality agreement from the prospective investigative sites, IBAH will issue a survey form, customized to the protocol. Additional Project information will be distributed to appropriate investigators who are willing to commit to study participation. The outcome of all evaluations, with a final list of proposed investigators, will be forwarded to Cubist for approval prior to final recruitment. If it is necessary to assess the site's ability to achieve study enrollment and data quality goals then a comprehensive pre-study evaluation visit will be scheduled with the selected investigator. Once identified as a qualified study site, an investigator regulatory document package will be sent. 5. INVESTIGATOR REGULATORY DOCUMENT MANAGEMENT In coordination with Cubist, IBAH will develop a template of an informed consent form for the Project, ensuring compliance with all local, state, and federal and international regulatory requirements. Regulatory document packages, with letters of instruction, will be mailed to qualified investigative sites. A dedicated tracking process for regulatory document collection will be utilized. Document collection will cover all criteria required under the principles of Good Clinical Practices (GCP) and International Committee for Harmonization (ICH) guidelines, as well as IBAH Standard Operating Procedures (SOPs). In addition, IBAH S.T.A.R.T., will also collect certification / disclosure information from all investigators and provide this information to Cubist on an ongoing basis. *Confidential treatment requested: Material has been omitted and filed with the Commission. -8- IBAH will track the retrieval of documents on an ongoing basis and provide updates to Cubist as requested. IBAH will prepare copies of all appropriate documents, assemble documents and issue an investigator regulatory binder to all sites, including but not limited to: o Investigator's Brochure o Final Protocol and Sample Copy of the CRF o Institutional Review Board (IRB) Approvals of Protocol and Informed Consent Form(s) o Laboratory Certification and Normal Ranges o Completed FDA Form 1572 o Investigator Curriculum Vitae o Financial Disclosure Certification and/or completed Financial Disclosure Form The binders will be maintained at the sites and reviewed for appropriate updates by CRAs responsible for site management over the course of the study. Certification of Investigator Financial Disclosure will be collected and maintained as agreed upon by IBAH and Cubist. The fee for regulatory document collection, processing, and tracking is based upon the number of sites required for the study. File maintenance and updating will be billed at the rate of [ ]* per site per year after year one. Protocol amendments, which require informed consent revisions and/or IRB re-submission, will be billed at an additional processing fee of [ ]* for each site. 6. INVESTIGATOR REGULATORY DOCUMENT COLLECTION (INTERNATIONAL) STUDY MASTER FILES In accordance with GCP, IBAH's International staff will: o Develop Study Master File according to IBAH SOPS under supervision of the Study Manager o Obtain all relevant critical documents for the Project; design an appropriate Critical Document Receipt List as a supporting instrument for the CRAB; review all incoming investigators' documents; approve/reject these documents according to GCP and internal guidelines o Maintain file, i.e. proper filing of all incoming papers (investigator documents, site visit reports); file audits to assure the completeness of the documents and to identify missing documents o Ship investigator documents to Cubist as required o Arrange for archiving of the Study Master File at the end of the Project *Confidential treatment requested: Material has been omitted and filed with the Commission. -9- PRE-STUDY APPROVALS IBAH's Regulatory staff will prepare the necessary pre-study filings with local regulatory authorities for permission to proceed with the clinical trial, as well as follow-up with these local authorities to expedite the review and approval process. IBAH's Regulatory staff will prepare the dossier (document compilation and submission) and necessary study updates. Fees are based on IBAH's staff time to prepare the dossier(s) and interact with the regulatory agencies and IRBs. IBAH will also be responsible for translation of documents into the different local languages. In addition, any direct charges (dossier filing fees, travel to meetings at agencies, etc.) will be passed through to Cubist at cost. 7. INVESTIGATOR AGREEMENT NEGOTIATION IBAH will be responsible for the following activities related to negotiating the clinical site contracts: o Create an investigator agreement and patient budget o Negotiate investigator agreements that satisfy Cubist requirements o Handle investigator agreements, approval by Cubist and signature by investigators o Incorporate changes and securing re-approval by Cubist o Communicate with IBAH Grants Administration Department when necessary o Handle investigator agreement amendments and/or addenda o Collect excess grants from sites at study end Protocol and study amendments, which require investigator agreement revisions, amendments and/or re-negotiation, will be billed at an additional processing fee of [ ]* for each site. *Confidential treatment requested: Material has been omitted and filed with the Commission. -10- 8. COORDINATOR'S AND INVESTIGATOR'S MEETING COORDINATION AND ATTENDANCE A Meeting Coordinator will be assigned by IBAH to manage all logistics of the U.S. and International meetings and will schedule necessary travel and hotel arrangements. Specific responsibilities will include the following: o Identify appropriate location(s) for the meetings o Define meeting requirements and outline a meeting agenda o Negotiate, organize, and make all hotel arrangements o Secure discounted travel arrangements and issue tickets to investigators and study coordinators o Prepare necessary meeting materials (e.g., annotated CRFs, presentation materials, etc.) o Coordinate presentations o Manage administrative aspects associated with the meeting IBAH's Project Management and Clinical Trial Management staff will be available to conduct or participate in the meetings and will arrive at the location prior to each meeting to assist attendees with any last minute details that may arise. C. CLINICAL TRIAL MANAGEMENT . 1. CLINICAL MONITORING IBAH will assign a global team of experienced CRAs to perform pre-study qualification, initiation, interim and closeout site visits. Deployment of CRAB, in terms of number and frequency of visits, will be managed based on Cubist input, geographic location and site-specific enrollment data. IBAH's site management and monitoring procedures will be performed in accordance with GCP to ensure each investigative site's compliance with regulations and protocol requirements and to enhance expeditious enrollment of appropriate patients into the clinical study. Regulatory documents will be reviewed by the CRA on an ongoing basis during the study conduct phase, including verification of signed informed consent forms and investigator IRB notifications. Once all regulatory documents and approvals are received, a site initiation visit will be scheduled. During this visit, the CRA will review the study goals, protocol (with particular attention to inclusion/exclusion criteria, enrollment plan/goal, adverse events, primary efficacy variables and GCP compliance), CRF completion, and clinical supply dispensation/accountability will be performed with the investigator and his/her staff. *Confidential treatment requested: Material has been omitted and filed with the Commission. -11- The Clinical Monitoring Plan will provide Project specific guidance for source data verification requirements at the project level. This document will be prepared by the Clinical Trial Manager will be signed off by Cubist. Drug accountability visits will be performed, as well as reconciliation and removal of clinical supplies at study closeout per Cubist's requirements. In general, the CRAs' efforts will be focused on source document verification and expedient data retrieval. 2. CLINICAL GRANTS ADMINISTRATION As a follow-up to the Investigator Agreement negotiation process, an extension of the IBAH contracts group will administer the clinical grant payments to the site. Included in their responsibilities are the following: o Process financial records for all of the patients in the study o Issue initial and interim payments for each investigator o Reconcile all payments to each of the investigators prior to the final payments o Track account administration with IBAH's finance group o Maintain W9 forms and all relevant and related government reports (U.S. only) Investigator grants, within parameters defined by Cubist, will be passed through at cost to Cubist. A grant administration fee will be applied, based on the number of sites and payments to be managed throughout the duration of the study. 3. CRF TRACKING, FILING AND ARCHIVING Completed CRFs received from investigative sites, ancillary CRF pages, adverse event documentation, and patient-specific correspondence for each study will be logged in and tracked at IBAH. Of these items, CRFs and answered data queries will be entered page-by-page into a computerized tracking system. Fees reflect logging, copying, filing; and ongoing CRF tracking time. A final, complete page listing and original CRFs will be provided to Cubist upon Project completion. Cubist will be billed for the actual number of pages logged/tracked. *Confidential treatment requested: Material has been omitted and filed with the Commission. -12- 4. MEDICAL MONITORING (DURING BUSINESS HOURS) IBAH's U.S. and International Medical Monitor will oversee the medical aspects of Cubist's clinical program. In addition to acting as medical advisors to the Project Team, the Medical Monitors will be responsible for the following: o Project planning o Review of clinical documentation (protocol, CRF, sample informed consent form) o Project-specific medical training o Evaluate patient eligibility (in conjunction with the Medical Director of Cubist) o Participate in team meetings o Review study reports, regulatory submissions and study manuscripts 5. SAFETY REVIEW OF CRFS Prior to data entry, a U.S. and International Safety Officer will review all pages of each case, ancillary laboratory pages and all data clarification requests. Cubist will be notified immediately of serious adverse events (SAES) that have not been previously reported by the sites. Notification will occur by telephone, as well as by forwarding to Cubist an SAE form. The SAE form will include details of the SAE obtained from the investigative site and will be sent via facsimile to the designated recipient at Cubist. As follow-up information is obtained by IBAH, the SAE form will be updated and forwarded to Cubist. 6. SAE REPORTING WITH INITIAL DESCRIPTIVE SUMMARIES Within one IBAH business day of receipt, IBAH will forward to Cubist all SAE information received from site personnel or IBAH CRAB. Notification to Cubist will occur via telephone, as well as by forwarding a comprehensive SAE form via facsimile. Cubist will be responsible for reporting SAEs to the FDA. IBAH's International staff will report SAEs to non-U.S. agencies. The fee for SAE reporting includes costs for IBAH to provide all follow-up information and to update SAE forms as necessary. At the time of receipt of the CRF in house SAE reports will be reconciled with the CRF. Cubist will be billed for the actual number of SAE reports. IBAH will provide initial descriptive patient summaries for all identified serious adverse events. The descriptive narratives will be written from information provided by the investigator on the SAE report forwarded to IBAH at the time of the event. If significant follow-up information becomes available, the narrative will be updated accordingly. *Confidential treatment requested: Material has been omitted and filed with the Commission. -13- 7. SAFETY PHONE COVER (INTERNATIONAL) During business hours, IBAH has a direct number to IBAH's Safety Surveillance Department for receipt of SAE information. During evening hours, weekends and holidays, a designated member of the Safety Surveillance Department are on call via beeper. All return calls to the sites will be made immediately to obtain the necessary SAE information and to determine the necessity of an SAE report. D. CLINICAL DATA MANAGEMENT 1. DATA MANAGEMENT PLAN IBAH's Clinical Data Manager will develop a Global Data Management Plan. This plan will include the entry and review guidelines, automated edits checks of the data, dictionary coding procedures, and central laboratory loading procedures. Any other data management tasks requested for this Project will also be outlined in this plan. 2. PROJECT DATABASE CREATION Data screens will be developed by IBAH's programming group on an Open VMS System (Alpha 4100) using Domain/CLINTRIAL(R) software. IBAH's Programmers will develop data-entry screens (i.e., CRF data module designs) that mimic the flow of the CRF, thereby improving the ease and integrity of the data-entry process. 3. DATA ENTRY, CASE REPORT FORM REVIEW AND QUERY RESOLUTION IBAH's data-entry specialists will enter all CRF data utilizing a double-entry method. On-line edit checks will be included to provide additional controls against categorically incorrect data. The dual data-entry strategy will utilize numeric and/or text fields that are entered by one member of the data-entry staff and re-entered on-line by a second member of the staff. Cubist will be billed for the actual number of pages entered. IBAH will generate protocol-specific guidelines that are reviewed and approved by Cubist. Using these guidelines, IBAH will conduct a detailed quality control (QC) review of the entire CRF through a combination of manual review and electronic edit checks that will identify conflicting, unclear or incomplete data. IBAH's Clinical Data Analysts (CDAs) will perform this review. IBAH's CQA will oversee these activities and may, in its discretion, perform audits to ensure quality as part of this data service deliverable. If data are unclear, conflicting or incomplete, then queries will be generated and transmitted to the investigative site and IBAH"s Client Services Department. All queries (issued and resolved) will be logged into the IBAH tracking system. IBAH's query database will be maintained throughout the Project and can provide Cubist with an up-to-date report on the status of queries on an as-needed basis. Cubist will be billed for the actual number of pages reviewed. *Confidential treatment requested: Material has been omitted and filed with the Commission. -14- In addition, each case will be printed as a data listing with 100% verification of critical data fields and text fields against the hard-copy CRF. Also, [ ]*% of the patients will be verified for 100% of the data fields prior to the closing of the database. Standard and protocol-specific edit checks will be created and results of the edit checks will be reviewed by the CDA during the review process and prior to database closure for the generation of queries. All verification will be documented. 4. DICTIONARY PROCESSING IBAH will use MedDRA for coding adverse events and WHO-DRUG for coding medications. A Cubist-modified dictionary can be accommodated at an additional fee to cover loading and validation of Cubist's dictionaries, as well as development of a mapping code. Upon the mutual agreement of the parties, ICD-9 for presenting conditions and diagnoses will be provided at an additional fee. IBAH will use standard coding conventions for the mapping procedure unless otherwise instructed at the Project start. An additional cost will be incurred by Cubist for changes to coding conventions after Project start. An automated process will be used to map literal text to the corresponding term in the dictionary. Unmapped terms will be researched, coded, and reviewed by a dedicated team. Dictionary reports will be inclusive of automated and manually coded terms and will be reviewed by IBAH's Medical Monitors prior to database closure. 5. LABORATORY DATA PROCESSING (CENTRAL) TRANSFER AND VERIFICATION OF CENTRAL LABORATORY DATA IBAH will develop the programs needed for conversion and integration of central laboratory data. Central lab data sets will be loaded into the clinical database. Accession numbers from the laboratory hard copy received with the case will be entered into the database. Verification will compare the header data received electronically against the case data including the patient number, lab date, date of birth, gender, patient initials, and lab accession numbers. Discrepancies will be communicated to the central lab and/or Cubist. Full lab panel validation will be performed on [ ]*% of the patients to verify accuracy of the load. IBAH assumes that all laboratory results will be forwarded with the appropriate normal range and flag attached at the record level. *Confidential treatment requested: Material has been omitted and filed with the Commission. -15- 6. RECONCILIATION OF THE SAFETY AND CLINICAL DATABASES IBAH will maintain a safety database for Cubist. The safety database will be reconciled with IBAH's clinical database for the Project prior to database closure. Discrepancies will be queried to the safety surveillance department and to the investigator sites as needed. 7. SECURITY PROCEDURES All files, including data and programming, will be backed-up daily and a complete tape will be sent to secure storage off-site on a weekly basis for disaster recovery. All personnel maintain their own log-on IDs and all passwords are changed monthly. Only authorized personnel have access to databases, which have additional unique access codes. Data access codes are changed upon database review and closure to allow only authorized personnel access to the database. As part of routine documentation, a controlled procedure will be used to archive two sets of tapes containing all pertinent system files employed in the Project; (i.e., Domain/CLINTRIAL(R) software, data sets, screen modules, SAS programming, and listing files). 8. MACHINE PROCESSING AND STORAGE IBAH's Database Administrator will maintain the integrity of Cubist's clinical database for the duration of the Project estimated at [ ]* months. E. BIOMETRICS ANALYSIS AND TABLE GENERATION 1. STATISTICAL ANALYSIS PLAN/DESIGN OF TABLE SHELLS A statistical analysis plan, including operational definition of endpoints to be analyzed, definition of patient subsets (evaluable and intent-to-treat), visit windows, rules for data handling, and a detailed description of statistical methodology, will be prepared for the study. The statistical plan will include a set of formatted shells for all data displays (data listings, summary tables and graphics) planned for the study, which will be prepared with input from the Clinical Writing Department. If formatted data displays are not required, a detailed table of contents of SAS generated data displays will be included. This (analysis) plan will be submitted to Cubist for review and approval sixty days prior to closing the database for analysis. *Confidential treatment requested: Material has been omitted and filed with the Commission. -16- 2. RANDOMIZATION IBAH's Project statistician will generate a randomization schedule according to the study design specified in the protocol. Electronic copies of the randomization will be created for loading into the clinical database at the time of database closure. Electronic and paper copies of the randomization are stored in a secured location in accordance with IBAH SOPs. Fees include verification and review by a senior biostatistician. A randomization list will be distributed to the sites. 3. PROJECT DATA SETUP AND PROGRAMMING OF DATA DISPLAYS Prior to programming actual data displays (data listings, summary tables and graphics), IBAH will develop data display headers and create the status data set and efficacy data set, if needed, which will be used for the data analysis. After approval of the prototype data display formats by Cubist and the IBAH Project Team, IBAH's programming staff will develop the programs required to generate each data display. Programming will be performed using SAS system software, and will incorporate procedure output and customized report writing features. Any changes to data display formats after approval and programming initiation could result in additional charges. 4. QUALITY CONTROL PROCEDURES FOR DATA DISPLAYS IBAH's Biometrics staff will use a combination of independent programming, hand tabulations from supporting listings, and programming verification to ensure the accuracy and completeness of tables, listings, and statistical results. All report data displays will be verified for accuracy and internal consistency among data displays. A quality control binder, including the quality control strategy for each data display and audit trail, will be included in the Project file. 5. PATIENT EVALUABILITY AND OUTCOME ASSESSMENT Patient evaluability, outcome assessment criteria and relevant algorithms will be developed for the Project by IBAH and presented to Cubist for review and approval. These algorithms will be programmed using SAS to identify evaluable patients and outcome assessments. IBAH's Biostatisticians will verify the accuracy of the output with independent programming and review of individual patient data. Final decisions regarding patient evaluability and outcome assessment will require approval by Cubist; these are performed once for each patient. *Confidential treatment requested: Material has been omitted and filed with the Commission. -17- Data listings for each patient's evaluability status and outcome assessment will be prepared and submitted to Cubist for classification prior to breaking the blind. Data classification meetings may be held either in person or via teleconference. 6. STATISTICAL ANALYSIS Statistical analysis, in accordance with the approved statistical analysis plan, will be performed by IBAH staff biostatisticians. The analysis includes verification of assumptions needed for statistical inference, determination of investigator-by-treatment interaction, and examination of outlying data points. Statistical findings which may not be appropriate for the body of a clinical report (e.g., tests for interaction, data distribution issues, etc.), deviations from the planned analyses, and additional exploratory analyses will be included in a statistical appendix to the clinical report. Fees include one major revision and one minor revision. The Project statistician will also review the clinical reports to ensure appropriate representation of statistical methodology and inference. 7. DATA LISTING AUDIT A percentage of quality-controlled data listings may, at IBAH's discretion, be chosen for an audit. From this, a percentage of patients will be chosen within each selected listing for audit. The data listing information will be verified against the selected patient(s) cases. The audit will take place once the listings are determined to be final by IBAH's Biometrics Department. IBAH's CQA will oversee these activities to ensure quality as part of this service deliverable. 8. SUMMARY TABLES AUDIT Following the generation of tables and listings by IBAH's Biometrics staff, IBAH may, at its discretion, review a proportion of the summary tables, focusing on critical data elements, against the supporting data listings to independently verify the accuracy of the data and consistency of format. IBAH's CQA will oversee these activities to ensure quality as part of this service deliverable. *Confidential treatment requested: Material has been omitted and filed with the Commission. -18- 9. DATA TRANSFER At the conclusion of the study, IBAH will transfer the Project database to Cubist in standard IBAH SAS data sets using IBAH standard naming conventions and format. All variables within these data sets as well as variables in analytical or summary data sets will be clearly labeled, so that SAS CONTENTS will carry clear labels enabling variables to be traced back to CRFs. IBAH will include any and all FORMAT LIBRARIES, SAS MACROS, or MACRO CATALOGS (if applicable) which were used in the analyses. All SAS programs, which generate data displays, listings, tables, graphics, and statistical analyses, will be included in the transfer. Upon the mutual agreement of the parties, customized data transfers, or interim database closes and transfers, will be accommodated on request at an additional fee. 10. ITEM 11 PREPARATION FOR FDA A MAP detailing the origin of each table or data display expressed in terms of both data sets and programs will be included in the transfer, so that each table or display can be traced to the SAS program and SAS data sets from which it was produced. A written definition for computed variables, which may appear in IBAH-created analytical files, or summary files will be included in the transfer. An annotated CRF, which maps to the SAS data sets on a variable by variable level, will be included in the transfer. F. CLINICAL WRITING 1. PHASE III CLINICAL STUDY REPORTS Integrated clinical and statistical summaries will be prepared in accordance with ICH guidelines. Draft clinical reports will be generated within [ ]* after receipt of final summary tables and patient listings. The fee for this report includes up to [ ]* brief patient narratives and one major and one minor revision. [ ]* of the draft report is considered not to take more than [ ]* days after receipt of all requests for changes, and a minor revision will consist of changes that can be completed in [ ]*. This fee does not include collation and assembly of appendices. Writing fee estimates are based on receipt of final data. If any changes should occur after work on the reports has begun, IBAH assumes that these changes will not impact the production of the report. If database changes occur which require a substantial amount of time [ ]* for rework or repeat quality control, additional fees will be agreed upon with Cubist before proceeding with the reports. *Confidential treatment requested: Material has been omitted and filed with the Commission. -19- 2. CLINICAL AUDIT IBAH may, at its discretion, perform an audit of the clinical study report. The clinical study report audit will examine the consistency between text and figures quoted in the version of the report agreed upon with Cubist, with those appearing in the statistical tables and listings which accompany the report. This audit will include a review of all sections for format consistency and table of contents cross-reference. In addition, text and figures will be verified against the verified tables/listings and any typographical and grammatical errors that are noted. This audit is performed on the final version, following incorporation of Cubist's comments. IBAH's CQA will oversee these activities to ensure quality as part of this service deliverable. (Rest of page intentionally left blank) *Confidential treatment requested: Material has been omitted and filed with the Commission. -20- V. FINANCIAL CONSIDERATIONS A. UNITED STATES BUDGET [ ]* B. INTERNATIONAL BUDGET [ ]* C. PAYMENT SCHEDULES 1. INVOICING PROCESS FOR SERVICE FEES IBAH maintains a project accounting system, whereby all direct project costs (service or passthrough expenses) are coded by project. An initial payment of [ ]* representing approximately [ ]* of Project costs, is due and payable upon execution of this Exhibit B. Subsequent payments shall be made monthly, based on Project progress and upon submission of an invoice to Cubist by IBAH. The subsequent invoices shall be reduced by a prorated portion from the initial payment such that the initial payment is applied evenly over the term of the Project. All payments shall be processed within [ ]*. If any payment of service fees or pass through expenses is late by more than [ ]*, such payment shall be subject to a penalty fee of [ ]* per month of the outstanding balance. 2. PASS THROUGH EXPENSE INVOICING Grant Payments - IBAH will invoice [ ]* days in advance of grant payments due investigators based on estimates. IBAH requires payment from Cubist at least [ ]* days in advance of the actual payment to investigators. Payments to investigators will not be released until payments are received by IBAH from Cubist. Upon Cubist's request, IBAH agrees to deposit payments from Cubist into a non-interest bearing bank account. IBAH shall draw upon such account to make the investigator payments. Any remaining funds in the account will be returned to Cubist after the termination of the study, as soon as all contracted obligations to the investigators have been satisfied. In the event payments from Cubist are insufficient to cover the payments to investigators, Cubist will promptly advance funds to IBAH for the amount of grant payments required. *Confidential treatment requested: Material has been omitted and filed with the Commission. -21- IBAH's project accounting system is able to capture and categorize in summary the following key pass-through expenses related to a project: o Travel o Delivery fees o CRF and other printing costs o All other project related expenses that are not related to service fees and any additional detail to support pass-through costs will be provided on a fee basis. 3. ANNUAL PRICE INCREASE Notwithstanding anything contained herein to the contrary, the estimated Service Fees set forth in this Exhibit B shall remain in effect for the longer of (a) [ ]* from the date hereof, or (b) [ ]* following the date hereof. Thereafter, IBAH reserves the right to increase the price of the remaining Services under this Exhibit B as of each January l; such increases shall not exceed [ ]*. VI. SIGNATORY AUTHORITY The parties acknowledge and agree that Cubist has authorized IBAH to execute all Clinical Study Agreements with investigators in the Project on behalf of Cubist. Cubist understands and acknowledges that it will be bound by the terms of the investigator agreements. ACCEPTANCE The terms and conditions of the Master Agreement govern this Exhibit B and such document is incorporated herein by reference as if fully set forth herein. BY AND BETWEEN: CUBIST PHARMACEUTICALS, INC. IBAH, INC. By: /S/ MICHAEL DEBRUIN By: /S/ LEONARD F. STIGLIANO ------------------- ------------------------ Name: Michael DeBruin Name: Leonard F. Stigliano Title: Vice President-Clinical Research Title: President, U.S. CRO Dated: April 2, 2000 Dated: April 12, 2000 *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.52 5 a2042768zex-10_52.txt EXHIBIT 10.52 EXHIBIT 10.52 CONFIDENTIAL TREATMENT EXHIBIT C TO THE CLINICAL SERVICES MASTER AGREEMENT BETWEEN CUBIST PHARMACEUTICALS, INC. AND IBAH, INC., DATED DECEMBER 1, 1999. This Exhibit C is entered into this 18th day of April, 2000, by and between Cubist Pharmaceuticals, Inc. (hereinafter "Cubist" and IBAH, Inc. (hereinafter "IBAH"). WHEREAS, Cubist and IBAH entered into a Clinical Services Master Agreement, dated December 1, 1999 (hereinafter the "Master Agreement"), wherein IBAH agreed to provide clinical services and; WHEREAS, Cubist and IBAH agree that IBAH shall provide the services set forth in this Exhibit C, subject to the terms and conditions set forth in the Master Agreement; NOW, THEREFORE, for good and valuable consideration, AND INTENDING TO BE LEGALLY BOUND, Cubist and IBAH agree as follows: I. PROJECT PLAN Based on the Project Specifications, IBAH has provided a description of services to be performed for Cubist's Evaluation of Daptomycin in subjects with Renal Insufficiency Program, Protocol Number DAP-00-01 (hereinafter the "Project") and associated costs. Changes made in the Project scope, at any time during the Project, will result in a.. corresponding adjustment to the Project costs. II. PROJECT RESPONSIBILITIES
- -------------------------------------------------------------------------------------------------------------- ACTIVITY CUBIST IBAH - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- A. STUDY INITIATION - -------------------------------------------------------------------------------------------------------------- Protocol Development X - -------------------------------------------------------------------------------------------------------------- Protocol Review X - -------------------------------------------------------------------------------------------------------------- CRF Design X X - -------------------------------------------------------------------------------------------------------------- Printing, Assembly, and Distribution of CRFs X - -------------------------------------------------------------------------------------------------------------- Preparation of Randomization Codes X - -------------------------------------------------------------------------------------------------------------- Identification and Qualification of Sites (assumes 1 site) X - -------------------------------------------------------------------------------------------------------------- Investigator Document Retrieval X - -------------------------------------------------------------------------------------------------------------- Negotiation of Phase I Unit Grant X - -------------------------------------------------------------------------------------------------------------- Training Site Personnel X X - -------------------------------------------------------------------------------------------------------------- Training Project Team X X - -------------------------------------------------------------------------------------------------------------- Analytical Laboratory Identification and Coordination X - --------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission. -2-
- -------------------------------------------------------------------------------------------------------------- ACTIVITY CUBIST IBAH - -------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------- B. STUDY CONDUCT - -------------------------------------------------------------------------------------------------------------- Project Management X X - -------------------------------------------------------------------------------------------------------------- Conduction of Qualification, Initiation, Interim, and Closeout Visits X X - -------------------------------------------------------------------------------------------------------------- Verification of CRFs at Phase I Unit X - -------------------------------------------------------------------------------------------------------------- Document Corrections to CRFs X - -------------------------------------------------------------------------------------------------------------- Site Visit Report Preparation X - -------------------------------------------------------------------------------------------------------------- Collection and Tracking CRFs X - -------------------------------------------------------------------------------------------------------------- Administration of Grant Payment(s) X - -------------------------------------------------------------------------------------------------------------- Reporting SAES to Regulatory Agency X - -------------------------------------------------------------------------------------------------------------- Reporting SAES to Cubist X - -------------------------------------------------------------------------------------------------------------- Assuring Disposal of Unused Supplies X - -------------------------------------------------------------------------------------------------------------- C. CLINICAL DATA MANAGEMENT, BIOMETRICS, AND CLINICAL WRITING - -------------------------------------------------------------------------------------------------------------- Custom Database Design X - -------------------------------------------------------------------------------------------------------------- CRFs Entry Into Database X - -------------------------------------------------------------------------------------------------------------- Generation and Resolution of Data Queries X - -------------------------------------------------------------------------------------------------------------- Coding of Data Using IBAH Dictionaries X - -------------------------------------------------------------------------------------------------------------- Verification/QC Database X - -------------------------------------------------------------------------------------------------------------- Loading & Verification of Laboratory Data X - -------------------------------------------------------------------------------------------------------------- Database Closure X - -------------------------------------------------------------------------------------------------------------- Statistical Plan and Tables Design X - -------------------------------------------------------------------------------------------------------------- Sample Size Calculation X - -------------------------------------------------------------------------------------------------------------- Generation of Tables/Listings X - -------------------------------------------------------------------------------------------------------------- Statistical Analysis X X - -------------------------------------------------------------------------------------------------------------- Database Transfer X - -------------------------------------------------------------------------------------------------------------- Integrated Clinical Report X - --------------------------------------------------------------------------------------------------------------
III. CLINICAL PROGRAM DESIGN A. STUDY SYNOPSIS TITLE: Evaluation of the Elimination and Safety Profile of Daptomycin in Subjects with Graded Renal Insufficiency, End-Stage Renal Disease, and Healthy Volunteers SPONSOR: Cubist Pharmaceuticals, Inc. CLINICAL PHASE: Phase I NUMBER OF STUDY CENTERS: One (1) OBJECTIVES: Primary: o To determine the elimination profile of single-dose daptomycin in healthy volunteers and in subjects with various stages of renal insufficiency *Confidential treatment requested: Material has been omitted and filed with the Commission. -3- Secondary: o To compare the safety profile of single-dose daptomycin in healthy volunteers and in subjects with graded renal failure and end-stage renal disease o To measure the effects that hemodialysis and peritoneal dialysis have on the renal clearance of daptomycin under both dialysis and non-dialysis conditions o To assess the effects that probenecid has on the renal tubular secretion of daptomycin SUBJECT NUMBER: A minimum of [ ]* patients with varying degrees of renal impairment, including a normal renal function group. STUDY DRUG(S): Daptomycm STUDY ENDPOINTS: PRICE: The elimination profile will be obtained from analysis of plasma, serum, urine, and dialysate samples, from subjects with graded renal insufficiency and healthy volunteers. SECONDARY: The daptomycin safety profile data will be obtained through the monitoring of adverse events, chemistry (including serum CPK), hematology, and urinalysis data. B. MONITORING VISIT INFORMATION [ ]* *Confidential treatment requested: Material has been omitted and filed with the Commission. -4- C. CLINICAL DATA INFORMATION The estimated number of CRF pages is based on a [ ]*-page CRF for [ ]* patients. CRF pages for patients who fail screening will not be reviewed by IBAH for safety or data-entered unless requested by Cubist.
- ------------------------------------------------------------------------------- DESCRIPTION NUMBER - ------------------------------------------------------------------------------- Estimated Number of CRF pages [ ]* - ------------------------------------------------------------------------------- Estimated Number of Tables/Listings: Primary [ ]* Subset [ ]* - -------------------------------------------------------------------------------
IV. DESCRIPTION OF SERVICES A description of services to be performed by IBAH's is described below. Changes made by Cubist and agreed to by IBAH in the Project scope, at any time during the program, will result in a corresponding adjustment to the Project costs. A. STUDY MANAGEMENT 1. PROJECT MANAGEMENT IBAH will assign a Project Manager who will act as a single point of contact for Cubist throughout the life of the Project. The Project Manager will work with one of IBAH's staff physicians who will be assigned to the Project as the Medical Monitor. The Project Manager's responsibilities may include, but not be limited to, the following: o Act as primary contact for Cubist and for the investigative site o Prepare and tracking detailed timelines o Ensure milestones are met o Ensure effective communication among all members of the Project team o IBAH Project team training o Identify and resolve critical issues o Manage financial issues IBAH will provide clerical and administrative support for the Project to assist with various tasks. Such tasks may include, but not be limited to, communication (phone, facsimile, mailings), machine processing and storage, coordination of teleconferences and meetings, and preparation of administrative reports. Printing, assembly, shipping and distribution of CRFs, Federal Express and/or overnight carrier and study-related travel, will be passed through at cost to Cubist. 2. CRF DESIGN AND PRINTING Upon approval of a final protocol by Cubist, IBAH will design a CRF to record pertinent data. IBAH's Data Management staff, Biometrics staff, and the Clinical Trial Manager *Confidential treatment requested: Material has been omitted and filed with the Commission. -5- (CTM) will review the CRF and provide input to ensure all relevant data are captured. Cubist will be provided with ready-to-use multicopy carbonless forms. IBAH will ship CRFs to site. Such shipping costs will be passed through to Cubist. B. STUDY CONDUCT 1. CLINICAL MONITORING IBAH's CRA will perform initiation, interim and a closeout visit at the investigational site. IBAH's site management and monitoring procedures will be performed in accordance with Good Clinical Practices to ensure investigative site compliance with regulations and protocol requirements. IBAH's CRA will ensure protocol procedure compliance, and will be available at the time of first dosing if required by Cubist and agreed upon by IBAH. IBAH's CRA will review source data and CRF data for appropriate identification, documentation and reporting of both serious and non-serious adverse events. Drug accountability will be performed by IBAH's CRA at each interim visit and at the closeout visit. The completed CRFs will be retrieved and reviewed at each visit. All IBAH travel expenses related to this study will be passed through to Cubist. 2. SAE REPORTING WITH INITIAL DESCRIPTIVE SUMMARIES All serious adverse events (SAES) will be forwarded to Cubist within one IBAH business day of receipt. Notification to Cubist will occur via telephone, as well as by receipt of a comprehensive SAE form. In the event that follow-up information is required for an event (hospital discharge summary, etc.), IBAH's Safety Surveillance Department will periodically contact the site until information is obtained and the SAE form is updated as necessary. IBAH will provide initial descriptive patient summaries for all identified serious adverse events. The descriptive narratives will be written from information provided by the investigator on the SAE report forwarded to IBAH at the time of the event. If significant follow-up information becomes available, the narrative will be updated accordingly. 3. CRF TRACKING, FILING, AND ARCHIVING Completed case report forms, ancillary CRF pages, adverse event documentation, and patient and site-specific correspondence for the study will be logged in and tracked at IBAH. CRFs and answered data queries will be submitted to the IBAH document management group for a page-by-page entry into a computerized tracking system. A photocopy will be made within the same business day the CRF arrives and the original CRF will be filed in a central document unit at IBAH. The copy will be circulated throughout the various departments at IBAH as a working copy. Fees reflect an additional 20% of the estimated CRF pages to cover logging, copying, filing, and ongoing CRF tracking time for all pages. A final, complete page listing and the original CRFs will be provided to Cubist upon Project completion. The fee charged will reflect the actual number of pages tracked. Pages for screened volunteers will be tracked and filed. *Confidential treatment requested: Material has been omitted and filed with the Commission. -6- C. CLINICAL DATA MANAGEMENT 1. PROJECT DATABASE CREATION AND DATA ENTRY Data screens will be developed by IBAH's programming group on an Open VMS System (Alpha 4100) using Domain/CLINTRIAL(R) software. IBAH's Programmers will develop data-entry screens (i.e., CRF data module designs) that mimic the flow of the CRF, thereby improving the ease and integrity of the data-entry process. All screen programs will undergo testing at IBAH prior to initiation of the full-scale data entry effort. IBAH's Data Entry Specialists will enter all CRF data by utilizing a double-entry method. On-line edit checks will be included to provide additional controls against categorically incorrect data. The double data entry strategy will utilize numeric and/or text fields that are entered by one member of the data entry staff 'and re-entered on-line by a second member of the staff. All data will be double-entered at IBAH, with the exception of comment fields, which will be quality controlled on-line. In addition to the double-entry strategy, each case will be printed as a data listing with 100% verification of critical data fields and text fields against the hard copy CRF by one of IBAH's Clinical Data Analysts (CDA). Also, [ ]*% of the volunteers will be verified for 100% of the data fields prior to the closing of the database. Standard and protocol-specific edit checks will be created and results of the edit checks will be reviewed by the CDA during the review process and prior to database closure for the generation of queries. All verification will be documented. The estimated fee for data entry of CRFs is based on CRF pages entered. Actual pages will be invoiced. This page estimate is based on randomized volunteers only and does not include entry of any screen failure volunteers. Any ancillary pages (e.g., Labs, EKGs, etc.) that are not included in the CRF estimate will be viewed as additional pages and an additional fee will be charged. 2. CASE REPORT FORM REVIEW AND QUERY RESOLUTION IBAH will generate protocol-specific guidelines, which will be reviewed and approved by Cubist. Using these guidelines, IBAH will conduct a detailed quality control (QC) audit of the entire CRF through a combination of manual review and electronic edit checks that will identify conflicting, unclear, or incomplete data. This review will be performed by CDAs who are independent of the Medical Monitor involved with the Project. If data are unclear, conflicting or incomplete, then data clarification requests (DCRs) will be generated and transmitted to the investigative site(s) and the Medical Monitor. All DCRs (issued and resolved) will be logged into the IBAH tracking system. IBAH's DCR database will be maintained throughout the project and can provide Cubist with an *Confidential treatment requested: Material has been omitted and filed with the Commission. -7- up-to-date report on the status of DCRs on an as needed basis. The fee for generation and resolution of data queries is included in the data entry estimate. 3. DICTIONARY PROCESSING IBAH will use MedDRA for coding adverse events and WHO-DRUG for coding medications. IBAH will use standard coding conventions for the mapping procedure unless otherwise instructed at the study start. An additional cost will be incurred for changes to coding conventions after study start. An automated process will be used to map literal text to the corresponding term in the dictionary. Unmapped terms will be researched, coded, and reviewed by a dedicated team. Dictionary reports will be inclusive of automated and manually coded terms and will be reviewed by Cubist. 4. LABORATORY DATA PROCESSING (CENTRAL) TRANSFER AND VERIFICATION OF CENTRAL LABORATORY DATA IBAH will develop the programs needed for conversion and integration of central laboratory data. Central lab data sets will be loaded into the clinical database. Accession numbers from the laboratory hard copy received with the case will be entered into the database. Verification will compare the header data received electronically against the case data including the patient number, lab date, date of birth, gender, patient initials, and lab accession numbers. Discrepancies will be communicated to the central lab and/or Cubist. Full lab panel validation will be performed on [ ]* of the patients to verify accuracy of the load. IBAH assumes that all laboratory results will be forwarded with the appropriate normal range and flag attached at the record level. 5. DATA TRANSFER At the conclusion of the study, IBAH will transfer the Project database to Cubist in standard IBAH SAS data sets, using IBAH's standard naming conventions and format. Upon the mutual written agreement by the parties, customized data transfers, or interim database closes and transfers, will be provided for an additional fee. 6. SECURITY PROCEDURES All files, including data and programming, will be backed-up daily and a complete tape will be sent to a secure storage off-site on a weekly basis for disaster recovery. All personnel maintain their own log-on Ids and all passwords will be changed monthly. Only authorized personnel will have access to databases, which have additional unique access codes. Data access codes will be changed upon database review and closure to allow only authorized personnel access to the database. *Confidential treatment requested: Material has been omitted and filed with the Commission. -8- As part of routine documentation, a controlled procedure will be used to archive two sets of tapes containing all pertinent system files employed in the project (i.e., Domain/CLINTRIAL(R) software, data sets, screen modules, SAS programming, and listing files). 7. MACHINE PROCESSING AND STORAGE IBAH's Database Administrator will maintain the integrity of Cubist's clinical database for the duration of the Project. D. BIOMETRICS 1. PROJECT DATA SETUP AND PROGRAMMING OF DATA DISPLAYS Prior to programming actual data displays (data listings, summary tables and graphics), IBAH will develop data display headers and create the status data set and efficacy data set, if needed, which will be used for the data analysis. After approval of the prototype data display formats by Cubist and the IBAH Project Team, IBAH's programming staff will develop the programs required to generate each data display. Programming will be performed using SAS system software, and will incorporate procedure output and customized report writing features. Any changes to approved data display formats will result in additional charges. IBAH assumes that Cubist will be responsible for providing the table design and statistical plan for the study. Fees are based on an estimate of the total number of primary and secondary data displays. However, the cost will be based on the actual number of data displays generated. Primary data displays are considered new code development. Secondary data displays are defined as those data displays utilizing much of the programming code developed to produce the primary output. The fee for data displays generation includes minor changes, following review by Cubist, to take no more than [ ]* days. All additional changes to tables will result in additional charges. 2. QUALITY CONTROL PROCEDURES FOR DATA DISPLAYS IBAH's Biometrics staff will use a combination of independent programming, hand tabulation from supporting listings, and programming verification to ensure the accuracy and completeness of tables, listings, and statistical results. All report data displays will be verified for accuracy and internal consistency among data displays. A quality control binder, including the quality control strategy for each data display and audit trail, will be included in the Project file. 3. STATISTICAL ANALYSIS IBAH's biostatisticians will perform statistical analysis in accordance with the approved statistical analysis plan. *Confidential treatment requested: Material has been omitted and filed with the Commission. -9- 4. DATA TRANSFER Cubist will provide IBAH's statistician with a complete list of the data tables to be transferred to Cubist in an Excel spreadsheet following database close. E. CLINICAL WRITING 1. CLINICAL REPORT IBAH will prepare an integrated clinical and statistical summary in accordance with ICH guidelines. A Draft Clinical Report will be generated within three (3) weeks after receipt of final summary tables and patient data listings. All clinical reports will receive two independent levels of quality control reviews before they are released. There will be a QC review by IBAH's Clinical Writer for accuracy and consistency and a review by IBAH's Writing Manager for accuracy, client format consistency and appropriate clinical and regulatory prospective. The fee for this report includes one major and one minor revision and up to [ ]* brief patient narratives. [ ]* of the draft report is considered to be up to [ ]* of requested changes, and a minor revision will consist of up to one-half (1/2) day of requested changes. A final pharmacokinetic report will be provided by Cubist. IBAH will accept the PK report as 100% accurate. IBAH will extract the appropriate information from the PK report for inclusion in the clinical report. The fee for this report does not include collation and assembly of the report appendices. The writing fee estimates are based on receipt of final data and, if minor changes to the database occur after work on the document has begun, they will not impact the production of the document. If database changes occur which require a substantial amount of time [ ]* for rework or repeat quality control, additional fees will be agreed upon in writing with Cubist before proceeding. (Rest of page intentionally left blank) *Confidential treatment requested: Material has been omitted and filed with the Commission. -10- V. ESTIMATED CLINICAL BUDGET [ ]* VI. PROJECT TIMELINE SUMMARY The parties acknowledge that IBAH estimates that the Project will begin on or about [ ]*. The Project timeline is as follows: [ ]* VII. PAYMENT SCHEDULES 1. INVOICING PROCESS FOR SERVICE FEES IBAH maintains a project accounting system, whereby all direct project costs (service or passthrough expenses) are coded by project. An initial payment of [ ]*, representing approximately [ ]* of Total Estimated Service Fees, shall be due and payable upon execution of this Exhibit C. Subsequent payments shall be made monthly, based on Project progress and upon submission of an invoice to Cubist by IBAH. The subsequent invoices shall be reduced by a prorated portion from the initial payment such that the initial payment is applied evenly over the term of the Project. All payments of service fees and pass through expenses shall be made by Cubist within [ ]* of receipt of invoice. If any payment of service fees or pass through expenses is late by more than [ ]*, such payment shall be subject to a penalty fee of [ ]* per month of the outstanding balance. 2. PASS-THROUGH EXPENSE INVOICING IBAH's project accounting system is able to capture and categorize in summary the following key pass-through expenses related to a project: o Travel o Delivery fees o CRF and other printing costs o All other Project related expenses that are not related to service fees Any additional detail to support pass-through costs will be provided on a fee basis. 3. ANNUAL PRICE INCREASE Notwithstanding anything contained herein to the contrary, the estimated service fees set forth in this Exhibit C shall remain in effect for the longer of (a) [ ]* from the date hereof, or (b) [ ]* of the first calendar year following the date hereof. Thereafter, IBAH reserves the right to increase the price of the remaining Services under this Exhibit C as of each January 1; such increases shall not exceed the [ ]*. *Confidential treatment requested: Material has been omitted and filed with the Commission. -11- ACCEPTANCE The terms and conditions of the Master Agreement govern this Exhibit C and such document is incorporated herein by reference as if fully set forth herein. CUBIST PHARMACEUTICALS, INC. IBAH, INC. By: /s/ MICHAEL DEBRUIN By: /s/ LEONARD F. STIGLIANO ------------------- ------------------------ Name: Michael DeBruin, M.D. Name: Leonard F. Stigliano Title: Vice President, Clinical Research Title: President, U.S. CRO Date: April 11, 2000 Date: April 18, 2000 *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.53 6 a2042768zex-10_53.txt EXHIBIT 10.53 EXHIBIT 10.53 CONFIDENTIAL TREATMENT EXHIBIT D TO THE CLINICAL SERVICES MASTER AGREEMENT BETWEEN CUBIST PHARMACEUTICALS, INC. AND IBAH, INC., DATED DECEMBER 1, 1999. THIS EXHIBIT D is entered into this 10th day of May, 2000, by and between Cubist Pharmaceuticals, Inc. (hereinafter "Cubist") and IBAH, Inc. (hereinafter "IBAH"). WHEREAS, Cubist and IBAH entered into a Clinical Services Master Agreement, dated December 1, 1999 (hereinafter the "Master Agreement"), wherein BAH agreed to provide clinical services and; WHEREAS, Cubist and IBAH agree that IBAH shall provide the services set forth in this Exhibit D, subject to the terms and conditions set forth in the Clinical Services Master Agreement; NOW, THEREFORE, for good and valuable consideration, AND INTENDING TO BE LEGALLY BOUND, Cubist and IBAH agree as follows: I. PROJECT OVERVIEW IBAH will provide pre-NDA services in connection with the Daptomycin Program (hereinafter "the Projects"). Changes made in the Projects scope, at any time during the Projects, will result in a corresponding adjustment to the Project Costs. II. PROJECT ROLES AND RESPONSIBILITIES IBAH will perform pre-NDA services for the Projects as specified and requested on an as needed basis by Cubist and agreed upon by IBAH. III. PROJECT TIME-LINE IBAH commence performance of the services on or about [ ]*. Unless otherwise agreed to in writing by the parties, the terms of this Exhibit D shall be for [ ]*. IV. BUDGET A. PER DIEM RATES [ ]* The fees for services provided under this Exhibit D shall not exceed [ ]* unless expressly requested by Cubist in writing, and agreed to in writing by the parties. *Confidential treatment requested: Material has been omitted and filed with the Commission. -2- B. PAYMENT SCHEDULES 1. INVOICING PROCESS FOR PER DIEM RATES IBAH maintains a project accounting system, whereby all direct project costs (estimated per diem rates or pass-through expenses) are coded by project. All payments shall be processed within [ ]* days upon receipt of an invoice from IBAH. If any payment is late by more than [ ]* days, such payment shall be subject to a penalty fee of [ ]* per month of the outstanding balance. 2. PASS-THROUGH EXPENSE INVOICING IBAH's project accounting system is able to capture and categorize in summary the following key pass-through expenses related to a project: o Travel o Delivery fees o All other project related expenses that are not related to per diem rates Any additional detail to support pass-through costs will be provided on a fee basis. 3. ANNUAL PRICE INCREASE Notwithstanding anything contained herein to the contrary, the per diem rates set forth in this Exhibit D shall remain in effect for the longer of (a) [ ]* from the date hereof, or (b) [ ]*. Thereafter, IBAH reserves the right to increase the price of the per diem rates under this Exhibit D as of each January 1; such increases shall not exceed the percentage change of [ ]*. 4. TERMS AND CONDITIONS The terms and conditions of the Master Agreement govern this Exhibit D and such document is incorporated herein by reference as if fully set forth herein. IN WITNESS WHEREOF, the parties have executed this Exhibit D by their duly authorized officers. CUBIST PHARMACEUTICALS, INC. IBAH, INC. By: /s/ MICHAEL DEBRUIN By: /s/ LEONARD F. STIGLIANO ------------------- ------------------------ Name: Michael DeBruin, M.D. Name: Leonard F. Stigliano Title: Vice President - Clinical Research Title: President, U.S. CRO Dated: April 24, 2000 Dated: May 10, 2000 *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.54 7 a2042768zex-10_54.txt EXHIBIT 10.54 EXHIBIT 10.54 CONFIDENTIAL TREATMENT EXHIBIT E TO THE CLINICAL SERVICES MASTER AGREEMENT BETWEEN CUBIST PHARMACEUTICALS, INC. AND OMNICARE CLINICAL RESEARCH. INC. (F/K/A IBAH, INC.), DATED DECEMBER 1, 1999. THIS EXHIBIT E is entered into this 17TH day of OCTOBER, 2000, by and between Cubist Pharmaceuticals, Inc. (hereinafter "Cubist") and Omnicare Clinical Research, Inc. (F/K/A IBAH, Inc.) (hereinafter "Omnicare Clinical Research"). WHEREAS, Cubist and Omnicare Clinical Research entered into a Clinical Services Master Agreement, dated December 1, 1999 (hereinafter the "Master Agreement"), wherein Omnicare Clinical Research agreed to provide clinical services and; WHEREAS, Cubist and Omnicare Clinical Research agree that Omnicare Clinical Research shall provide the services set forth in this Exhibit E, subject to the terms and conditions set forth in the Master Agreement; NOW, THEREFORE, for good and valuable consideration, AND INTENDING TO BE LEGALLY BOUND, Cubist and Omnicare Clinical Research agree as follows: I. PROJECT PLAN Based on the Project specifications, Omnicare Clinical Research has provided a description of services to be performed for Cubist's Phase III study of Cidecin(TM) (daptomycin) in the treatment of moderate to severe community-acquired acute bacterial pneumonia due to S. PNEUMONIAE, Protocol Number DAP-00-05 (hereinafter "the Project") and associated costs. Changes made in the Project scope, at any time during the Project, will result in a corresponding adjustment to the Project costs. A. PROJECT STATUS TABLE [ ]* *Confidential treatment requested: Material has been omitted and filed with the Commission. II. PROJECT ROLES AND RESPONSIBILITIES
- --------------------------------------------------------------------------------------------------------------- TASK CUBIST OMNICARE CLINICAL RESEARCH - --------------------------------------------------------------------------------------------------------------- A. STUDY MANAGEMENT - --------------------------------------------------------------------------------------------------------------- 1. Facilitate Project Management X o Global Program Director - [ ]* days total o International Project Manager (EU) - average [ ]* days total o Clinical Trial Managers (North America) - [ ]* days total o Count Trial Managers (EU) - [ ]* days total - --------------------------------------------------------------------------------------------------------------- 2. Coordinate and conduct team meetings X X o Omnicare Clinical Research anticipates [ ]* face-to-face meetings will occur during the course of this Project o Fee assumes [ ]* meetings to occur at Omnicare Clinical Research and at Cubist - ---------------------------------------------------------------------------------------------------------------- 3. Standard Operating Procedures (SOPs) X - ---------------------------------------------------------------------------------------------------------------- 4. Performance tracking submitted to Cubist in a written report X - --------------------------------------------------------------------------------------------------------------- 5. Monitor Project payment schedule X X - --------------------------------------------------------------------------------------------------------------- 6. Project problem solving X X - --------------------------------------------------------------------------------------------------------------- 7. Clerical and administrative support X o North America - [ ]* days total o EU- [ ]* days total - --------------------------------------------------------------------------------------------------------------- B. CLINICAL TRIAL INITIATION - --------------------------------------------------------------------------------------------------------------- 1. Drug development and study design X - --------------------------------------------------------------------------------------------------------------- 2. Protocol Development X o Fee includes [ ]* major [ ]* and [ ]* minor [ ]* revision - --------------------------------------------------------------------------------------------------------------- 3. Patient plan X o [ ]* patients enrolled in North America o [ ]* patients enrolled in International o [ ]* patients total - --------------------------------------------------------------------------------------------------------------- 4. Site plan X o North America: [ ]* sites o International: [ ]* sites Countries include: Australia, Benelux/Netherlands, Croatia, Czech Republic, Finland, France, Germany, Greece, Hungary, Iceland, New Zealand, Norway, Russia, Slovak Republic, Spain, Sweden, Switzerland, UK - --------------------------------------------------------------------------------------------------------------- 5. CRF design X o [ ]* estimated pages per patient, plus [ ]* ancillary pages - --------------------------------------------------------------------------------------------------------------- 6. CRF logistics (print, bind, and distribute) X o Material, printing and assembly expenses will be passed through at cost
*Confidential treatment requested: Material has been omitted and filed with the Commission. - --------------------------------------------------------------------------------------------------------------- 7. Investigator identification, recruitment and qualification X o [ ]* sites will be identified to obtain [ ]* qualified North American sites o [ ]* sites will be identified to obtain [ ]* qualified EU sites - --------------------------------------------------------------------------------------------------------------- 8. Investigator regulatory document management X o Protocol Amendments and IRB submissions billed per site o Informed Consent Forms development - --------------------------------------------------------------------------------------------------------------- 9. Certification of Investigator Financial Disclosure X - --------------------------------------------------------------------------------------------------------------- 10. Investigator agreement negotiation X - --------------------------------------------------------------------------------------------------------------- 11. Coordination of investigators' meetings X o One meeting North America o Three meetings International - --------------------------------------------------------------------------------------------------------------- 12. Project team training X X - ---------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission.
- --------------------------------------------------------------------------------------------------------------- TASK CUBIST OMNICARE CLINICAL RESEARCH - --------------------------------------------------------------------------------------------------------------- B. CLINICAL TRIAL INITIATION CONT. - --------------------------------------------------------------------------------------------------------------- 13. IVRS System for Randomization X o Fee is based on the following assumptions - French, Spanish, Russian, Slovak, Czech, Hungarian, German, Finnish, Croatian, Flemish, Swedish, Greek, and English - Patients are randomized to one of two treatment arms - Detailed specifications can take one to four weeks to develop and approve, based on sponsor availability - Validated IVRS delivered [ ]* weeks after receiving Cubist's written approval of detailed specifications - Cubist-requested changes to the approved specifications will result in delivery delays - Omnicare Clinical Research will provide training and documentation for the investigators' meetings with related travel costs passed through to Cubist - Omnicare Clinical Research Help Desk support provided 24 hours a day, 7 days a week, once the system is delivered; Help Desk support is Multilingual via AT&T's Language Line(R) o Functionality includes: 2 treatment groups, 1 randomization call per patient, editing of all non-stratification-related patient data, system- and role-based security via protocol code and caller identification with passwords, comprehensive standard system fax-back reporting on demand o If randomization is required prior to system completion and validation, Cubist will a for a manual randomization service at an additional price - --------------------------------------------------------------------------------------------------------------- C. CLINICAL TRIAL MANAGEMENT - --------------------------------------------------------------------------------------------------------------- 1. Clinical, monitoring X o Onmicare Clinical Research estimates [ ]* North America qualification visits and [ ]* International one-day qualification visits ([ ]* visits total) o Omnicare Clinical Research estimates performance of [ ]* North America and [ ]* International initiation visits ([ ]* visits total) o Omnicare Clinical Research estimates performance of [ ]* North America and [ ]* International interim visits ([ ]* visits total) o Omnicare Clinical Research estimates [ ]* North America and [ ]* International close-out visits ([ ]* visits total) - --------------------------------------------------------------------------------------------------------------- 2. Clinical grant payment administration X o [ ]* payments per site in North America o [ ]* payments per site in International - ---------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission.
- --------------------------------------------------------------------------------------------------------------- TASK CUBIST OMNICARE CLINICAL RESEARCH - --------------------------------------------------------------------------------------------------------------- 3. CRF tracking, filing and archiving X o [ ]* pages - North America; [ ]* pages - International; [ ]* pages - received from CROs designated by Cubist* o [ ]* pages total * Omnicare Clinical Research shall not be responsible for any delays or interruption in performance of the services due, in any way, to the provision of data or other information to be supplied by such other CRO designated by Cubist. - --------------------------------------------------------------------------------------------------------------- 4. Medical monitoring X o [ ]* months in North America o [ ]* months in International o 24 hour coverage North America/International - --------------------------------------------------------------------------------------------------------------- 5. Safety review of CRFs X o Based on [ ]* cases reviewed - ---------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission.
- --------------------------------------------------------------------------------------------------------------- TASK CUBIST OMNICARE CLINICAL RESEARCH - --------------------------------------------------------------------------------------------------------------- 6. SAE Reporting with Initial Descriptive Summaries v o [ ]* total ([ ]* X in North America/[ ]* in International) o IND Safety Report distribution in countries in which CTX/CTA is held by Omnicare Clinical Research o Cubist to be billed for actual SAEs reported - --------------------------------------------------------------------------------------------------------------- D. CLINICAL DATA MANAGEMENT - --------------------------------------------------------------------------------------------------------------- 1. Project database creation and data entry. Fee based on: X o [ ]* CRF pages from North America o [ ]* CRF pages from International o [ ]* CRF pages received from other CROs designated by Cubist o [ ]* total CRF pages * Omnicare Clinical Research shall not be responsible for any delays or interruption in performance of the services due, in any way, to the provision of data or other information to be supplied by such other CRO designated by Cubist - --------------------------------------------------------------------------------------------------------------- 2. Case report from review and query resolution. Fee based on: X o [ ]* CRF pages from North America o [ ]* CRF pages from International o [ ]* CRF pages received from other CROs designated by Cubist o [ ]* total CRF pages * Omnicare Clinical Research shall not be responsible for any delays or interruption in performance of the services due, in any way, to the provision of data or other information to be supplied by such other CRO designated by Cubist - --------------------------------------------------------------------------------------------------------------- 3. Dictionary processing of CRFs X o MedDRA for adverse events, and concurrent surgical procedures o WHO-DRUG for medications - --------------------------------------------------------------------------------------------------------------- 4. Laboratory data processing (fee assumes previously used central lab) X X - --------------------------------------------------------------------------------------------------------------- 5. Reconciliation of Safety/Clinical Databases X - --------------------------------------------------------------------------------------------------------------- 6. Data transfers (standard) X o 3 interim transfers - --------------------------------------------------------------------------------------------------------------- 7. Data security procedures X - --------------------------------------------------------------------------------------------------------------- 8. DCR Status Reports by site - --------------------------------------------------------------------------------------------------------------- E. BIOMETRIC ANALYSIS - --------------------------------------------------------------------------------------------------------------- 1. Statistical analysis plan X o Includes one major one minor revision - --------------------------------------------------------------------------------------------------------------- 2. Project data setup and programming of displays X o [ ]* tables, listings, and figures ([ ]* unique and [ ]* repeat) o Due to efficiencies, Cubist to be billed for [ ]* unique and [ ]* repeat tables, listings, and figures o Additional tables, listings, and figures will be billed at the per task cost, as outlined in the budget - ---------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission.
- --------------------------------------------------------------------------------------------------------------- TASK CUBIST OMNICARE CLINICAL RESEARCH - --------------------------------------------------------------------------------------------------------------- 3. Quality control procedures for displays X - --------------------------------------------------------------------------------------------------------------- 4. Patient evaluability and outcome assessment X - --------------------------------------------------------------------------------------------------------------- 5. Final statistical analysis X - --------------------------------------------------------------------------------------------------------------- 6. Statistical support for Item 11 preparation X - --------------------------------------------------------------------------------------------------------------- 7. Final data transfer X - --------------------------------------------------------------------------------------------------------------- F. CLINICAL WRITING - --------------------------------------------------------------------------------------------------------------- 1. Phase III clinical study report X o One major (up to [ ]*) and one minor (up to [ ]*) revision and up to [ ]* brief patient narratives o Fee does not include collation or compilation of appendices - ---------------------------------------------------------------------------------------------------------------
*Confidential treatment requested: Material has been omitted and filed with the Commission. III. PROJECT TIMELINE The parties acknowledge that Omnicare Clinical Research commenced performance of the services on or about [ ]*. The projected timeline for this Project is as follows: [ ]* (REST OF PAGE INTENTIONALLY LEFT BLANK) *Confidential treatment requested: Material has been omitted and filed with the Commission. IV. OMNICARE CLINICAL RESEARCH SERVICES A. STUDY MANAGEMENT 1. GLOBAL PROGRAM DIRECTOR/INTERNATIONAL PROJECT MANAGER Omnicare Clinical Research's Global Program Director will coordinate the services being provided by all of the disciplines within Omnicare Clinical Research and will act as a single point of contact for Cubist until completion of the Project. The International Project Manager, working in conjunction with the Global Program Director, will manage the international segment of the Project. Key responsibilities of these individuals will include the following: o Prepare detailed Project timelines and ensure that major milestones are met, copies of all documents will be forwarded to Cubist o Provide Global Project status updates weekly in written report o Bi-weekly Internal teleconferences to include the Program Director, Project Director, Project Managers and Clinical Trial Managers, outstanding issues, action plans and follow up items from this teleconference will be forwarded to Cubist in a written format o Identify and resolve critical Project issues, written reports of issues identified and resolution strategy will be forwarded to Cubist for discussion o Ensure adequate resource allocation across all functions o Oversee Project team meetings o Manage Project financial issues 2. COUNTRY TRIAL MANAGERS/CLINICAL TRIAL MANAGERS Omnicare Clinical Research's Country/Clinical Trial Managers will be dedicated to managing the day-to-day clinical trial activity. They will oversee all site and CRA activities within this Project. Primary responsibilities of these individuals will include the following: o Develop case report forms and monitoring guidelines o Oversee regulatory document management from each of the investigational sites o Review and track CRA activities including scheduling of site visits, site visit reports, monitoring logs, follow-up correspondence, hours worked, routine expense records, and any other pertinent study-related documents o Maintain routine contact with all CRAs to ensure the consistency of program communication and work performed *Confidential treatment requested: Material has been omitted and filed with the Commission. o Provide ongoing quality control of the CRAs performance throughout the Project o Provide Cubist with written Project status tracking report that provides an overview of information regarding: Site start-up activity, regulatory document collection, enrollment activity, number of SAE's, and number of outstanding queries o Provide Global Program Director and International Project Manager with periodic status reports including progress of site initiations, status of ongoing site visits, patient enrollment updates, site visit reports, data query rates, and other study related reports 3. ASSOCIATED MANAGEMENT SUPPORT Omnicare Clinical Research will dedicate clerical/administrative support to the Project. The clerical/administrative fee will cover costs associated with Omnicare Clinical Research's services, as well as management and administration associated with this Project. All travel expenses, Federal Express and/or overnight courier services, and telephone costs will be passed through at cost to Cubist. B. CLINICAL TRIAL INITIATION 1. Protocol Design Omnicare Clinical Research's Clinical Writing Department will work with a multidisciplinary team composed of Medical and Client Services, Regulatory, Data Management, Clinical Quality Assurance and Biometrics personnel to gather input and expertise in the design of the Project protocol to Cubist's specifications. An Omnicare Clinical Research Statistician will provide the statistical section of the protocol, including a description of the study design, definition of the efficacy and safety endpoints, and proposed methodology for the statistical analysis. Sample size calculations will also be performed, if necessary. The fee for this protocol includes one major and one minor revision. One major revision of the draft protocol is to be up to [ ]* of requested changes, and a minor revision will consist of up to [ ]* day of requested changes. If additional revisions are requested by Cubist, these revisions will be incorporated based on the following per diem rates: Director: [ ]* Senior Writer: [ ]* Clinical Writer: [ ]* *Confidential treatment requested: Material has been omitted and filed with the Commission. 2. PROJECT TEAM TRAINING Omnicare Clinical Research will rely on internal and external experts to provide specific therapeutic area training and orientation to the protocol and the CRF prior to study initiation and on an ongoing basis. This training will be designed to ensure that all team members are familiar with the Project requirements and their role within the team. Items discussed at these meetings will include, but will not be limited to: o Therapeutic area and clinical development background o Protocol and CRF o Discussion of therapeutic implications for this study o Monitoring guidelines 3. CRF DESIGN AND PRINTING Omnicare Clinical Research will work in conjunction with Cubist to design a case report form (CRF) for recording pertinent study data. Omnicare Clinical Research's Data Management and Biometrics Departments, and the CTMs will review the CRF and provide input to ensure all relevant data is captured. A review meeting with Cubist will be held to resolve any design questions or other concerns which may arise. Onmicare Clinical Research will provide Cubist with bids from independent printing vendors. CRFs will be sent for printing on 3-part NCR after all issues are resolved and final approval from Omnicare Clinical Research and Cubist is received. Estimated fees for CRF materials and printing are based on a per case basis. CRFs will be collated into binders with spines and covers, and a protective NCR fold-over will be provided with each CRF binder. Actual materials, printing, assembly, and distribution fees will be passed through to Cubist. 4. INVESTIGATOR IDENTIFICATION, RECRUITMENT AND QUALIFICATION Omnicare Clinical Research will collaborate with Cubist to recruit [ ]* North America and [ ]* International investigators capable of conducting the Cubist CAP study. A preliminary telephone interview will be conducted to evaluate a prospective site's interest and potential to meet both patient enrollment and data quality goals for this Project. After obtaining a signed confidentiality agreement from the prospective investigative sites, Omnicare Clinical Research will issue a survey form, customized to the protocol. Additional Project information will be distributed *Confidential treatment requested: Material has been omitted and filed with the Commission. to appropriate investigators who are willing to commit to study participation. The outcome of all evaluations, with a final list of proposed investigators, will be forwarded to Cubist for approval prior to final recruitment. If it is necessary to assess the site's ability to achieve study enrollment and data quality goals then a comprehensive pre-study evaluation visit will be scheduled with the selected investigator. Once identified as a qualified study site, an investigator regulatory document package will be sent. All pre-study visit reports will be forwarded to Cubist for review. Cubist will have final approval on all Investigator sites that are proposed to participate in the Project. 5. INVESTIGATOR REGULATORY DOCUMENT MANAGEMENT In coordination with Cubist, Omnicare Clinical Research will develop a template of an informed consent form for the Project, ensuring compliance with all local, state, and federal and international regulatory requirements. Regulatory document packages, with letters of instruction, will be mailed to qualified investigative sites. A dedicated tracking process for regulatory document collection will be utilized. Document collection will cover all criteria required under the principles of Good Clinical Practices (GCP) and International Committee for Harmonization (ICH) guidelines, as well as Omnicare Clinical Research Standard Operating Procedures (SOPs). In addition, Omnicare Clinical Research will collect certification/disclosure information from all investigators and provide this information to Cubist on an ongoing basis. Omnicare Clinical Research will track the retrieval of documents on an ongoing basis and provide written updates to Cubist as requested. Omnicare Clinical Research will prepare copies of all appropriate documents, assemble documents and issue an investigator regulatory binder to all sites, including but not limited to: o Investigator's Brochure o Final Protocol and Sample Copy of the CRF o Institutional Review Board (ERB) Approvals of Protocol and Informed Consent Form(s) o Laboratory Certification and Normal Ranges o Completed FDA Form 1572 o Investigator Curriculum Vitae o Financial Disclosure Certification and/or completed Financial Disclosure Form *Confidential treatment requested: Material has been omitted and filed with the Commission. The binders will be maintained at the sites and reviewed for appropriate updates by CRAs responsible for site management over the course of the study. Certification of Investigator Financial Disclosure will be collected and maintained as agreed upon by Omnicare Clinical Research and Cubist. The fee for regulatory document collection, processing, and tracking is based upon the number of sites required for the study. File maintenance and updating will be billed at the rate of [ ]* per site per year after year one. Protocol amendments which require informed consent revisions and/or IRB re-submission will be billed at an additional processing fee of [ ]* for each site. 6. INVESTIGATOR REGULATORY DOCUMENT COLLECTION STUDY MASTER FILES In accordance with GCP, Omnicare Clinical Research's staff will: o Develop Study Master File according to Omnicare Clinical Research SOPS under the supervision of the International Project Manager and the Global Project Director. o Obtain all relevant critical documents for the Project; design an appropriate Critical Document Receipt List as a supporting instrument for the CRAs; review all incoming investigators' documents; approve/reject these documents according to GCP and internal guidelines o Maintain files, i.e. proper filing of all incoming papers (investigator documents, site visit reports); audit files to assure the completeness of the documents and to identify missing documents o Ship investigator documents to Cubist as requested o Arrange for archiving of the Study Master File at the end of the Project PRE-STUDY APPROVALS Omnicare Clinical Research's Regulatory staff will prepare the necessary pre-study filings with local regulatory authorities for permission to proceed with the clinical trial, as well as follow-up with these local authorities to expedite the review and approval process. Omnicare Clinical Research's Regulatory staff will prepare the dossier (document compilation and submission) and necessary study updates. Fees are based on Omnicare Clinical Research's staff time to prepare the dossier(s) and interact with the regulatory agencies and IRBs. Omnicare Clinical Research will also be responsible for translation of documents into the different local languages. In addition, any direct charges (dossier filing fees, travel to meetings at agencies, etc.) will be passed through to Cubist at cost. *Confidential treatment requested: Material has been omitted and filed with the Commission. 7. INVESTIGATOR AGREEMENT NEGOTIATION Omnicare Clinical Research will be responsible for the following activities related to negotiating the clinical site contracts: o Create an investigator agreement and patient budget o Negotiate investigator agreements that satisfy Cubist requirements Handle investigator agreements, approval by Cubist and signature by investigators o Incorporate changes and secure re-approval by Cubist Communicate with Omnicare Clinical Research's Grants Administration Department when necessary Handle investigator agreement amendments and/or addenda Collect excess grants from sites at study end Protocol and study amendments which require investigator agreement revisions, amendments and/or re-negotiation will be billed at an additional processing fee of [ ]* for each site. 8. COORDINATORS' AND INVESTIGATORS' MEETING COORDINATION AND ATTENDANCE A Meeting Coordinator will be assigned by Omnicare Clinical Research to manage all logistics of the North America and International meetings and will schedule necessary travel and hotel arrangements. Specific responsibilities will include the following: o Identify appropriate locations for the meetings o Define meeting requirements and outline a meeting agenda o Negotiate, organize, and make all hotel arrangements o Secure discounted travel arrangements and issue tickets to investigators and study coordinators o Prepare necessary meeting materials (e.g., annotated CRFs, presentation materials, etc.) o Coordinate presentations o Manage administrative aspects associated with the meeting Omnicare Clinical Research's Project Management and Clinical Trial Management staff will be available to conduct or participate in the meetings and will arrive at the location prior to each meeting to assist attendees with any last minute details that may arise. *Confidential treatment requested: Material has been omitted and filed with the Commission. 9. INTERACTIVE VOICE RESPONSE SYSTEM (IVRS) Omnicare Clinical Research, through its designated agent or such other party as may be agreed upon by the parties, will design, develop, validate, and maintain a telephone-based computerized central response system. The IVRS System will be available 24 hours a day, seven days a week and will be accessible by a touch tone telephone-based central computerized system. All randomization activities related to 1VRS will entail input and review by an Omnicare Clinical Research Statistician for methodology and execution. Costs for these services are included. All systems undergo a separate validation process, and full user/sponsor documentation will be produced. The IVRS developed for Cubist will include patient randomization to determine the treatment type to be given to the patient. A 24-hour Help Line (Multilingual) that is staffed by an IVRS Specialist trained in working with site staff for all IVRS systems will be established. Omnicare Clinical Research will provide documented procedures for the ongoing operation of the system, and will train qualified staff accordingly to perform ongoing system maintenance and help desk service. C. CLINICAL TRIAL MANAGEMENT 1. CLINICAL MONITORING Omnicare Clinical Research will assign a global team of experienced CRAs to perform pre-study qualification, initiation, interim and closeout site visits. Omnicare Clinical Research will provide CV's to Cubist for all CRA's and Cubist will have final approval on the CRA's assigned to the project. Deployment of CRAs, in terms of number and frequency of visits, will be managed based on Cubist input, geographic location and site-specific enrollment data. Omnicare Clinical Research's site management and monitoring procedures will be performed in accordance with GCP to ensure each investigative site's compliance with regulations and protocol requirements and to enhance expeditious enrollment of appropriate patients into the clinical study. Regulatory documents will be reviewed by the CRA on an ongoing basis during the study conduct phase, including verification of signed informed consent forms and investigator IRB notifications. Once all regulatory documents and approvals are received, a site initiation visit will be scheduled. During this visit, the CRA will review the study goals and protocol (with particular attention to inclusion/exclusion criteria, *Confidential treatment requested: Material has been omitted and filed with the Commission. enrollment plan/goal, adverse events, primary efficacy variables and GCP compliance). In addition, CRF completion and clinical supply dispensation/ accountability will be performed with the investigator and his/her staff. The Clinical Monitoring Plan will provide Project specific guidance for source data verification requirements at the Project level, monitoring report expectations and site management expectations. This document will be prepared by the Clinical Trial Manager and will be signed off by Cubist. Drug accountability will be performed at each visit, as well as reconciliation and removal of clinical supplies at study closeout per Cubist's requirements. In general, the CRAs' efforts will be focused on source document verification and expedient data retrieval. 2. CLINICAL GRANTS ADMINISTRATION As a follow-up to the Investigator Agreement negotiation process, Omnicare Clinical Research will administer the clinical grant payments to the site. Included in their responsibilities are the following: o Process financial records for all of the patients in the study o Issue initial and interim payments for each investigator o Reconcile all payments to each of the investigators prior to the final payments o Track account administration with Omnicare Clinical Research's finance group o Maintain W9 forms and all relevant and related government reports (North America only) Investigator grants, within parameters defined by Cubist, will be passed through at cost to Cubist. A grant administration fee will be applied, based on the number of sites and payments to be managed throughout the duration of the study. 3. CRF TRACKING, FILING AND ARCHIVING Completed CRFs received from investigative sites, ancillary CRF pages, adverse event documentation, and patient-specific correspondence for each study will be logged in and tracked at Omnicare Clinical Research. Of these items, CRFs and answered data queries will be entered page-by-page into a computerized tracking system. Fees reflect logging, copying, filing, and ongoing CRF tracking time. A final, complete page listing and original CRFs will be provided to Cubist upon Project completion. Cubist will be billed for the actual number of pages logged/tracked. *Confidential treatment requested: Material has been omitted and filed with the Commission. 4. MEDICAL MONITORING Omnicare Clinical Research's North America and International Medical Monitors will oversee the medical aspects of Cubist's clinical program. In addition to acting as medical advisors to the Project Team, the Medical Monitors will be responsible for the following: o Project planning o Review of clinical documentation (protocol, CRF, sample informed consent form) o Project-specific medical training o Evaluate patient eligibility (in conjunction with the Medical Director of Cubist) o Resource for Investigator to discuss patient specific issues o Participate in team meetings o Review study reports, regulatory submissions and study manuscripts The Medical Monitor will also be available via beeper during non-business hours to address medical issues for the Project. 5. SAFETY REVIEW OF CRFS Prior to data entry, a North America and International Safety Officer will review all pages of each case, ancillary laboratory pages and all data clarification requests. Cubist will be notified immediately of serious adverse events (SAEs) that have not been previously reported by the sites. Notification will occur by telephone, as well as by forwarding to Cubist an SAE form. The SAE form will include details of the SAE obtained from the investigative site and will be sent via facsimile to the designated recipient at Cubist. As follow-up information is obtained by Omnicare Clinical Research, the SAE form will be updated and forwarded to Cubist. 6. SAE REPORTING WITH INITIAL DESCRIPTIVE PATIENT SUMMARIES Within one Omnicare Clinical Research business day of receipt, Omnicare Clinical Research will forward to Cubist all SAE information received from site personnel or Omnicare Clinical Research CRAB. Notification to Cubist will occur via telephone, as well as by forwarding a comprehensive SAE form via facsimile. Cubist will be responsible for reporting SAES to the FDA. Omnicare Clinical Research's International staff will report SAES to non-U.S. agencies. *Confidential treatment requested: Material has been omitted and filed with the Commission. The fee for SAE reporting includes costs for Omnicare Clinical Research to provide all follow-up information and to update SAE forms as necessary. Omnicare Clinical Research will provide initial descriptive patient summaries for all identified serious adverse events. The descriptive narratives will be written from information provided by the investigator on the SAE report forwarded to Omnicare Clinical Research at the time of the event. If significant follow-up information becomes available, the narrative will be updated accordingly. Omnicare Clinical Research will review the Project SAE tracking report against the overall program SAE tracking report on a monthly basis. This review will be performed by the Medical Monitor. At the time of receipt of the CRF in-house, SAE reports will be reconciled with the CRF. Cubist will be billed for the actual number of SAE reports. 7. SAFETY PHONE COVER (INTERNATIONAL) During business hours, Omnicare Clinical Research has a direct number to Omnicare Clinical Research's Safety Surveillance Department for receipt of SAE information. During evening hours, weekends and holidays, a designated member of the Safety Surveillance Department is on call via beeper. All return calls to the sites will be made immediately to obtain the necessary SAE information and to determine the necessity of an SAE report. D. CLINICAL DATA MANAGEMENT 1. DATA MANAGEMENT PLAN Omnicare Clinical Research's Clinical Data Manager will develop a Global Data Management Plan, the specific contents of which will be mutually agreed upon by the parties. The parties currently anticipate that the Global Data Management Plan will include the information set forth in Attachment 1, attached hereto and incorporated herein by reference. This plan will include the entry and review guidelines, automated edit checks of the data, dictionary coding procedures, reporting requirements, and central laboratory loading procedures. Any other data management tasks requested for this Project will also be outlined in this plan. This plan will be submitted to Cubist for review and approval. *Confidential treatment requested: Material has been omitted and filed with the Commission. 2. PROJECT DATABASE CREATION Data screens will be developed by Omnicare Clinical Research's programming group on an Open VMS System (Alpha 4100) using Domain/CLINTRIAL(R) software. Omnicare Clinics Research's Programmers will develop data-entry screens (i.e., CRF data module designs) that mimic the flow of the CRF, thereby improving the ease and integrity of the data-entry process. 3. DATA ENTRY, CASE REPORT FORM REVIEW AND QUERY RESOLUTION Omnicare Clinical Research's data-entry specialists will enter all CRF data utilizing a double entry method. On-line edit checks will be included to provide additional controls again; categorically incorrect data. The dual data-entry strategy will utilize numeric and/or text fields that are entered by one member of the data-entry staff and re-entered on-line by a second member of the staff. Cubist will be billed for the actual number of pages entered. Omnicare Clinical Research will generate protocol-specific guidelines that are reviewed and approved by Cubist. Using these guidelines, Omnicare Clinical Research will conduct a detailed quality control (QC) review of the entire CRF through a combination of manual review and electronic edit checks that will identify conflicting, unclear or incomplete data. Omnicare Clinical Research's Clinical Data Analysts (CDAs) will perform this review. Omnicare Clinical Research's CQA will oversee these activities and may, in its discretion, perform audits to ensure quality as part of this data service deliverable. If data are unclear, conflicting or incomplete, then queries will be generated and transmitted to the investigative site and Omnicare Clinical Research's Client Services Department. All queries (issued and resolved) will be logged into the Omnicare Clinical Research tracking system. Omnicare Clinical Research's query database will be maintained throughout the Project and will provide Cubist with DCR reports by site on a weekly basis. Cubist will be billed for the actual number of pages reviewed. In addition, each case will be printed as a data listing with 100% verification of critical data fields and text fields against the hard-copy CRF. Also, [ ]*% of the patients will be verified for 100% of the data fields prior to the closing of the database. Standard and protocol-specific edit checks will be created and results of the edit checks will be reviewed by the CDA during the review process and prior to database closure for the generation of queries. All verification will be documented. 4. DICTIONARY PROCESSING Omnicare Clinical Research will use MedDRA for coding adverse events, concurrent surgical procedures and WHO-DRUG for coding medications. A *Confidential treatment requested: Material has been omitted and filed with the Commission. Cubist-modified dictionary can be accommodated at an additional fee to cover loading and validation of Cubist's dictionaries, as well as development of a mapping code. Upon the mutual agreement of the parties, ICD-9 for presenting conditions and diagnoses will be provided at an additional fee. Omnicare Clinical Research will use standard coding conventions for the mapping procedure unless otherwise instructed at the Project start. An additional cost will be incurred by Cubist for changes to coding conventions after Project start. An automated process will be used to map literal text to the corresponding term in the dictionary. Unmapped terms will be researched, coded, and reviewed by a dedicated team. Dictionary reports will be inclusive of automated and manually coded terms and will be reviewed by Omnicare Clinical Research's Medical Monitors prior to database closure. 5. CENTRAL LABORATORY DATA TRANSFER AND VERIFICATION Omnicare Clinical Research will develop the programs needed for conversion and integration of central laboratory data. Central lab data sets will be loaded into the clinical database. Accession numbers from the laboratory hard copy received with the case will be entered into the database. Verification will compare the header data received electronically against the case data including the patient number, lab date, date of birth, gender, patient initials, and lab accession numbers. Discrepancies will be communicated to the central lab and/or Cubist. Full lab panel validation will be performed on [ ]*% of the patients to verify accuracy of the load. Omnicare Clinical Research assumes that all laboratory results will be forwarded with the appropriate normal range and flag attached at the record level. 6. RECONCILIATION OF THE SAFETY AND CLINICAL DATABASES Omnicare Clinical Research will maintain a safety database for Cubist. The safety database will be reconciled with Omnicare Clinical Research's clinical database for the Project prior to database closure. Discrepancies will be queried to the Safety Surveillance Department and to the investigator sites as needed. 7. INTERIM DATA TRANSFERS Omnicare Clinical Research will transfer the Project database to Cubist in standard SAS data sets using Omnicare Clinical Research standard naming conventions and format at three (3) predetermined time points during the study as specified in the Data Management Plan. *Confidential treatment requested: Material has been omitted and filed with the Commission. 8. SECURITY PROCEDURES All files, including data and programming, will be backed-up daily and a complete tape will be sent to secure storage off-site on a weekly basis for disaster recovery. All personnel maintain their own log-on IDs and all passwords are changed monthly. Only authorized personnel have access to databases, which have additional unique access codes. Data access codes are changed upon database review and closure to allow only authorized personnel access to the database. As part of routine documentation, a controlled procedure will be used to archive two sets of tapes containing all pertinent system files employed in the Project, (i.e., Domain/CLINTRIAL(R) software, data sets, screen modules, SAS programming, and listing files). 9. MACHINE PROCESSING AND STORAGE Omnicare Clinical Research's Database Administrator will maintain the integrity of Cubist's clinical database for the duration of the Project estimated at [ ]* months. E. BIOMETRICS ANALYSIS AND TABLE GENERATION 1. STATISTICAL ANALYSIS PLAN/DESIGN OF TABLE SHELLS A Statistical Analysis Plan, including operational definition of endpoints to be analyzed, definition of patient subsets (evaluable and intent-to-treat), visit windows, rules for data handling, and a detailed description of statistical methodology will be prepared for the study. The statistical plan will include a set of formatted shells for all data displays (data listings, summary tables and graphics) planned for the study, which will be prepared with input from the Clinical Writing Department. If formatted data displays are not required, a detailed table of contents of SAS generated data displays will be included. This analysis plan will be submitted to Cubist for review and approval sixty days prior to closing the database for analysis. 2. PROJECT DATA SETUP AND PROGRAMMING OF DATA DISPLAYS Prior to programming actual data displays (data listings, summary tables and graphics), Omnicare Clinical Research will develop data display headers and create the status data set and efficacy data set, if needed, which will be used for the data analysis. After approval of the prototype data display formats by Cubist and the Omnicare Clinical Research Project Team, Omnicare Clinical Research's programming staff will develop the programs required to generate each data display. Programming will be performed using SAS system *Confidential treatment requested: Material has been omitted and filed with the Commission. software, and will incorporate procedure output and customized report writing features. Any changes to data display formats after approval and programming initiation could result in additional charges. 3. QUALITY CONTROL PROCEDURES FOR DATA DISPLAYS Omnicare Clinical Research's Biometrics staff will use a combination of independent programming, hand tabulations from supporting listings, and programming verification to ensure the accuracy and completeness of tables, listings, and statistical results. All report data displays will be verified for accuracy and internal consistency among data displays. A quality control binder, including the quality control strategy for each data display and audit trail, will be included in the Project file. 4. PATIENT EVALUABILITY AND OUTCOME ASSESSMENT Patient evaluability, outcome assessment criteria and relevant algorithms will be developed for the Project by Omnicare Clinical Research and presented to Cubist for review and approval. These algorithms will be programmed using SAS to identify evaluable patients and outcome assessments. Omnicare Clinical Research's Biostatisticians will verify the accuracy of the output with independent programming and review of individual patient data. Final decisions regarding patient evaluability and outcome assessment will require approval by Cubist; these are performed once for each patient. Data listings for each patient's evaluability status and outcome assessment will be prepared and submitted to Cubist for classification prior to breaking the blind. Data classification meetings may be held either in person or via teleconference. 5. STATISTICAL ANALYSIS Statistical analysis, in accordance with the approved Statistical Analysis Plan, will be performed by Omnicare Clinical Research staff biostatisticians. The analysis includes verification of assumptions needed for statistical inference, determination of investigator-by-treatment interaction, and examination of outlying data points. Statistical findings which may not be appropriate for the body of a clinical report (e.g., tests for interaction, data distribution issues, etc.), deviations from the planned analyses, and additional exploratory analyses will be included in a statistical appendix to the clinical report. Fees include one major revision and one minor revision. *Confidential treatment requested: Material has been omitted and filed with the Commission. The Project statistician will also review the clinical report to ensure appropriate representation of statistical methodology and inference. 6. DATA LISTING AUDIT A percentage of quality-controlled data listings may, at Omnicare Clinical Research's option and discretion, be chosen for an audit. From this, a percentage of patients will be chosen within each selected listing for audit. The data listing information will be verified against the selected patients' cases. The audit will take place once the listings are determined to be final by Omnicare Clinical Research's Biometrics Department. Omnicare Clinical Research's CQA Department will oversee these activities to ensure quality as part of this service deliverable. 7. SUMMARY TABLES AUDIT Following the generation of tables and listings by Omnicare Clinical Research's Biometrics staff, Omnicare Clinical Research may, at its discretion, review a proportion of the summary tables, focusing on critical data elements, against the supporting data listings to independently verify the accuracy of the data and consistency of format. Omnicare Clinical Research's CQA Department will oversee these activities to ensure quality as part of this service deliverable. 8. ITEM 11 PREPARATION FOR FDA A MAP detailing the origin of each table or data display expressed in terms of both data sets and programs will be included in the transfer, so that each table or display can be traced to the SAS program and SAS data sets from which it was produced. A written definition for computed variables, which may appear in Omnicare Clinical Research-created analytical files or summary files, will be included in the transfer. An annotated CRF, which maps to the SAS data sets on a variable by variable level, will be included in the transfer. 9. DATA TRANSFER At the conclusion of the study, Omnicare Clinical Research will transfer the Project database to Cubist in standard Omnicare Clinical Research SAS data sets using Omnicare Clinical Research standard naming conventions and format. All variables within these data sets, as well as variables in analytical or summary data sets, will be clearly labeled, so that SAS CONTENTS will carry clear labels enabling variables to be traced back to CRFs. Omnicare Clinical Research will include any and all FORMAT LIBRARIES, SAS *Confidential treatment requested: Material has been omitted and filed with the Commission. MACROS, or MACRO CATALOGS (if applicable) which were used in the analyses. All SAS programs, which generate data displays, listings, tables, graphics, and statistical analyses, will be included in the transfer. Upon the mutual agreement of the parties, customized data transfers, or interim database closes and transfers, will be accommodated on request at an additional fee. F. CLINICAL WRITING 1. PHASE III CLINICAL STUDY REPORT An integrated clinical and statistical summary will be prepared in accordance with ICH guidelines. A draft clinical report will be generated within three (3) weeks after receipt of final summary tables and patient listings. All clinical documents will receive two levels of quality control reviews before they are released. There will be a QC review by the clinical writer for accuracy and consistency,, and a review by the writing manager for accuracy, client format consistency, and appropriate regulatory and clinical perspective. The fee for this report includes one major and one minor revision and up to [ ]* brief patient narratives. One major revision of the draft report is to be up to [ ]* of requested changes, and a minor revision will consist of up to [ ]* of requested changes. The fee for this report does not include collation or assembly of the report appendices. Writing fee estimates are based on receipt of final data. If database changes occur which require a substantial amount of time [ ]* for rework or repeat quality control, additional fees will be agreed upon with Cubist before proceeding with the reports. Attendance at Cubist requested meetings (on-site teleconferences/video conferences or client review/planning meetings at Cubist/Omnicare Clinical Research) will be billed to Cubist according to the following per diem rates: Director: [ ]* Senior Writer: [ ]* Clinical Writer: [ ]* 2. CLINICAL AUDIT Omnicare Clinical Research may, at its option and discretion, perform an audit of the clinical study report. The clinical study report audit will examine the consistency between text and figures quoted in the version of the report *Confidential treatment requested: Material has been omitted and filed with the Commission. agreed upon with Cubist, with those appearing in the statistical tables and listings which accompany the report. This audit will include a review of all sections for format consistency and table of contents cross-reference. In addition, text and figures will be verified against the verified tables/listings and any typographical and grammatical errors that are noted. This audit is performed on the final version, following incorporation of Cubist's comments. Omnicare Clinical Research's CQA Department will oversee these activities to ensure quality as part of this service deliverable. (REST OF PAGE INTENTIONALLY LEFT BLANK) *Confidential treatment requested: Material has been omitted and filed with the Commission. o FINANCIAL CONSIDERATIONS o ESTIMATED NORTH AMERICAN BUDGET [ ]* *Confidential treatment requested: Material has been omitted and filed with the Commission. o ESTIMATED INTERNATIONAL BUDGET [ ]* (REST OF PAGE INTENTIONALLY LEFT BLANK) *Confidential treatment requested: Material has been omitted and filed with the Commission. C. PAYMENT SCHEDULES 1. INVOICING PROCESS FOR SERVICE FEES Omnicare Clinical Research maintains a project accounting system, whereby all direct project costs (service or pass-through expenses) are coded by project. An initial payment of [ ]* representing approximately [ ]* of the estimated service fees, is due and payable upon execution of this Exhibit E. Subsequent payments shall be made monthly, based on Project progress and upon submission of an invoice to Cubist by Omnicare Clinical Research. The subsequent invoices shall be reduced by a prorated portion from the initial payment such that the initial payment is applied evenly over the term of the Project. All payments shall be processed within [ ]* days. If any payment of service fees or pass through expenses is late by more than [ ]* days, such payment shall be subject to a penalty fee of [ ]* per month of the outstanding balance. 2. PASS THROUGH EXPENSE INVOICING Grant Payments - Omnicare Clinical Research will invoice [ ]* days in advance of grant payments due investigators based on estimates. Omnicare Clinical Research requires payment from Cubist at least [ ]* days in advance of the actual payment to investigators. Payments to investigators will not be released until payments are received by Omnicare Clinical Research from Cubist. Upon Cubist's request, Omnicare Clinical Research agrees to deposit payments from Cubist into a non-interest bearing bank account. Omnicare Clinical Research shall draw upon such account to make the investigator payments. Any remaining funds in the account will be returned to Cubist after the termination of the study, as soon as all contracted obligations to the investigators have been satisfied. In the event payments from Cubist are insufficient to cover the payments to investigators, Cubist will promptly advance funds to Omnicare Clinical Research for the amount of grant payments required. Omnicare Clinical Research's project accounting system is able to capture and categorize in summary the following key pass-through expenses related to Cubist's Project: o Travel o Delivery fees o CRF and other printing costs *Confidential treatment requested: Material has been omitted and filed with the Commission. All other Project related expenses that are not related to service fees and any additional detail to support pass-through costs will be provided on a fee basis. 3. ANNUAL PRICE INCREASE Notwithstanding anything contained herein to the contrary, the estimated Service Fees set forth in this Exhibit E shall remain in effect for the longer of (a) [ ]* from the date hereof, or (b) [ ]* following the date hereof. Thereafter, Omnicare Clinical Research reserves the right to increase the price of the remaining Services under this Exhibit E as of each January 1; such increases shall not exceed the [ ]*. (REST OF THE PAGE INTENTIONALLY LEFT BLANK) *Confidential treatment requested: Material has been omitted and filed with the Commission. VI. SIGNATORY AUTHORITY The "parties acknowledge and agree that Cubist has authorized Omnicare Clinical Research to execute all Clinical Study Agreements with investigators in the Project on behalf of Cubist. Cubist understands and acknowledges that it will be bound by the terms of the investigator agreements. ACCEPTANCE The terms and conditions of the Master Agreement govern this Exhibit E and such document is incorporated herein by reference as if fully set forth herein. BY AND BETWEEN: Cubist Pharmaceuticals, Inc. Omnicare Clinical Research, Inc. BY: /s/ MICHAEL DEBRUIN, M.D. BY: /s/ DALE B. EVANS -------------------------- ----------------- Name: Michael DeBruin Name: Dale B. Evans Title: VP Clinical Research Title: President Dated: October 12, 2000 Date: October 17, 2000 EX-10.55 8 a2042768zex-10_55.txt EXHIBIT 10.55 EXHIBIT 10.55 CONFIDENTIAL TREATMENT CONTRACT OF MONITORING SERVICES Between CUBIST PHARMACEUTICALS, INC Duly represented by MICHAEL F DEBRUIN (Hereinafter referred to as "SPONSOR") And CLINDEV (PROPRIETARY) LIMITED Duly represented by MRS. A. LESSING (Hereinafter referred to as "Clindev") WHEREAS *Confidential treatment requested: Material has been omitted and filed with the Commission. Now, therefore, in consideration of the mutual covenants and promises hereinafter set forth, the parties hereby agree as follows: 1 INTERPRETATION For the purposes of this agreement, including the Annexures attached hereto ("the Agreement"): 1.1 the section0 headings are for reference purposes only and shall not be used in the interpretation thereof. 1.2 unless the context indicates a contrary intention, expressions, which denote any gender, shall include the other gender. 1.3 the singular shall include the plural and vice versa. 1.4 "The signature date" means the date on which this agreement is signed by the last party to do so. 1.5 Whenever a number of days is prescribed in this agreement, such number of days shall be calculated excluding the first and including the last day, unless the last day falls on a Saturday, Sunday or official public holiday, in which case, the last day shall be the next day which is not a Saturday, Sunday or public holiday. 1.6 All currencies are $US. 2 APPOINTMENT SPONSOR hereby grants Clindev the right to provide monitoring services on behalf of SPONSOR pursuant to the study (the "Study") set forth in PROTOCOL DAP-SST9901 (the "Protocol") a copy of which is attached hereto as Annex 1, as amended from time to time upon mutual agreement of the parties hereto pursuant to section 14. 2 *Confidential treatment requested: Material has been omitted and filed with the Commission. Clindev shall exercise its best efforts to perform the Study. Clindev shall perform the Study in strict accordance with the Protocol and in strict accordance with the terms and conditions of this Agreement. During the term of this Agreement, Clindev will not enter into any agreement to provide services which would in any way materially impair its ability to completing its services to SPONSOR hereunder in a timely fashion. 3 DURATION OF CONTRACT This Agreement shall commence from [ ]* and terminate on [ ]* unless terminated earlier as provided herein. 4. PAYMENT FOR SERVICES 4.1 SPONSOR shall pay to Clindev $[ ]* (the "Contract Price) for the services rendered under the Agreement in accordance with the payment schedule set forth in section 4.2. For the purposes of this Agreement, the contract value is based on inclusion of [ ]* patients ($[ ]* per completed patient) and includes all activities from the first review of the Protocol till the Study is finally closed out and all correction log forms have been processed subject to Section 3. 4.2 Payment of the aforesaid sum stipulated in Section 4.1 shall be made as follows. 4.2.1. [ ]*. 3 *Confidential treatment requested: Material has been omitted and filed with the Commission. 4.2.2. [ ]*; 4.2.3. [ ]*. Each invoice will reflect a proportional amount of the payment set forth in section 4.2.1. and 4.2.2. 4.3 All relevant and pre-approved costs reasonably incurred by Clindev for the performance of this Study will be for SPONSOR'S account, based upon submission of receipts, where applicable. 4.4 Should the Study require additional monitoring and management, costs will be re-assessed in consultation with SPONSOR and such costs shall be based upon submission of itemised monitoring activities; provided, however, that the costs of the Study shall not be increased without SPONSOR'S prior written consent. 5 OBLIGATIONS OF CLINDEV Clindev shall perform the following monitoring requirements in particular: 5.1 Perform monitoring duties and responsibilities according to the SPONSOR'S Standard Operating Procedures ("SOP's"). The SOP's may be amended by SPONSOR from time to time. Monitoring procedures shall comply with good clinical practice guidelines to ensure the acceptability of the data from the Study for international registration purposes. 5.2 Initiate Study centres as selected by the SPONSOR in consultation with Clindev. 5.3 Assess Protocol for monitoring requirements, 4 *Confidential treatment requested: Material has been omitted and filed with the Commission. 5.4 Assess Clinical Case Record Form for monitoring requirements, 5.5 Perform pre-study consultation/communications, 5.6 Obtain the appropriate Regulatory Authority and Ethics Committee approvals in respect of the investigational sites, 5.7 Verify source data. Level of source data verification to be mutually agreed upon by the parties; provided, however, that in all events such level of verification shall meet the minimum requirements set forth in SOP's; 5.8 Check each study book for completeness and clarity, cross-check with pre-specified source documents giving due consideration to data protection and medical confidentiality. 5.9 Monitor and update trial master file documentation and review the Investigator's file, 5.10 Monitor all centres at regular intervals throughout the Study by personal visits (at least every six weeks) and telephone contacts (at least every other week). 5.11 Complete monitoring reports according to the SOP's and verify source data as specified by the responsible study manager. Submit completed monitoring reports within 14 (fourteen) working days, 5.12 Report adverse events and serious adverse events ("SAE") according to the SOP's, 5 *Confidential treatment requested: Material has been omitted and filed with the Commission. 5.13 Communicate all SAE's to the SPONSOR, copying the responsible study manager as per the SOP's. If applicable, the investigator will forward the SAE report to the applicable ethics committee, otherwise, a copy of the SAE report must be forwarded on behalf of the investigator to the ethics committee and also the Medicines Control Council. Clindev will provide additional information regarding the SAE to the SPONSOR copying the responsible study manager. 5.14 Account and reconcile the Study drug supply and other Study materials, 5.15 Close the Study out, 5.16 Assist the investigator with correction log forms, 5.17 Be available and assist during audits from regulatory affairs bodies, (FDA, MCC, etc.) or from SPONSOR personnel. Clindev undertakes to grant the SPONSOR full and complete access to all Study-related documents and facilities after having received 72 (Seventy-Two) hours written notice from the SPONSOR. SPONSOR may (a) examine and inspect Clindev's facilities required to perform the Study, and (b) inspect and copy all data and work product related to the Study. Clindev shall co-operate with any regulatory authority and allow them access to relevant records and data to the extent permitted by law. 5.18 Submit a monthly status report to the SPONSOR within [ ]* working days after the last working day of the month. 5.19 Deliver data on the Study in English (the "Case Reports") for each patient or subject participating in the Study (each a "Study Subject") as provided in the Protocol to the SPONSOR on an 6 *Confidential treatment requested: Material has been omitted and filed with the Commission. ongoing basis; and deliver all Case Reports to SPONSOR no later than [ ]* days after the date of termination of this Agreement or the date on which SPONSOR reasonably requests delivery of the Case Reports. 5.20 Meet with representatives of SPONSOR at times and places mutually agreed upon to discuss progress, results and future direction of the Study. 6. OBLIGATIONS OF THE SPONSOR 6.1 SPONSOR will provide information on the chemical, pharmaceutical, toxicological and clinical information of DAPTOMYCIN, as well as any relevant new information arising during the Study. 6.2 SPONSOR will provide the necessary quantity of materials for the Study and all Study documentation (Case report forms, informed consent forms etc). 6.3 SPONSOR will provide training to Clindev for issues related to SPONSOR processes as and when required. 6.4 SPONSOR will arrange and hold the start-up meetings prior to commencement of the Study to ensure adequate knowledge of the Study procedures. The SPONSOR will pay all related costs, including travel and accommodation costs for all attendees. 6.5 SPONSOR will pay for all material transport costs and additional administration costs, such as informed consent translation, all International and local courier fees, submission and approval fees levied by regulatory bodies or ethics 7 *Confidential treatment requested: Material has been omitted and filed with the Commission. committees, investigator fees and all laboratory costs. (Clindev shall charge a [ ]*% handling fee for expenses paid on behalf of the SPONSOR.) 7. CONFIDENTIALITY Clindev shall hold all negotiations with the SPONSOR in the strictest confidence and shall not disclose any information to third parties, including all past and proposed future studies. During the term of this Agreement and for a period of Five years thereafter Clindev shall maintain in the strictest confidence all information received from the SPONSOR for the performance of the Study, as well as the data and results of the Study. Such data and results, whether patentable or not, shall be the exclusive property of the SPONSOR, who shall be free to protect them as it deems expedient, to use them and to disclose them to any third party. Clindev shall therefore neither publish nor disclose to any third party, without the SPONSOR'S prior written approval, the information disclosed by the SPONSOR and the results obtained from the Study, as long as they are not in the public domain through no fault of Clindev. Clindev shall impose such commitment upon any person in charge of the Study, including its own personnel. Clindev may use the information disclosed by the SPONSOR only to the extent required to accomplish the purposes of the Agreement. Clindev shall promptly notify the SPONSOR upon discovery of any unauthorised use or disclosure of the information disclosed by the SPONSOR. Unless otherwise required by law, regulation or government agency, the SPONSOR on its part will not publish or disclose the activities of Clindev, without the prior written consent of Clindev, which consent shall not be unreasonably withheld. 8 *Confidential treatment requested: Material has been omitted and filed with the Commission. 8. INDEMNIFICATION 8.1 Sponsor agrees to defend and indemnify, and hold harmless Clindev and its employee, directors and agents from and against any loss, damage, cost and expense (including reasonable attorneys' fees and expenses) to which Clindev, may become subject as a result of any claims, proceedings, or investigations directly caused by the testing and/or reporting results of testing daptomycin in strict accordance with the Protocol. Insurance. The indemnifying parties shall secure and maintain in full force and effect through the performance of the Study (and following termination of the Study to cover any claims arising from the Study) insurance coverage in amounts appropriate to the conduct of Clindev's business activities and the services contemplated by the Study and shall provide evidence of insurance coverage in an acceptable form upon request. 9 TERMINATION 9.1 SPONSOR, for any reason may terminate this Agreement or any specific project performed under this Agreement at any time with or without cause by giving Clindev at least [ ]* days prior written notice. During the [ ]* day period between the notice of termination and the effective date of such termination, Clindev will use all reasonable efforts to complete such project as soon as practicable in accordance with its responsibilities under this Agreement and applicable law and regulation, in order to reduce or eliminate further costs, and to cancel, if permitted under the terms of applicable agreements, any third party obligations. 9 *Confidential treatment requested: Material has been omitted and filed with the Commission. 9.2 Within [ ]* days after the completion or termination of a project hereunder, Clindev will provide SPONSOR with a written itemised statement in English in reasonably specific detail of (a) all work performed in connection with such project and (b) all expenditures by Clindev (determined in accordance with generally accepted accounting principles consistently applied) in conducting such project prior to the completion or termination of such project. In the event of termination of any project pursuant to this Section 9, Clindev will be entitled to a payment based on the amount of services properly rendered and monies properly expended by Clindev in connection with such project through the date of termination. If the amount paid by SPONSOR to Clindev in connection with any such project exceeds such amount, then Clindev will promptly refund such excess to SPONSOR, and if such amount exceeds the amount already paid by SPONSOR to Clindev in connection with such project, then SPONSOR will promptly pay the amount of such excess to Clindev. Clindev shall keep complete and accurate records in English in sufficient detail to properly reflect all expenditures by Clindev in conducting the Study and to permit SPONSOR to confirm the accuracy of all payments due hereunder. Upon, written request, SPONSOR shall have the right to cause an independent, certified public accounting firm of internationally recognised standing reasonably acceptable to Clindev to audit such records to verify the accuracy of the expenditure report provided 10 *Confidential treatment requested: Material has been omitted and filed with the Commission. hereunder. SPONSOR shall bear the cost of any such audit. The parties shall use best efforts to resolve expeditiously any disagreement related to any amounts due under the Agreement and, 9.3 Notwithstanding the forgoing, should this Agreement be terminated by the SPONSOR, any reason other than the breach of any material provision of this Agreement by Clindev, then Clindev will be entitled to payments or retention of payments equal to the amount set forth in Section 4.2.1. (i.e. [ ]*). 9.4 Any undisputed refund or payment under this Section 9 will be made within [ ]* days after SPONSOR'S receipt of Clindev's itemised statement. 9.5 This Agreement may be terminated by either party upon the breach of any material provision of this Agreement by the other party, provided that the breaching party will be given not less than [ ]* days prior written notice of such breach and the opportunity to cure such breach during such [ ]*-day period. In the event this Agreement is terminated by Clindev pursuant to this Section 9.3 Clindev will provide SPONSOR with a written itemised statement and a reconciliation will be made as provided for in Section 9.2. 9.6 This Agreement may be immediately terminated by either party upon written notice to the other party if the other party becomes insolvent, is dissolved or liquidated, makes a general assignment for the benefit of its creditors, or files or had filed against it, a petition in bankruptcy or has a receiver appointed for a substantial part of its assets. 11 *Confidential treatment requested: Material has been omitted and filed with the Commission. 9.7 This Agreement may be terminated by either party upon written notice to the other party if any of the following conditions occur: (a) if the authorisation and approval to perform the Study in South Africa is withdrawn by the appropriate regulatory agency; (b) if the emergence of any adverse reaction, side effect or toxicity with any drug administered in the Study is of such magnitude or incidence in the opinion of either the SPONSOR or Clindev to support termination. 9.8 Immediately upon receipt of a notice of termination, Clindev shall stop enrolling Study Subjects into the Protocol and shall cease conducting procedures on Study Subjects already enrolled in the Protocol as directed by the SPONSOR, to the extent medically permissible. 9.9 Upon termination or completion of the Study, all unused compounds, drugs, devices, Case Reports, whether completed or not completed, and other related materials that were furnished to Clindev by or on behalf of SPONSOR shall be promptly returned to SPONSOR at the SPONSOR'S expense. 9.10 Expiration or termination of this Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. 10. ADDRESSES The parties choose the following addresses to which notices may be given, and at which documents in legal proceedings may be served, (i.e. their domicilia citandi et executandi) in connection with this Agreement: 12 *Confidential treatment requested: Material has been omitted and filed with the Commission. In the case of Clindev: Postal address: P.O. Box 1417 Wingate Park 0153 South Africa Physical address: 42 Ingersol Road Lynwood Glen Pretoria 0081 South Africa Fax: (012) 348 0552 In the case of the SPONSOR: Postal address: Cubist Pharmaceuticals, Inc. 24 Emily Street Cambridge MA 02139 USA Physical address: Cubist Pharmaceuticals, Inc. 24 Emily Street Cambridge MA 02139 USA Fax (617) 576 1999 13 *Confidential treatment requested: Material has been omitted and filed with the Commission. 10.1 Notices given to the above addresses shall be deemed to have been duly given: 10.1.1 14 days after posting if posted by first-class registered or certified post to the party's postal address; 10.1.2 on delivery, if delivered to the party's physical address; 10.1.3 on confirmation of receipt, if sent to the party's fax number; or 10.1.4 on receipt, if sent by overnight delivery service. 10.2 A party may change that party's address for this purpose, by notice in writing to the other party. 11. NO REPRESENTATIONS A party may not rely on any representation, which allegedly induced that party to enter into this Agreement, unless the representation is recorded in this Agreement. 11 ENTIRE AGREEMENT; AMENDMENT This Agreement, including the annexes attached hereto, constitutes the entire contract between the parties relative to the subject matter hereof and supersedes all representations, warranties, agreements or undertakings previously made relative to such subject matter, and no such representations, warranties, agreements or undertakings shall be any force and effect unless contained herein. In the event of any inconsistency between the provisions of this Agreement and the Protocol, the provisions of this Agreement shall govern. No modification or amendment variation of any of the terms and conditions of this Agreement will be binding on the parties unless committed to writing and signed by both parties. 14 *Confidential treatment requested: Material has been omitted and filed with the Commission. 12 CESSION; ASSIGNMENT A party may not cede, assign or otherwise transfer that party's rights or obligations under this Agreement without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, SPONSOR may assign this Agreement without the prior written consent of Clindev (a) in connection with the transfer or sale of all or substantially all of the business of SPONSOR to which this Agreement relates, whether by merger, sale of stock, sale of assets or otherwise, or (b) to any affiliate of SPONSOR. The rights and obligations of the parties under this Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties. Any assignment not in accordance with this Agreement shall be void. No assignment shall relieve either party of its responsibilities for the performance of accrued obligation that such party may then have under this Agreement. 13 INDULGENCES The grant of any-indulgence by a party under this Agreement shall not constitute a waiver or any right by the grantor or prevent or adversely effect the exercise by the grantor of any existing future right of the grantor. 15 ARBITRATION Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the London Court of International Arbitration Rules, which Rules are deemed to be incorporated by reference into this clause. The number of 15 *Confidential treatment requested: Material has been omitted and filed with the Commission. arbitrators shall be three unless the dispute involves a claim of damages for less than $[ ]* USD, in which case the number of arbitrators shall be one. The seat, or legal place, of arbitration shall be London, England. The language to be used in the arbitral proceedings shall be English. The governing law of the contract shall be the substantive law of England. Judgment upon the arbitrator's award may be entered in any court of competent jurisdiction. Nothing contained in this Section or any other provisions of this Agreement shall be construed to limit or preclude a party from bringing any action in any court of competent jurisdiction for injunctive or other provisional relief to compel the other party to comply with its obligations hereunder before or during the pendency of arbitration proceedings. 16 AUTHORITY; WARRANTY DISCLAIMER; LIMITATION OF LIABILITY 16.1 Each party represents and warrants to the other party that (a) such party is duly organised, validly existing, and in good standing under the laws of the place of its establishment or incorporation; (b) such party has taken all action necessary to authorise it to enter into this Agreement and perform its obligations under this Agreement; (c) this Agreement shall constitute the legal, valid and binding obligations of such party; and (d) neither the execution of this Agreement, nor the performance of such party's obligations hereunder, shall conflict with, result in breach of, or constitute a default under any provision of the Articles of Incorporation, business license, Bylaws or similar organisational documents of such party, or of any law, rule, regulation, authorisation's or approval of any government entity, or of any agreement to which it is party or by which it is bound. 16 *Confidential treatment requested: Material has been omitted and filed with the Commission. 16.2 Except as expressly set forth in this Agreement, neither party makes any representation or warranty to the other party of any kind, express, or implied, including, without limitation, any warranty of non-infringement, merchantability or fitness for a particular purpose. 16.3 Neither party shall be entitled to recover from the other party and special incidental, exemplary, consequential or punitive damages in connection with this Agreement or study performed hereunder. 17 PATENTS AND INVENTIONS In consideration of the SPONSOR'S payment of all costs of the Study, any New Invention or Discovery (as defined below) and any ideas, know-how and data (including results of the Study) generated in direct performance of work in connection with the Study, shall be the sole and exclusive property of SPONSOR. Clindev will take all acts reasonably required to facilitate patent prosecution and convey title in such property to SPONSOR. For purposes of this Agreement, "New Invention and Discovery" means any invention or discovery conceived of and reduced to practise during and as a part of the Study by Clindev's staff, employees, volunteers, agents or representatives, or jointly by such an individual or individuals with one or more contractors or employees of SPONSOR, as determined in accordance with the rules of inventorship under the United States patent law. Clindev shall promptly notify SPONSOR in writing of any New Inventions or Discovery. Such notice shall provide a full written description of the New Invention or Discovery. 17 *Confidential treatment requested: Material has been omitted and filed with the Commission. 18 USE OF CLINDEV'S OR SPONSOR'S NAME Clindev and SPONSOR shall obtain the prior written consent from the other party before using the name, symbols and/or marks of the other party, in any form of publicity in connection with the Study, except legally required disclosures by Clindev or SPONSOR, reports generated in the normal course of business by Clindev or SPONSOR, or where acknowledgement of sponsorship is required by the guidelines of a scientific publication or organisation. 19 CHANGES TO THE PROTOCOL If at a future date changes to the Protocol appear desirable, such changes may be made through prior written agreement between SPONSOR and Clindev. If such changes increase the costs for the Study, Clindev shall submit to SPONSOR a written estimate of such cost for approval. If in the course of performing this Agreement, however, one party determines that generally accepted standards of clinical research and medical practice relating to the safety of the Study Subjects require a deviation from the Protocol, the parties will commence discussions immediately regarding such deviation and will promptly amend the Protocol to bring the Protocol into conformity with such standards. 20 CONFORMANCE WITH LAW AND ACCEPTED PRACTICE Clindev shall perform the Study in conformance with generally accepted standards of good clinical practice, with the Protocol, instructions provided by SPONSOR, and with all applicable local, 18 *Confidential treatment requested: Material has been omitted and filed with the Commission. state and federal laws and regulations, including, but not limited to, the Federal Food, Drug and Cosmetic Act and regulations of the Food and Drug Administration (the "FDA"). Clindev shall retain all records resulting from the Study for the time required by applicable federal regulations (SPONSOR shall notify Clindev of the FDA application filing and approval status), and allow for inspection of all study specific records. 21 NO TRANSFER OF PROPRIETRY RIGHTS Neither the SPONSOR nor Clindev hereby transfers to the other party by operation of this Agreement any patent, patent application, copyright, trademark or other intellectual property right owned by or under the control of either party, except as specifically set forth in this Agreement. 22 FORCE MAJEURE Neither party shall be held responsible to the other party nor be deemed to have defaulted under or breached this Agreement for failure or delay in fulfilling or performing any term of this Agreement when such failure or delay is caused by or results from causes beyond the reasonable control of the affected party, including, without limitation, fire, floods, earthquakes, natural disasters, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotion, strikes, lockouts or other labour disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other party. 19 *Confidential treatment requested: Material has been omitted and filed with the Commission. 22 WAIVER Except as specifically provided for herein, the waiver from time to time by either party of any right or failure to exercise any remedy shall not operate or be construed as a continuing waiver of the same right or remedy or of any other of such party's rights or remedies provided under this Agreement. 23 SEVERABILITY In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired hereby. 24 GOVERNING LANGUAGE This Agreement is entered into in the English language. All meetings, correspondence and notices between the parties, and all Case Reports, records, accounts, notes, reports, data, work product and proposed publications or presentation materials related to the Study, shall be in English. In the event of any dispute concerning the construction or meaning of this Agreement, reference shall be made only to this Agreement as written in English and not to any translation into any other language. 25 INDEPENDENT CONTRACTORS It is expressly agreed that SPONSOR and Clindev shall be independent contractors and that the relationship between the parties shall not constitute a partnership, joint venture or agency of any kind. Neither party shall have authority to make statements or commitments of any kind, or take any action, which shall be binding on the other party, without the prior written consent of the other party. 20 *Confidential treatment requested: Material has been omitted and filed with the Commission. 26 YEAR 2000 COMPLIANCE Clindev assures that its computer systems and processes shall be able to accommodate and process date information later than 31 December 1999 such that the year 2000 shall be recognized as the year 2000, rather than 1900. Clindev assures that its computer systems will be Y2K compliant 26 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. In witness whereof, the parties have caused this Agreement to be executed by the respective duly authorised officers as of the dates set forth below. Thus done and signed at: Cambridge, MA, USA on this the 17th Day of December 1999. For: the SPONSOR WITNESS: 1. By: /S/ MICHAEL F. DEBRUIN --------------------------- Name: Michael F. DeBruin Title: Vice President - Clinical Research 2. By: /S/ DAVID GRISHAM --------------------------- Name: David Grisham Title: Sr. Director, Global Project Management 21 *Confidential treatment requested: Material has been omitted and filed with the Commission. Thus done and signed at: Pretoria, RSA on this the 10th Day of January 2000. For: Clindev (Pty) Ltd WITNESS: 1. By: /S/ ANITA LESSING ------------------------- Name: Anita Lessing Title: Director, Clindev 2. By: /S/ SONIA SUTHERLAND ------------------------- Name: Sonia Sutherland Title: Director, Clindev 22 *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.56 9 a2042768zex-10_56.txt EXHIBIT 10.56 EXHIBIT 10.56 CONFIDENTIAL TREATMENT CONTRACT OF MONITORING SERVICES AMENDMENT 1 Between CUBIST PHARMACEUTICALS, INC Duly represented by Michael F. de Bruin (Hereinafter referred to as "SPONSOR") And CLINDEV (PROPRIETARY) LIMITED Duly represented by MRS. A. LESSING (Hereinafter referred to as "Clindev") *Confidential treatment requested: Material has been omitted and filed with the Commission. -2- Upon mutual agreement of the parties the following sections of the contract are amended as follows: *Confidential treatment requested: Material has been omitted and filed with the Commission. -3- SECTION 4. PAGE 3 PAYMENT FOR SERVICES 4.1 SPONSOR shall pay to Clindev $[ ]* (the "Contract Price") for the services rendered under the Agreement in accordance with the payment schedule set forth in section 4.2. For the purposes of the Agreement, the contract value is based on the inclusion of [ ]* patients ($[ ]* per completed patient) and includes all activities from the first review of the Protocol till the Study is finally closed out and all correction log forms have been processed subject to section 3. In witness whereof, the parties have caused this Amendment to the Agreement to be executed by the respective duly authorized officers as of the dates set forth below. Thus done and signed at: CPI on this the 21st Day of June, 2000. For: the SPONSOR By: /s/ MICHAEL F. DEBRUIN ---------------------- Name: Michael F. DeBruin Title: Vice President, Clinical Research WITNESS: 1. By: /s/ EDWARD S. CAMPANARO ----------------------- Name: Edward S. Campanaro Title: Director, Clinical Operations *Confidential treatment requested: Material has been omitted and filed with the Commission. -4- 2. By: /s/ TANIA ASSAYLEEN ------------------- Name: Tania Assayleen Title: Clinical Trial Manager Thus done and signed at Lynnwood, Pretoria, on this the 22nd Day of June 2000. For: Clindev (Pty) Ltd By: /s/ ANITA LESSING ----------------- Name: Anita Lessing Title: Director WITNESS: 1. By: /s/ SONIA SUTHERLAND -------------------- Name: Sonia Sutherland Title: Research Associate 2. By: /s/ C.S. NASH ------------- Name: C.S. Nash Title: Clinical Research Associate *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.57 10 a2042768zex-10_57.txt EXHIBIT 10.57 EXHIBIT 10.57 CONFIDENTIAL TREATMENT CONTRACT OF MONITORING SERVICES AMENDMENT 2 Between CUBIST PHARMACEUTICALS, INC Duly represented by Michael F. de Bruin (Hereinafter referred to as "SPONSOR") And CLINDEV (PROPRIETARY) LIMITED Duly represented by MRS. A. LESSING (Hereinafter referred to as "Clindev") *Confidential treatment requested: Material has been omitted and filed with the Commission. -2- Upon mutual agreement of the parties the following sections of the contract are amended as follows: *Confidential treatment requested: Material has been omitted and filed with the Commission. -3- SECTION 4. PAGE 3 PAYMENT FOR SERVICES 4.1 SPONSOR shall pay to Clindev $[ ]* (the "Contract Price") for the services rendered under the Agreement in accordance with the payment schedule set forth in section 4.2. For the purposes of the Agreement, the contract value is based on the inclusion of [ ]* patients ($[ ]* per completed patient) and includes all activities from the first review of the Protocol till the Study is finally closed out and all correction log forms have been processed subject to section 3. In witness whereof, the parties have caused this Amendment to the Agreement to be executed by the respective duly authorized officers as of the dates set forth below Thus done and signed at: Cambridge, MA, USA on this the 20th Day of December 2000. For: the SPONSOR By: /s/ MICHAEL F. DEBRUIN ---------------------- Name: Michael F. DeBruin, M.D. Title: Vice President, Clinical Research WITNESS: 1. By: /s/ EDWARD S. CAMPANARO ------------------------ Name: Edward S. Campanaro Title: Sr. Director, Clinical Operations *Confidential treatment requested: Material has been omitted and filed with the Commission. -4- 2. By: /s/ ANDREW G. KNAPP -------------------- Name: Andrew G. Knapp Title: Director, Clinical Research Thus done and signed at Lynnwood, Pretoria, on this the 8th Day of November 2000. For: Clindev (Pty) Ltd By: /s/ ANITA LESSING ----------------- Name: Anita Lessing Title: Director WITNESS: 1. By: /s/ SONIA SUTHERLAND -------------------- Name: Sonia Sutherland Title: Director 2. By: /s/ CATHY NASH -------------- Name: Cathy Nash Title: Project Manager *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.58 11 a2042768zex-10_58.txt EXHIBIT 10.58 EXHIBIT 10.58 CONFIDENTIAL TREATMENT CONTRACT RESEARCH AGREEMENT FOR TARGET RESEARCH ASSOCIATES, INC. TO PROVIDE CLINICAL RESEARCH SERVICES TO CUBIST PHARMACEUTICALS, INC. PROTOCOL: DAP-00-05 A RANDOMIZED, DOUBLE-BLIND, PHASE III, COMPARATIVE STUDY OF CIDECIN(TM)(DAPTOMYCIN) TO ROCEPHIN(R) (CEFTRIAXONE) IN THE TREATMENT OF MODERATE TO SEVERE COMMUNITY-ACQUIRED ACUTE BACTERIAL PNEUMONIA DUE TO S. PNEUMONIAE *Confidential treatment requested: Material has been omitted and filed with the Commission. Page - 2 This Agreement is made by and between Target Research Associates, Inc. (hereinafter "TARGET") of 554 Central Avenue, New Providence, New Jersey 07974, and Cubist Pharmaceuticals, Inc. (hereinafter "CUBIST") of 24 Emily Street, Cambridge, MA 02139. CUBIST is contracting with TARGET to provide the services detailed in the attached budgets, one budget for work in the U.S., the other for work in Poland (hereinafter, collectively referred to as the "Budget") for the clinical study (hereinafter the "Study") according to Cubist protocol DAP-00-05. I. BUDGET, INVOICES, AND PAYMENTS The Budget includes a detailed list of activities to be performed by TARGET and associated fees and expenses, as well as key study parameters, timing, and other assumptions on which the Budget is based. Budget revisions following execution of this Agreement must be documented by a change order prepared by TARGET and approved in writing by CUBIST. A change order may be expected in the event of a change of a key Study assumption or parameter, including significant changes in timing. It is the responsibility of TARGET to immediately inform CUBIST of the Budget implications of any such changes. TARGET's services will be performed on [ ]*. TARGET may not exceed the total Budget by greater than [ ]*% without first obtaining written approval from CUBIST. TARGET will provide monthly invoices to CUBIST for fees and expenses incurred for that particular month. TARGET's invoices shall be accompanied by an updated Budget/Expense Reconciliation Report providing the status of each budget line-item regarding (a) the amount incurred for that particular month, (b) the total amount incurred to date, and (c) the remaining budget for that line-item. Back-up reports and other items will be attached as appropriate, with the aim of providing CUBIST with sufficient detail in a clear format to enable thorough financial monitoring of the project. Payment by CUBIST on invoices issued by Target will be due [ ]*. Balances not paid within this time will accrue interest at [ ]*% per month or part thereof for each month after the aforementioned due date. II. CONFIDENTIALITY During the term of this Agreement and thereafter (including following any termination), TARGET agrees to retain in confidence and to refrain from disclosing and/or using for its benefit (other than for the purposes indicated herein) or the benefit of any third party, any and all information and/or data ("Confidential Information") derived from the Study and/or disclosed to TARGET as a result of its services under this Agreement and/or obtained by TARGET or its representatives while visiting CUBIST' facilities and any and all data and/or analysis arising or derived from such Confidential Information or the subject Study without the prior written consent of CUBIST. This restriction shall not apply to Confidential Information: *Confidential treatment requested: Material has been omitted and filed with the Commission. Page - 3 o which is or becomes public knowledge (through no fault of TARGET's or its representatives), or o which is lawfully made available to TARGET by an independent third party not under an obligation of confidence to CUBIST (and such lawful availability can be properly demonstrated by TARGET), or o which is already in TARGET's possession at the time of the initial receipt from CUBIST (and such prior possession can be properly demonstrated by TARGET), or o which is required by law, regulation, rule, act, or order of any governmental authority or agency to be disclosed by TARGET; provided, however that TARGET notifies and consults with CUBIST prior to such disclosure. TARGET shall limit disclosure of Confidential Information received hereunder to only those of its officers, employees, subcontractors and/or investigators who have a legitimate need to know such Confidential Information. TARGET shall advise such persons, upon disclosure to them of any Confidential Information, of the proprietary nature thereof and the terms and conditions of this Agreement and shall use all reasonable safeguards to prevent unauthorized disclosure by such persons. III. PUBLICATIONS TARGET agrees that it will not make any publication, including any abstracts, posters or articles relating to the Study or the services performed pursuant to this Agreement without the prior written consent of CUBIST. IV. OWNERSHIP OF STUDY OUTPUTS AND INVENTIONS All concepts, inventions, ideas, patent rights, records, data, trademarks and copyrights, including electronic data, files, and programs which are related to, arise out of, or are in connection with TARGET's work or any and all services performed by it pursuant to this Agreement will be the exclusive property of, and all ownership rights shall vest in CUBIST. V. TERM The term of this Agreement shall begin on the date it is executed by both TARGET and CUBIST. The term of the Agreement [ ]*. VI. TERMINATION CUBIST shall have the right at any time to terminate the Study prior to completion by giving [ ]* days written notice to TARGET. In the event of notice of termination, *Confidential treatment requested: Material has been omitted and filed with the Commission. Page - 4 TARGET shall immediately use its best efforts to reduce and/or eliminate any and all costs and/or expenses to CUBIST, and CUBIST shall be obliged to pay TARGET the fees and expenses for (a) all Budget activities which have been completed, (b) all Budget items which have been irrevocably committed, and (c) all activities subsequently agreed to by CUBIST which are required to wind-up TARGET's activities on the Study. VII. DEFAULT TARGET shall be in default under the terms and conditions of this Agreement if TARGET negligently, recklessly or intentionally fails to perform any of the contracted services or if TARGET is unable to continue operations or perform its obligations herein in a manner acceptable to applicable state, local, federal rules, regulations and ordinances. Notwithstanding the foregoing, if any default occurs, CUBIST shall promptly notify TARGET in writing of such default. TARGET shall have a period of 30 days from the date of such notice within which to cure such default. If TARGET fails to cure, then this Agreement shall, at CUBIST's option, immediately terminate, and CUBIST shall have no liability for such termination except as may be otherwise set forth in Section VI. VIII. NOTICES All notices pertaining to this Agreement shall be in writing and sent to the respective parties as follows: TO CUBIST: TO TARGET: Mr. Ed Campanaro Mr. Lloyd J. Baroody Director, Clinical Affairs Managing Director Cubist Pharmaceuticals, Inc Target Research Associates, Inc. 24 Emily Street 554 Central Avenue Cambridge, MA 02139 New Providence, NJ 07974 IX. RELATIONSHIP It is understood and agreed that TARGET is an independent contract research organization and is not an agent or employee of CUBIST. Accordingly, TARGET will have exclusive control over its employees and agents. TARGET will not have authority to bind or commit CUBIST in any manner whatsoever and will not, at any time, hold itself out to third parties as having authority to enter into or incur any commitments, expenses, liabilities, or obligations of any nature on behalf of CUBIST. X. INDEMNIFICATION CUBIST agrees to indemnify, defend and hold harmless TARGET, its affiliates, agents, and employees from and against any and all losses, costs, expenses *Confidential treatment requested: Material has been omitted and filed with the Commission. Page - 5 (including reasonable attorneys' fees), claims, actions, liabilities, damages, or law suits suffered or incurred by TARGET as a result of bodily injury occurring to a patient in the Study, except to the extent that any such losses, costs, expenses, claims, actions, liabilities, damages, or law suits is caused by the negligence or intentional misconduct of TARGET, its affiliates, agents, or employees. TARGET agrees to indemnify, defend and hold harmless CUBIST, its affiliates, agents, and employees from and against any and all losses, costs, expenses (including reasonable attorneys' fees), claims, actions, liabilities, damages, or law suits suffered or incurred resulting from TARGET's negligent performance of the obligations required herein, or intentional or reckless misconduct. Each party agrees to provide the other with prompt notice of any such claim, action, or lawsuit. In the event the aforesaid indemnity is invoked, the Indemnitor shall have the right, but not the obligation, to manage and control the defense and settlement of any and all such claims, actions or lawsuits, and shall have the right to select and engage counsel of its own choice. Each party shall cooperate fully with the other in defense of any and all claims, actions or lawsuits. XI. FORCE MAJEURE A party shall be excused from performing its obligations under this Agreement if its performance is delayed or prevented by any cause beyond such party's control, including but not limited to, acts of God, fire, explosion, weather, war, insurrection, civil strife, riots, government action, or power failure not specific to Target's facilities. Performance shall be excused only to the extent of and during the reasonable continuance of such disability. TARGET will immediately notify CUBIST if, by reason of any of the disabilities referred to herein, TARGET is unable to meet any deadline or time for performance. In the event that any part of a Study is rendered invalid as a result of such disability, TARGET will, upon written request from CUBIST and at CUBIST' sole cost and expense, repeat that part of the Study affected by the disability. XII. MISCELLANEOUS WAIVER. No waiver of any term, provision, or condition of this Agreement whether by conduct or otherwise in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such term, provision, or condition or of any other term, provision, or condition of this Agreement. AMENDMENTS. Any amendments or revisions to this Agreement must be proposed in writing by either party and accepted in writing by the other party before they shall become effective and binding. ACCESS TO RECORDS/AUDITS. TARGET will permit representatives of CUBIST to have access at reasonable times to TARGET's premises for the purpose of observing *Confidential treatment requested: Material has been omitted and filed with the Commission. Page - 6 performance of the Study and/or reviewing data pertaining to the Study. If any governmental or regulatory authority conducts or gives notice to TARGET of its intent to conduct an inspection of TARGET or at any investigational site or take any other regulatory action with respect to the Study or contracted services provided under this Agreement, TARGET shall (a) notify CUBIST of such inspection; (b) allow CUBIST the right to be present at any such inspection; (c) allow CUBIST to have primary responsibility for preparing any responses which may be required; and (d) give CUBIST the opportunity to challenge any order of a regulatory or governmental activity. LEGAL COMPLIANCE. TARGET shall perform all work under this Agreement in conformity with all applicable federal, state, and local laws and regulations. ASSIGNMENT. This Agreement may not be assigned by either party without the other's prior written consent, which consent shall not be unreasonably withheld. CONTINUITY. In the event that CUBIST is acquired by another entity or if the invention which is the subject of this Agreement is acquired by another entity, or if there is an agreement which results in another entity assuming control of the Study, CUBIST agrees to use its best efforts to allow for TARGET to continue performing its responsibilities for the remaining term of the Agreement. SEVERABILITY. If any provision of this Agreement shall be deemed void in whole or in part for any reason whatsoever, the remaining provisions shall remain in full force and effect. This Agreement constitutes the entire and only Agreement between CUBIST and TARGET regarding the Study described herein, and all prior negotiation, representations, agreements, and understandings are superseded hereby. This Agreement becomes effective and binding on both parties upon its execution. FOR: TARGET RESEARCH ASSOCIATES, INC. By (signature): /s/ LLOYD J. BAROODY Date: JULY 7, 2000 ----------------------- ------------ Print Name: Lloyd J. Baroody Title: Managing Director FOR: CUBIST PHARMACEUTICALS, INC. By (signature): /s/ ROBERT MCCORMACK Date: AUGUST 1, 2000 ------------------------ -------------- Print Name: Robert McCormack Title: Senior VP, Development *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.59 12 a2042768zex-10_59.txt EXHIBIT 10.59 EXHIBIT 10.59 CONFIDENTIAL TREATMENT ASSIGNMENT AND LICENSE AGREEMENT This Agreement is made this 6th day of October, 2000 (the "Effective Date"), by and between ELI LILLY & COMPANY having its principal place of business at Lilly Corporate Center, Indianapolis, Indiana 46285 and its Affiliates (collectively, "ELI LILLY") and Cubist Pharmaceuticals Incorporated, a Delaware corporation having its principal place of business at 24 Emily Street, Cambridge, MA 02139 and its Affiliates (collectively "CUBIST") as follows: RECITALS WHEREAS, CUBIST and ELI LILLY have entered into a License Agreement for Daptomycin on November 7, 1997 granting CUBIST limited rights under Lilly patents to make, use and sell only Daptomycin for use in the Field of infectious disease excluding induced colitis; WHEREAS, CUBIST and ELI LILLY now desire to terminate such November 7, 1997, License Agreement in order that they may enter into this Assignment and License Agreement whereby CUBIST will obtain expanded rights under the ELI LILLY patents; WHEREBY, CUBIST will obtain an exclusive license under ELI LILLY Know-How and Patents) to make, use and sell Daptomycin for use in the Field of infectious disease no longer excluding induced colitis; and WHEREBY, CUBIST will obtain an assignment to other ELI LILLY Assigned Patents giving CUBIST complete ownership, control and all rights to the subject matter claimed therein for all compounds and all uses; NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties intending to be bound, agree as follows: *Confidential treatment requested: Material has been omitted and filed with the Commission ARTICLE 1 DEFINITIONS As used throughout this Agreement, the following terms shall have the meanings indicated in this Article. 1.00 "Affiliate" means any corporation or other entity which directly or indirectly controls, is controlled by or is under common control with a party to this Agreement. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls more than fifty percent (50%) of the outstanding voting stock or other ownership interest of the other corporation or entity, or if it possesses, directly or indirectly, the power to manage, direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint fifty percent (50%) or more of the members of the governing body of the corporation or other entity. Any such other relationship as in fact results in actual control over the management, business and affairs of a corporation or other entity shall also be deemed to constitute control. 1.01 "Assigned Patents" shall mean those patents and patent applications listed in Exhibit 3 which have been assigned to CUBIST by ELI LILLY. 1.02 "Average Market Price" shall mean the average closing price for CUBIST common stock for twenty consecutive trading days, the last day of which is immediately prior to five days prior to the event that triggered such payment of CUBIST common stock to ELI LILLY. 1.03 "Compound" means [ ]* or a pharmaceutically acceptable salt thereof or a pharmaceutically acceptable formulation thereof which is in Lilly's possession on November 7, 1997. 1.04 "Confidential Information" means any information and data received by a party from the other party, as well as the terms of this Agreement. Notwithstanding the foregoing, Confidential Information shall not include any part of such Confidential Information that: (i) is or becomes part of the public domain other than by unauthorized acts of the party obligated not to disclose such Confidential Information; (u) can be shown by written documents to have been disclosed to the receiving party by a third party, provided such Confidential Information was not obtained by such third party directly or indirectly from the disclosing party with an obligation for such third party to maintain the confidentiality of such information; (iii) prior to disclosure under this Agreement, was already in the possession of the receiving party and such possession can be evidenced by written documents, provided such Confidential Information was not obtained directly or indirectly from the disclosing party with an obligation to maintain the confidentiality of such information; (iv) can be shown by written documents to *Confidential treatment requested: Material has been omitted and filed with the Commission have been independently developed by the receiving party without breach of any of the provisions of this Agreement and such independent development can be evidenced by written documents; or (v) is disclosed by the receiving party pursuant to interrogatories, requests for information or documents, subpoena, civil investigative demand issued by a court or governmental agency or as otherwise required by law, provided, however, that the receiving party notifies the disclosing party immediately upon receipt thereof, giving such disclosing party sufficient advance notice to permit it to seek a protective order or other similar order with respect to such Confidential Information and provided, further, that the receiving party furnishes only that portion of the Confidential Information which it is advised by counsel is legally required whether or not a protective order or other similar order is obtained by the disclosing party. 1.05 "ELI LILLY Program" shall mean a research, development and/or marketing project that ELT LILLY, its Affiliates, and/or a third party, pursuant to an Agreement with ELI LILLY, have been committing non-trivial financial and/or human resources to advance. 1.06 "Field" shall mean the treatment of infectious diseases. 1.07 "Know-How" means all information and data reasonably useful for the development, process development, regulatory approval, manufacture, use, formulation or sale of Compound in the Field which (i) is in the possession of ELI LILLY as of the November 7, 1997 or is created by ELI LILLY after the November 7, 1997, (u) ELI LILLY can provide using reasonable efforts and (iii) ELI LILLY is free to provide without obligation to any third party. Such Know-How may include information that is secret, whether or not patentable, relating to materials, methods, processes, procedures, protocols, techniques, formulae and data reasonably useful for the development, regulatory approval, manufacture or use of Compound in the Field. 1.08 "Major Market Country" shall mean the United States, Canada, Japan, the United Kingdom, Germany, France, Italy, Spain, Switzerland, Netherlands and Belgium. 1.09 "Net Sales" means the amounts received by CUBIST and/or its sublicensees on sales or other transfers for commercial use of Compound, and products incorporating Compound, to independent third parties in bona fide arms length transactions, less the following deductions actually allowed and taken by such independent third parties and not otherwise recovered by or reimbursed by CUBIST or its sublicensees: *Confidential treatment requested: Material has been omitted and filed with the Commission (a) trade, cash and quantity discounts, including, without limitation, chargebacks and rebates; (b) taxes, duties and other governmental charges set forth separately in the amount invoiced; (c) freight, insurance and other transportation expenses to the extent added to the sales prices and set forth separately as such in the total amount invoiced; and (d) credits or allowances on account of refunds, returns, rejections, or price adjustments. If CUBIST or its sublicensees sell or transfer Compound, or any products incorporating Compound for commercial use, other than (i) reasonable quantities of promotional samples or (u) to an independent third party in a bona fide arm's length transaction, Net Sales shall be determined based upon the resale or other retransfer to an independent third party in an arm's length transaction by the entity to whom such Compound, or product, was sold or transferred by Cubist or its sublicensee. If there is no such resale or retransfer, Net Sales shall be determined based on the average Net Sales price as determined in the immediately preceding royalty accounting period as set forth in Section 4.02. In the event Compound is sold as a component of a combination of functional elements, Net Sales for purposes of determining royalty payments on such combination shall be calculated by multiplying the Net Sales price of such combination by the fraction A over A+B, in which "A" is the gross selling price of the Compound portion of the combination when sold separately during the accounting period in which the sale was made, and "B" is the gross selling price of the non-Compound portion of the combination sold separately during the accounting period. In the event no separate sale of either such above-designated Compound or such above-designated non-Compound portion of the combination is made during the accounting period in which the sale of the combination was made. Net Sales shall be calculated by multiplying the Net Sales price of the combination by the fraction C over C+D, in which "C" is the standard fully allocated cost of the Compound portion of such combination, and "D" is the standard fully allocated cost of the other component(s). For purposes of the foregoing sentence, "fully allocated cost" shall mean all direct and indirect labor and overhead, materials and supplies, fringe benefits, taxes and charges and direct and indirect general and administration charges incurred by CUBIST or its sublicensees, and accounted for according to CUBIST's or its sublicensees' *Confidential treatment requested: Material has been omitted and filed with the Commission standard accounting practices consistent with generally accepted accounting principles. 1.10 "Patent(s)" means any of ELI LILLY's patents, pending patent applications, and future patent applications, including, but not limited to, those set forth on Exhibit 2 attached hereto, which claim Compound, formulations of Compound, processes for preparing Compound or use of Compound in the Field, any United States or foreign counterpart patents and applications, and any continuing, divisional, reissue, re-examination and substitute patents and applications based, in whole or in part, on any of the foregoing patents and patent applications, together with all continuations, continuations-in-part, divisions, patents of addition, reissues, renewals, extensions, supplementary protection certificates and complementary protection certificates of any of the foregoing which are owned by ELI LILLY and under which ELI LILLY has rights to grant a sub-licenses. 1.11 "Phase II Clinical Trial" shall mean clinical studies conducted in accordance with Good Clinical Practices ("GCPs") in a small number of healthy volunteers to establish efficacy and obtain a preliminary indication of the dosage of Compound. 1.12 "Phase BI Clinical Trial" shall mean large scale clinical studies in patients conducted in accordance with GCPs primarily to establish safety and efficacy of Compound. 1.13 "Valid Claim" shall mean a claim of an issued and unexpired Assigned Patent and/or Patent which has not been withdrawn, canceled, revoked, disclaimed, or held invalid, unenforceable or unpatentable by a final and unappealed (within the time allowed for appeals) or unappealable judgment or decision of a court or other governmental agency of competent jurisdiction ARTICLE 2 LICENSE GRANT 2.00 As of the Effective Date, ELI LILLY shall assign, transfer, convey and deliver to CUBIST all rights to Assigned Patents in a separate assignments) for each of such Assigned Patents. ELI LILLY shall further file copies of such assignments) in the United States Patent and Trademark Office. Such assignments shall be treated by both parties as sales for United States federal income tax purposes. *Confidential treatment requested: Material has been omitted and filed with the Commission 2.01 ELI LILLY grants to CUBIST the following worldwide, exclusive licenses subject to the conditions set forth herein below in Section 2.02: (a) Under the Patents, to develop, manufacture, formulate, have manufactured, import, use, distribute for sale, market and sell Compound in the Field; and (b) To use the Know-How for the development, manufacture, formulation, use, distribution for sale, marketing, and sale of Compound consistent with the terms of this Agreement. 2.02 (i) Subject to Section 2.02(u) below, CUBIST shall have the right to grant sublicenses under the Patents and Know-How, for use in the Field; provided that the terms and conditions of such sub-licenses are consistent with and no less restrictive than the terms and conditions of this Agreement, and any such disclosure or transfer of Compound shall be limited to use solely in the Field. (ii) In the event that, during the term of this Agreement, CUBIST actively seeks to grant a sub-license to a third party for the development of the Compound in the Field, which sublicense includes, but is not necessarily limited to, the right to develop and/or commercialize an oral or intravenous formulation of the Compound, CUBIST agrees to inform ELI LILLY of such determination by written notice, which notice shall include (a) a description in reasonable detail of the subject matter of the proposed sub-license and (b) the terms on which CUBIST would be willing to grant ELI LILLY such rights (the "Sublicense Notice"). ELI LILLY shall thereupon have a period of [ ]* days (the "Notice Period") to either accept CUBIST's terms in writing or to make a written counter-proposal. If ELI LILLY accepts CUBIST's proposal or makes a counter-proposal, the parties will, for a period of up to [ ]* days from receipt by ELI LILLY of the Sublicense Notice (the "Negotiation Period"), seek in good faith to enter into a definitive agreement for such rights. If ELI LILLY does not by the expiration of the Notice Period either accept CUBIST'S proposal or make a counter-proposal, or if the parties negotiate in good faith and fail to reach agreement by the expiration of the Negotiation Period, CUBIST shall be free to enter into a sub-license for such rights with a third party, provided that such sub-license is granted on no better terms to the sub-licensee, taken as a whole, than the terms for such rights, if any, which ELI LILLY last offered to CUBIST during the Negotiation Period. 2.03 CUBIST shall notify ELI LILLY within [ ]* days of the identity of each sublicensee together with a summary of the principal terms of any *Confidential treatment requested: Material has been omitted and filed with the Commission sub-license, and shall take all reasonable steps in the event of a breach of any sub-license by the sub-licensee to enforce the same. 2.04 CUBIST acknowledges that ELI LILLY has disclosed certain Know-How to CUBIST prior to the execution of this Agreement and CUBIST shall treat such Know-How in accordance with the terms of this Agreement. During the term of this Agreement, ELI LILLY shall disclose to CUBIST such other Know-How as is directly related to CUBIST'S activities under the license granted in Article 2.01 and which ELI LILLY can provide to CUBIST using reasonable efforts. 2.05 Promptly after the Effective Date, ELI LILLY may provide CUBIST with reasonable access to consult with pertinent ELI LILLY employees that have had prior experience working with Compound in the Field at ELI LILLY to enhance the preclinical or clinical development and manufacturing of the Compound, provided that such consultation shall occur at a mutually agreeable time and place and that ELI LILLY will only provide such access to current employees which are reasonably able to provide CUBIST with ELI LILLY Know-How relating to the scaleup, manufacture, or formulation of Compound for use in the Field. CUBIST shall be responsible for all reasonable expenses its own personnel and ELI LILLY personnel incur in association with any such consultations. Upon CUBIST's request, ELI LILLY shall provide CUBIST and its sublicensees with all Know-How, information and data owned by ELI LILLY which ELI LILLY can provide using reasonable efforts to the extent such Know-How, information and data is reasonably required to further CUBIST's or its sub-licensees' ability to develop, scale-up, obtain regulatory approval for, manufacture, distribute, use, formulate or sell Compound for use in the Field. CUBIST agrees to treat all Know-How disclosed to it as Confidential Information of ELI LILLY. . 2.06 ELI LILLY shall deliver to CUBIST, ELI LILLY's available inventory of Compound. ELI LILLY shall not be required to perform any manufacturing of Compound for CUBIST. ARTICLE 3 DILIGENCE AND REGULATORY 3.00 CUBIST shall use commercially reasonable efforts to develop and test the Compound in the Field, to perform all pre-clinical, clinical and other studies of such Compound necessary to obtain regulatory approval for the manufacture, use and sale of Compound, and to market and sell Compound in the Field in all countries in which it is commercially reasonable to market such Compound. CUBIST shall fully fund these efforts, as well as *Confidential treatment requested: Material has been omitted and filed with the Commission any other work that is required for CUBIST to develop and market Compound in the Field. CUBIST has prepared and provided to ELI LILLY a preliminary development plan as of November 7, 1997, which contained CUBIST's estimate, based upon data currently available to CUBIST concerning the subject matter of this Agreement, of the probable course of Compound development hereunder. CUBIST will provide ELI LILLY with bi-annual status reports regarding the development progress of the Compound; however, any material events or changes in the Compound development plan will be reported to ELI LILLY as soon as reasonably possible after such event occurs. 3.01 CUBIST represents that it intends to conduct clinical testing of Compounds to the extent that such testing is supported by safety and efficacy data required by the applicable regulatory agency. 3.02 ELI LILLY hereby grants CUBIST the right of reference to the Investigational New Drug Application filed with the United States Food and Drug Administration ("FDA") relating to the Compound, and ELI LILLY agrees to provide to CUBIST copies of all related contact reports, minutes and other regulatory correspondence filed with or communicated to the FDA. ELI LILLY shall transfer all reasonably transferable information used in regulatory filings, laboratory data, clinical data, toxicology data, and scale-up, manufacturing and formulation information relating to Compound to CUBIST in a commercially reasonable time frame. 3.03 CUBIST shall comply with all applicable laws and regulations regarding the care and use of experimental animals, in a country where the development is carried out. All animals used to evaluate Compound shall be provided humane care and treatment in accordance with the most acceptable veterinary practices. ARTICLE 4 PAYMENTS 4.00 CUBIST will pay to ELI LILLY the following payments: (a) [ ]* as a license fee, to be paid upon the earlier of (i) completion of CUBIST or CUBIST'S sub-licensee's first Phase II Clinical Trial in a Major Market Country or (u) upon the initiation of CUBIST or CUBIST's sub-licensees of patient dosing in the first Phase III Clinical Trial in a Major Market Country; said license fee to *Confidential treatment requested: Material has been omitted and filed with the Commission be paid in CUBIST common stock based on the Average Market Price for such CUBIST common stock; (b) [ ]* as a license fee, to be paid upon the date of CUBIST'S or CUBIST'S sub-licensee's first regulatory submission in a Major Market Country for a license to market Compound, said license fee to be paid in CUBIST common stock, based on the Average Market Price for such CUBIST Common Stock; and (c) [ ]* as a license fee, to be paid upon the date of CUBIST's or CUBIST'S sub-licensee's first regulatory approval in a Major Market Country for their application to market Compound, said license fee to be paid in CUBIST common stock, based on the Average Market Price for such CUBIST Common Stock. 4.01 During the first [ ]* months after the first commercial sale of Compound in a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* on the first [ ]* of aggregate annual Net Sales of Compounds and [ ]* on aggregate Net Sales between [ ]* and [ ]* on aggregate annual Net Sales in excess of [ ]* in all countries ("Protected Countries") for so long as (a) the manufacture, use or sale of Compound is covered by a Valid Claim, or (b) there is no significant generic competition which causes a reduction of Net Sales of Compound by [ ]* percent or more in any twelve month period. 4.02 After the expiration of the first [ ]* months after first commercial sale in a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* on the first [ ]* of aggregate annual Net Sales of Compound and 13.5% on aggregate annual Net Sales between [ ]* and [ ]* in aggregate annual Net Sales in excess of [ ]* in all countries ("Protected Countries") for so long as (a) the manufacture, use or sale of a Compound is covered by a Valid Claim, or (b) there is no significant generic competition which causes a reduction of Net Sales of Compound by [ ]* percent or more in any twelve month period. 4.03 For a period often [ ]* years following first commercial sale in a Major Market Country, CUBIST will pay ELI LILLY royalties of [ ]* of aggregate annual Net Sales in all countries that are not Protected Countries, but where the manufacture, use, sale or transfer of Compound utilizes Know-How provided to CUBIST by ELI LILLY. [ ]* of Net Sales in countries that are not Protected Countries shall be included in aggregate annual Net Sales of Compound calculated pursuant to Section 4.02 for purposes of determining the appropriate royalty percentage in Section 4.02. *Confidential treatment requested: Material has been omitted and filed with the Commission 4.04 In the event that CUBIST can demonstrate that external factors beyond its control (such as government-imposed price controls) have materially reduced CUBIST'S profitability on sales of Compound in any Country, ELI LILLY agrees to consider in good faith an equitable reduction in the royalty rate applicable to such country under Section 4.02 or 4.03, as applicable. 4.05 The first payment under Articles 4.01, 4.02 and 4.03 shall be due within [ ]* days after December 31 or June 30, whichever such date occurs first after the first commercial sale or transfer of Compound. Thereafter, payments under Articles 4.01, 4.02 or 4.03 shall be made within [ ]* days of each of December 31 and June 30 of each year. Payments shall be accompanied by a report showing all facts necessary to the calculation of amounts due. 4.06 All royalty payments to ELI LILLY shall be in United States dollars. Royalty payments based on Net Sales in currencies other than United States dollars shall be converted to US dollars according to the average official rate of exchange for that currency as published in the Wall Street Journal on the first and last days of the six-month period in which that royalty accrued (or, if not published on that day, the first and last publication days for the Wall Street Journal during that six month period). If such exchange rate is not published in the Wall Street Journal, then the rate shall be determined using average conversion rates that are accepted in the industry on the first and last days of the six month period in which the royalty accrued. All payments that are not to be made in CUBIST common stock, as specified herein, shall be paid in United States dollars. 4.07 If by law, regulation, or fiscal policy of a particular country, conversion into United States dollars or transfer of funds of a convertible currency to the United States is restricted or forbidden, CUBIST shall give ELI LILLY prompt written notice and shall pay the royalty due under this Article 4 through such means or methods as are lawful in such country as ELI LILLY may reasonably designate. Failing the designation by ELI LILLY of such lawful means or methods within [ ]* days after such written notice is given to ELI LILLY, CUBIST shall deposit such royalty payment in local currency to the credit of ELI LILLY in a recognized banking institution designated by ELI LILLY, or if none is designated by ELI LILLY within the [ ]* day period described above, in a recognized banking institution selected by CUBIST and identified in a written notice to ELI LILLY by CUBIST, and such deposit shall fulfill all obligations of CUBIST with respect to such royalties. *Confidential treatment requested: Material has been omitted and filed with the Commission 4.08 CUBIST and its sub-licensees, if any, shall maintain complete and accurate books and records with respect to sale and use of Compound and all other information necessary to permit calculation and verification of amounts due under this Article 4 and Article 5 and Article 6, set forth below. Upon reasonable prior written notice to CUBIST, ELI LILLY may cause an independent agent to audit the books and records of CUBIST and its sub- licensees, if any, pertaining to the payment to ELI LILLY hereunder, for the sole propose of confirming the amounts due, and the accuracy of the payments and reports; provided that no such audit shall be permitted for periods exceeding thirty six (36) months prior to the date CUBIST receives such written notice. Any such audit shall be performed at ELI LILLY'S expense during normal business hours and shall, if so required by CUBIST, be performed by a firm of independent public accountants reasonably acceptable to CUBIST. The independent agent shall report only such information as would properly be included in such a report. In the event of an underpayment, CUBIST shall promptly remit to ELI LILLY all amounts due. CUBIST shall require any sub-licensee to agree to comply with all of the terms of this paragraph, including but not limited to making such report, maintaining such records, and permitting such audit. If such audit reveals that CUBIST has underpaid ELI LILLY by greater than [ ]* then CUBIST shall reimburse ELI LILLY for the reasonable cost of the audit. 4.09 Any late payments due to ELI LILLY shall be subject to interest charges which rate shall be established at [ ]* on the date that such payment was first due to ELI LILLY. ARTICLE 5 MINIMUM ROYALTIES 5.00 Sixty (60) days after December 31 or June 30, whichever date occurs first, following the first twelve (12) month period after the first commercial sale of Compound in a Major Market Country, CUBIST will pay ELI LILLY the greater of the balance of payments due for such twelve (12) month period under Articles 4.01 and 4.02 of this Agreement or the balance of [ ]* less royalties already paid for such twelve (12) month period pursuant to Articles 4.01 and 4.02, as a minimum royalty. 5.01 Sixty (60) days after December 31 or June 30, whichever date occurs first, following the second twelve (12) month period after the first commercial sale of Compound in a Major Market Country, CUBIST will pay to ELI LILLY the greater of the balance of payments due for such twelve (12) *Confidential treatment requested: Material has been omitted and filed with the Commission month period Articles 4.01 and 4.02 of this Agreement or the balance of [ ]*, less royalties already paid for such twelve (12) month period the preceding calendar year pursuant to Articles 4.01 and 4.02; as a minimum royalty. 5.02 Sixty (60) days after December 31 or June 30, whichever date occurs first, following the third twelve (12) month period after the first commercial sale of Compound in a Major Market Country, CUBIST will pay ELI LILLY the greater of the balance of payments due for such twelve (12) month period under Articles 4.01 and 4.02 of this Agreement or the balance of [ ]* less royalties already paid for such twelve (12) month period the preceding calendar year pursuant to Articles 4.01 and 4.02, as a minimum royalty. 5.03 CUBIST shall deduct any withholding taxes from the payments agreed upon under this Agreement and pay them to the proper tax authorities as required by applicable law. CUBIST shall maintain official receipts of any withholding taxes and forward these receipts to ELI LILLY. The parties will exercise their best efforts to ensure that any withholding taxes imposed are reduced as far as legally possible under the provisions of any treaties applicable to any payment made hereunder. ARTICLE 6 INDEMNIFICATION, INSURANCE AND LIMITATION OF DAMAGES 6.00 CUBIST shall indemnify ELI LILLY and its directors, officers, employees and agents, as set forth in Article 6.02, with respect to (a) any third party claim or action against ELI LILLY based on CUBIST'S or CUBIST'S sublicensee's developing, making, distributing, selling, marketing, using or otherwise transferring Compound and (b) breach of any representation or warranty contained in Article 7 by CUBIST, provided, however that CUBIST shall have no duty to indemnify ELI LILLY to the extent that any such claim or action is subject to ELI LILLY's duty of indemnification set forth in Article 6.01. 6.01 ELI LILLY shall indemnify CUBIST, as set forth in Article 6.02, with respect to (a) any third party claim or action against CUBIST based on (i) activities of ELI LILLY, its employees, or its agents with respect to Compound prior to the Effective Date, (u) the negligence or willful misconduct of ELI LILLY, its employees and agents, and (b) breach of any representation or warranty contained in Article 7 by ELI LILLY, provided, however, that ELI LILLY shall have no duty to indemnify CUBIST to the extent that any such claim or action is subject to CUBIST'S duty of indemnification set forth in Article 6.00. *Confidential treatment requested: Material has been omitted and filed with the Commission 6.02 With respect to the claims and actions referenced in Articles 6.00 and 6.01 above, the indemnifying party shall defend any such claim or action against the indemnified party and shall pay all damages, judgments, costs, expenses (including attorneys' fees, but only to the extent that the indemnifying party fails to promptly assume the defense of such claims and actions) and liability awarded against the indemnified party, or settlements entered into, with respect to such claim or action, provided that the indemnified party (a) provides prompt written notice to the indemnifying party of any such claim or action; (b) allows the indemnifying party to assume the defense and settlement thereof, with counsel of its choice; and (c) provides reasonable assistance to the indemnifying party in connection with the defense and settlement thereof. 6.03 Prior to administration of Compound to any human, CUBIST shall provide to ELI LILLY an endorsement verifying customary levels of insurance for damages, judgments, costs, expenses (including attorneys' fees) and liability with respect to any third party claim or action based on CUBIST's or CUBIST'S sublicensee's manufacture, distribution, use, marketing or sale of Compound, naming Eli Lilly and Company, its directors, officers and employees as additional insureds on the policy, and shall have copies of such insurance policies delivered to ELI LILLY as soon as reasonably practical. In addition, evidence of insurance in the form of such endorsement shall be furnished to ELI LILLY at the inception of each subsequent phase of human clinical trials, as well as upon granting of NDA and PLA, but in no event less than annually upon the insurance policy renewal date. Such insurance shall remain in effect at customary levels throughout the term of this Agreement. ELI LILLY shall be informed thirty (30) days prior to any cancellation of or material decrease in the amount of coverage of such insurance by CUBIST or any other action that CUBIST reasonably should believe will result in decrease or cancellation of such insurance, or immediately upon receipt by CUBIST of a notice of cancellation of such insurance, on the effective date of which cancellation or decrease, clinical use of Compound must immediately cease, subject to CUBIST obtaining adequate replacement insurance. The foregoing shall not be interpreted to limit the scope or amount of CUBIST'S indemnification obligation under Article 6.00. Notwithstanding the foregoing, CUBIST shall be entitled to adopt an insurance program containing self insurance elements, to the extent that CUBIST is able to demonstrate to the reasonable satisfaction of ELI LILLY that such a program is not unusual in the industry for companies similarly situated (including financial condition to support such a program) or with respect to products with a risk profile similar to products licensed hereunder. *Confidential treatment requested: Material has been omitted and filed with the Commission 6.04 Other than as set forth elsewhere in this Agreement, in no event shall either party be liable for any special, consequential, indirect, or incidental damages, however caused and on any theory of liability, arising out of this Agreement. These limitations shall apply notwithstanding any failure of essential purpose of any limited remedy. ARTICLE 7 REPRESENTATIONS, WARRANTIES AND DISCLAIMER 7.00 Each party represents and warrants to the other party that (a) it has the right to enter into this Agreement; (b) this Agreement has been duly authorized by all necessary action of such party; and (c) the execution of this Agreement by the party will not conflict with or breach any other agreement to which it is a party or by which it is bound. 7.01 ELI LILLY represents that (a) there is no agreement known to ELI LILLY to which it is a party and by which it is bound that would conflict with or be breached by ELI LILLY granting the license in Article 2, (b) except as previously disclosed in writing to CUBIST, no other person or entity has claimed, or to ELI LILLY's knowledge has, any rights to or interest in the Patents and the Know- How in the Field to be licensed hereunder, and that to its knowledge, the manufacture, use, distribution, marketing or sale of the Compounds) can be performed without infringing the patent rights of any third party, and (c) as of the Effective Date ELI LILLY is conducting no development program relating to analogs or derivatives of the Compound, provided that ELI LILLY shall be free to commence and conduct any such program at any time hereafter. 7.02 ELI LILLY makes no representation or warranty that Compound made, used, or sold under the licenses granted herein is or will be free of claims of infringement of the patent rights of any third party (although it represents and warrants that it has no knowledge of (i) such infringement not heretofore disclosed to CUBIST and (u) any payment obligations that CUBIST will have to third parties in connection with CUBIST's development, manufacturing, marketing or sale of Compound) and makes no warranty or representation that any of the Patents to be licensed hereunder are valid or enforceable. 7.03 EXCEPT AS SET FORTH IN ARTICLES 7.00 AND 7.01 ABOVE, ELI LILLY EXPRESSLY DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION *Confidential treatment requested: Material has been omitted and filed with the Commission WARRANTIES OF MERCHANTABILTTY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. 7.04 CUBIST acknowledges that the Compounds) are highly experimental in nature and it is fully aware that Compounds) may prove to be ineffective and/or unsafe when used in humans. 7.05 CUBIST warrants that all CUBIST common stock to be paid to ELI LILLY pursuant to this Agreement shall be properly issued and all legal requirements associated with such issuance to ELI LILLY shall be fulfilled. The number of shares of CUBIST common stock payable to ELI LILLY shall be determined by dividing the payment amount by the Average Market Price to determine the number of shares. For illustration purposes only, upon completion of CUBIST's first Phase II Clinical Trial, CUBIST shall pay ELI LILLY [ ]* in CUBIST common stock. The number of shares to be transferred to ELI LILLY shall be determined by dividing [ ]* by the Average Market Price. ARTICLE 8 PATENTS AND KNOW-HOW 8.00 In the event either of the parties shall learn of the infringement, or a challenge to the validity, enforceability, or title of any Patent (including any action for a declaratory judgment) right licensed hereunder, or an action for unauthorized use or misappropriation of Know-How licensed hereunder, such party shall promptly notify the other party thereof in writing and shall provide the other party with any evidence in its possession of such infringement, challenge or action. 8.01 (a) During the term of this Agreement, ELI LILLY shall have the sole right, but no obligation, to bring or defend any suit or action relative to the patenting or patent enforcement directly relating to Patent(s), including the right to recover for past infringement, or the unauthorized use or misappropriation of Know-How in the Field. If ELI LILLY finds it necessary or desirable to join CUBIST in such suit or action, CUBIST shall execute all papers and perform such other acts as may reasonably be required, at ELI LILLY's expense, to join CUBIST in such suit or action. CUBIST may, at its option, join as a party to such suit and be, at its expense, represented by counsel of its choice, provided that ELI LILLY shall continue to control the prosecution or defense of such suit. Unless CUBIST and ELI LILLY otherwise agree, any amount recovered in any such action, whether by *Confidential treatment requested: Material has been omitted and filed with the Commission judgment or settlement, after deducting ELI LILLY's reasonable expenses (including attorneys' fees), and payment to CUBIST of damages in respect of CUBIST'S lost profits for which ELI LILLY recovers payment and CUBIST's reasonable expenses (including attorneys' fees) incurred in connection with an action or suit in which ELI LILLY requested that CUBIST be joined or in which CUBIST voluntarily joined, shall be paid to or retained by ELI LILLY. (b) In the event ELI LILLY fails to take action with respect to such Patents) infringement, or challenge to validity, enforceability or title, or action for unauthorized use or misappropriation of Know-How in the Field which materially affect intellectual property rights of ELI LILLY that relate to an active ELI LILLY program, within a reasonable period, no less than three (3) months, following receipt by ELI LILLY of reliable evidence of infringement, CUBIST shall have the right, but no obligation, to bring, or defend any such suit or action. ELI LILLY may, at its option, join as a party to such suit and be, at its expense, represented by counsel of its choice, provided that CUBIST shall continue to control the prosecution or defense of such shit. If CUBIST finds it necessary to join ELI LILLY in such suit or action, ELI LILLY shall execute all papers and perform such other acts as may be reasonably required at CUBIST's expense. Unless CUBIST and ELI LILLY otherwise agree, any amount recovered in any such action or suit, whether by judgment or settlement, after deducting CUBIST'S reasonable expenses (including attorneys' fees) and, after payment to ELI LILLY of damages in respect of ELI LILLY's lost royalties for which CUBIST recovers payment and after payment to ELI LILLY of its reasonable expenses (including reasonable attorneys' fees) incurred in connection with an action or suit in which CUBIST requested that ELI LILLY be joined or which ELI LILLY voluntarily joined, shall be paid to or retained entirely by CUBIST. (iii) Notwithstanding anything to the contrary in this Section 8.01, should ELI LILLY receive a certification pursuant to the Drug Price Competition and Patent Restoration Act of 1984 (Public Law 98-417) as amended; or its equivalent in a country other than the United States of America with respect to a Patent, then (i) ELI LILLY shall immediately provide CUBIST and its sublicensee with a copy of such certification and identify the date on which ELI LILLY received such certification (the "Certification Date"), and (u) ELI LILLY shall have twenty (20) days from the Certification Date to provide CUBIST and its sublicensee with written notice whether ELI LILLY will bring suit within a forty five (45) day period (or any other mandatory time period) from the Certification Date. Should such twenty (20) day period pass without ELI LILLY bringing suit, then CUBIST or its sublicensee shall be free to immediately bring suit for patent infringement in its name and, at its sole option, in the name of ELI LILLY. Accordingly, ELI LILLY hereby agrees to become party to the suit, at *Confidential treatment requested: Material has been omitted and filed with the Commission CUBIST's request. If CUBIST or its sublicensee initiates suit pursuant to this section, it will promptly notify ELI LILLY. 8.02 If CUBIST determines in good faith in consultation with ELI LILLY that the manufacture, use or sale of Compound in the Field would infringe the intellectual property rights of a third party unaffiliated with either CUBIST or ELI LILLY, and it therefore becomes necessary to pay a royalty, license fee or other compensation to that party to avoid a claim of infringement, then CUBIST and ELI LILLY shall each bear one-half of that royalty, license fee or other compensation obligation provided that ELI LILLY's share of such obligation shall be deducted from CUBIST's royalty payments due to ELI LILLY, and further provided that CUBIST'S payment, pursuant to this Agreement, to ELI LILLY in any one (1) year would never be reduced by more than [ ]*. If, as a result of the preceding sentence, CUBIST bears more than [ ]* of the royalty, license fee or other compensation due to a third party under this Section 8.04, the amount of the excess may be carried forward and used by CUBIST as a credit against royalties due ELI LILLY in subsequent royalty periods, provided that in no event shall CUBIST's royalty payments to ELI LILLY be reduced by more than [ ]*. 8.03 Each patty agrees to cooperate with the other in legal action taken to enforce, defend or maintain a Patent licensed hereunder or concerning Know-How licensed hereunder, including litigation proceedings. 8.04 ELI LILLY shall take all steps necessary to maintain the Patents in the Field, including without limitation the preparation, filing and prosecution of new patent applications, through an attorney of their choice. (a) If CUBIST reasonably believes that ELI LILLY is failing to maintain one or more of its Patents in the Field, CUBIST shall provide ELI LILLY sixty (60) days written notice of its intent to assume maintenance of such Patents itself. If ELI LILLY fails to resume maintenance of the Patents in the Field that CUBIST reasonably believes that ELI LILLY is failing to maintain or to provide reasonable evidence demonstrating that ELI LILLY is maintaining these Patents in the Field at the expiration of such sixty (60) day period, CUBIST may, through an attorney of their choice, take all necessary actions to maintain the Patents, and shall be entitled to deduct [ ]* of the costs and expenses incurred from any of CUBIST's payments pursuant to Article 4.04. In such event, ELI LILLY shall complete all acts and execute and deliver all instruments and other documents and render CUBIST assistance as is necessary or desirable for CUBIST to assume the filing, prosecution and maintenance of such *Confidential treatment requested: Material has been omitted and filed with the Commission Patents in the Field that ELI LILLY has not resumed maintenance of or demonstrated that it is maintaining. (b) ELI LILLY shall keep CUBIST currently advised as to the status of all patents and patent applications which relate to Patents and to supply CUBIST promptly with copies of all patents, patent applications, substantive patent office actions, substantive responses received or filed in connection with such applications. CUBIST may itself or through its attorney offer comments and suggestions with respect to the matters that are the subject of this Article 8.06, and ELI LILLY agrees to consider carefully such comments and suggestions; however, nothing herein shall obligate ELI LILLY to follow such comments or suggestions. (c) ELI LILLY shall notify CUBIST of their intention to abandon a patent or patent application which relates to Patents (either a total series of Patents or patent applications or on a country by country basis). At CUBIST's option, CUBIST may maintain such patent or patent application relating to Patent that ELI LILLY plans to abandon (either a total series of Patents or patent applications or on a country by country basis) at CUBIST's sole expense, and CUBIST shall receive title to such patent or patent application and such patent shall no longer then be considered a Patent for purposes of this Agreement. 8.05 (a) CUBIST shall take all steps necessary to maintain its Assigned Patents. (b) CUBIST shall keep ELI LILLY currently advised as to the status of all Assigned Patents. ARTICLE 9 ASSIGNMENT 9.00 Neither party may assign or delegate any of its rights or duties under this Agreement without the prior written consent of the other, except that either party may assign this Agreement to a person or party that has purchased or succeeded to all or substantially all of the business and assets of the assignor to which the Agreement relates, and that has assumed in writing or by operation of law such party's obligations under this Agreement, provided that CUBIST shall be permitted to sub-license its rights hereunder as provided under Section 2.01 above. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective *Confidential treatment requested: Material has been omitted and filed with the Commission successors and assigns insofar as this Agreement is assignable. The assignor of this Agreement shall guarantee the performance of the obligation of this Agreement by such successor or assigns. Nothing herein is intended to confer on any person other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement. ARTICLE 10 TERM AND TERMINATION 10.00 The term of this Agreement shall be for the period commencing as of the Effective Date and ending on the later of (a) the expiration of the last of the Assigned Patents or Patents to expire or (b) the end of the [ ]* from the date of first sale in the first Major Market Country where Know-How royalties are due, unless and until earlier terminated as provided in this Article. Upon the expiration of this Agreement, CUBIST shall retain a fully paid-up, royalty free license under the Know-How for purposes consistent with this Agreement and limited to use in the Field. 10.01 If both CUBIST and any sub-licensees substantially cease all development activities pursuant to the then-current development plan for a period of [ ]*, then ELI LILLY shall have an exclusive right to acquire back all rights relating to Compound pursuant to this Agreement. The terms under which ELI LILLY shall acquire back such rights shall be the subject of a separate agreement to be negotiated in good faith by the parties. 10.02 If either party defaults in the performance of its material obligations hereunder, including but not limited to CUBIST's failure to use commercially reasonable efforts to develop Compound (provided, however, that this shall not be construed as a guarantee that any Compound will be successfully developed), and if any such default is not corrected within sixty (60) days after it shall have been called to the attention of the defaulting party, in writing, by the other party, then the other party, at its option, may, in addition to any other remedies it may have, thereupon terminate this Agreement by giving written notice of termination to the defaulting party. 10.03 This Agreement may be terminated by either party, on notice, (i) upon the institution by the other party of insolvency, receivership or bankruptcy proceedings, (u) upon the institution of such proceedings against the other party, which are not dismissed or otherwise resolved in such party's favor within sixty (60) days thereafter, and (iii) upon the other party's dissolution or ceasing to do business in the normal course. *Confidential treatment requested: Material has been omitted and filed with the Commission 10.04 CUBIST may terminate this Agreement at any time, upon thirty (30) days prior written notice to ELI LILLY and upon a reasonable determination by CUBIST that continued development of the Compound hereunder is not commercially reasonable. In such event, CUBIST shall refrain from the manufacture, marketing or sale of a Compound for a period of at least [ ]*. 10.05 Termination of this Agreement for any reason shall not result in any obligation by ELI LILLY to repay any payments made to it by CUBIST prior to such termination. 10.06 Upon termination of this Agreement for any reason, the sub-licenses shall be automatically assigned to ELI LILLY, and ELI LILLY shall be bound by the terms of such sublicenses provided that the sub-licensees continue to perform in accordance with their respective sub-license agreements. Notwithstanding the foregoing, ELI LILLY's obligations to any such sub-licensee shall not be interpreted to extend beyond any obligations to CUBIST hereunder with respect to the subject matter of the sub-license. 10.07 (a) Upon termination of this Agreement for any reason, except for termination caused by material breach by ELI LILLY, all licenses granted to CUBIST pursuant to Section 2.01 shall terminate, CUBIST furthermore shall, except subject to Section 10.01 where applicable, transfer to ELI LILLY all regulatory filings and regulatory correspondence, patent filings and patent office correspondence, any and all other clinical and non-clinical data, records and tabulations related to the Compound; and shall execute any and all documents of such patent offices and/or patent receiving offices, and/or regulatory agencies, including the US FDA, so as to allow ELI LILLY to make immediate use of such data, records, patent applications and/or patents and regulatory filings. ELI LILLY shall not be obligated to treat such information received pursuant to this Section 10.06 as Confidential Information and may use such information, data and know-how for any purpose at ELI LILLY's discretion. (b) If CUBIST terminates this Agreement due to ELI LILLY's material breach, CUBIST'S licenses pursuant to Article 2 shall continue for so long as CUBIST continues to fulfill their payment obligations pursuant to Articles 4 and 5. 10.08 Termination of this Agreement for any reason shall not terminate the provisions set forth in Article 6 with respect to actions arising with respect to periods prior to termination, as well as Articles 7, 10, 13, 15, *Confidential treatment requested: Material has been omitted and filed with the Commission and 17 hereof. The obligations of those Articles shall continue in full force and effect following any such termination. 10.09 Upon termination of this Agreement for any reason, neither party shall be relieved of obligations with respect to periods prior thereto, including any obligation to make payments, including but not limited to obligations pursuant to Articles 4, 5, 6 or 10, or reports regarding sale prior to such termination. 10.10 If CUBIST determines that it will not develop or market Compound in one or more countries, either by itself or through the efforts of a sublicensee, or if ELI LILLY makes written request to CUBIST to develop or sell Compound in one or more countries and in which countries CUBIST either by itself or through the efforts of a sublicensee, has taken no action, all rights including rights to develop, market and sell Compound in that country(ies) shall revert to ELI LILLY one year after CUBIST receives written notice of ELI LILLY's intent to pursue those rights is received by CUBIST if CUBIST either by itself or through the efforts of a sublicensee, has taken no action toward such development or marketing prior to the end of that year. ARTICLE 11 FORCE MAJEURE 11.00 If the performance of this Agreement or any obligations hereunder, except the making of payments, is prevented, restricted or interfered with by reason of fire or other casualty or accident, earthquake, supplier delay, strikes or labor disputes, war or other violence, any law, order, proclamation, regulations, ordinance, demand or requirement of any government agency, or any other act or condition beyond the reasonable control of the parties hereto ("Event of Force Majeure"), the party so affected upon giving prompt notice to the other party shall be excused from such performance to the extent of such prevention, restriction, or interference; provided that the party so affected shall use its reasonable best efforts to avoid or remove such causes of nonperformance and shall continue performance hereunder with the utmost dispatch and that such party exercises due diligence to overcome such circumstances. 11.01 The party suffering an Event of Force Majeure shall notify the other party within fifteen (15) days of the occurrence of such Events of Force Majeure and within thirty (30) days shall furnish the other party with a recovery plan of action. Without limiting the foregoing, a party suffering an Event of Force Majeure shall use its reasonable best efforts to limit the *Confidential treatment requested: Material has been omitted and filed with the Commission impact of the Event of Force Majeure on such party's performance of this Agreement. ARTICLE 12 NOTICES 12.00 Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been sufficiently given for all purposes five (5) days after having been mailed by first class certified or registered mail, postage prepaid or by fax which is confirmed by certified mail. Unless otherwise specified in writing, the mailing addresses of the parties shall be as described below. For ELI LILLY: ELI LILLY & COMPANY Attn: Legal Division Lilly Corporate Center Indianapolis, Indiana 46285 For CUBIST: Alan D. Watson, Ph.D. Senior Vice President, Corporate Development Cubist Pharmaceuticals Incorporated 24 Emily Street Cambridge, MA 02139 with a copy to: CUBIST'S Legal Counsel: Michael Lytton Palmer & Dodge One Beacon Street Boston, MA 02108 *Confidential treatment requested: Material has been omitted and filed with the Commission ARTICLE 13 GOVERNING LAW 13.00 This Agreement shall be governed by and interpreted in accordance with the laws of the State of Indiana, United States of America, without reference to conflict of laws principles. In the event of any action, controversy or claim arising out of or relating to any provision of this Agreement or the breach, termination or enforceability thereof, ELI LILLY and CUBIST shall make all efforts to settle those conflicts amicably between themselves. Should they fail to agree, the parties may assert any remedy available at law or in equity to enforce its rights under this Agreement. ARTICLE 14 PARTIAL VALIDITY 14.00 If any provision of this Agreement shall be found or be held to be invalid or unenforceable by a court of competent jurisdiction in which this Agreement is being performed, then the meaning of said provision shall be construed, to the extent feasible, so as to render the provision enforceable, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement, which shall remain in full force and effect. In such event, the parties shall negotiate, in good faith, a substitute, valid and enforceable provision which most nearly effects the parties' intent in entering into this Agreement. ARTICLE 15 CONFIDENTIALITY. 15.00 Except as otherwise provided in this Article 15, during the term of this Agreement and for a period of [ ]* years thereafter, the parties shall maintain the Confidential Information in confidence and use it only for purposes specifically authorized under this Agreement. To the extent it is reasonably necessary or appropriate to fulfill its obligations or exercise its rights under this Agreement: (i) a party may disclose Confidential Information it is otherwise obligated under this Article 15 not to disclose to third parties, on a need-to- know basis and on condition that such entities or persons agree to keep the Confidential Information confidential for the same time periods and to the same extent as such party is required to keep the Confidential Information confidential hereunder; and (ii) a party may disclose *Confidential treatment requested: Material has been omitted and filed with the Commission such Confidential Information to government or other regulatory authorities as required by law or statute. The parties hereto understand and agree that remedies at law may be inadequate to protect against any breach of any of the provisions of this Article 15 by either party or their employees, agents, officers or directors or any other person acting in concert with it or on its behalf. Accordingly, each party shall be entitled to, but not limited to, the granting of injunctive relief by a court of competent jurisdiction against any action that constitutes any such breach of this Article 15. 15.01 Notwithstanding the provisions of Section 15.00 above, CUBIST shall be free to make disclosures to third parties of Confidential Information of ELI LILLY consisting of data regarding the Compound in the Field under circumstances where, in CUBIST'S reasonable business judgment, such disclosures will (i) further the development and commercialization of the Compound and (u) not adversely affect any patent rights of ELI LILLY of which it is aware; PROVIDED, HOWEVER, that in the case of (a) technical papers disclosing such Confidential Information, or (b) other disclosures where ELI LILLY'S name is used or would reasonably be implied from the context, CUBIST will provide a copy of the proposed paper or disclosure to ELI LILLY at least two (2) weeks in advance of publication and will not proceed with such publication or disclosure without the consent of ELI LILLY, which consent will not be unreasonably withheld; and FURTHER, PROVIDED, that in the case of all other written disclosures of Confidential Information, CUBIST will provide to ELI LILLY a copy of the material incorporating such disclosure as promptly as is practicable, and in no event later than one (1) week after the disclosure takes place. 15.02 ELI LILLY will make no public pronouncements referencing this Agreement or CUBIST without CUBIST's express written approval. No license or rights are granted to either party to use the name of the other without express written approval. CUBIST shall not release any information regarding the existence or terms of this Agreement that is not required by law. ARTICLE 16 ENTIRE AGREEMENT 16.00 The terms and conditions herein contained, including the Exhibits hereto, constitute the entire agreement and understanding of the parties relating to the subject matter of this Agreement and supersedes all previous communications, proposals, representations, and agreements (including the License Agreement dated November 7, 1997) whether oral or written, relating to the subject matter of this Agreement. *Confidential treatment requested: Material has been omitted and filed with the Commission No agreement or understanding varying or extending the same shall be binding upon either party hereto unless in a written document which expressly refers to this Agreement and which is signed by both parties to be bound thereby. ARTICLE 17 MISCELLANEOUS 17.00 It is understood and agreed that each party shall have the status of an independent contractor under this Agreement and that nothing in this Agreement shall be construed as authorization for either ELI LILLY or CUBIST to act as agent for the other. Nothing contained herein or done in pursuance of this Agreement shall constitute either party the agent of the other party for any purpose or in any sense whatsoever, or constitute the parties as partners or joint venturers. 17.01 The failure of either party to enforce at any time any of the provisions of this Agreement, or the failure to require at any time performance by the other party of any of the provisions of this Agreement, shall in no way be construed to be a present or future waiver of such provisions, nor in any way affect the validity of either party to enforce each and every such provision thereafter. 17.02 The headings set forth at the beginning of the various Articles of this Agreement are for reference and convenience and shall not affect the meanings of the provisions of this Agreement. 17.03 During the term of this Agreement, ELI LILLY shall not, directly or indirectly through or in connection with any third party, conduct research, develop, make or market Compound for use in the Field. 17.04 This Agreement may not be amended, supplemented, or otherwise modified except by an instrument in writing signed by both parties. *Confidential treatment requested: Material has been omitted and filed with the Commission IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed in duplicate by duly authorized officers or representatives as of the date first above written. ELI LILLY & COMPANY CUBIST PHARMACEUTICALS INCORPORATED By: /s/ M.E. DANIELS, JR. By: /s/ ALAN WATSON --------------------- --------------------- Print name: M.E. Daniel, Jr. Print name: Alan Watson Title: Sr. Vice President Title: Senior Vice President *Confidential treatment requested: Material has been omitted and filed with the Commission EX-10.60 13 a2042768zex-10_60.txt EXHIBIT 10.60 EXHIBIT 10.60 CONFIDENTIAL TREATMENT NOTE PURCHASE AGREEMENT September 8, 2000 To the Purchasers listed on attached Schedule I Dear Sirs: CUBIST PHARMACEUTICALS, INC. (the "Company") wishes to confirm its arrangement with you ("you" or "your" shall mean each of the Purchasers listed on attached Schedule I, and each such Purchaser is also sometimes referred to herein as a "Purchaser") in connection with the issuance to you, against payment in immediately available funds of the purchase price of 100% of the principal amount thereof, of one or more senior convertible notes in the form attached hereto as Annex I (collectively the "Convertible Notes") in an aggregate principal amount of $39,000,000 and convertible initially into [ ]* fully paid and non-assessable shares (each a "Share") of the Company's Common Stock, par value $.01 per share (the "Common Stock"), subject to adjustment as set forth in the Convertible Notes. Simultaneously with the issuance of the Convertible Notes pursuant to this Agreement, you and the Company have entered into a Registration Rights Agreement, dated as of the date hereof (the "Registration Rights Agreement"), pursuant to which the Company has agreed to register the Shares under certain circumstances. Any capitalized term not defined herein shall have the meaning ascribed to such term in the Convertible Notes. 1. AGREEMENT TO ISSUE AND ACCEPT. On the basis of the representations and warranties made by the Company to induce you to purchase the Convertible Notes and subject to the terms and conditions set forth herein, the Company will issue to you, and you agree to accept from the Company, the Convertible Notes in the principal amount specified opposite your name on Schedule I at the purchase price of 100% of the principal amount thereof against payment of the above-specified purchase price therefor. The closing (the "Closing") of the issuance and acceptance of the Convertible Notes against such payment shall take place on the date hereof, at which time the Company shall deliver to you the Convertible Notes, against delivery by you of a *Confidential treatment requested: Material has been omitted and filed with the Commission. -1- wire transfer of the purchase price to the Company's account at State Street Bank & Trust, [ ]*. If at the Closing the Company shall fail to tender the Convertible Notes to you as provided in this Section 1 or any of the conditions specified in Section 5 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. Each Purchaser's obligation hereunder is several and not joint, and no Purchaser shall have any obligation or liability for the performance or non-performance by any other Purchaser hereunder. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes the representations and warranties to you set forth on Annex II hereto. 3. AGREEMENTS OF PURCHASER. You covenant and agree with the Company that: (a) You will not offer, sell, assign, hypothecate or otherwise transfer the Convertible Notes except (i) pursuant to an effective registration statement under the Securities Act of 1933 (the "Act"), (ii) to a person you reasonably believe to be an "accredited investor" within the meaning of Rule 501 under the Act, pursuant to an available exemption under the Act or (iii) in offshore transactions within the meaning and meeting the requirements of Rule 903 under the Act. (b) You will not offer, sell, assign, hypothecate or otherwise transfer any Shares issued upon conversion of the Convertible Notes except (i) pursuant to an effective registration statement under the Act; (ii) to a person you reasonably believe to be an "accredited investor" within the meaning of Rule 501 under the Act, pursuant to an available exemption under the Act or (iii) in an offshore transaction within the meaning and meeting the requirements of Rule 903 under the Act. (c) You are an "accredited investor" within the meaning of Rule 501 under the Act. (d) You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Convertible Notes to be purchased by you hereunder: (i) if you are an insurance company, the Source does not include assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or *Confidential treatment requested: Material has been omitted and filed with the Commission. -2- (ii) the Source is either (a) an insurance company pooled separate account, within the meaning of Prohibited Transaction Exemption ("PTE") 90-1 (issued January 29, 1990), or (b) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (ii), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (iii) the Source constitutes assets of an "investment fund" (within the meaning of Part V of the QPAM Exemption) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (a) the identity of such QPAM and (b) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (iii); or (iv) the Source is a governmental plan; or (v) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (e); or (vi) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA. As used in this Section 3(d), the terms "employee benefit plan", "governmental plan", "party in interest" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 4. AGREEMENTS OF THE COMPANY. From and after the date of this Agreement, and thereafter so long as any of the Convertible Notes remain outstanding, the Company will duly perform and observe, for the benefit of the holders of the Convertible Notes, each and all of the covenants and agreements hereinafter set forth: *Confidential treatment requested: Material has been omitted and filed with the Commission. -3- (a) The Company shall deliver: (i) Quarterly Statements -- within 45 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (1) a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarter, and (2) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the financial position of the companies being reported on and their results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 4(a)(i); (ii) Annual Statements -- within 90 days after the end of each fiscal year of the Company, duplicate copies of, (1) a consolidated balance sheet of the Company and its Subsidiaries, as at the end of such year, and (2) consolidated statements of income, changes in shareholders' equity and cash flows of the Company and its Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied (A) by an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the financial position of the companies being reported upon and their results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has *Confidential treatment requested: Material has been omitted and filed with the Commission. -4- been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), provided that the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year (together with the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 4(a)(ii); (iii) SEC and Other Reports -- promptly upon their becoming available, one copy of (i) each financial statement, report, notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (iv) Notice of Default or Event of Default -- promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 4(a)(7) of the Convertible Notes, a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (v) ERISA Matters -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice *Confidential treatment requested: Material has been omitted and filed with the Commission. -5- setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (1) with respect to any Plan, any reportable event, as defined in Section 4043(b) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the date hereof; or (2) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (3) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (vi) Notices from Governmental Authority -- promptly, and in any event within thirty days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; and (vii) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries or relating to the ability of the Company to perform its obligations hereunder and under the Convertible Notes as from time to time may be reasonably requested by any such holder of Convertible Notes. (b) The Company shall permit the representatives of each holder of Convertible Notes: (i) No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and *Confidential treatment requested: Material has been omitted and filed with the Commission. -6- accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (ii) Default -- if a Default or Event of Default then exists, at the expense of the Company to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. (c) The Company will and will cause each of its Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, including, without limitation, Environmental Laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (d) The Company will and will cause each of its Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. (e) The Company will and will cause each of its Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. *Confidential treatment requested: Material has been omitted and filed with the Commission. -7- (f) The Company will and will cause each of its Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax or assessment or claims if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in the aggregate could not reasonably be expected to have a Material Adverse Effect. (g) The Company will at all times preserve and keep in full force and effect its corporate existence. The Company will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries (unless merged into the Company or a Subsidiary) and all rights and franchises of the Company and its Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. (h) The Company will not and will not permit any Subsidiary to enter into directly or indirectly any transaction or Material group of related transactions (including without limitation the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. (i) The Company represents, warrants and covenants as follows regarding the renovations and improvements to be made at the Premises: (i) There are three buildings on the Premises as follows: (1) a three story Lab Building (the "Lab Building") consisting of approximately 58,000 square feet of labs and offices; (2) a one story Corporate Office Building (the "Corporate Office Building") consisting of approximately 18,000 square feet; and (3) a one story Sales Office Building (the "Sales Office Building") consisting of approximately 11,000 square feet. *Confidential treatment requested: Material has been omitted and filed with the Commission. -8- (ii) The project (collectively, the "Project") consists of each of the following: (1) The Lab Building will be upgraded and renovated to include a chemistry lab, molecular biology lab, pharmacology facility, tissue culture lab, and offices to support the scientists in those departments; (2) The Corporate Office Building formerly utilized by W. R. Grace as a production facility will be extensively renovated to contain executive offices and conference rooms. In addition, to the extent permitted under the applicable zoning, a new main entrance with an exterior cul-de-sac will be added to the Corporate Office Building; and (3) The Sales Office Building will be renovated to include offices, cubicles and conference rooms for the Company's sales force. (iii) The Company hereby covenants that: (1) the Project will be completed with first class workmanship and materials and will be diligently and continuously prosecuted from the date the Project is commenced until completed, all in accordance with the Zoning By-Law and all applicable federal, state and municipal laws, rules, ordinances and regulations in effect and applicable to the Premises; (2) all materials used in constructing the Project will be owned by the Company, free of liens and encumbrances, and will be new and of first class quality; and (3) the Project shall be completed for approximately $[ ]* and shall be completed and one or more certificates of occupancy issued therefor on or before [ ]*. (iv) The Company hereby covenants that it shall not use any of the proceeds of the issuance of the Convertible Notes to purchase or acquire, directly or indirectly, any personal property which is not directly incorporated into the Project and subject to the lien of the Mortgage. (v) The Company hereby covenants that within 10 days of the first to occur of (a) the issuance of the last certificate of occupancy required to be issued for the legal occupancy of the Project and (b) [ ]*, the Company shall deliver to each of the Purchasers the following certifications together with a copy of each issued certificate of occupancy: *Confidential treatment requested: Material has been omitted and filed with the Commission. -9- (1) a certification from the third-party architect, construction manager or other design professional assisting the Company with the Project wherein such third-party professional shall state the total dollar value of the labor and materials incorporated into the Premises and comprising the construction of the Project and such certification shall otherwise be in form and substance satisfactory to each of you to allow you to determine the amount expended on the Project; and (2) a certification from the president, any senior vice president or the chief financial officer of the Company certifying the amount spent by the Company in the construction and completion of the Project. (vi) (1) Based upon the foregoing certifications and (should you decide to retain an independent inspecting architect or engineer, at the Company's sole expense, to determine the value of labor and materials incorporated into the Premises comprising the construction of the Project) a certification from such independent inspecting architect or engineer retained by you, at the sole expense of the Company, you shall calculate the difference (the "Returned Amount") between (x) $[ ]* and (y) the value of the labor and materials incorporated into the Premises comprising the construction of the Project. (2) You may provide the Company written notice (the "Return Notice") and require the Company to apply the Returned Amount to the prepayment of a like principal amount of the Notes, together with interest accrued thereon to the date of prepayment and a premium equal to [ ]*% of the principal amount of Notes so prepaid, such prepayment to take place within 30 days of the Return Notice. 5. CONDITIONS. Your obligations under this Agreement shall be subject to the condition that all representations and warranties and other statements of the Company herein and in the other documents, agreements and instruments executed and delivered to you in connection with your purchase of the Convertible Notes (collectively, the "Operative Documents") are true and correct at and as of the closing of the purchase and sale of the Convertible Notes, the condition that the Company shall have performed all of its obligations hereunder and thereunder theretofore to be performed, and the following additional conditions: (a) Counsel for the Company specified in Annex III hereto shall have furnished to you their respective written opinions, dated the date of such closing, in form and substance satisfactory to you, to the effect set forth in Annex III hereto. (b) On the date of such closing, the Company shall have furnished to you such appropriate further information, certificates and documents as you may reasonably request. *Confidential treatment requested: Material has been omitted and filed with the Commission. -10- (c) The representations and warranties of the Company in this Agreement and in the other Operative Documents shall be correct when made and at the time of the Closing. (d) The Company shall have performed and complied with all agreements and conditions contained in this Agreement and in the other Operative Documents, including, without limitation, all of the additional agreements and conditions relating to the real estate collateral listed on Annex IV hereto, required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Convertible Notes no Default or Event of Default shall have occurred and be continuing. (e) The Company shall have delivered to you an Officer's Certificate, dated the date of the Closing, certifying that the conditions specified in Sections 5(c), 5(d) and 5(k) and in the other Operative Documents have been fulfilled. (f) The Company shall have delivered to you a certificate certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Convertible Notes and the Agreements and the other Operative Documents. (g) On the date of the Closing your purchase of Convertible Notes shall (i) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (ii) not violate any applicable law or regulation (including, without limitation, Regulation U, T or X of the Board of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation, which law or regulation was not in effect on the date hereof. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. (h) Contemporaneously with the Closing the Company shall sell to each Purchaser and each Purchaser shall purchase the Convertible Notes to be purchased by it at the Closing as specified in Schedule I. (i) Without limiting the provisions of Section 6(f) of the Convertible Note, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel. (j) A Private Placement number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Convertible Notes. *Confidential treatment requested: Material has been omitted and filed with the Commission. -11- (k) The Company shall not have changed its jurisdiction of incorporation or, other than as set forth in the Form 8-K filed by the Company with the Securities and Exchange Commission on August 10, 2000, been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent financial statements set forth in the Form 10-Q most recently filed by the Company with the Securities and Exchange Commission. (l) All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. (m) The Mortgage and Assignment of Leases and Rents shall have been recorded and a Mortgagees' Title Insurance Policy, in form and substance satisfactory to you, shall have been issued and the Company shall have executed and delivered to you each of the Operative Documents and each of the items listed on Annex IV. 6. MISCELLANEOUS. (a) This Agreement shall be binding upon, and inure solely to the benefit of, you and the Company and the respective successors and assigns thereof, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of the Convertible Notes from you shall be deemed a successor or assign by reason merely of such purchase. (b) Any notice or other communication required or permitted to be given hereunder shall be deemed effectively given when personally delivered, telexed, transmitted by facsimile or mailed by pre-paid certified mail, return receipt requested, or by telephone when confirmed in writing by one of the preceding methods addressed as follows (as applicable): If to the Company, to: Cubist Pharmaceuticals, Inc. 24 Emily Street Cambridge, Massachusetts 02139 Attention: Thomas Shea Telephone Number: (617) 576-4155 Facsimile Transmission Number: (617) 234-5592 *Confidential treatment requested: Material has been omitted and filed with the Commission. -12- with a copy to: Bingham Dana LLP 150 Federal Street Boston, Massachusetts 02110 Attention: Julio E. Vega, Esquire Telephone Number: (617) 951-8000 Facsimile Transmission Number: (617) 951-8736 If to Purchaser, at the addresses set forth on Schedule I. with a copy to: Choate, Hall & Stewart Exchange Place 53 State Street Boston, Massachusetts 02109-2891 Attention: Frank B. Porter, Jr., Esquire Telephone Number: (617) 248-5000 Facsimile Transmission Number: (617) 248-4000 or to such other address or number and to the attention of such other person as either party may designate by written notice to the other party. Notice shall be effective upon actual receipt. (c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. (d) Time shall be of the essence in the performance of this Agreement. (e) This Agreement may be executed by the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. (f) Whether or not the transactions contemplated hereby are consummated, the Company will pay all costs and expenses (including reasonable attorneys' fees of a special counsel) incurred by you and each Other Purchaser or holder of a Convertible Note in connection with such transactions and in connection with any amendments, waivers or consents under or in respect of this Agreement or the Convertible Notes (whether or not such amendment, waiver or consent becomes effective), including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Convertible Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Convertible Notes, or by reason of being a holder of any Convertible Note, and (b) the costs and expenses, *Confidential treatment requested: Material has been omitted and filed with the Commission. -13- including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Convertible Notes. The Company will pay, and will save you and each other holder of a Convertible Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). (g) Anything in this Agreement or the Convertible Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Convertible Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. (h) This Agreement and the Convertible Notes may be amended, and the observance of any term hereof or of the Convertible Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and each of the holders. (i) From time to time hereafter, the Company will execute and deliver, or will cause to be executed and delivered, such additional agreements, documents and instruments and will take all such other actions as any holder or holders of the Convertible Notes may reasonably request for the purpose of implementing or effectuating the provisions contained herein, in the Convertible Notes or in the Registration Rights Agreement. (j) Each holder of any Convertible Notes severally agrees by its acceptance thereof to maintain the confidentiality of any non-public information concerning the Company and its Subsidiaries, which is furnished by the Company to such holder pursuant to this Agreement or any of the other Operative Documents and which is designated in writing as confidential (collectively "Confidential Information"), in accordance with procedures adopted by such holder in good faith to protect confidential information of third parties delivered to such holder; provided, however, no holder shall be liable to the Company or any other Person for any breach of this section 6(j). The term "Confidential Information" shall not include, however, any information which (x) was publicly known or otherwise known to any holder at the time of disclosure by the Company to any holder; (y) subsequently becomes publicly known through no act or omission of any holder or its agent; (z) becomes known to any holder otherwise than through disclosure by the Company; or (aa) constitutes financial statements delivered to you under section 4(a) that are otherwise publically available. Notwithstanding the foregoing, each holder of any Convertible Notes may disclose Confidential Information: (a) with the consent of the Company (which shall not be unreasonably withheld or delayed); (b) when required by law or regulation; (c) in any report, statement or testimony submitted by such holder to any regulatory body having or claiming to have jurisdiction over such holder; (d) to the National Association of Insurance *Confidential treatment requested: Material has been omitted and filed with the Commission. -14- Commissioners or any similar organization or to any rating agency; (e) to the officers, directors, employees, agents, representatives and professional consultants of such holder and of such holder's Affiliates; (f) in connection with the preservation, exercise and/or enforcement of any of such holder's rights or remedies under this Agreement and the other Operative Documents; (g) in connection with any contemplated transfer of any of the Convertible Notes held by such holder to any institutional investor or financial institution; (h) in a response to any summons, subpoena or other legal process or in connection with any judicial or administrative proceeding or inquiry; or (i) to correct any false or misleading information which may become public concerning the relationship of such holder to the Company or any of its Subsidiaries and/or the transactions contemplated hereby. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.] *Confidential treatment requested: Material has been omitted and filed with the Commission. -15- [SIGNATURE PAGE FOR NOTE PURCHASE AGREEMENT] Very truly yours, CUBIST PHARMACEUTICALS, INC. By: /s/ THOMAS A. SHEA ---------------------------------------------- Name: Thomas A. Shea Title: Vice President, Finance and Administration, Chief Financial Officer and Treasurer Accepted as of the date hereof: JOHN HANCOCK LIFE INSURANCE COMPANY By: /s/ BRUCE R. MARTIN ------------------------------------ Name: Bruce R. Martin Title: Director JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY By: /s/ BRUCE R. MARTIN ------------------------------------ Name: Bruce R. Martin Title: Authorized Signatory SIGNATURE 4 LIMITED By: John Hancock Life Insurance Company as Portfolio Advisor By: /s/ BRUCE R. MARTIN ------------------------------------ Name: Bruce R. Martin Title: Director INVESTORS PARTNER LIFE INSURANCE COMPANY By: /s/ BRUCE R. MARTIN ------------------------------------ Name: Bruce R. Martin Title: Director EX-10.61 14 a2042768zex-10_61.txt EXHIBIT 10.61 EXHIBIT 10.61 CONFIDENTIAL TREATMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of September 8, 2000, by and between CUBIST PHARMACEUTICALS, INC., a corporation organized under the laws of the state of Delaware (the "Company"), and John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, Signature 4 Limited and Investors Partner Life Insurance Company (collectively, the "Purchasers" and singly a "Purchaser") entered into in connection with the issuance of 8.5% Convertible Note due September 8, 2005 convertible into shares of Common Stock, par value $.01 per share ("Common Stock") of the Company. 1. CERTAIN DEFINITIONS. For purposes of this Registration Rights Agreement, the following terms shall have the following respective meanings: (a) "COMMISSION" shall mean the Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. (b) "CONVERTIBLE NOTE" shall mean the 8.5% Convertible Note due September 8, 2005, of the Company to be issued and sold to the Purchasers, and any convertible note issued in exchange therefor or in lieu thereof. (c) "EFFECTIVE TIME" shall mean the date on which the Commission declares the Shelf Registration effective or on which the Shelf Registration otherwise becomes effective. (d) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, or any successor thereto and the rules and regulations promulgated thereunder, as the same shall be amended from time to time. (e) "ISSUE DATE" shall mean the date on which a Convertible Note is initially issued. (f) The term "PERSON" shall mean a corporation, association, partnership, organization, business, individual, government or political subdivision thereof or governmental agency. (g) "REGISTRATION EXPENSES" shall have the meaning assigned thereto in Section 4 hereof. *Confidential treatment requested: Material has been omitted and filed with the Commission. -1- (h) "SECURITIES ACT" shall mean the Securities Act of 1933, or any successor thereto and the rules and regulations promulgated thereunder, as the same shall be amended from time to time. (i) "SHARES" means the shares of Common Stock issuable upon exercise of the Convertible Note. (j) "SHELF REGISTRATION" shall have the meaning assigned thereto in Section 2 hereof. In addition, capitalized terms not defined herein shall have the meaning ascribed in the Convertible Note. 2. SHELF REGISTRATION OF SHARES. (a) [ ]*, the Company shall file under the Securities Act a "shelf" registration statement providing for the registration of, and the sale on a continuous or delayed basis by the Purchasers of, all shares issuable upon conversion of the Convertible Notes, pursuant to Rule 415 under the Securities Act and/or any similar rule that may be adopted by the Commission (the "Shelf Registration"). The Company agrees to use its best efforts to cause the Shelf Registration to become or be declared effective no later than 45 calendar days after the filing thereof and to keep such Shelf Registration continuously effective for a period ending on the earliest to occur of (i) the second anniversary of the Issue Date, (ii) notification to the Company by the Purchasers that they have sold all Shares issuable upon conversion of the Convertible Notes so owned by it, or (iii) such time as the Purchasers may sell all of such shares pursuant to Rule 144(k) under the Securities Act. The Company further agrees, if necessary, to supplement or make amendments to the Shelf Registration, if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company agrees to furnish to the Purchasers copies of any such supplement or amendment prior to its being used and/or filed with the Commission, and will not file any such supplement or amendment to which the Purchasers reasonably object. (b) Notwithstanding the foregoing, following the effectiveness of the Shelf Registration, the Company many, at any time, suspend the effectiveness of such Shelf Registration for up to 30 days, as appropriate (a "Suspension Period"), by giving notice to the Purchasers, if the Company shall have determined that the Company may be required to disclose any material corporate development which disclosure may jeopardize a material transaction or otherwise have a material adverse effect on the Company. The Company will use its best efforts to minimize the length of any Suspension Period. Notwithstanding the foregoing, no more than one Suspension Period may occur within any 180 day period, and no Suspension Period shall be effective at any time the Company or any affiliate of the Company is publicly selling shares of the capital stock of the *Confidential treatment requested: Material has been omitted and filed with the Commission. -2- Company. The period of any such suspension of registration statement shall be added to the period of time the Company agrees to keep the Shelf Registration effective as provided in Section 2(a). The Purchasers agree that, upon receipt of any notice from the Company of a Suspension Period, the Purchasers shall forthwith discontinue disposition of shares covered by the Shelf Registration until the Purchasers (i) are advised in writing by the Company that the use of the applicable prospectus may be resumed, (ii) have received copies of a supplemental or amended prospectus, if applicable, and (iii) have received copies of any additional or supplemental filings which are incorporation or deemed to be incorporated by reference in such prospectus. 3. REGISTRATION PROCEDURES. (a) In connection with any obligation of the Company to register Shares, the Company shall use its best efforts to effect or cause such registration to permit the sale of the Shares by the Purchasers in accordance with the intended method or methods of distribution thereof described in the applicable registration statement. In connection therewith, the Company shall, within the time specified in Section 2 above: (i) prepare and file with the Commission a registration statement on any form which may be utilized by the Company and which shall permit the disposition of the Shares in accordance with the intended method or methods thereof, as specified in writing by the Purchasers; (ii) comply with the provisions of the Securities Act with respect to the disposition of all of the Shares covered by such registration statement in accordance with the intended methods of disposition by the Purchasers set forth in such registration statements; (iii) provide (A) the Purchasers, (B) the underwriters (which term, for purposes of these Registration Rights, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, thereof, (C) the sales or placement agent, if any, therefor, (D) counsel for such underwriters or agent, and (E) counsel for the Purchasers the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (iv) for a reasonable period prior to the filing of such registration statement, and throughout the period specified in Section 2 hereof, make available for inspection by the parties referred to in Section 3(a)(iii) above who shall certify to the Company that they have a current intention to sell the Shares pursuant to the registration statement such financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such *Confidential treatment requested: Material has been omitted and filed with the Commission. -3- inquiries, as shall be reasonably necessary, in the judgment of the respective counsel referred to in such Section, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; PROVIDED, HOWEVER, that each such party shall be required to maintain in confidence and not to disclose to any other person any information or records provided by the Company and clearly marked or otherwise adequately identified by the Company as being confidential until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such person shall be required so to disclose such information pursuant to the subpoena or order of any court or other governmental agency or body having jurisdiction over the matter or over the Purchasers (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice of such requirement), or (C) such information is required to be set forth in such registration statement or the prospectus included therein or in an amendment to such registration statement or an amendment or supplement to such prospectus in order that such registration statement, prospectus, amendment or supplement, as the case may be, does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (v) promptly notify the Purchasers, the sales or placement agents, if any, therefor and the managing underwriter or underwriters, if any, thereof and confirm such advice in writing, (A) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission and by the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation or overt threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 5 hereof cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Shares for sale in any jurisdiction or the initiation or overt threatening of any proceeding for such purpose, or (F) at any time when a prospectus is required to be delivered under the Securities Act, if such registration statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; *Confidential treatment requested: Material has been omitted and filed with the Commission. -4- (vi) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (vii) if requested by any managing underwriter or underwriters, any placement or sales agents or the Purchasers, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission that such managing underwriter or underwriters, such agents or the Purchasers specify should be included therein relating to the terms of the sale of such Shares, including, without limitation, information with respect to the number of Shares being sold by the Purchasers or agents or to any underwriters, the name and description of the Purchasers, agents or underwriters, the offering price of such Shares and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Shares to be sold by the Purchasers or agents or to such underwriters; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (viii) furnish to the Purchasers each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 3(a)(iii) a copy of such registration statement in the form in which it became effective, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by the Purchasers, agents or underwriters, as the case may be) and of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as the Purchasers, agents, if any, and underwriters, if any, may reasonably request in order to facilitate the offering and disposition of the Shares owned by the Purchasers, offered or sold by such agent or underwritten by such underwriter and to permit the Purchasers, agents and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by the Purchasers and by any such agent and underwriter, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Shares covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (ix) use its best efforts to (A) register or qualify the Shares to be included in such registration statement under such securities laws or blue sky laws of such *Confidential treatment requested: Material has been omitted and filed with the Commission. -5- jurisdictions as the Purchasers and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the respective periods such registration statements are required to remain effective under Section 2 above and for so long as may be necessary to enable the Purchasers or any agent or underwriter to complete its distribution of Shares pursuant to such registration statement and (C) take any and all other actions as may be reasonably necessary or advisable to enable the Purchasers, agents, if any, and underwriters, if any, to consummate the disposition in such jurisdictions of such Shares; PROVIDED, HOWEVER, that the Company shall not be required for any such purpose to (I) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(a)(ix) or (II) consent to general service of process in any such jurisdiction; (x) use its best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Shelf Registration or the offering or sale in connection therewith or to enable the Purchasers to offer, or to consummate the disposition of, its Shares; (xi) cooperate with the Purchasers and the managing underwriters, if any, to facilitate the timely preparation and delivery of any certificates representing Shares to be sold, which certificates shall be printed, lithographed or engraved, or produced by any combination of such methods, and which shall not, once sold under the Shelf Registration, bear any restrictive legends; and, in the case of an underwritten offering, enable such Shares to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of the Shares; (xii) enter into one or more underwriting agreements, engagement letters, agency agreements or similar agreements, as appropriate, including (without limitation) customary provisions relating to indemnification and contribution, and take such other actions in connections therewith as the Purchasers shall reasonably request in order to expedite or facilitate the disposition of the Shares; (xiii) notify the Purchasers in writing of any proposal by the Company to amend or waive any provision of these Registration Rights pursuant to Section 7(g) hereof and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; (xiv) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Shares or participate as a member of an underwriting *Confidential treatment requested: Material has been omitted and filed with the Commission. -6- syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Fair Practice and the By-Laws of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules and By-Laws, including, without limitation, by providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Fair Practice of the NASD; (xv) comply with all applicable rules and regulations of the Commission, and make generally available to its security holders as soon as practicable but in any event not later than eighteen months after the effective date of such registration statement, an earning statement of the Company and in subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder); and (xvi) use its best efforts to have the Shares approved for trading on the Nasdaq National Market. (b) In the event that the Company would be required, pursuant to Section 3(a)(v)(F) above, to notify the Purchasers, the placement or sales agents, if any, therefor and the managing underwriters, if any, thereof, the Company shall without delay prepare and furnish to the Purchasers, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended in form and substance reasonably satisfactory to them, so that, as thereafter delivered to Purchasers of Shares, such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The Purchasers agree that upon receipt of any notice from the Company pursuant to Section 3(a)(v)(F) hereof, the Purchasers shall forthwith discontinue the disposition of Shares pursuant to the registration statement applicable to such Shares until the Purchasers shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, the Purchasers shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in the Purchasers' possession of the prospectus covering such Shares at the time of receipt of such notice. (c) The Company may require the Purchasers to furnish to the Company such information regarding the Purchasers and the Purchasers' intended method of distribution of the Shares as the Company may from time to time reasonably request in writing, but only to the extent that such information is required in order to comply with the Securities Act. The Purchasers agree to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by the Purchasers to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a *Confidential treatment requested: Material has been omitted and filed with the Commission. -7- material fact regarding the Purchasers or the Purchasers' intended method of distribution of such Shares or omits to state any material fact regarding the Purchasers or the Purchasers' intended method of distribution of such Shares required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to the Purchasers or the distribution of such Shares, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The Purchasers agree that upon delivering any notice to the Company pursuant to this Section 3(c), the Purchasers shall forthwith discontinue the disposition of Shares pursuant to the registration statement applicable to such Shares until the Purchasers shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, the Purchasers shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in the Purchasers' possession of the prospectus covering such Shares at the time of receipt of such notice. 4. REGISTRATION EXPENSES. The Company agrees to bear and to pay or cause to be paid promptly upon request being made therefor all expenses incident to the Company's performance of or compliance with these Registration Rights as they relate to the registration of any of the shares, including, without limitation under any Shelf Registration, and further including, without limitation, (i) all Commission and any NASD registration and filing fees and expenses, (ii) all fees and expenses in connection with the qualification of the Shares for offering and sale under the State securities and blue sky laws referred to in Section 3(a)(ix) hereof, including reasonable fees and disbursements of counsel for the placement or sales agent or underwriters in connection with such qualifications, (iii) all fees and expenses in connection with the approval for trading of the Shares on the Nasdaq National Market, (iv) all expenses relating to the preparation, printing, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the certificates representing the Shares and all other documents relating hereto, (v) internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), and (vi) fees, disbursements and expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance) (collectively, the "Registration Expenses") and of the Purchasers. 5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to, and agrees with, the Purchasers that: (a) Each registration statement covering Shares and each prospectus (including *Confidential treatment requested: Material has been omitted and filed with the Commission. -8- any preliminary or summary prospectus) contained therein or furnished pursuant to Section 3(a)(viii) hereof and any further amendments or supplements to any such registration statement or prospectus, when it becomes effective or is filed with the Commission, as the case may be, and, in the case of an underwritten offering of Shares, at the time of the closing under the underwriting agreement relating thereto will conform in all material respects to the requirements of the Securities Act, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at all times subsequent to the Effective Time when a prospectus would be required to be delivered under the Securities Act, other than from (i) such time as a notice has been given to the Purchasers pursuant to Section 3(a)(v)F) hereof until (ii) such time as the Company furnishes an amended or supplemented prospectus pursuant to Section 3(b) hereof, each such registration statement, and each prospectus (including any summary prospectus) contained therein or furnished pursuant to Section 3(a)(viiii) hereof, as then amended or supplemented, will conform in all material respects to the requirements of the Securities Act, and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Purchasers expressly for use therein. (b) Any documents incorporated by reference in any prospectus referred to in Section 5(a) hereof, when they become or became effective or are or were filed with the Commission, or if amended, when amended, as the case may be, will conform or conformed in all material respects to the requirements of the Exchange Act, and none of such documents will contain or contained an untrue statement of a material fact or will omit or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Purchasers expressly for use therein. 6. INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY. Upon the registration of Shares pursuant to Section 2 hereof, and in consideration of the agreements of the Purchasers contained herein, and as an inducement to the Purchasers to purchase the Convertible Notes, the Company shall, and it hereby agrees to, indemnify and hold harmless the Purchasers and each person who participates as a placement or sales agent or as an underwriter in any offering or sale of such Shares against any losses, claims, damages or liabilities, joint or several, to which the Purchasers or any such agent or underwriter may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement *Confidential treatment requested: Material has been omitted and filed with the Commission. -9- or alleged untrue statement of a material fact contained in any registration statement under which such Shares were registered under the Securities Act, or any preliminary, final or summary prospectus contained therein or furnished by the Company to the Purchasers, agents or underwriters, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Company shall, and it hereby agrees to, reimburse the Purchasers, such agents and such underwriters for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; PROVIDED, HOWEVER, that the Company shall not be liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement or preliminary, final or summary prospectus, or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such person expressly for use therein; PROVIDED FURTHER, however, that the Company shall not be liable to any such Person if such Person failed to deliver a prospectus in the form most recently provided by the Company (including any amendments or supplements thereto previously provided by the Company), in any such case to the extent that any loss, claim, damage or liability arises out of or is based upon an untrue statement or an omission which was corrected in such most recently furnished prospectus (including any such amendments or supplements). (b) INDEMNIFICATION BY THE PURCHASERS AND ANY AGENTS AND UNDERWRITERS. The Company may require, as a condition to including any Shares in any registration statement filed pursuant to Section 2 hereof and to entering into an underwriting agreement, if any, with respect thereto, that the Company shall have received an undertaking reasonably satisfactory to it from the Purchasers and from each underwriter, if any, named in any such underwriting agreement, severally and not jointly or jointly and severally, to (i) indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus contained therein or furnished by the Company to the Purchasers, agents or underwriters, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by the Purchasers or underwriters expressly for use therein, and (ii) reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. *Confidential treatment requested: Material has been omitted and filed with the Commission. -10- (c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of or contemplated by this Section 6, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under the indemnification provisions of or contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation unless, in the case of an indemnification obligation arising under Section (a), (i) the employment of such additional counsel has been authorized in writing by the Company in connection with defending such action, or (ii) the Company and the Purchasers are advised by such additional counsel that the Purchasers have available defenses involving a potential conflict with the interests of the Company, in which event, the fees and expenses of such additional counsel shall be borne by the Company. No indemnifying party shall consent to entry of any judgment or enter into any settlement of a claim against an indemnified party without the consent of the indemnified party which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of an unconditional release from all liability in respect to such claim or litigation. (d) CONTRIBUTION. Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by indemnified party on the one hand and the indemnifying party on the other from any offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the indemnifying party and the indemnified party in connection with the statements or *Confidential treatment requested: Material has been omitted and filed with the Commission. -11- omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Purchasers on the other shall be deemed to be in the same proportion as the total purchase price received by the Company upon issuance of the Convertible Note bears to the difference between the proceeds from the offering of the Shares received by the Purchasers and such purchase price. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were determined by pro rata allocation (even if the Purchasers or any agents or underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), the Purchasers shall not be required to contribute any amounts in excess of the amount by which the dollar amount of the proceeds received by the Purchasers from the sale of any Shares (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which the Purchasers have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Shares underwritten by it and distributed o the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribute from any person who was not guilty of such fraudulent misrepresentation. Any underwriters' obligations in this Section 6(d) to contribute shall be several in proportion to the principal amount of Shares underwritten by them and not joint. (e) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of the Purchasers, any agent and any underwriter and each person, if any, who controls the Purchasers or any agent or underwriter within the meaning of the Securities Act; and the obligations of the Purchasers and any agents and underwriters contemplated by this Section 6 shall be in addition to any liability which the Purchasers or any such agent or underwriter, *Confidential treatment requested: Material has been omitted and filed with the Commission. -12- respectively, may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his consent, is named in any registration statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Securities Act. 7. MISCELLANEOUS. (a) NO INCONSISTENT AGREEMENTS. The Company represents, warrants, covenants and agrees that it has not granted, and shall not grant, registration rights with respect to Shares or any other securities which would conflict with the terms contained in these Registration Rights. (b) SPECIFIC PERFORMANCE. The parties hereto acknowledge that there may be no adequate remedy at law if any party fails to perform any of its obligations hereunder and that each party may be irreparably harmed by any such failure, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of any other party under the Registration Rights in accordance with the terms and conditions of these Registration Rights, in any court of the United States or any State thereof having jurisdiction. (c) NOTICES. Any notice or other communication required or permitted to be given hereunder shall be deemed effectively given when personally delivered, telexed, transmitted by facsimile or mailed by pre-paid certified mail, return receipt requested, or by telephone when confirmed in writing by one of the preceding methods addressed as follows (as applicable): If to the Company, to: Cubist Pharmaceuticals, Inc. 24 Emily Street Cambridge, MA 02139 Attention: Thomas Shea Telephone Number: 617-576-4155 Facsimile Transmission Number: 617-234-5592 with a copy to: Bingham Dana LLP 150 Federal Street Boston, MA 02110 Attention: Julio E. Vega, Esquire Telephone Number: 617-951-8000 Facsimile Transmission Number: 671-951-8736 *Confidential treatment requested: Material has been omitted and filed with the Commission. -13- If to Purchasers to: the addresses set forth on Schedule I to the Note Purchase Agreement with a copy to: Choate, Hall & Stewart Exchange Place, 53 State Street Boston, MA 02109-2891 Attention: Frank B. Porter, Esquire Telephone Number: 617-248-5000 Facsimile Transmission Number: 617-248-4000 or to such other address or number and to the attention of such other person as either party may designate by written notice to the other party. Notice shall be effective upon actual receipt. (d) SURVIVAL. The respective indemnities, agreements, representations, warranties and each other provision set forth in these Registration Rights or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of the Purchasers, any director, officer or partner of the Purchasers, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing and shall survive the transfer of the Shares by the Purchasers. (e) LAW GOVERNING. These Registration Rights shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. (f) HEADINGS. The descriptive headings of the several Sections and paragraphs of these Registration Rights are inserted for convenience only, do not constitute a part of these Registration Rights and shall not affect in any way the meaning or interpretation of these Registration Rights. (g) ENTIRE AGREEMENT; AMENDMENTS. These Registration Rights and the other writings referred to herein or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. These Registration Rights supersede all prior agreements and understandings between the parties with respect to its subject matter. These Registration Rights may be amended and the observance of any term of these Registration Rights may be waived (either generally *Confidential treatment requested: Material has been omitted and filed with the Commission. -14- or in a particular instance and either retroactively or prospectively) only be a written instrument duly executed by the Company and the Purchasers. (h) ASSIGNMENT. In connection with any permitted transfer of the Convertible Note or any portion thereof in a principal amount of not less than $100,000 the Purchasers may assign their rights hereunder in respect of such Convertible Note to the transferee. Upon such assignment the transferee shall, insofar as the transferred Convertible Notes are concerned, be entitled to all of the rights, and be subject to all of the obligations, of the Purchasers under these Registration Rights, and all references to the "Purchasers" herein shall thereafter be deemed to refer to the Purchasers, or such transferee, or both, as the circumstances warrant. (i) COUNTERPARTS. This agreement may be executed by the parties counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] *Confidential treatment requested: Material has been omitted and filed with the Commission. -15- [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] Agreed to and accepted as of the date referred to above. CUBIST PHARMACEUTICALS, INC. By: /s/ THOMAS SHEA ---------------------------------------------- Name: Thomas A. Shea Title: Vice President, Finance and Administration, Chief Financial Officer and Treasurer JOHN HANCOCK LIFE INSURANCE COMPANY By: /s/ BRUCE R. MARTIN ---------------------------------------------- Name: Bruce R. Martin Title: Director JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY By: /s/ BRUCE R. MARTIN ---------------------------------------------- Name: Bruce R. Martin Title: Authorized Signatory SIGNATURE 4 LIMITED By: John Hancock Life Insurance Company as Portfolio Advisor By: /s/ BRUCE R. MARTIN ---------------------------------------------- Name: Bruce R. Martin Title: Director INVESTORS PARTNER LIFE INSURANCE COMPANY By: /s/ BRUCE R. MARTIN ---------------------------------------------- Name: Bruce R. Martin Title: Authorized Signatory *Confidential treatment requested: Material has been omitted and filed with the Commission. -16- EX-10.62 15 a2042768zex-10_62.txt EXHIBIT 10.62 EXHIBIT 10.62 CONFIDENTIAL TREATMENT THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS SECURITY UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. CUBIST PHARMACEUTICALS, INC. 8.5% SENIOR CONVERTIBLE NOTE DUE SEPTEMBER 8, 2005 No. R-1 September 8, 2000 $28,500,000 PPN 229678 A* CUBIST PHARMACEUTICALS, INC., a corporation duly organized and existing under the laws of Delaware (the "Company") for value received, hereby promises to pay to JOHN HANCOCK LIFE INSURANCE COMPANY, or registered assigns, the principal sum of Twenty-Eight Million Five Hundred Thousand Dollars ($28,500,000) on September 8, 2005 and to pay interest thereon from the date hereof until this security (this "Security") together with all other amounts due under the Operative Documents have been paid in full, semi-annually on March 31 and September 31 in each year, commencing March 31, 2001, at the rate of 8.5% per annum, until the principal hereof is due, and at the rate of 10.5% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any interest payment date will be paid to the person in whose name this Security (or one or more predecessor securities) is registered at the close of business on the regular record date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such interest payment date. Payment of the principal of (and premium, if any, on) this Security shall be made upon the surrender of this Security to the Company, at its office at 24 Emily Street, Cambridge, Massachusetts 02139 (or such other office within the United States as shall be notified by the Company to the holder hereof) (the "Designated Office"), in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, by transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America. Payment of interest on this Security shall be made by wire transfer to a U.S. *Confidential treatment requested: Material has been omitted and filed with the Commission dollar account maintained by the payee with a bank in the United States of America, provided that if the holder shall not have furnished wire instructions in writing to the Company no later than the record date relating to an interest payment date, such payment may be made by U.S. dollar check mailed to the address of the person entitled thereto as such address shall appear in the Company security register. This Security will rank pari passu with all existing and future senior debt of the Company. This Security is one of the Company's 8.5% Senior Convertible Notes due September 8, 2005, limited to $39,000,000 aggregate principal amount, issued pursuant to that certain Note Purchase Agreement dated September 8, 2000 (such agreement, as amended, modified and supplemented from time to time, the "Note Purchase Agreement") between the Company and the institutional investors named therein, and the holder hereof is entitled to the benefits of the Note Purchase Agreement, and may enforce the agreements contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereof and thereof, all in accordance with the terms hereof and thereof. 1. OPTIONAL REDEMPTION WITH PREMIUM. This Security is subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time on or after September 8, 2003, as a whole or in part, (in any amount that is an integral multiple of $1,000) at the election of the Company, at a redemption price, paid in cash, of 103% of the principal amount thereof, together with accrued interest to the redemption date, but interest installments whose stated maturity is on or prior to such redemption date will be payable to the holder of this Security, or one or more predecessor Securities, of record at the close of business on the relevant record dates referred to on the face hereof. The term "Conversion Price" on any day shall equal $1,000 divided by the Conversion Rate in effect on each such day. 2. Conversion. (a) The holder of this Security is entitled at any time that this Security is outstanding (or, in case this Security or a portion hereof is called for redemption or the holder hereof has exercised its right to require the Company to repurchase this Security or a portion hereof, then in respect of this Security or such portion hereof, as the case may be, until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the redemption date or the Repurchase Date, as the case may be) to convert the outstanding principal amount of this Security (or any portion of the outstanding principal amount hereof that is an integral multiple of $1,000), into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the rate of one (1) share of Common Stock for each $63.8625 principal amount of Security (or at the current adjusted rate if an adjustment has been made as provided below) (the "Conversion Rate") by surrender of this Security, to the attorneys for the Company at the office for the attorneys for the Company designated in writing and provided to the holder, *Confidential treatment requested: Material has been omitted and filed with the Commission accompanied by written notice to the Company that the holder hereof elects to convert this Security (or if less than the entire principal amount hereof is to be converted, specifying the portion hereof to be converted). Upon surrender of this Security for conversion, the holder will be entitled to receive the interest accruing on the principal amount of this Security then being converted from the interest payment date next preceding the date of such conversion to such date of conversion. No adjustment to the Conversion Rate is to be made on conversion for dividends on the Common Stock issued on conversion hereof. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest, the Company shall pay a cash adjustment, computed on the basis of the Closing Price of the Common Stock on the date of conversion, or, at its option, the Company shall round up to the next higher whole share. This Security shall be deemed to have been converted immediately prior to the close of business on the day of surrender hereof for conversion, in accordance with the foregoing provisions, and at such time the rights of the holder hereof, as a holder hereof, shall cease, and the person or persons entitled to receive the Common Stock issuable on conversion shall be treated by all Persons as the holder or holders of such Common Stock at such time. Upon any partial conversion of this Security, the Company, at its expense, will forthwith issue and deliver to, or upon the order of the holder hereof, a new Convertible Note or Convertible Notes in principal amount equal to the unconverted principal amount of such surrendered Convertible Note, such new Convertible Note or Convertible Notes to be dated and to bear interest from the date to which interest has been paid on such surrendered Convertible Note. As promptly as possible after the conversion of this Security, in whole or in part, and in any event within two (2) Business Days thereafter, the Company, at its expense, will issue and deliver a certificate or certificates, or if so requested in writing by the holder will enter or cause to be entered electronically by book entry such shares on the electronic system designated by the holder for the number of full shares of Common Stock issuable upon such conversion. (b) The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company payable in shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the Determination Date for such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes *Confidential treatment requested: Material has been omitted and filed with the Commission of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) Subject to the last sentence of paragraph (7) of this Section 2(b) and the last sentence of this paragraph 2(b)(2), in case the Company shall issue rights, options, warrants or convertible securities entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on the Determination Date for such distribution, the Conversion Rate in effect at the opening of business on the day following such Determination Date shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock which the aggregate amount received by the Company upon the issuance of such rights, options, warrants or convertible securities of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options, warrants or convertible securities in respect of shares of Common Stock held in the treasury of the Company. Anything in this paragraph 2(b)(2) to the contrary notwithstanding, no adjustment to the Conversion Price shall be made, (i) in the case of the issuance of shares of Common Stock in a PIPE Transaction PROVIDED that the price per share for the shares of Common Stock issued or to be issued in connection with each PIPE Transaction is at least [ ]*% of the market price per share on the date such shares are issued or (ii) in connection with the acquisition of TerraGen Discovery, Inc. in accordance with the disclosure in the Note Purchase Agreement. (3) In case outstanding shares of Common Stock shall each be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be *Confidential treatment requested: Material has been omitted and filed with the Commission proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) Subject to the last sentence of paragraph (7) of this Section 2(b), in case the Company shall, by dividend or otherwise, distribute evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options, warrants or convertible security referred to in paragraph (2) of this Section 2(b), (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section 2(b) and (iv) any merger or consolidation to which Section 2(h) applies), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less the then fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such Determination Date. If the Board of Directors determines the fair market value of any distribution for purposes of this paragraph (4) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share pursuant to paragraph (8) of this Section 2(b). (5) In case the Company shall, by dividend or otherwise, make a Cash Distribution, then, and in each such case, immediately after the close of business on the Determination Date for such Cash Distribution, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on such Determination Date by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (1) the amount of such Cash Distribution divided by (2) the *Confidential treatment requested: Material has been omitted and filed with the Commission number of shares of Common Stock outstanding on such Determination Date, and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date. (6) In case the Company or any Subsidiary shall make an Excess Purchase Payment, then, and in each such case, immediately prior to the opening of business on the day after the tender offer in respect of which such Excess Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such tender offer by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (A) the Excess Purchase Payment divided by (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Determination Date less the number of all shares validly tendered and not withdrawn as of the Determination Date and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock as of such Determination Date. (7) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 2(h) applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be the Determination Date), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 2(b). Rights, options, warrants or convertible securities issued by the Company entitling the holders thereof to subscribe for or purchase shares of Common Stock, which rights, options, warrants or convertible securities (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case in clauses (i) through (iii) until the occurrence of a specified event or events ("Trigger Event"), shall for purposes of this Section 2(b) not be deemed issued until the occurrence of the earliest Trigger Event. *Confidential treatment requested: Material has been omitted and filed with the Commission (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 2(b) the current market price per share of Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices for the five (5) consecutive Trading Days selected by the Company commencing not more than ten (10) Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation PROVIDED that in the event the Company shall issue rights, options, warrants or convertible securities giving the holders thereof the right to receive shares of Common Stock at a price equal to the closing price on the date that such securities are issued under (i) any management or employee stock option plan or other equity incentive plan approved by the Board of Directors of the Company or (ii) in connection with a corporate acquisition transaction (such as the TerraGen Discovery, Inc. transaction) approved by the Board of Directors of the Company, then for purposes of paragraph (2) above, the market price shall equal the closing price on the Trading Day such securities are issued. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may make such increases in the Conversion Rate, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 2(b) as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights, options, warrants or convertible securities to purchase or subscribe for stock or from any event treated as such for income tax purposes. (c) Whenever the Conversion Rate is adjusted as provided in Section 2(b), the Company shall compute the adjusted Conversion Rate in accordance with Section 2(b) and shall prepare a certificate signed by the Senior Financial Officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and shall *Confidential treatment requested: Material has been omitted and filed with the Commission promptly deliver such certificate to the holder of this Security. If the Majority Convertible Note Holders and the Company cannot agree in writing as to the adjusted Conversion Rate in accordance with Section 2(b), the holders of the Convertible Notes and the Company shall determine the adjusted Conversion Rate in accordance with the following procedure. The Majority Convertible Note Holders and the Company shall each appoint one registered securities broker, licensed with the Securities and Exchange commission to sell securities to the public, which broker shall be a senior vice president, managing director or equivalent of a major securities brokerage company with offices in Boston, Massachusetts. Each of such brokers shall have no less than ten (10) years experience in such field, shall be unaffiliated with, and their employer securities brokerage company shall be unaffiliated with, the holders of the Convertible Notes and the Company and shall not have previously participated in any underwriting of the Company's Common Stock in any public offering or provided any material investment banking or corporate advisory services to the Company. The Majority Convertible Note Holders and the Company shall make their appointments promptly and, in any event, within thirty (30) days from the date of the Conversion Rate Certificate. The two brokers shall meet in person or have a meeting by telephone and shall be instructed to render a determination of the adjusted Conversion Rate to the holders of the Convertible Notes and the Company within sixty (60) days of the date of the Conversion Rate Certificate. If the two brokers cannot agree, then each broker shall render their independent determination and the two brokers shall simultaneously therewith provide the name of a third broker acceptable to the two brokers meeting the criteria set forth above. The third broker shall be instructed to render a determination of the adjusted Conversion Rate within thirty (30) days of his or her appointment. The two closest determinations of the adjusted Conversion Rate shall be averaged and shall constitute the adjusted Conversion Rate. If the two brokers cannot agree upon a third broker, the selection of a third broker shall be submitted to binding arbitration in Boston, Massachusetts under the rules of the American Arbitration Association. In the event that the difference between the Company's calculation of the adjusted Conversion Rate and the calculation of the adjusted Conversion Rate determined by the foregoing process is five percent (5%) or greater then the costs and expenses of the brokers and any arbitration shall be paid by and be the obligation of the Company and in the event that such difference is less than five percent (5%) then the costs and expenses of the brokers and any arbitration shall be paid by the holders of the Convertible Notes (as a group on a pro rata basis). (d) In case: (1) the Company shall declare a dividend or other distribution on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 2(b); or *Confidential treatment requested: Material has been omitted and filed with the Commission (2) the Company shall authorize the granting to the holders of its Common Stock of rights, options, warrants or convertible securities to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock of the Company, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (5) the Company or any Subsidiary shall commence a tender offer for all or a portion of the Company's outstanding shares of Common Stock (or shall amend any such tender offer); then the Company shall cause to be delivered to the holder of this Security, at least twenty (20) days (or ten (10) days in any case specified in clause (1) or (2) above) prior to the applicable record, expiration or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options, warrants or convertible securities or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options, warrants or convertible securities are to be determined, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (5) of this Section 2(d). (e) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Security, the full number of shares of Common Stock then issuable upon the conversion of this Security. (f) Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of this Security. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of *Confidential treatment requested: Material has been omitted and filed with the Commission any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of this Security, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. (g) The Company agrees that all shares of Common Stock which may be delivered by actual certificates or by electronic book entry upon conversion of the Security, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable (and shall be issued out of the Company's authorized but unissued Common Stock) and, except as provided in the second sentence of Section 2(f), the Company will pay all taxes, liens and charges with respect to the issue thereof. (h) In case of any consolidation of the Company with any other person, any merger of the Company into another person or of another person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the properties and assets of the Company, the person formed by such consolidation or resulting from such merger or which acquires such properties and assets, as the case may be, shall execute and deliver to the holder of this Security a supplemental agreement providing that such holder has the right, during the period this Security shall be convertible as specified in Section 2(a), to convert this Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (including any Common Stock retainable) by a holder of the number of shares of Common Stock of the Company into which this Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (1) is not a person with which the Company consolidated, into which the Company merged or which merged into the Company or to which such conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (2) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (PROVIDED that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 2(h) the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Nonelecting Shares). *Confidential treatment requested: Material has been omitted and filed with the Commission Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 2. The above provisions of this Section 2(h) shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. In this paragraph, "securities of the kind receivable" upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of Common Stock means securities that, among other things, are registered and transferable under the Securities Act, and listed and approved for quotation in all securities markets, in each case to the same extent as such securities so receivable by a holder of Common Stock. (i) The Company (1) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) for the shares of Common Stock issuable upon conversion of this Security to be lawfully issued and delivered as provided herein, and thereafter publicly traded (if permissible under the Securities Act) and qualified or listed as contemplated by clause (2) (it being understood that the Company shall not be required to register the Common Stock issuable on conversion hereof under the Securities Act, except pursuant to the Registration Rights Agreement between the Company and the Purchasers (as defined in the Note Purchase Agreement), subject to the transfer restriction set forth in Section 6; and (2) will list the shares of Common Stock required to be issued and delivered upon conversion of Securities, prior to such issuance or delivery, on each national securities exchange on which outstanding Common Stock is listed or quoted at the time of such delivery, or if the Common Stock is not then listed on any securities exchange, to qualify the Common Stock for quotation on the Nasdaq National Market or such other interdealer quotation system, if any, on which the Common Stock is then quoted. (j) For purposes hereof: (references to Sections shall mean Sections of this Security unless otherwise specified) "AFFILIATE" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control", when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "ASSIGNMENT OF LEASES AND RENTS" shall mean the Assignment of Leases and Rents dated September 8, 2000 made by the Company in favor of the Trustee. "BUSINESS DAY" means any day other than a Saturday, a Sunday or other day which shall be in Boston, Massachusetts on a legal holiday or a day on which *Confidential treatment requested: Material has been omitted and filed with the Commission commercial banks in Boston, Massachusetts are required or authorized to be closed. "CASH DISTRIBUTION" means the distribution by the Company to holders of its Common Stock of cash, other than any cash that is distributed upon a merger or consolidation to which Section 2(h) applies or as part of a distribution referred to in paragraph (4) of Section 2(b). "CHANGE OF CONTROL" is defined in Section 3(f)(2). "CLOSING" is defined in Section 1 of the Note Purchase Agreement. "CLOSING PRICE" means, with respect to the Common Stock of the Company, for any day, the reported closing sale price per share on the Nasdaq National Market, or, if no closing price is so reported, the last sale price per share on the Nasdaq National Market, or, if the Common Stock is not admitted to trading on the Nasdaq National Market on the principal national securities exchange or inter-dealer quotation system on which the Common Stock is listed or admitted to trading, or if not admitted to trading on the Nasdaq National Market or listed or admitted to trading on any national securities exchange or inter-dealer quotation system, the average of the closing bid and asked prices per share in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMMON STOCK" means the Common Stock, par value $.01 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 2(h), shares issuable on conversion or repurchase of this Security shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; PROVIDED, HOWEVER, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of this Security shall include shares of all such classes, and the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "CONVERTIBLE NOTES" shall mean one or more of the Company's 8.5% Senior Convertible Notes due September 8, 2005. "CONVERSION PRICE" is defined in Section 1. "CONVERSION RATE" is defined in Section 2(a). *Confidential treatment requested: Material has been omitted and filed with the Commission "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DESIGNATED OFFICE" is defined in the Preamble. "DETERMINATION DATE" means, in the case of a dividend or other distribution, including the issuance of rights, options, warrants or convertible securities, to shareholders, the date fixed for the determination of shareholders entitled to receive such dividend or other distribution and, in the case of a tender offer, the last time that tenders could have been made pursuant to such tender offer, provided that if no date is fixed for the determination of holders entitled to receive such rights, options, warrants or convertible securities, then the Determination Date shall be the date of issuance of such rights, options, warrants or convertible securities. "ENVIRONMENTAL INDEMNITY" shall mean that Environmental Indemnity Agreement dated September 8, 2000 made by the Company in favor of the Trustee and the holders. "ENVIRONMENTAL LAWS" means any and all Federal, state and local laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EXCESS PURCHASE PAYMENT" means the product of (1) the excess, if any, of (a) the amount of cash plus the fair market value (as determined in good faith by the Company's Board of Directors) of any non-cash consideration required to be paid with respect to one share of Common Stock acquired or to be acquired in a tender offer made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock over (b) the current market price per share as of the last time that tenders could have been made pursuant to such tender offer and (2) the number of shares validly tendered and not withdrawn as of the Determination Date in respect of such tender offer. "EVENT OF DEFAULT" is defined in the preamble to Section 4. *Confidential treatment requested: Material has been omitted and filed with the Commission "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "HOLDERS" means, with respect to this Security or any other Convertible Note, the Person in whose name it is registered in the register to be maintained by the Company pursuant to Section 6(d). "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or capital lease (as such term is defined by GAAP), upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAJORITY CONVERTIBLE NOTE HOLDERS", as applied to describe the requisite holder or holders of the Convertible Notes, shall mean, at any date, the holder or holders of 66-2/3% or more in interest in the Convertible Notes at the time outstanding (excluding Convertible Notes at the time owned by the Company or any Affiliate of the Company). "MAKE-WHOLE AMOUNT" is defined in Section 4(g). "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (A) the business, operations, affairs, financial condition, assets, properties or prospects of the Company and its Subsidiaries taken as a whole, or (B) the ability of the Company to perform its obligations under the Note Purchase Agreement, the Registration Rights Agreement and the Convertible Notes, or (C) the validity or enforceability of the Note Purchase Agreement or the Convertible Notes. "MORTGAGE" shall mean shall mean the Mortgage, Assignment of Leases and Rents and Security Agreement dated September8, 2000 made by the Company in favor of the Trustee. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTE PURCHASE AGREEMENT" is defined in the Preamble. *Confidential treatment requested: Material has been omitted and filed with the Commission "OPERATIVE DOCUMENTS" shall mean the Convertible Notes, the Note Purchase Agreement, the Registration Rights Agreement, the Mortgage, the Assignment of Leases and Rents, the Trust Agreement, the Environmental Indemnity, and each of the other agreements, documents and instruments executed in connection herewith and therewith, each as it may from time to time be amended, modified or supplemented. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PIPE TRANSACTION" shall mean a so called "private investment, public equity" private placement transaction which uses a procedure in which investors agree to purchase securities in a private offering conditioned upon or otherwise requiring the filing of a registration statement covering the securities so purchased. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof among the holders and the Company. "REPURCHASE DATE" is defined in Section 3(a). "REPURCHASE PRICE" is defined in Section 3(a). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other senior officer of the Company with responsibility for the administration of the relevant covenants in this Security or in the Note Purchase Agreement. "RETURNED AMOUNT" shall have the meaning given such term in the Note Purchase Agreement. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "SECURITY" is defined in the preamble hereof. *Confidential treatment requested: Material has been omitted and filed with the Commission "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "TRADING DAY" means (1) if the Common Stock is admitted to trading on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; (2) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (3) if the Common Stock is not admitted to trading on the Nasdaq National Market or listed or admitted for trading on any national securities exchange or any other system of automated dissemination of quotation of securities prices, a day on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "TRUST AGREEMENT" shall mean that certain Collateral Trust Agreement dated September 8, 2000 to which the Company, the holders and the Trustee are parties, as amended, modified or supplemented from time to time. "TRUSTEE" shall mean Fleet National Bank, together with its successors and assigns and any substitute and/or additional entity from time to time serving as Trustee under the Trust Agreement. 3. Right to Require Repurchase. (a) In the event that a Change in Control shall occur, then the holder of this Security shall have the right, at such holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, this Security, or any portion of the principal amount hereof that is equal to $1,000 or any integral multiple thereof, on the date (the "Repurchase Date") that is twenty (20) Trading Days after the date on which the Company gives notice to the holder of this Security that a Change in Control has occurred, at a purchase price equal to 100% of the principal amount of this Security to be repurchased plus *Confidential treatment requested: Material has been omitted and filed with the Commission interest accrued to the Repurchase Date (such principal plus interest hereinafter referred to as the "Repurchase Price"); PROVIDED, HOWEVER, that installments of interest on this Security whose stated maturity is on or prior to the Repurchase Date shall be payable to the holder of this Security, or one or more predecessor Securities, registered as such on the relevant Record Date according to their terms. The Company agrees to give the holder of this Security notice of any Change in Control, by facsimile transmission confirmed in writing by overnight courier service, promptly and in any event within two (2) Trading Days of the occurrence thereof. (b) To exercise a repurchase right, the holder shall deliver to the Company on or before the fifth (5th) Trading Day prior to the Repurchase Date, together with this Security, written notice of the holder's exercise of such right, which notice shall set forth the name of the holder, the number of shares of Common Stock then owned by such holder and its affiliates, the principal amount of this Security to be repurchased (and, if this Security is to be repurchased in part, the portion of the principal amount thereof to be repurchased and the name of the person in which the portion thereof to remain outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby. Such written notice shall be irrevocable, except that the right of the holder to convert this Security (or the portion hereof with respect to which the repurchase right is being exercised) shall continue until the close of business on the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the holder the Repurchase Price in cash, provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash, to the holders of this Security, or one or more predecessor Securities, registered as such at the close of business on the relevant regular record date. (d) If this Security (or portion thereof) is surrendered for repurchase and is not so paid on or prior to the Repurchase Date, the principal amount of this Security (or such portion hereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate per annum borne by this Security, and shall remain convertible into Common Stock until the principal of this Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) If this Security is to be repurchased only in part, it shall be surrendered to the Company at the Designated Office (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing), and the Company shall execute and make available for delivery to the holder without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in *Confidential treatment requested: Material has been omitted and filed with the Commission aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) For purposes of this Section 3. (1) the term "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act; and (2) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of this Security, of: (a) the acquisition by any person of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such person to exercise more than 30% of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors (any shares of voting stock of which such person is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage) other than any such acquisition by the Company or any employee benefit plan of the Company; or (b) any consolidation or merger of the Company with or into, any other person, any merger of another person with or into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the assets of the Company to another person (other than (i) any such transaction (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock and (y) pursuant to which holders of Common Stock immediately prior to such transaction have the entitlement to exercise, directly or indirectly, more than 30% of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving person immediately after such transaction and (ii) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock. 4. Events of Default. (a) "EVENT of DEFAULT", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to *Confidential treatment requested: Material has been omitted and filed with the Commission any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) (a) default in the payment of any principal or premium, if any, upon this Security when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, including, without limitation, the failure to pay the Returned Amount when the Returned Amount is required to be paid under the Note Purchase Agreement or (b) default in the payment of any interest upon this Security when it becomes due and payable, and continuance of such default for a period of five (5) business days; or (2) default by the Company in the performance of its obligations in respect of any conversion of this Security (or any portion hereof) in accordance with Section 2; or (3) failure by the Company to give any notice of a Change of Control required to be delivered in accordance with Section 3(a); or (4) default in the performance, or breach, of any other covenant of the Company herein, in the Note Purchase Agreement, or in the Registration Rights Agreement (other than a covenant default for which the performance or breach is specifically dealt with elsewhere in this Section 4(a) and continuance of such default or breach for a period of 30 days; (5) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; (6) aggregating in excess of $[ ]* are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within sixty (60) days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; or (7) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company, or under any agreement, 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 Company, with a principal amount then outstanding in excess of $[ ]* whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay the principal of such indebtedness (in whole or in any part greater than $[ ]* when due and payable or shall have resulted in such indebtedness (in whole or in any part greater than $[ ]* becoming or being declared *Confidential treatment requested: Material has been omitted and filed with the Commission due and payable prior to the date on which it would otherwise have become due and payable; or (8) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such a final judgment or judgments for the payment of money standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $[ ]*, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 4(a)(8), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. (9) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; *Confidential treatment requested: Material has been omitted and filed with the Commission (10) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or not paying its debts as they become due or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (11) the occurrence of any Event of Default (as defined in the Mortgage) under the Mortgage, or the occurrence of any Event of Default (as defined in the Assignment of Leases and Rents) under the Assignment of Leases and Rents or any default under the Environmental Indemnity. (b) If an Event of Default (other than an Event of Default specified in Section 4(a)(9) or 4(a)(10)) occurs and is continuing, then in every such case the holder of this Security may declare the principal hereof to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security(, the entire principal of and interest accrued on this Security, and ii in addition, to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty; and, in case of the occurrence of an Event of Default of the character described in subdivisions 4(a)(9) and 4(a)(10) the principal of and accrued interest on this Security, IPSO FACTO shall become immediately due and payable without any declaration or other act of the holder of this Security and without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security (x) the entire principal of and interest accrued on this Security and (y) in addition, if such Event of Default is "Voluntary" (as hereinafter defined), to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty. *Confidential treatment requested: Material has been omitted and filed with the Commission For purposes of this section 4(b), "Voluntary" shall mean an Event of Default of the character described in subdivisions 4(a)(9) or 4(a)(10) which shall have been (x procured by the Company or any officer, director, stockholder or Affiliate of the Company or (y) primarily the result of action or inaction by the Company or by any officer, director, stockholder or Affiliate of the Company. (c) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, and irrespective of whether this Security has become or has been declared immediately due and payable under Section 4(a), the holder of this Security may proceed to protect and enforce its rights either by suit in equity or by action at law, or both. The Company stipulates that the remedies at law of the holder of this Security in the event of any Default or threatened Default by the Company in the performance of or compliance with any covenant or agreement in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance thereof, whether by an injunction against a violation thereof or otherwise. (d) No remedy conferred in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or otherwise. (e) No course of dealing between the Company and any of its Subsidiaries, on the one hand, and the holder of this Security, on the other hand, and no delay by any such holder in exercising any rights hereunder or under the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents shall operate as a waiver of any rights of such holder. (f) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, all amounts to be applied to the prepayment or payment of this Security shall be applied, after the payment of all related costs and expenses incurred by the holder of this Security (including, without limitation, compensation to any and all trustees, liquidators, receivers or similar officials and reasonable fees, expenses and disbursements of counsel) in such order of priority as is determined by the holder of this Security. (g) The term "Make-Whole Amount" means, with respect to this Security, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of this Security over the amount of such Called Principal, PROVIDED that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: *Confidential treatment requested: Material has been omitted and filed with the Commission "Called Principal" means, with respect to this Security, the principal of this Security that has become or is declared to be immediately due and payable pursuant to Section 4(b). "Discounted Value" means, with respect to the Called Principal of this Security, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on this Security is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of this Security, the yield to maturity implied by (1) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "PX-1" of the Bloomberg Financial Markets Services Screen for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (2) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (i) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (ii) the actively traded U.S, Treasury security with the duration closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (1)such Called Principal into (2) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payment" means, with respect to the Called Principal of this Security, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled *Confidential treatment requested: Material has been omitted and filed with the Commission due date, PROVIDED that if such Settlement Date is not a date on which interest payments are due to be made under the terms of this Security, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date. "Settlement Date" means, with respect to the Called Principal of this Security, the date on which such Called Principal has become or is declared to be immediately due and payable pursuant to Section 4(b), as the context requires. 5. CONSOLIDATION, MERGER, ETC. (a) The Company shall not consolidate with or merge into any other person or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to any person, and the Company shall not permit any person to consolidate with or merge into the Company or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to the Company, unless: (1) in case the Company shall consolidate with or merge into another person or convey, transfer, sell or lease all or substantially all of its properties and assets to any person, the person formed by such consolidation or into which the Company is merged or the person which acquires by conveyance, transfer or sale, or which leases, all or substantially all the properties and assets of the Company shall be a corporation, limited liability company, partnership or trust, shall be 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 agreement supplemental hereto, executed and delivered to the holder of this Security in form satisfactory to the holder, the due and punctual payment of the principal of (and premium, if any) and interest on this Security and the performance or observance of every covenant of this Security on the part of the Company to be performed or observed, including the conversion rights provided herein (which shall thereafter relate to common stock of such successor, on a basis reasonably designed to preserve the economic value to the holder of this Security of such conversion rights); (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary of the Company as a result of such transaction as having been incurred by the Company or such Subsidiary of the Company at the time of 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; *Confidential treatment requested: Material has been omitted and filed with the Commission (3) the Company has delivered to the holder of this Security an officers' certificate stating that such consolidation, merger, conveyance, transfer, sale or lease and, if a supplemental agreement is required in connection with such transaction, such supplemental agreement, comply with this Section and that all conditions precedent herein provided for relating to such transaction have been complied with; and (4) counsel for the Company or any successor thereto has delivered to the holder of this Security an opinion of such counsel with respect to such consolidation, merger, conveyance, transfer, sale or lease, and if a supplemental agreement is required in connection with such transaction, such supplemental agreement, which opinion shall be, in form and substance, reasonably acceptable to such holder and its counsel. (b) Upon any consolidation of the Company with, or merger of the Company into, any other person or any conveyance, transfer, sale or lease of all or substantially all of the properties and assets of the Company in accordance with Section 5(a), the successor person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer, sale or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Security with the same effect as if such successor person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor person shall be relieved of all obligations and covenants under this Security. 6. OTHER. (a) No provision of this Security shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security in cash at the times; places and rate, and in the coin or currency, herein prescribed or to convert this Security as herein provided. (b) The Company will give prompt written notice to the holder of Security of any change in the location of the Designated Office. (c) (i) Subject to clause (ii) below, the transfer of this Security is registrable on the Security Register of the Company upon surrender of this Security for registration of transfer at the Designated Office, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Such Securities are issuable only in registered form without coupons in denominations of the lesser of (x) $1,000,000 and (y) the outstanding principal amount of any Security then being registered. No service *Confidential treatment requested: Material has been omitted and filed with the Commission charge shall be made for any such registration of transfer, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of this Security for registration of transfer, the Company and any agent of the Company may treat the person in whose name this Security is registered as the owner thereof for all purposes, whether or not this Security be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. (ii) Any sale, assignment, transfer or other disposition of this Security (or any portion hereof) by any holder of this Security shall be made in compliance with all applicable securities laws. (d) The Company shall keep at the Designated Office a register for the registration and registration of transfers of Convertible Notes. The name and address of each holder of one or more Convertible Notes, each transfer thereof and the name and address of each transferee of one or more Convertible Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Convertible Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Convertible Note promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Convertible Notes. (e) Upon surrender of any Convertible Note at the Designated Office for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Convertible Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Convertible Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Convertible Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Convertible Note. Each such new Convertible Note shall be payable to such Person as such holder may request and shall be substantially in the form of this Security. Each such new Convertible Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Convertible Note or dated the date of the surrendered Convertible Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of this Security. Convertible Notes shall not be transferred in denominations of less than $100,000, PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Convertible Notes, one Convertible Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Convertible Note registered in its name (or the *Confidential treatment requested: Material has been omitted and filed with the Commission name of its nominee), shall be deemed to have made the representation set forth in section 3 of the Note Purchase Agreement. (f) Upon receipt by the Company of a written request from the holder, and (1) in the case of loss, theft or destruction, of an unsecured agreement of indemnity, or (2) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Convertible Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Convertible Note or dated the date of such lost, stolen, destroyed or mutilated Convertible Note if no interest shall have been paid thereon. (g) This Security shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, United States of America. (h) So long as you or your nominee shall be holder of this Security and notwithstanding anything in this Security to the contrary, the Company will pay all sums becoming due hereunder for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule 1, or by such other method provided in the Preamble or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of this Security, or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment in full of this Security, you shall surrender this Security for cancellation, reasonably promptly after any such request to the Company at its principal executive office or at the place of payment most recently designated by the Company. Prior to any sale or other disposition of this Security you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender this Security to the Company in exchange for a new Convertible Note pursuant to the terms hereof. The Company will afford the benefits of this Section to any institutional investor that is the direct or indirect transferee of this Security. *Confidential treatment requested: Material has been omitted and filed with the Commission [SIGNATURE PAGE FOR SENIOR CONVERTIBLE NOTE] IN WITNESS WHEREOF, the Company has caused this Security to be duly executed under its corporate seal. Dated: September 8, 2000 CUBIST PHARMACEUTICALS, INC. By: /s/ THOMAS A. SHEA --------------------------------- Attest: /s/ JOSEPH GILDAY - ------------------------------ Name: Title: EX-10.63 16 a2042768zex-10_63.txt EXHIBIT 10.63 EXHIBIT 10.63 CONFIDENTIAL TREATMENT THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS SECURITY UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. CUBIST PHARMACEUTICALS, INC. 8.5% SENIOR CONVERTIBLE NOTE DUE SEPTEMBER 8, 2005 No. R-2 September 8, 2000 $2,000,000 PPN 229678 A* CUBIST PHARMACEUTICALS, INC., a corporation duly organized and existing under the laws of Delaware (the "Company") for value received, hereby promises to pay to JOHN HANCOCK LIFE INSURANCE COMPANY, or registered assigns, the principal sum of Two Million Dollars ($2,000,000) on September 8, 2005 and to pay interest thereon from the date hereof until this security (this "Security") together with all other amounts due under the Operative Documents have been paid in full, semi-annually on March 31 and September 31 in each year, commencing March 31, 2001, at the rate of 8.5% per annum, until the principal hereof is due, and at the rate of 10.5% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any interest payment date will be paid to the person in whose name this Security (or one or more predecessor securities) is registered at the close of business on the regular record date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such interest payment date. Payment of the principal of (and premium, if any, on) this Security shall be made upon the surrender of this Security to the Company, at its office at 24 Emily Street, Cambridge, Massachusetts 02139 (or such other office within the United States as shall be notified by the Company to the holder hereof) (the "Designated Office"), in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, by transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America. Payment of interest on this *Confidential treatment requested: Material has been omitted and filed with the Commission. Security shall be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America, provided that if the holder shall not have furnished wire instructions in -writing to the Company no later than the record date relating to an interest payment date, such payment may be made by U.S. dollar check mailed to the address of the person entitled thereto as such address shall appear in the Company security register. This Security will rank pari passu with all existing and future senior debt of the Company. This Security is one of the Company's 8.5% Senior Convertible Notes due September 8, 2005, limited to $39,000,000 aggregate principal amount, issued pursuant to that certain Note Purchase Agreement dated September 8, 2000 (such agreement, as amended, modified and supplemented from time to time, the "Note Purchase Agreement") between the Company and the institutional investors named therein, and the holder hereof is entitled to the benefits of the Note Purchase Agreement, and may enforce the agreements contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereof and thereof, all in accordance with the terms hereof and thereof. 1. OPTIONAL REDEMPTION WITH PREMIUM. This Security is subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time on or after September 8, 2003, as a whole or in part, (in any amount that is an integral multiple of $1,000) at the election of the Company, at a redemption price, paid in cash, of 103% of the principal amount thereof, together with accrued interest to the redemption date, but interest installments whose stated maturity is on or prior to such redemption date will be payable to the holder of this Security, or one or more predecessor Securities, of record at the close of business on the relevant record dates referred to on the face hereof. The term "Conversion Price" on any day shall equal $1,000 divided by the Conversion Rate in effect on each such day. 2. Conversion. (a) The holder of this Security is entitled at any time that this Security is outstanding (or, in case this Security or a portion hereof is called for redemption or the holder hereof has exercised its right to require the Company to repurchase this Security or a portion hereof, then in respect of this Security or such portion hereof, as the case may be, until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the redemption date or the Repurchase Date, as the case may be) to convert the outstanding principal amount of this Security (or any portion of the outstanding principal amount hereof that is an integral multiple of $1,000), into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the rate of one (1) share of Common Stock for each $63.8625 principal amount of Security (or at the current adjusted rate if an adjustment has been made as provided below) (the "Conversion Rate") by surrender of this Security, to the attorneys for the *Confidential treatment requested: Material has been omitted and filed with the Commission. Company at the office for the attorneys for the Company designated in writing and provided to the holder, accompanied by written notice to the Company that the holder hereof elects to convert this Security (or if less than the entire principal amount hereof is to be converted, specifying the portion hereof to be converted). Upon surrender of this Security for conversion, the holder will be entitled to receive the interest accruing on the principal amount of this Security then being converted from the interest payment date next preceding the date of such conversion to such date of conversion. No adjustment to the Conversion Rate is to be made on conversion for dividends on the Common Stock issued on conversion hereof. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest, the Company shall pay a cash adjustment, computed on the basis of the Closing Price of the Common Stock on the date of conversion, or, at its option, the Company shall round up to the next higher whole share. This Security shall be deemed to have been converted immediately prior to the close of business on the day of surrender hereof for conversion, in accordance with the foregoing provisions, and at such time the rights of the holder hereof, as a holder hereof, shall cease, and the person or persons entitled to receive the Common Stock issuable on conversion shall be treated by all Persons as the holder or holders of such Common Stock at such time. Upon any partial conversion of this Security, the Company, at its expense, will forthwith issue and deliver to, or upon the order of the holder hereof, a new Convertible Note or Convertible Notes in principal amount equal to the unconverted principal amount of such surrendered Convertible Note, such new Convertible Note or Convertible Notes to be dated and to bear interest from the date to which interest has been paid on such surrendered Convertible Note. As promptly as possible after the conversion of this Security, in whole or in part, and in any event within two (2) Business Days thereafter, the Company, at its expense, will issue and deliver a certificate or certificates, or if so requested in writing by the holder will enter or cause to be entered electronically by book entry such shares on the electronic system designated by the holder for the number of full shares of Common Stock issuable upon such conversion. (b) The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company payable in shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the Determination Date for such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of *Confidential treatment requested: Material has been omitted and filed with the Commission. business on the day following such Determination Date. For the purposes of this paragraph (1), the number of shares of Common Stock at any .time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) Subject to the last sentence of paragraph (7) of this Section 2(b) and the last sentence of this paragraph 2(b)(2), in case the Company shall issue rights, options, warrants or convertible securities entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on the Determination Date for such distribution, the Conversion Rate in effect at the opening of business on the day following such Determination Date shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock which the aggregate amount received by the Company upon the issuance of such rights, options, warrants or convertible securities of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would -purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options, warrants or convertible securities in respect of shares of Common Stock held in the treasury of the Company. Anything in this paragraph 2(b)(2) to the contrary notwithstanding, no adjustment to the Conversion Price shall be made, (i) in the case of the issuance of shares of Common Stock in a PIPE Transaction PROVIDED that the price per share for the shares of Common Stock issued or to be issued in connection with each PIPE Transaction is at least [ ]*% of the market price per share on the date such shares are issued or (ii) in connection with the acquisition of TerraGen Discovery, Inc. in accordance with the disclosure in the Note Purchase Agreement. (3) In case outstanding shares of Common Stock shall each be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following *Confidential treatment requested: Material has been omitted and filed with the Commission. the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) Subject to the last sentence of paragraph (7) of this Section 2(b), in case the Company shall, by dividend or otherwise, distribute evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options, warrants or convertible security referred to in paragraph (2) of this Section 2(b), (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section 2(b) and (iv) any merger or consolidation to which Section 2(h) applies), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less the then fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such Determination Date. If the Board of Directors determines the fair market value of any distribution for purposes of this paragraph (4) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share pursuant to paragraph (8) of this Section 2(b). (5) In case the Company shall, by dividend or otherwise, make a Cash Distribution, then, and in each such case, immediately after the close of business on the Determination Date for such Cash Distribution, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on such Determination Date by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the *Confidential treatment requested: Material has been omitted and filed with the Commission. quotient of (1) the amount of such Cash Distribution divided by (2) the number of shares of Common Stock outstanding on such Determination Date, and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date. (6) In case the Company or any Subsidiary shall make an Excess Purchase Payment, then, and in each such case, immediately prior to the opening of business on the day after the tender offer in respect of which such Excess Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such tender offer by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (A) the Excess Purchase Payment divided by (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Determination Date less the number of all shares validly tendered and not withdrawn as of the Determination Date and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock as of such Determination Date. (7) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 2(h) applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be the Determination Date), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 2(b). Rights, options, warrants or convertible securities issued by the Company entitling the holders thereof to subscribe for or purchase shares of Common Stock, which rights, options, warrants or convertible securities (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case in clauses (i) through (iii) until the occurrence of a specified event or events ("Trigger Event"), shall for purposes of this Section 2(b) not be deemed issued until the occurrence of the earliest Trigger Event. *Confidential treatment requested: Material has been omitted and filed with the Commission. (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 2(b) the current market price per share of Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices for the five (5) consecutive Trading Days selected by the Company commencing not more than ten (10) Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation PROVIDED that in the event the Company shall issue rights, options, warrants or convertible securities giving the holders thereof the right to receive shares of Common Stock at a price equal to the closing price on the date that such securities are issued under (i) any management or employee stock option plan or other equity incentive plan approved by the Board of Directors of the Company or (ii) in connection with a corporate acquisition transaction (such as the TerraGen Discovery, Inc. transaction) approved by the Board of Directors of the Company, then for purposes of paragraph (2) above, the market price shall equal the closing price on the Trading Day such securities are issued. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may make such increases in the Conversion Rate, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 2(b) as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights, options, warrants or convertible securities to purchase or subscribe for stock or from any event treated as such for income tax purposes. (c) Whenever the Conversion Rate is adjusted as provided in Section 2(b), the Company shall compute the adjusted Conversion Rate in accordance with Section 2(b) and shall prepare a certificate signed by the Senior Financial Officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and shall *Confidential treatment requested: Material has been omitted and filed with the Commission. promptly deliver such certificate to the holder of this Security. If the Majority Convertible Note Holders and the Company cannot agree in writing as to the adjusted Conversion Rate in accordance with Section 2(b), the holders of the Convertible Notes and the Company shall determine the adjusted Conversion Rate in accordance with the following procedure. The Majority Convertible Note Holders and the Company shall each appoint one registered securities broker, licensed with the Securities and Exchange commission to sell securities to the public, which broker shall be a senior vice president, managing director or equivalent of a major securities brokerage company with offices in Boston, Massachusetts. Each of such brokers shall have no less than ten (10) years experience in such field, shall be unaffiliated with, and their employer securities brokerage company shall be unaffiliated with, the holders of the Convertible Notes and the Company and shall not have previously participated in any underwriting of the Company's Common Stock in any public offering or provided any material investment banking or corporate advisory services to the Company. The Majority Convertible Note Holders and the Company shall make their appointments promptly and, in any event, within thirty (30) days from the date of the Conversion Rate Certificate. The two brokers shall meet in person or have a meeting by telephone and shall be instructed to render a determination of the adjusted Conversion Rate to the holders of the Convertible Notes and the Company within sixty (60) days of the date of the Conversion Rate Certificate. If the two brokers cannot agree, then each broker shall render their independent determination and the two brokers shall simultaneously therewith provide the name of a third broker acceptable to the two brokers meeting the criteria set forth above. The third broker shall be instructed to render a determination of the adjusted Conversion Rate within thirty (30) days of his or her appointment. The two closest determinations of the adjusted Conversion Rate shall be averaged and shall constitute the adjusted Conversion Rate. If the two brokers cannot agree upon a third broker, the selection of a third broker shall be submitted to binding arbitration in Boston, Massachusetts under the rules of the American Arbitration Association. In the event that the difference between the Company's calculation of the adjusted Conversion Rate and the calculation of the adjusted Conversion Rate determined by the foregoing process is five percent (5%) or greater then the costs and expenses of the . brokers and any arbitration shall be paid by and be the obligation of the Company and in the event that such difference is less than five percent (5%) then the costs and expenses of the brokers and any arbitration shall be paid by the holders of the Convertible Notes (as a group on a pro rata basis). (d) In case: (1) the Company shall declare a dividend or other distribution on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 2(b); or *Confidential treatment requested: Material has been omitted and filed with the Commission. (2) the Company shall authorize the granting to the holders of its Common Stock of rights, options, warrants or convertible securities to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock of the Company, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (5) the Company or any Subsidiary shall commence a tender offer for all or a portion of the Company's outstanding shares of Common Stock (or shall amend any such tender offer); then the Company shall cause to be delivered to the holder of this Security, at least twenty (20) days (or ten (10) days in any case specified in clause (1) or (2) above) prior to the applicable record, expiration or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options, warrants or convertible securities or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options, warrants or convertible securities are to be determined, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (5) of this Section 2(d). (e) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Security, the full number of shares of Common Stock then issuable upon the conversion of this Security. (f) Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of this Security. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of *Confidential treatment requested: Material has been omitted and filed with the Commission. any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of this Security, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. (g) The Company agrees that all shares of Common Stock which may be delivered by actual certificates or by electronic book entry upon conversion of the Security, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable (and shall be issued out of the Company's authorized but unissued Common Stock) and, except as provided in the second sentence of Section 2(f), the Company will pay all taxes, liens and charges with respect to the issue thereof. (h) In case of any consolidation of the Company with any other person, any merger of the Company into another person or of another person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the properties and assets of the Company, the person formed by such consolidation or resulting from such merger or which acquires such properties and assets, as the case may be, shall execute and deliver to the holder of this Security a supplemental agreement providing that such holder has the right, during the period this Security shall be convertible as specified in Section 2(a), to convert this Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (including any Common Stock retainable) by a holder of the number of shares of Common Stock of the Company into which this Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (1) is not a person with which the Company consolidated, into which the Company merged or which merged into the Company or to which such conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (2) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (PROVIDED that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 2(h) the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Nonelecting Shares). *Confidential treatment requested: Material has been omitted and filed with the Commission. Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 2. The above provisions of this Section 2(h) shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. In this paragraph, "securities of the kind receivable" upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of Common Stock means securities that, among other things, are registered and transferable under the Securities Act, and listed and approved for quotation in all securities markets, in each case to the same extent as such securities so receivable by a holder of Common Stock. (i) The Company (1) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) for the shares of Common Stock issuable upon conversion of this Security to be lawfully issued and delivered as provided herein, and thereafter publicly traded (if permissible under the Securities Act) and qualified or listed as contemplated by clause (2) (it being understood that the Company shall not be required to register the Common Stock issuable on conversion hereof under the Securities Act, except pursuant to the Registration Rights Agreement between the Company and the Purchasers (as defined in the Note Purchase Agreement), subject to the transfer restriction set forth in Section 6; and (2) will list the shares of Common Stock required to be issued and delivered upon conversion of Securities, prior to such issuance or delivery, on each national securities exchange on which outstanding Common Stock is listed or quoted at the time of such delivery, or if the Common Stock is not then listed on any securities exchange, to qualify the Common Stock for quotation on the Nasdaq National Market or such other interdealer quotation system, if any, on which the Common Stock is then quoted. (j) For purposes hereof: (references to Sections shall mean Sections of this Security unless otherwise specified) "AFFILIATE" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control", when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "ASSIGNMENT OF LEASES AND RENTS" shall mean the Assignment of Leases and Rents dated September 8, 2000 made by the Company in favor of the Trustee. "BUSINESS DAY" means any day other than a Saturday, a Sunday or other day which shall be in Boston, Massachusetts on a legal holiday or a day on which *Confidential treatment requested: Material has been omitted and filed with the Commission. commercial banks in Boston, Massachusetts are required or authorized to be closed. "CASH DISTRIBUTION" means the distribution by the Company to holders of its Common Stock of cash, other than any cash that is distributed upon a merger or consolidation to which Section 2(h) applies or as part of a distribution referred to in paragraph (4) of Section 2(b). "CHANGE OF CONTROL" is defined in Section 3(f)(2). "CLOSING" is defined in Section 1 of the Note Purchase Agreement. "CLOSING PRICE" means, with respect to the Common Stock of the Company, for any day, the reported closing sale price per share on the Nasdaq National Market, or, if no closing price is so reported, the last sale price per share on the Nasdaq National Market, or, if the Common Stock is not admitted to trading on the Nasdaq National Market on the principal national securities exchange or inter-dealer quotation system on which the Common Stock is listed or admitted to trading, or if not admitted to trading on the Nasdaq National Market or listed or admitted to trading on any national securities exchange or inter-dealer quotation system, the average of the closing bid and asked prices per share in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMMON STOCK" means the Common Stock, par value $.01 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 2(h), shares issuable on conversion or repurchase of this Security shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; PROVIDED, HOWEVER, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of this Security shall include shares of all such classes, and the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "CONVERTIBLE NOTES" shall mean one or more of the Company's 8.5% Senior Convertible Notes due September 8, 2005. "CONVERSION PRICE" is defined in Section 1. "CONVERSION RATE" is defined in Section 2(a). *Confidential treatment requested: Material has been omitted and filed with the Commission. "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DESIGNATED OFFICE" is defined in the Preamble. "DETERMINATION DATE" means, in the case of a dividend or other distribution, including the issuance of rights, options, warrants or convertible securities, to shareholders, the date fixed for the determination of shareholders entitled to receive such dividend or other distribution and, in the case of a tender offer, the last time that tenders could have been made pursuant to such tender offer, provided that if no date is fixed for the determination of holders entitled to receive such rights, options, warrants or convertible securities, then the Determination Date shall be the date of issuance of such rights, options, warrants or convertible securities. "ENVIRONMENTAL INDEMNITY" shall mean that Environmental Indemnity Agreement dated September 8, 2000 made by the Company in favor of the Trustee and the holders. "ENVIRONMENTAL LAWS" means any and all Federal, state and local laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EXCESS PURCHASE PAYMENT" means the product of (1) the excess, if any, of (a) the amount of cash plus the fair market value (as determined in good faith by the Company's Board of Directors) of any non-cash consideration required to be paid with respect to one share of Common Stock acquired or to be acquired in a tender offer made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock over (b) the current market price per share as of the last time that tenders could have been made pursuant to such tender offer and (2) the number of shares validly tendered and not withdrawn as of the Determination Date in respect of such tender offer. "EVENT OF DEFAULT" is defined in the preamble to Section 4. *Confidential treatment requested: Material has been omitted and filed with the Commission. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "HOLDERS " means, with respect to this Security or any other Convertible Note, the Person in whose name it is registered in the register to be maintained by the Company pursuant to Section 6(d). "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or capital lease (as such term is defined by GAAP), upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAJORITY CONVERTIBLE NOTE HOLDERS", as applied to describe the requisite holder or holders of the Convertible Notes, shall mean, at any date, the holder or holders of 66-2/3% or more in interest in the Convertible Notes at the time outstanding (excluding Convertible Notes at the time owned by the Company or any Affiliate of the Company). "MAKE-WHOLE AMOUNT" is defined in Section 4(g). "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (A) the business, operations, affairs, financial condition, assets, properties or prospects of the Company and its Subsidiaries taken as a whole, or (B) the ability of the Company to perform its obligations under the Note Purchase Agreement, the Registration Rights Agreement and the Convertible Notes, or (C) the validity or enforceability of the Note Purchase Agreement or the Convertible Notes. "MORTGAGE" shall mean shall mean the Mortgage, Assignment of Leases and Rents and Security Agreement dated September8, 2000 made by the Company in favor of the Trustee. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTE PURCHASE AGREEMENT" is defined in the Preamble. *Confidential treatment requested: Material has been omitted and filed with the Commission. "OPERATIVE DOCUMENTS" shall mean the Convertible Notes, the Note Purchase Agreement, the Registration Rights Agreement, the Mortgage, the Assignment of Leases and Rents, the Trust Agreement, the Environmental Indemnity, and each of the other agreements, documents and instruments executed in connection herewith and therewith, each as it may from time to time be amended, modified or supplemented. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PIPE TRANSACTION" shall mean a so called "private investment, public equity" private placement transaction which uses a procedure in which investors agree to purchase securities in a private offering conditioned upon or otherwise requiring the filing of a registration statement covering the securities so purchased. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof among the holders and the Company. "REPURCHASE DATE" is defined in Section 3(a). "REPURCHASE PRICE" is defined in Section 3(a). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other senior officer of the Company with responsibility for the administration of the relevant covenants in this Security or in the Note Purchase Agreement. "RETURNED AMOUNT" shall have the meaning given such term in the Note Purchase Agreement. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "SECURITY" is defined in the preamble hereof. *Confidential treatment requested: Material has been omitted and filed with the Commission. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "TRADING DAY" means (1) if the Common Stock is admitted to trading on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; (2) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (3) if the Common Stock is not admitted to trading on the Nasdaq National Market or listed or admitted for trading on any national securities exchange or any other system of automated dissemination of quotation of securities prices, a day on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "TRUST AGREEMENT" shall mean that certain Collateral Trust Agreement dated September 8, 2000 to which the Company, the holders and the Trustee are parties, as amended, modified or supplemented from time to time. "TRUSTEE" shall mean Fleet National Bank, together with its successors and assigns and any substitute and/or additional entity from time to time serving as Trustee under the Trust Agreement. 3. Right to Require Repurchase. (a) In the event that a Change in Control shall occur, then the holder of this Security shall have the right, at such holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, this Security, or any portion of the principal amount hereof that is equal to $1,000 or any integral multiple thereof, on the date (the "Repurchase Date") that is twenty (20) Trading Days after the date on which the Company gives notice to the holder of this Security that a Change in Control has occurred, at a purchase price equal to 100% of the principal amount of this Security to be repurchased plus *Confidential treatment requested: Material has been omitted and filed with the Commission. interest accrued to the Repurchase Date (such principal plus interest hereinafter referred to as the "Repurchase Price"); PROVIDED, HOWEVER, that installments of interest on this Security whose stated maturity is on or prior to the Repurchase Date shall be payable to the holder of this Security, or one or more predecessor Securities, registered as such on the relevant Record Date according to their terms. The Company agrees to give the holder of this Security notice of any Change in Control, by facsimile transmission confirmed in writing by overnight courier service, promptly and in any event within two (2) Trading Days of the occurrence thereof. (b) To exercise a repurchase right, the holder shall deliver to the Company on or before the fifth (5th) Trading Day prior to the Repurchase Date, together with this Security, written notice of the holder's exercise of such right, which notice shall set forth the name of the holder, the number of shares of Common Stock then owned by such holder and its affiliates, the principal amount of this Security to be repurchased (and, if this Security is to be repurchased in part, the portion of the principal amount thereof to be repurchased and the name of the person in which the portion thereof to remain outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby. Such written notice shall be irrevocable, except that the right of the holder to convert this Security (or the portion hereof with respect to which the repurchase right is being exercised) shall continue until the close of business on the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the holder the Repurchase Price in cash, provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash, to the holders of this Security, or one or more predecessor Securities, registered as such at the close of business on the relevant regular record date. (d) If this Security (or portion thereof) is surrendered for repurchase and is not so paid on or prior to the Repurchase Date, the principal amount of this Security (or such portion hereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate per annum borne by this Security, and shall remain convertible into Common Stock until the principal of this Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) If this Security is to be repurchased only in part, it shall be surrendered to the Company at the Designated Office (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing), and the Company shall execute and make available for delivery to the holder without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in *Confidential treatment requested: Material has been omitted and filed with the Commission. aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) For purposes of this Section 3. (1) the term "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act; and (2) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of this Security, of: (a) the acquisition by any person of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such person to exercise more than 30% of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors (any shares of voting stock of which such person is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage) other than any such acquisition by the Company or any employee benefit plan of the Company; or (b) any consolidation or merger of the Company with or into, any other person, any merger of another person with or into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the assets of the Company to another person (other than (i) any such transaction (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock and (y) pursuant to which holders of Common Stock immediately prior to such transaction have the entitlement to exercise, directly or indirectly, more than 30% of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving person immediately after such transaction and (ii) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock. 4. Events of Default. (a) "EVENT of DEFAULT", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to *Confidential treatment requested: Material has been omitted and filed with the Commission. any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) (a) default in the payment of any principal or premium, if any, upon this Security when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, including, without limitation, the failure to pay the Returned Amount when the Returned Amount is required to be paid under the Note Purchase Agreement or (b) default in the payment of any interest upon this Security when it becomes due and payable, and continuance of such default for a period of five (5) business days; or (2) default by the Company in the performance of-its obligations in respect of any conversion of this Security (or any portion hereof) in accordance with Section 2; or (3) failure by the Company to give any notice of a Change of Control required to be delivered in accordance with Section 3(a); or (4) default in the performance, or breach, of any other covenant of the Company herein, in the Note Purchase Agreement, or in the Registration Rights Agreement (other than a covenant default for which the performance or breach is specifically dealt with elsewhere in this Section 4(a) and continuance of such default or breach for a period of 30 days; (5) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; (6) aggregating in excess of $[ ]* are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within sixty (60) days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; or (7) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company, or under any agreement, 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 Company, with a principal amount then outstanding in excess of $[ ]* whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay the principal of such indebtedness (in whole or in any part greater than $[ ]* when due and payable or shall have resulted in such indebtedness (in whole or in any part greater than $[ ]* becoming or being declared *Confidential treatment requested: Material has been omitted and filed with the Commission. due and payable prior to the date on which it would otherwise have become due and payable; or (8) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such a final judgment or judgments for the payment of money standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $[ ]*, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 4(a)(8), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. (9) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; *Confidential treatment requested: Material has been omitted and filed with the Commission. (10) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or not paying its debts as they become due or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (11) the occurrence of any Event of Default (as defined in the Mortgage) under the Mortgage, or the occurrence of any Event of Default (as defined in the Assignment of Leases and Rents) under the Assignment of Leases and Rents or any default under the Environmental Indemnity. (b) If an Event of Default (other than an Event of Default specified in Section 4(a)(9) or 4(a)(10)) occurs and is continuing, then in every such case the holder of this Security may declare the principal hereof to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security(, the entire principal of and interest accrued on this Security, and ii in addition, to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty; and, in case of the occurrence of an Event of Default of the character described in subdivisions 4(a)(9) and 4(a)(10) the principal of and accrued interest on this Security, IPSO FACTO shall become immediately due and payable without any declaration or other act of the holder of this Security and without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security (x) the entire principal of and interest accrued on this Security and (y) in addition, if such Event of Default is "Voluntary" (as hereinafter defined), to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty. *Confidential treatment requested: Material has been omitted and filed with the Commission. For purposes of this section 4(b), "Voluntary" shall mean an Event of Default of the character described in subdivisions 4(a)(9) or 4(a)(10) which shall have been (x procured by the Company or any officer, director, stockholder or Affiliate of the Company or (y) primarily the result of action or inaction by the Company or by any officer, director, stockholder or Affiliate of the Company. (c) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, and irrespective of whether this Security has become or has been declared immediately due and payable under Section 4(a), the holder of this Security may proceed to protect and enforce its rights either by suit in equity or by action at law, or both. The Company stipulates that the remedies at law of the holder of this Security in the event of any Default or threatened Default by the Company in the performance of or compliance with any covenant or agreement in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance thereof, whether by an injunction against a violation thereof or otherwise. (d) No remedy conferred in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or otherwise. (e) No course of dealing between the Company and any of its Subsidiaries, on the one hand, and the holder of this Security, on the other hand, and no delay by any such holder in exercising any rights hereunder or under the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents shall operate as a waiver of any rights of such holder. (f) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, all amounts to be applied to the prepayment or payment of this Security shall be applied, after the payment of all related costs and expenses incurred by the holder of this Security (including, without limitation, compensation to any and all trustees, liquidators, receivers or similar officials and reasonable fees, expenses and disbursements of counsel) in such order of priority as is determined by the holder of this Security. (g) The term "Make-Whole Amount" means, with respect to this Security, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of this Security over the amount of such Called Principal, PROVIDED that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: *Confidential treatment requested: Material has been omitted and filed with the Commission. "Called Principal" means, with respect to this Security, the principal of this Security that has become or is declared to be immediately due and payable pursuant to Section 4(b). "Discounted Value" means, with respect to the Called Principal of this Security, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on this Security is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of this Security, the yield to maturity implied by (1) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "PX-1" of the Bloomberg Financial Markets Services Screen for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (2) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (i) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (ii) the actively traded U.S, Treasury security with the duration closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (1)such Called Principal into (2) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payment" means, with respect to the Called Principal of this Security, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled *Confidential treatment requested: Material has been omitted and filed with the Commission. due date, PROVIDED that if such Settlement Date is not a date on which interest payments are due to be made under the terms of this Security, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date. "Settlement Date" means, with respect to the Called Principal of this Security, the date on which such Called Principal has become or is declared to be immediately due and payable pursuant to Section 4(b), as the context requires. 5. CONSOLIDATION, MERGER, ETC. (a) The Company shall not consolidate with or merge into any other person or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to any person, and the Company shall not permit any person to consolidate with or merge into the Company or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to the Company, unless: (1) in case the Company shall consolidate with or merge into another person or convey, transfer, sell or lease all or substantially all of its properties and assets to any person, the person formed by such consolidation or into which the Company is merged or the person which acquires by conveyance, transfer or sale, or which leases, all or substantially all the properties and assets of the Company shall be a corporation, limited liability company, partnership or trust, shall be 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 agreement supplemental hereto, executed and delivered to the holder of this Security in form satisfactory to the holder, the due and punctual payment of the principal of (and premium, if any) and interest on this Security and the performance or observance of every covenant of this Security on the part of the Company to be performed or observed, including the conversion rights provided herein (which shall thereafter relate to common stock of such successor, on a basis reasonably designed to preserve the economic value to the holder of this Security of such conversion rights); (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary of the Company as a result of such transaction as having been incurred by the Company or such Subsidiary of the Company at the time of 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; *Confidential treatment requested: Material has been omitted and filed with the Commission. (3) the Company has delivered to the holder of this Security an officers' certificate stating that such consolidation, merger, conveyance, transfer, sale or lease and, if a supplemental agreement is required in connection with such transaction, such supplemental agreement, comply with this Section and that all conditions precedent herein provided for relating to such transaction have been complied with; and (4) counsel for the Company or any successor thereto has delivered to the holder of this Security an opinion of such counsel with respect to such consolidation, merger, conveyance, transfer, sale or lease, and if a supplemental agreement is required in connection with such transaction, such supplemental agreement, which opinion shall be, in form and substance, reasonably acceptable to such holder and its counsel. (b) Upon any consolidation of the Company with, or merger of the Company into, any other person or any conveyance, transfer, sale or lease of all or substantially all of the properties and assets of the Company in accordance with Section 5(a), the successor person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer, sale or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Security with the same effect as if such successor person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor person shall be relieved of all obligations and covenants under this Security. 6. OTHER. (a) No provision of this Security shall alter or impair the obligation of the Company,- which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security in cash at the times; places and rate, and in the coin or currency, herein prescribed or to convert this Security as herein provided. (b) The Company will give prompt written notice to the holder of Security of any change in the location of the Designated Office. (c) (i) Subject to clause (ii) below, the transfer of this Security is registrable on the Security Register of the Company upon surrender of this Security for registration of transfer at the Designated Office, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Such Securities are issuable only in registered form without coupons in denominations of the lesser of (x) $1,000,000 and (y) the outstanding principal amount of any Security then being registered. No service *Confidential treatment requested: Material has been omitted and filed with the Commission. charge shall be made for any such registration of transfer, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of this Security for registration of transfer, the Company and any agent of the Company may treat the person in whose name this Security is registered as the owner thereof for all purposes, whether or not this Security be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. (ii) Any sale, assignment, transfer or other disposition of this Security (or any portion hereof) by any holder of this Security shall be made in compliance with all applicable securities laws. (d) The Company shall keep at the Designated Office a register for the registration and registration of transfers of Convertible Notes. The name and address of each holder of one or more Convertible Notes, each transfer thereof and the name and address of each transferee of one or more Convertible Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Convertible Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Convertible Note promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Convertible Notes. (e) Upon surrender of any Convertible Note at the Designated Office for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Convertible Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Convertible Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Convertible Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Convertible Note. Each such new Convertible Note shall be payable to such Person as such holder may request and shall be substantially in the form of this Security. Each such new Convertible Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Convertible Note or dated the date of the surrendered Convertible Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of this Security. Convertible Notes shall not be transferred in denominations of less than $100,000, PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Convertible Notes, one Convertible Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Convertible Note registered in its name (or the *Confidential treatment requested: Material has been omitted and filed with the Commission. name of its nominee), shall be deemed to have made the representation set forth in section 3 of the Note Purchase Agreement. (f) Upon receipt by the Company of a written request from the holder, and (1) in the case of loss, theft or destruction, of an unsecured agreement of indemnity, or (2) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Convertible Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Convertible Note or dated the date of such lost, stolen, destroyed or mutilated Convertible Note if no interest shall have been paid thereon. (g) This Security shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, United States of America. (h) So long as you or your nominee shall be holder of this Security and notwithstanding anything in this Security to the contrary, the Company will pay all sums becoming due hereunder for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule 1, or by such other method provided in the Preamble or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of this Security, or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment in full of this Security, you shall surrender this Security for cancellation, reasonably promptly after any such request to the Company at its principal executive office or at the place of payment most recently designated by the Company. Prior to any sale or other disposition of this Security you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender this Security to the Company in exchange for a new Convertible Note pursuant to the terms hereof. The Company will afford the benefits of this Section to any institutional investor that is the direct or indirect transferee of this Security. *Confidential treatment requested: Material has been omitted and filed with the Commission. [SIGNATURE PAGE FOR SENIOR CONVERTIBLE NOTE] IN WITNESS WHEREOF, the Company has caused this Security to be duly executed under its corporate seal. Dated: September 8, 2000 CUBIST PHARMACEUTICALS, INC. By: /s/ THOMAS A. SHEA -------------------------------- Attest: /s/ JOSEPH GILDAY - ------------------------------- Name: Title: *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.64 17 a2042768zex-10_64.txt EXHIBIT 10.64 EXHIBIT 10.64 CONFIDENTIAL TREATMENT THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS SECURITY UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. CUBIST PHARMACEUTICALS, INC. 8.5% SENIOR CONVERTIBLE NOTE DUE SEPTEMBER 8, 2005 No. R-3 September 8, 2000 $500,000 PPN 229678 A* CUBIST PHARMACEUTICALS, INC., a corporation duly organized and existing under the laws of Delaware (the "Company") for value received, hereby promises to pay to JOHN HANCOCK LIFE INSURANCE COMPANY, or registered assigns, the principal sum of Five Hundred Thousand Dollars ($500,000) on September 8, 2005 and to pay interest thereon from the date hereof until this security (this "Security") together with all other amounts due under the Operative Documents have been paid in full, semi-annually on March 31 and September 31 in each year, commencing March 31, 2001, at the rate of 8.5% per annum, until the principal hereof is due, and at the rate of 10.5% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any interest payment date will be paid to the person in whose name this Security (or one or more predecessor securities) is registered at the close of business on the regular record date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such interest payment date. Payment of the principal of (and premium, if any, on) this Security shall be made upon the surrender of this Security to the Company, at its office at 24 Emily Street, Cambridge, Massachusetts 02139 (or such other office within the United States as shall be notified by the Company to the holder hereof) (the "Designated Office"), in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, by transfer *Confidential treatment requested: Material has been omitted and filed with the Commission. to a U.S. dollar account maintained by the payee with a bank in the United States of America. Payment of interest on this Security shall be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America, provided that if the holder shall not have furnished wire instructions in -writing to the Company no later than the record date relating to an interest payment date, such payment may be made by U.S. dollar check mailed to the address of the person entitled thereto as such address shall appear in the Company security register. This Security will rank pari passu with all existing and future senior debt of the Company. This Security is one of the Company's 8.5% Senior Convertible Notes due September 8, 2005, limited to $39,000,000 aggregate principal amount, issued pursuant to that certain Note Purchase Agreement dated September 8, 2000 (such agreement, as amended, modified and supplemented from time to time, the "Note Purchase Agreement") between the Company and the institutional investors named therein, and the holder hereof is entitled to the benefits of the Note Purchase Agreement, and may enforce the agreements contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereof and thereof, all in accordance with the terms hereof and thereof. 1. OPTIONAL REDEMPTION WITH PREMIUM. This Security is subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time on or after September 8, 2003, as a whole or in part, (in any amount that is an integral multiple of $1,000) at the election of the Company, at a redemption price, paid in cash, of 103% of the principal amount thereof, together with accrued interest to the redemption date, but interest installments whose stated maturity is on or prior to such redemption date will be payable to the holder of this Security, or one or more predecessor Securities, of record at the close of business on the relevant record dates referred to on the face hereof. The term "Conversion Price" on any day shall equal $1,000 divided by the Conversion Rate in effect on each such day. 2. Conversion. (a) The holder of this Security is entitled at any time that this Security is outstanding (or, in case this Security or a portion hereof is called for redemption or the holder hereof has exercised its right to require the Company to repurchase this Security or a portion hereof, then in respect of this Security or such portion hereof, as the case may be, until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the redemption date or the Repurchase Date, as the case may be) to convert the outstanding principal amount of this Security (or any portion of the outstanding principal amount hereof that is an integral multiple of $1,000), into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the rate of one (1) share of Common Stock for each $63.8625 principal amount of Security (or at the current adjusted rate if an adjustment has been made as provided below) (the "Conversion Rate") by surrender of this Security, to the attorneys for the Company at the office for the attorneys for the Company designated in writing and *Confidential treatment requested: Material has been omitted and filed with the Commission. provided to the holder, accompanied by written notice to the Company that the holder hereof elects to convert this Security (or if less than the entire principal amount hereof is to be converted, specifying the portion hereof to be converted). Upon surrender of this Security for conversion, the holder will be entitled to receive the interest accruing on the principal amount of this Security then being converted from the interest payment date next preceding the date of such conversion to such date of conversion. No adjustment to the Conversion Rate is to be made on conversion for dividends on the Common Stock issued on conversion hereof. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest, the Company shall pay a cash adjustment, computed on the basis of the Closing Price of the Common Stock on the date of conversion, or, at its option, the Company shall round up to the next higher whole share. This Security shall be deemed to have been converted immediately prior to the close of business on the day of surrender hereof for conversion, in accordance with the foregoing provisions, and at such time the rights of the holder hereof, as a holder hereof, shall cease, and the person or persons entitled to receive the Common Stock issuable on conversion shall be treated by all Persons as the holder or holders of such Common Stock at such time. Upon any partial conversion of this Security, the Company, at its expense, will forthwith issue and deliver to, or upon the order of the holder hereof, a new Convertible Note or Convertible Notes in principal amount equal to the unconverted principal amount of such surrendered Convertible Note, such new Convertible Note or Convertible Notes to be dated and to bear interest from the date to which interest has been paid on such surrendered Convertible Note. As promptly as possible after the conversion of this Security, in whole or in part, and in any event within two (2) Business Days thereafter, the Company, at its expense, will issue and deliver a certificate or certificates, or if so requested in writing by the holder will enter or cause to be entered electronically by book entry such shares on the electronic system designated by the holder for the number of full shares of Common Stock issuable upon such conversion. (b) The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company payable in shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the Determination Date for such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes of this paragraph (1), the number of shares of Common Stock at any *Confidential treatment requested: Material has been omitted and filed with the Commission. time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) Subject to the last sentence of paragraph (7) of this Section 2(b) and the last sentence of this paragraph 2(b)(2), in case the Company shall issue rights, options, warrants or convertible securities entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on the Determination Date for such distribution, the Conversion Rate in effect at the opening of business on the day following such Determination Date shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock which the aggregate amount received by the Company upon the issuance of such rights, options, warrants or convertible securities of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would -purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options, warrants or convertible securities in respect of shares of Common Stock held in the treasury of the Company. Anything in this paragraph 2(b)(2) to the contrary notwithstanding, no adjustment to the Conversion Price shall be made, (i) in the case of the issuance of shares of Common Stock in a PIPE Transaction PROVIDED that the price per share for the shares of Common Stock issued or to be issued in connection with each PIPE Transaction is at least [ ]*% of the market price per share on the date such shares are issued or (ii) in connection with the acquisition of TerraGen Discovery, Inc. in accordance with the disclosure in the Note Purchase Agreement. (3) In case outstanding shares of Common Stock shall each be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined *Confidential treatment requested: Material has been omitted and filed with the Commission. into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) Subject to the last sentence of paragraph (7) of this Section 2(b), in case the Company shall, by dividend or otherwise, distribute evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options, warrants or convertible security referred to in paragraph (2) of this Section 2(b), (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section 2(b) and (iv) any merger or consolidation to which Section 2(h) applies), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less the then fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such Determination Date. If the Board of Directors determines the fair market value of any distribution for purposes of this paragraph (4) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share pursuant to paragraph (8) of this Section 2(b). (5) In case the Company shall, by dividend or otherwise, make a Cash Distribution, then, and in each such case, immediately after the close of business on the Determination Date for such Cash Distribution, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on such Determination Date by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (1) the amount of such Cash Distribution divided by (2) the number of shares of Common Stock outstanding on such Determination Date, and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date. *Confidential treatment requested: Material has been omitted and filed with the Commission. (6) In case the Company or any Subsidiary shall make an Excess Purchase Payment, then, and in each such case, immediately prior to the opening of business on the day after the tender offer in respect of which such Excess Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such tender offer by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (A) the Excess Purchase Payment divided by (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Determination Date less the number of all shares validly tendered and not withdrawn as of the Determination Date and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock as of such Determination Date. (7) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 2(h) applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be the Determination Date), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 2(b). Rights, options, warrants or convertible securities issued by the Company entitling the holders thereof to subscribe for or purchase shares of Common Stock, which rights, options, warrants or convertible securities (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case in clauses (i) through (iii) until the occurrence of a specified event or events ("Trigger Event"), shall for purposes of this Section 2(b) not be deemed issued until the occurrence of the earliest Trigger Event. (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 2(b) the current market price per share of Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices for the five (5) consecutive Trading Days selected by the Company commencing not more than ten (10) Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" *Confidential treatment requested: Material has been omitted and filed with the Commission. with respect to the issuance or distribution requiring such computation PROVIDED that in the event the Company shall issue rights, options, warrants or convertible securities giving the holders thereof the right to receive shares of Common Stock at a price equal to the closing price on the date that such securities are issued under (i) any management or employee stock option plan or other equity incentive plan approved by the Board of Directors of the Company or (ii) in connection with a corporate acquisition transaction (such as the TerraGen Discovery, Inc. transaction) approved by the Board of Directors of the Company, then for purposes of paragraph (2) above, the market price shall equal the closing price on the Trading Day such securities are issued. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may make such increases in the Conversion Rate, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 2(b) as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights, options, warrants or convertible securities to purchase or subscribe for stock or from any event treated as such for income tax purposes. (c) Whenever the Conversion Rate is adjusted as provided in Section 2(b), the Company shall compute the adjusted Conversion Rate in accordance with Section 2(b) and shall prepare a certificate signed by the Senior Financial Officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and shall promptly deliver such certificate to the holder of this Security. If the Majority Convertible Note Holders and the Company cannot agree in writing as to the adjusted Conversion Rate in accordance with Section 2(b), the holders of the Convertible Notes and the Company shall determine the adjusted Conversion Rate in accordance with the following procedure. The Majority Convertible Note Holders and the Company shall each appoint one registered securities broker, licensed with the Securities and Exchange commission to sell securities to the public, which broker shall be a senior vice president, managing director or equivalent of a major *Confidential treatment requested: Material has been omitted and filed with the Commission. securities brokerage company with offices in Boston, Massachusetts. Each of such brokers shall have no less than ten (10) years experience in such field, shall be unaffiliated with, and their employer securities brokerage company shall be unaffiliated with, the holders of the Convertible Notes and the Company and shall not have previously participated in any underwriting of the Company's Common Stock in any public offering or provided any material investment banking or corporate advisory services to the Company. The Majority Convertible Note Holders and the Company shall make their appointments promptly and, in any event, within thirty (30) days from the date of the Conversion Rate Certificate. The two brokers shall meet in person or have a meeting by telephone and shall be instructed to render a determination of the adjusted Conversion Rate to the holders of the Convertible Notes and the Company within sixty (60) days of the date of the Conversion Rate Certificate. If the two brokers cannot agree, then each broker shall render their independent determination and the two brokers shall simultaneously therewith provide the name of a third broker acceptable to the two brokers meeting the criteria set forth above. The third broker shall be instructed to render a determination of the adjusted Conversion Rate within thirty (30) days of his or her appointment. The two closest determinations of the adjusted Conversion Rate shall be averaged and shall constitute the adjusted Conversion Rate. If the two brokers cannot agree upon a third broker, the selection of a third broker shall be submitted to binding arbitration in Boston, Massachusetts under the rules of the American Arbitration Association. In the event that the difference between the Company's calculation of the adjusted Conversion Rate and the calculation of the adjusted Conversion Rate determined by the foregoing process is five percent (5%) or greater then the costs and expenses of the brokers and any arbitration shall be paid by and be the obligation of the Company and in the event that such difference is less than five percent (5%) then the costs and expenses of the brokers and any arbitration shall be paid by the holders of the Convertible Notes (as a group on a pro rata basis). (d) In case: (1) the Company shall declare a dividend or other distribution on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 2(b); or (2) the Company shall authorize the granting to the holders of its Common Stock of rights, options, warrants or convertible securities to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock of the Company, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or *Confidential treatment requested: Material has been omitted and filed with the Commission. (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (5) the Company or any Subsidiary shall commence a tender offer for all or a portion of the Company's outstanding shares of Common Stock (or shall amend any such tender offer); then the Company shall cause to be delivered to the holder of this Security, at least twenty (20) days (or ten (10) days in any case specified in clause (1) or (2) above) prior to the applicable record, expiration or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options, warrants or convertible securities or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options, warrants or convertible securities are to be determined, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (5) of this Section 2(d). (e) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Security, the full number of shares of Common Stock then issuable upon the conversion of this Security. (f) Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of this Security. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of this Security, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. (g) The Company agrees that all shares of Common Stock which may be delivered by actual certificates or by electronic book entry upon conversion of the Security, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable (and shall be issued out of the Company's authorized but *Confidential treatment requested: Material has been omitted and filed with the Commission. unissued Common Stock) and, except as provided in the second sentence of Section 2(f), the Company will pay all taxes, liens and charges with respect to the issue thereof. (h) In case of any consolidation of the Company with any other person, any merger of the Company into another person or of another person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the properties and assets of the Company, the person formed by such consolidation or resulting from such merger or which acquires such properties and assets, as the case may be, shall execute and deliver to the holder of this Security a supplemental agreement providing that such holder has the right, during the period this Security shall be convertible as specified in Section 2(a), to convert this Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (including any Common Stock retainable) by a holder of the number of shares of Common Stock of the Company into which this Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (1) is not a person with which the Company consolidated, into which the Company merged or which merged into the Company or to which such conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (2) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (PROVIDED that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 2(h) the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Nonelecting Shares). Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 2. The above provisions of this Section 2(h) shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. In this paragraph, "securities of the kind receivable" upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of Common Stock means securities that, among other things, are registered and transferable under the Securities Act, and listed and approved for quotation in all securities markets, in each case to the same extent as such securities so receivable by a holder of Common Stock. *Confidential treatment requested: Material has been omitted and filed with the Commission. (i) The Company (1) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) for the shares of Common Stock issuable upon conversion of this Security to be lawfully issued and delivered as provided herein, and thereafter publicly traded (if permissible under the Securities Act) and qualified or listed as contemplated by clause (2) (it being understood that the Company shall not be required to register the Common Stock issuable on conversion hereof under the Securities Act, except pursuant to the Registration Rights Agreement between the Company and the Purchasers (as defined in the Note Purchase Agreement), subject to the transfer restriction set forth in Section 6; and (2) will list the shares of Common Stock required to be issued and delivered upon conversion of Securities, prior to such issuance or delivery, on each national securities exchange on which outstanding Common Stock is listed or quoted at the time of such delivery, or if the Common Stock is not then listed on any securities exchange, to qualify the Common Stock for quotation on the Nasdaq National Market or such other interdealer quotation system, if any, on which the Common Stock is then quoted. (j) For purposes hereof: (references to Sections shall mean Sections of this Security unless otherwise specified) "AFFILIATE" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control", when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "ASSIGNMENT OF LEASES AND RENTS" shall mean the Assignment of Leases and Rents dated September 8, 2000 made by the Company in favor of the Trustee. "BUSINESS DAY" means any day other than a Saturday, a Sunday or other day which shall be in Boston, Massachusetts on a legal holiday or a day on which commercial banks in Boston, Massachusetts are required or authorized to be closed. "CASH DISTRIBUTION" means the distribution by the Company to holders of its Common Stock of cash, other than any cash that is distributed upon a merger or consolidation to which Section 2(h) applies or as part of a distribution referred to in paragraph (4) of Section 2(b). "CHANGE OF CONTROL" is defined in Section 3(f)(2). "CLOSING" is defined in Section 1 of the Note Purchase Agreement. *Confidential treatment requested: Material has been omitted and filed with the Commission. "CLOSING PRICE" means, with respect to the Common Stock of the Company, for any day, the reported closing sale price per share on the Nasdaq National Market, or, if no closing price is so reported, the last sale price per share on the Nasdaq National Market, or, if the Common Stock is not admitted to trading on the Nasdaq National Market on the principal national securities exchange or inter-dealer quotation system on which the Common Stock is listed or admitted to trading, or if not admitted to trading on the Nasdaq National Market or listed or admitted to trading on any national securities exchange or inter-dealer quotation system, the average of the closing bid and asked prices per share in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMMON STOCK" means the Common Stock, par value $.01 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 2(h), shares issuable on conversion or repurchase of this Security shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; PROVIDED, HOWEVER, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of this Security shall include shares of all such classes, and the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "CONVERTIBLE NOTES" shall mean one or more of the Company's 8.5% Senior Convertible Notes due September 8, 2005. "CONVERSION PRICE" is defined in Section 1. "CONVERSION RATE" is defined in Section 2(a). "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DESIGNATED OFFICE" is defined in the Preamble. "DETERMINATION DATE" means, in the case of a dividend or other distribution, including the issuance of rights, options, warrants or convertible securities, to shareholders, the date fixed for the determination of shareholders entitled to receive such dividend or other distribution and, in the case of a tender offer, the last time that tenders could have been made pursuant to such tender offer, provided that if no date is fixed for the determination of holders entitled to receive such rights, options, warrants or *Confidential treatment requested: Material has been omitted and filed with the Commission. convertible securities, then the Determination Date shall be the date of issuance of such rights, options, warrants or convertible securities. "ENVIRONMENTAL INDEMNITY" shall mean that Environmental Indemnity Agreement dated September 8, 2000 made by the Company in favor of the Trustee and the holders. "ENVIRONMENTAL LAWS" means any and all Federal, state and local laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EXCESS PURCHASE PAYMENT" means the product of (1) the excess, if any, of (a) the amount of cash plus the fair market value (as determined in good faith by the Company's Board of Directors) of any non-cash consideration required to be paid with respect to one share of Common Stock acquired or to be acquired in a tender offer made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock over (b) the current market price per share as of the last time that tenders could have been made pursuant to such tender offer and (2) the number of shares validly tendered and not withdrawn as of the Determination Date in respect of such tender offer. "EVENT OF DEFAULT" is defined in the preamble to Section 4. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "HOLDERS " means, with respect to this Security or any other Convertible Note, the Person in whose name it is registered in the register to be maintained by the Company pursuant to Section 6(d). "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, *Confidential treatment requested: Material has been omitted and filed with the Commission. lender or other secured party to or of such Person under any conditional sale or other title retention agreement or capital lease (as such term is defined by GAAP), upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAJORITY CONVERTIBLE NOTE HOLDERS", as applied to describe the requisite holder or holders of the Convertible Notes, shall mean, at any date, the holder or holders of 66-2/3% or more in interest in the Convertible Notes at the time outstanding (excluding Convertible Notes at the time owned by the Company or any Affiliate of the Company). "MAKE-WHOLE AMOUNT" is defined in Section 4(g). "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (A) the business, operations, affairs, financial condition, assets, properties or prospects of the Company and its Subsidiaries taken as a whole, or (B) the ability of the Company to perform its obligations under the Note Purchase Agreement, the Registration Rights Agreement and the Convertible Notes, or (C) the validity or enforceability of the Note Purchase Agreement or the Convertible Notes. "MORTGAGE" shall mean shall mean the Mortgage, Assignment of Leases and Rents and Security Agreement dated September8, 2000 made by the Company in favor of the Trustee. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTE PURCHASE AGREEMENT" is defined in the Preamble. "OPERATIVE DOCUMENTS" shall mean the Convertible Notes, the Note Purchase Agreement, the Registration Rights Agreement, the Mortgage, the Assignment of Leases and Rents, the Trust Agreement, the Environmental Indemnity, and each of the other agreements, documents and instruments executed in connection herewith and therewith, each as it may from time to time be amended, modified or supplemented. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. *Confidential treatment requested: Material has been omitted and filed with the Commission. "PIPE TRANSACTION" shall mean a so called "private investment, public equity" private placement transaction which uses a procedure in which investors agree to purchase securities in a private offering conditioned upon or otherwise requiring the filing of a registration statement covering the securities so purchased. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof among the holders and the Company. "REPURCHASE DATE" is defined in Section 3(a). "REPURCHASE PRICE" is defined in Section 3(a). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other senior officer of the Company with responsibility for the administration of the relevant covenants in this Security or in the Note Purchase Agreement. "RETURNED AMOUNT" shall have the meaning given such term in the Note Purchase Agreement. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "SECURITY" is defined in the preamble hereof. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. *Confidential treatment requested: Material has been omitted and filed with the Commission. "TRADING DAY" means (1) if the Common Stock is admitted to trading on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; (2) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (3) if the Common Stock is not admitted to trading on the Nasdaq National Market or listed or admitted for trading on any national securities exchange or any other system of automated dissemination of quotation of securities prices, a day on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "TRUST AGREEMENT" shall mean that certain Collateral Trust Agreement dated September 8, 2000 to which the Company, the holders and the Trustee are parties, as amended, modified or supplemented from time to time. "TRUSTEE" shall mean Fleet National Bank, together with its successors and assigns and any substitute and/or additional entity from time to time serving as Trustee under the Trust Agreement. 3. Right to Require Repurchase. (a) In the event that a Change in Control shall occur, then the holder of this Security shall have the right, at such holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, this Security, or any portion of the principal amount hereof that is equal to $1,000 or any integral multiple thereof, on the date (the "Repurchase Date") that is twenty (20) Trading Days after the date on which the Company gives notice to the holder of this Security that a Change in Control has occurred, at a purchase price equal to 100% of the principal amount of this Security to be repurchased plus interest accrued to the Repurchase Date (such principal plus interest hereinafter referred to as the "Repurchase Price"); PROVIDED, HOWEVER, that installments of interest on this Security whose stated maturity is on or prior to the Repurchase Date shall be payable to the holder of this Security, or one or more predecessor Securities, registered as such on the relevant Record Date according to their terms. The Company agrees to give the holder of this Security notice of any Change in Control, by facsimile transmission confirmed in writing by overnight courier service, promptly and in any event within two (2) Trading Days of the occurrence thereof. (b) To exercise a repurchase right, the holder shall deliver to the Company on or before the fifth (5th) Trading Day prior to the Repurchase Date, together with this Security, written notice of the holder's exercise of such right, which notice shall set forth the name of the holder, the number of shares of Common Stock then owned by such holder and its affiliates, the principal amount of this Security to be repurchased (and, if this Security is to be repurchased in part, the portion of the principal amount thereof to be repurchased and the name of the person in which the portion thereof to remain *Confidential treatment requested: Material has been omitted and filed with the Commission. outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby. Such written notice shall be irrevocable, except that the right of the holder to convert this Security (or the portion hereof with respect to which the repurchase right is being exercised) shall continue until the close of business on the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the holder the Repurchase Price in cash, provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash, to the holders of this Security, or one or more predecessor Securities, registered as such at the close of business on the relevant regular record date. (d) If this Security (or portion thereof) is surrendered for repurchase and is not so paid on or prior to the Repurchase Date, the principal amount of this Security (or such portion hereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate per annum borne by this Security, and shall remain convertible into Common Stock until the principal of this Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) If this Security is to be repurchased only in part, it shall be surrendered to the Company at the Designated Office (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing), and the Company shall execute and make available for delivery to the holder without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) For purposes of this Section 3. (1) the term "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act; and (2) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of this Security, of: (a) the acquisition by any person of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such person to exercise more than 30% of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors (any shares of voting stock of which *Confidential treatment requested: Material has been omitted and filed with the Commission. such person is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage) other than any such acquisition by the Company or any employee benefit plan of the Company; or (b) any consolidation or merger of the Company with or into, any other person, any merger of another person with or into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the assets of the Company to another person (other than (i) any such transaction (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock and (y) pursuant to which holders of Common Stock immediately prior to such transaction have the entitlement to exercise, directly or indirectly, more than 30% of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving person immediately after such transaction and (ii) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock. 4. Events of Default. (a) "EVENT of DEFAULT", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) (a) default in the payment of any principal or premium, if any, upon this Security when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, including, without limitation, the failure to pay the Returned Amount when the Returned Amount is required to be paid under the Note Purchase Agreement or (b) default in the payment of any interest upon this Security when it becomes due and payable, and continuance of such default for a period of five (5) business days; or (2) default by the Company in the performance of-its obligations in respect of any conversion of this Security (or any portion hereof) in accordance with Section 2; or (3) failure by the Company to give any notice of a Change of Control required to be delivered in accordance with Section 3(a); or *Confidential treatment requested: Material has been omitted and filed with the Commission. (4) default in the performance, or breach, of any other covenant of the Company herein, in the Note Purchase Agreement, or in the Registration Rights Agreement (other than a covenant default for which the performance or breach is specifically dealt with elsewhere in this Section 4(a) and continuance of such default or breach for a period of 30 days; (5) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; (6) aggregating in excess of $[ ]* are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within sixty (60) days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; or (7) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company, or under any agreement, 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 Company, with a principal amount then outstanding in excess of $[ ]* whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay the principal of such indebtedness (in whole or in any part greater than $[ ]* when due and payable or shall have resulted in such indebtedness (in whole or in any part greater than $[ ]* becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable; or (8) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such a final judgment or judgments for the payment of money standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $[ ]*, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends *Confidential treatment requested: Material has been omitted and filed with the Commission. any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 4(a)(8), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. (9) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; (10) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or not paying its debts as they become due or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (11) the occurrence of any Event of Default (as defined in the Mortgage) under the Mortgage, or the occurrence of any Event of Default (as defined in the Assignment of Leases and Rents) under the Assignment of Leases and Rents or any default under the Environmental Indemnity. *Confidential treatment requested: Material has been omitted and filed with the Commission. (b) If an Event of Default (other than an Event of Default specified in Section 4(a)(9) or 4(a)(10)) occurs and is continuing, then in every such case the holder of this Security may declare the principal hereof to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security(, the entire principal of and interest accrued on this Security, and ii in addition, to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty; and, in case of the occurrence of an Event of Default of the character described in subdivisions 4(a)(9) and 4(a)(10) the principal of and accrued interest on this Security, IPSO FACTO shall become immediately due and payable without any declaration or other act of the holder of this Security and without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security (x) the entire principal of and interest accrued on this Security and (y) in addition, if such Event of Default is "Voluntary" (as hereinafter defined), to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty. For purposes of this section 4(b), "Voluntary" shall mean an Event of Default of the character described in subdivisions 4(a)(9) or 4(a)(10) which shall have been (x procured by the Company or any officer, director, stockholder or Affiliate of the Company or (y) primarily the result of action or inaction by the Company or by any officer, director, stockholder or Affiliate of the Company. (c) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, and irrespective of whether this Security has become or has been declared immediately due and payable under Section 4(a), the holder of this Security may proceed to protect and enforce its rights either by suit in equity or by action at law, or both. The Company stipulates that the remedies at law of the holder of this Security in the event of any Default or threatened Default by the Company in the performance of or compliance with any covenant or agreement in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance thereof, whether by an injunction against a violation thereof or otherwise. (d) No remedy conferred in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and *Confidential treatment requested: Material has been omitted and filed with the Commission. shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or otherwise. (e) No course of dealing between the Company and any of its Subsidiaries, on the one hand, and the holder of this Security, on the other hand, and no delay by any such holder in exercising any rights hereunder or under the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents shall operate as a waiver of any rights of such holder. (f) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, all amounts to be applied to the prepayment or payment of this Security shall be applied, after the payment of all related costs and expenses incurred by the holder of this Security (including, without limitation, compensation to any and all trustees, liquidators, receivers or similar officials and reasonable fees, expenses and disbursements of counsel) in such order of priority as is determined by the holder of this Security. (g) The term "Make-Whole Amount" means, with respect to this Security, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of this Security over the amount of such Called Principal, PROVIDED that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: "Called Principal" means, with respect to this Security, the principal of this Security that has become or is declared to be immediately due and payable pursuant to Section 4(b). "Discounted Value" means, with respect to the Called Principal of this Security, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on this Security is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of this Security, the yield to maturity implied by (1) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "PX-1" of the Bloomberg Financial Markets Services Screen for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (2) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest *Confidential treatment requested: Material has been omitted and filed with the Commission. day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (i) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (ii) the actively traded U.S, Treasury security with the duration closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (1)such Called Principal into (2) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payment" means, with respect to the Called Principal of this Security, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, PROVIDED that if such Settlement Date is not a date on which interest payments are due to be made under the terms of this Security, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date. "Settlement Date" means, with respect to the Called Principal of this Security, the date on which such Called Principal has become or is declared to be immediately due and payable pursuant to Section 4(b), as the context requires. 5. CONSOLIDATION, MERGER, ETC. (a) The Company shall not consolidate with or merge into any other person or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to any person, and the Company shall not permit any person to consolidate with or merge into the Company or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to the Company, unless: (1) in case the Company shall consolidate with or merge into another person or convey, transfer, sell or lease all or substantially all of its properties and assets to any person, the person formed by such consolidation or into which the Company is merged or the person which acquires by conveyance, transfer or sale, or which leases, all or substantially all the properties and assets of the Company *Confidential treatment requested: Material has been omitted and filed with the Commission. shall be a corporation, limited liability company, partnership or trust, shall be 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 agreement supplemental hereto, executed and delivered to the holder of this Security in form satisfactory to the holder, the due and punctual payment of the principal of (and premium, if any) and interest on this Security and the performance or observance of every covenant of this Security on the part of the Company to be performed or observed, including the conversion rights provided herein (which shall thereafter relate to common stock of such successor, on a basis reasonably designed to preserve the economic value to the holder of this Security of such conversion rights); (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary of the Company as a result of such transaction as having been incurred by the Company or such Subsidiary of the Company at the time of 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; (3) the Company has delivered to the holder of this Security an officers' certificate stating that such consolidation, merger, conveyance, transfer, sale or lease and, if a supplemental agreement is required in connection with such transaction, such supplemental agreement, comply with this Section and that all conditions precedent herein provided for relating to such transaction have been complied with; and (4) counsel for the Company or any successor thereto has delivered to the holder of this Security an opinion of such counsel with respect to such consolidation, merger, conveyance, transfer, sale or lease, and if a supplemental agreement is required in connection with such transaction, such supplemental agreement, which opinion shall be, in form and substance, reasonably acceptable to such holder and its counsel. (b) Upon any consolidation of the Company with, or merger of the Company into, any other person or any conveyance, transfer, sale or lease of all or substantially all of the properties and assets of the Company in accordance with Section 5(a), the successor person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer, sale or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Security with the same effect as if such successor person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor person shall be relieved of all obligations and covenants under this Security. *Confidential treatment requested: Material has been omitted and filed with the Commission. 6. OTHER. (a) No provision of this Security shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security in cash at the times; places and rate, and in the coin or currency, herein prescribed or to convert this Security as herein provided. (b) The Company will give prompt written notice to the holder of Security of any change in the location of the Designated Office. (c) (i) Subject to clause (ii) below, the transfer of this Security is registrable on the Security Register of the Company upon surrender of this Security for registration of transfer at the Designated Office, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Such Securities are issuable only in registered form without coupons in denominations of the lesser of (x) $1,000,000 and (y) the outstanding principal amount of any Security then being registered. No service charge shall be made for any such registration of transfer, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of this Security for registration of transfer, the Company and any agent of the Company may treat the person in whose name this Security is registered as the owner thereof for all purposes, whether or not this Security be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. (ii) Any sale, assignment, transfer or other disposition of this Security (or any portion hereof) by any holder of this Security shall be made in compliance with all applicable securities laws. (d) The Company shall keep at the Designated Office a register for the registration and registration of transfers of Convertible Notes. The name and address of each holder of one or more Convertible Notes, each transfer thereof and the name and address of each transferee of one or more Convertible Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Convertible Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Convertible Note promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Convertible Notes. (e) Upon surrender of any Convertible Note at the Designated Office for registration of transfer or exchange (and in the case of a surrender for registration of *Confidential treatment requested: Material has been omitted and filed with the Commission. transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Convertible Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Convertible Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Convertible Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Convertible Note. Each such new Convertible Note shall be payable to such Person as such holder may request and shall be substantially in the form of this Security. Each such new Convertible Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Convertible Note or dated the date of the surrendered Convertible Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of this Security. Convertible Notes shall not be transferred in denominations of less than $100,000, PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Convertible Notes, one Convertible Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Convertible Note registered in its name (or the name of its nominee), shall be deemed to have made the representation set forth in section 3 of the Note Purchase Agreement. (f) Upon receipt by the Company of a written request from the holder, and (1) in the case of loss, theft or destruction, of an unsecured agreement of indemnity, or (2) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Convertible Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Convertible Note or dated the date of such lost, stolen, destroyed or mutilated Convertible Note if no interest shall have been paid thereon. (g) This Security shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, United States of America. (h) So long as you or your nominee shall be holder of this Security and notwithstanding anything in this Security to the contrary, the Company will pay all sums becoming due hereunder for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule 1, or by such other method provided in the Preamble or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of this Security, or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly *Confidential treatment requested: Material has been omitted and filed with the Commission. after payment in full of this Security, you shall surrender this Security for cancellation, reasonably promptly after any such request to the Company at its principal executive office or at the place of payment most recently designated by the Company. Prior to any sale or other disposition of this Security you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender this Security to the Company in exchange for a new Convertible Note pursuant to the terms hereof. The Company will afford the benefits of this Section to any institutional investor that is the direct or indirect transferee of this Security. *Confidential treatment requested: Material has been omitted and filed with the Commission. [SIGNATURE PAGE FOR SENIOR CONVERTIBLE NOTE] IN WITNESS WHEREOF, the Company has caused this Security to be duly executed under its corporate seal. Dated: September 8, 2000 CUBIST PHARMACEUTICALS, INC. By: /s/ THOMAS A. SHEA ---------------------------------- Attest: /s/ JOSEPH GILDAY - ------------------------------ Name: Title: *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.65 18 a2042768zex-10_65.txt EXHIBIT 10.65 EXHIBIT 10.65 CONFIDENTIAL TREATMENT THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS SECURITY UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. CUBIST PHARMACEUTICALS, INC. 8.5% SENIOR CONVERTIBLE NOTE DUE SEPTEMBER 8, 2005 No R-4 September 8, 2000 $1,000,000 PPN 229678 A* CUBIST PHARMACEUTICALS, INC., a corporation duly organized and existing under the laws of Delaware (the "Company") for value received, hereby promises to pay to JOHN HANCOCK VARIABLE LIFE INSURANCE COMPANY, or registered assigns, the principal sum of One Million Dollars ($1,000,000) on September 8, 2005 and to pay interest thereon from the date hereof until this security (this "Security") together with all other amounts due under the Operative Documents have been paid in full, semi-annually on March 31 and September 31 in each year, commencing March 31, 2001, at the rate of 8.5% per annum, until the principal hereof is due, and at the rate of 10.5% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any interest payment date will be paid to the person in whose name this Security (or one or more predecessor securities) is registered at the close of business on the regular record date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such interest payment date. Payment of the principal of (and premium, if any, on) this Security shall be made upon the surrender of this Security to the Company, at its office at 24 Emily Street, Cambridge, Massachusetts 02139 (or such other office within the United States as shall be notified by the Company to the holder hereof) (the "Designated Office"), in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, by transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America. Payment of interest on this Security shall be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America, provided that if the holder shall not have *Confidential treatment requested: Material has been omitted and filed with the Commission furnished wire instructions in -writing to the Company no later than the record date relating to an interest payment date, such payment may be made by U.S. dollar check mailed to the address of the person entitled thereto as such address shall appear in the Company security register. This Security will rank pari passu with all existing and future senior debt of the Company. This Security is one of the Company's 8.5% Senior Convertible Notes due September 8, 2005, limited to $39,000,000 aggregate principal amount, issued pursuant to that certain Note Purchase Agreement dated September 8, 2000 (such agreement, as amended, modified and supplemented from time to time, the "Note Purchase Agreement") between the Company and the institutional investors named therein, and the holder hereof is entitled to the benefits of the Note Purchase Agreement, and may enforce the agreements contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereof and thereof, all in accordance with the terms hereof and thereof. 1. OPTIONAL REDEMPTION WITH PREMIUM. This Security is subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time on or after September 8, 2003, as a whole or in part, (in any amount that is an integral multiple of $1,000) at the election of the Company, at a redemption price, paid in cash, of 103% of the principal amount thereof, together with accrued interest to the redemption date, but interest installments whose stated maturity is on or prior to such redemption date will be payable to the holder of this Security, or one or more predecessor Securities, of record at the close of business on the relevant record dates referred to on the face hereof. The term "Conversion Price" on any day shall equal $1,000 divided by the Conversion Rate in effect on each such day. 2. Conversion. (a) The holder of this Security is entitled at any time that this Security is outstanding (or, in case this Security or a portion hereof is called for redemption or the holder hereof has exercised its right to require the Company to repurchase this Security or a portion hereof, then in respect of this Security or such portion hereof, as the case may be, until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the redemption date or the Repurchase Date, as the case may be) to convert the outstanding principal amount of this Security (or any portion of the outstanding principal amount hereof that is an integral multiple of $1,000), into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the rate of one (1) share of Common Stock for each $63.8625 principal amount of Security (or at the current adjusted rate if an adjustment has been made as provided below) (the "Conversion Rate") by surrender of this Security, to the attorneys for the Company at the office for the attorneys for the Company designated in writing and provided to the holder, accompanied by written notice to the Company that the holder hereof elects to convert this *Confidential treatment requested: Material has been omitted and filed with the Commission Security (or if less than the entire principal amount hereof is to be converted, specifying the portion hereof to be converted). Upon surrender of this Security for conversion, the holder will be entitled to receive the interest accruing on the principal amount of this Security then being converted from the interest payment date next preceding the date of such conversion to such date of conversion. No adjustment to the Conversion Rate is to be made on conversion for dividends on the Common Stock issued on conversion hereof. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest, the Company shall pay a cash adjustment, computed on the basis of the Closing Price of the Common Stock on the date of conversion, or, at its option, the Company shall round up to the next higher whole share. This Security shall be deemed to have been converted immediately prior to the close of business on the day of surrender hereof for conversion, in accordance with the foregoing provisions, and at such time the rights of the holder hereof, as a holder hereof, shall cease, and the person or persons entitled to receive the Common Stock issuable on conversion shall be treated by all Persons as the holder or holders of such Common Stock at such time. Upon any partial conversion of this Security, the Company, at its expense, will forthwith issue and deliver to, or upon the order of the holder hereof, a new Convertible Note or Convertible Notes in principal amount equal to the unconverted principal amount of such surrendered Convertible Note, such new Convertible Note or Convertible Notes to be dated and to bear interest from the date to which interest has been paid on such surrendered Convertible Note. As promptly as possible after the conversion of this Security, in whole or in part, and in any event within two (2) Business Days thereafter, the Company, at its expense, will issue and deliver a certificate or certificates, or if so requested in writing by the holder will enter or cause to be entered electronically by book entry such shares on the electronic system designated by the holder for the number of full shares of Common Stock issuable upon such conversion. (b) The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company payable in shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the Determination Date for such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes of this paragraph (1), the number of shares of Common Stock at any time *Confidential treatment requested: Material has been omitted and filed with the Commission outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) Subject to the last sentence of paragraph (7) of this Section 2(b) and the last sentence of this paragraph 2(b)(2), in case the Company shall issue rights, options, warrants or convertible securities entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on the Determination Date for such distribution, the Conversion Rate in effect at the opening of business on the day following such Determination Date shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock which the aggregate amount received by the Company upon the issuance of such rights, options, warrants or convertible securities of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would -purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options, warrants or convertible securities in respect of shares of Common Stock held in the treasury of the Company. Anything in this paragraph 2(b)(2) to the contrary notwithstanding, no adjustment to the Conversion Price shall be made, (i) in the case of the issuance of shares of Common Stock in a PIPE Transaction PROVIDED that the price per share for the shares of Common Stock issued or to be issued in connection with each PIPE Transaction is at least [ ]*% of the market price per share on the date such shares are issued or (ii) in connection with the acquisition of TerraGen Discovery, Inc. in accordance with the disclosure in the Note Purchase Agreement. (3) In case outstanding shares of Common Stock shall each be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of *Confidential treatment requested: Material has been omitted and filed with the Commission Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) Subject to the last sentence of paragraph (7) of this Section 2(b), in case the Company shall, by dividend or otherwise, distribute evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options, warrants or convertible security referred to in paragraph (2) of this Section 2(b), (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section 2(b) and (iv) any merger or consolidation to which Section 2(h) applies), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less the then fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such Determination Date. If the Board of Directors determines the fair market value of any distribution for purposes of this paragraph (4) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share pursuant to paragraph (8) of this Section 2(b). (5) In case the Company shall, by dividend or otherwise, make a Cash Distribution, then, and in each such case, immediately after the close of business on the Determination Date for such Cash Distribution, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on such Determination Date by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (1) the amount of such Cash Distribution divided by (2) the number of shares of Common Stock outstanding on such Determination *Confidential treatment requested: Material has been omitted and filed with the Commission Date, and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date. (6) In case the Company or any Subsidiary shall make an Excess Purchase Payment, then, and in each such case, immediately prior to the opening of business on the day after the tender offer in respect of which such Excess Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such tender offer by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (A) the Excess Purchase Payment divided by (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Determination Date less the number of all shares validly tendered and not withdrawn as of the Determination Date and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock as of such Determination Date. (7) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 2(h) applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be the Determination Date), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 2(b). Rights, options, warrants or convertible securities issued by the Company entitling the holders thereof to subscribe for or purchase shares of Common Stock, which rights, options, warrants or convertible securities (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case in clauses (i) through (iii) until the occurrence of a specified event or events ("Trigger Event"), shall for purposes of this Section 2(b) not be deemed issued until the occurrence of the earliest Trigger Event. *Confidential treatment requested: Material has been omitted and filed with the Commission (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 2(b) the current market price per share of Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices for the five (5) consecutive Trading Days selected by the Company commencing not more than ten (10) Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation PROVIDED that in the event the Company shall issue rights, options, warrants or convertible securities giving the holders thereof the right to receive shares of Common Stock at a price equal to the closing price on the date that such securities are issued under (i) any management or employee stock option plan or other equity incentive plan approved by the Board of Directors of the Company or (ii) in connection with a corporate acquisition transaction (such as the TerraGen Discovery, Inc. transaction) approved by the Board of Directors of the Company, then for purposes of paragraph (2) above, the market price shall equal the closing price on the Trading Day such securities are issued. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may make such increases in the Conversion Rate, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 2(b) as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights, options, warrants or convertible securities to purchase or subscribe for stock or from any event treated as such for income tax purposes. (c) Whenever the Conversion Rate is adjusted as provided in Section 2(b), the Company shall compute the adjusted Conversion Rate in accordance with Section 2(b) and shall prepare a certificate signed by the Senior Financial Officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and shall *Confidential treatment requested: Material has been omitted and filed with the Commission promptly deliver such certificate to the holder of this Security. If the Majority Convertible Note Holders and the Company cannot agree in writing as to the adjusted Conversion Rate in accordance with Section 2(b), the holders of the Convertible Notes and the Company shall determine the adjusted Conversion Rate in accordance with the following procedure. The Majority Convertible Note Holders and the Company shall each appoint one registered securities broker, licensed with the Securities and Exchange commission to sell securities to the public, which broker shall be a senior vice president, managing director or equivalent of a major securities brokerage company with offices in Boston, Massachusetts. Each of such brokers shall have no less than ten (10) years experience in such field, shall be unaffiliated with, and their employer securities brokerage company shall be unaffiliated with, the holders of the Convertible Notes and the Company and shall not have previously participated in any underwriting of the Company's Common Stock in any public offering or provided any material investment banking or corporate advisory services to the Company. The Majority Convertible Note Holders and the Company shall make their appointments promptly and, in any event, within thirty (30) days from the date of the Conversion Rate Certificate. The two brokers shall meet in person or have a meeting by telephone and shall be instructed to render a determination of the adjusted Conversion Rate to the holders of the Convertible Notes and the Company within sixty (60) days of the date of the Conversion Rate Certificate. If the two brokers cannot agree, then each broker shall render their independent determination and the two brokers shall simultaneously therewith provide the name of a third broker acceptable to the two brokers meeting the criteria set forth above. The third broker shall be instructed to render a determination of the adjusted Conversion Rate within thirty (30) days of his or her appointment. The two closest determinations of the adjusted Conversion Rate shall be averaged and shall constitute the adjusted Conversion Rate. If the two brokers cannot agree upon a third broker, the selection of a third broker shall be submitted to binding arbitration in Boston, Massachusetts under the rules of the American Arbitration Association. In the event that the difference between the Company's calculation of the adjusted Conversion Rate and the calculation of the adjusted Conversion Rate determined by the foregoing process is five percent (5%) or greater then the costs and expenses of the brokers and any arbitration shall be paid by and be the obligation of the Company and in the event that such difference is less than five percent (5%) then the costs and expenses of the brokers and any arbitration shall be paid by the holders of the Convertible Notes (as a group on a pro rata basis). (d) In case: (1) the Company shall declare a dividend or other distribution on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 2(b); or *Confidential treatment requested: Material has been omitted and filed with the Commission (2) the Company shall authorize the granting to the holders of its Common Stock of rights, options, warrants or convertible securities to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock of the Company, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (5) the Company or any Subsidiary shall commence a tender offer for all or a portion of the Company's outstanding shares of Common Stock (or shall amend any such tender offer); then the Company shall cause to be delivered to the holder of this Security, at least twenty (20) days (or ten (10) days in any case specified in clause (1) or (2) above) prior to the applicable record, expiration or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options, warrants or convertible securities or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options, warrants or convertible securities are to be determined, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (5) of this Section 2(d). (e) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Security, the full number of shares of Common Stock then issuable upon the conversion of this Security. (f) Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of this Security. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of *Confidential treatment requested: Material has been omitted and filed with the Commission any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of this Security, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. (g) The Company agrees that all shares of Common Stock which may be delivered by actual certificates or by electronic book entry upon conversion of the Security, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable (and shall be issued out of the Company's authorized but unissued Common Stock) and, except as provided in the second sentence of Section 2(f), the Company will pay all taxes, liens and charges with respect to the issue thereof. (h) In case of any consolidation of the Company with any other person, any merger of the Company into another person or of another person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the properties and assets of the Company, the person formed by such consolidation or resulting from such merger or which acquires such properties and assets, as the case may be, shall execute and deliver to the holder of this Security a supplemental agreement providing that such holder has the right, during the period this Security shall be convertible as specified in Section 2(a), to convert this Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (including any Common Stock retainable) by a holder of the number of shares of Common Stock of the Company into which this Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (1) is not a person with which the Company consolidated, into which the Company merged or which merged into the Company or to which such conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (2) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (PROVIDED that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 2(h) the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Nonelecting Shares). *Confidential treatment requested: Material has been omitted and filed with the Commission Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 2. The above provisions of this Section 2(h) shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. In this paragraph, "securities of the kind receivable" upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of Common Stock means securities that, among other things, are registered and transferable under the Securities Act, and listed and approved for quotation in all securities markets, in each case to the same extent as such securities so receivable by a holder of Common Stock. (i) The Company (1) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) for the shares of Common Stock issuable upon conversion of this Security to be lawfully issued and delivered as provided herein, and thereafter publicly traded (if permissible under the Securities Act) and qualified or listed as contemplated by clause (2) (it being understood that the Company shall not be required to register the Common Stock issuable on conversion hereof under the Securities Act, except pursuant to the Registration Rights Agreement between the Company and the Purchasers (as defined in the Note Purchase Agreement), subject to the transfer restriction set forth in Section 6; and (2) will list the shares of Common Stock required to be issued and delivered upon conversion of Securities, prior to such issuance or delivery, on each national securities exchange on which outstanding Common Stock is listed or quoted at the time of such delivery, or if the Common Stock is not then listed on any securities exchange, to qualify the Common Stock for quotation on the Nasdaq National Market or such other interdealer quotation system, if any, on which the Common Stock is then quoted. (j) For purposes hereof: (references to Sections shall mean Sections of this Security unless otherwise specified) "AFFILIATE" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control", when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "ASSIGNMENT OF LEASES AND RENTS" shall mean the Assignment of Leases and Rents dated September 8, 2000 made by the Company in favor of the Trustee. "BUSINESS DAY" means any day other than a Saturday, a Sunday or other day which shall be in Boston, Massachusetts on a legal holiday or a day on which *Confidential treatment requested: Material has been omitted and filed with the Commission commercial banks in Boston, Massachusetts are required or authorized to be closed. "CASH DISTRIBUTION" means the distribution by the Company to holders of its Common Stock of cash, other than any cash that is distributed upon a merger or consolidation to which Section 2(h) applies or as part of a distribution referred to in paragraph (4) of Section 2(b). "CHANGE OF CONTROL" is defined in Section 3(f)(2). "CLOSING" is defined in Section 1 of the Note Purchase Agreement. "CLOSING PRICE" means, with respect to the Common Stock of the Company, for any day, the reported closing sale price per share on the Nasdaq National Market, or, if no closing price is so reported, the last sale price per share on the Nasdaq National Market, or, if the Common Stock is not admitted to trading on the Nasdaq National Market on the principal national securities exchange or inter-dealer quotation system on which the Common Stock is listed or admitted to trading, or if not admitted to trading on the Nasdaq National Market or listed or admitted to trading on any national securities exchange or inter-dealer quotation system, the average of the closing bid and asked prices per share in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMMON STOCK" means the Common Stock, par value $.01 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 2(h), shares issuable on conversion or repurchase of this Security shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; PROVIDED, HOWEVER, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of this Security shall include shares of all such classes, and the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "CONVERTIBLE NOTES" shall mean one or more of the Company's 8.5% Senior Convertible Notes due September 8, 2005. "CONVERSION PRICE" is defined in Section 1. "CONVERSION RATE" is defined in Section 2(a). *Confidential treatment requested: Material has been omitted and filed with the Commission "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DESIGNATED OFFICE" is defined in the Preamble. "DETERMINATION DATE" means, in the case of a dividend or other distribution, including the issuance of rights, options, warrants or convertible securities, to shareholders, the date fixed for the determination of shareholders entitled to receive such dividend or other distribution and, in the case of a tender offer, the last time that tenders could have been made pursuant to such tender offer, provided that if no date is fixed for the determination of holders entitled to receive such rights, options, warrants or convertible securities, then the Determination Date shall be the date of issuance of such rights, options, warrants or convertible securities. "ENVIRONMENTAL INDEMNITY" shall mean that Environmental Indemnity Agreement dated September 8, 2000 made by the Company in favor of the Trustee and the holders. "ENVIRONMENTAL LAWS" means any and all Federal, state and local laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EXCESS PURCHASE PAYMENT" means the product of (1) the excess, if any, of (a) the amount of cash plus the fair market value (as determined in good faith by the Company's Board of Directors) of any non-cash consideration required to be paid with respect to one share of Common Stock acquired or to be acquired in a tender offer made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock over (b) the current market price per share as of the last time that tenders could have been made pursuant to such tender offer and (2) the number of shares validly tendered and not withdrawn as of the Determination Date in respect of such tender offer. "EVENT OF DEFAULT" is defined in the preamble to Section 4. *Confidential treatment requested: Material has been omitted and filed with the Commission "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "HOLDERS" means, with respect to this Security or any other Convertible Note, the Person in whose name it is registered in the register to be maintained by the Company pursuant to Section 6(d). "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or capital lease (as such term is defined by GAAP), upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAJORITY CONVERTIBLE NOTE HOLDERS", as applied to describe the requisite holder or holders of the Convertible Notes, shall mean, at any date, the holder or holders of 66-2/3% or more in interest in the Convertible Notes at the time outstanding (excluding Convertible Notes at the time owned by the Company or any Affiliate of the Company). "MAKE-WHOLE AMOUNT" is defined in Section 4(g). "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (A) the business, operations, affairs, financial condition, assets, properties or prospects of the Company and its Subsidiaries taken as a whole, or (B) the ability of the Company to perform its obligations under the Note Purchase Agreement, the Registration Rights Agreement and the Convertible Notes, or (c the validity or enforceability of the Note Purchase Agreement or the Convertible Notes. "MORTGAGE" shall mean shall mean the Mortgage, Assignment of Leases and Rents and Security Agreement dated September8, 2000 made by the Company in favor of the Trustee. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTE PURCHASE AGREEMENT" is defined in the Preamble. *Confidential treatment requested: Material has been omitted and filed with the Commission "OPERATIVE DOCUMENTS" shall mean the Convertible Notes, the Note Purchase Agreement, the Registration Rights Agreement, the Mortgage, the Assignment of Leases and Rents, the Trust Agreement, the Environmental Indemnity, and each of the other agreements, documents and instruments executed in connection herewith and therewith, each as it may from time to time be amended, modified or supplemented. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PIPE TRANSACTION" shall mean a so called "private investment, public equity" private placement transaction which uses a procedure in which investors agree to purchase securities in a private offering conditioned upon or otherwise requiring the filing of a registration statement covering the securities so purchased. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof among the holders and the Company. "REPURCHASE DATE" is defined in Section 3(a). "REPURCHASE PRICE" is defined in Section 3(a). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other senior officer of the Company with responsibility for the administration of the relevant covenants in this Security or in the Note Purchase Agreement. "RETURNED AMOUNT" shall have the meaning given such term in the Note Purchase Agreement. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "SECURITY" is defined in the preamble hereof. *Confidential treatment requested: Material has been omitted and filed with the Commission "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "TRADING DAY" means (1) if the Common Stock is admitted to trading on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; (2) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (3) if the Common Stock is not admitted to trading on the Nasdaq National Market or listed or admitted for trading on any national securities exchange or any other system of automated dissemination of quotation of securities prices, a day on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "TRUST AGREEMENT" shall mean that certain Collateral Trust Agreement dated September 8, 2000 to which the Company, the holders and the Trustee are parties, as amended, modified or supplemented from time to time. "TRUSTEE" shall mean Fleet National Bank, together with its successors and assigns and any substitute and/or additional entity from time to time serving as Trustee under the Trust Agreement. 3. Right to Require Repurchase. (a) In the event that a Change in Control shall occur, then the holder of this Security shall have the right, at such holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, this Security, or any portion of the principal amount hereof that is equal to $1,000 or any integral multiple thereof, on the date (the "Repurchase Date") that is twenty (20) Trading Days after the date on which the Company gives notice to the holder of this Security that a Change in Control has occurred, at a purchase price equal to 100% of the principal amount of this Security to be repurchased plus *Confidential treatment requested: Material has been omitted and filed with the Commission interest accrued to the Repurchase Date (such principal plus interest hereinafter referred to as the "Repurchase Price"); PROVIDED, HOWEVER, that installments of interest on this Security whose stated maturity is on or prior to the Repurchase Date shall be payable to the holder of this Security, or one or more predecessor Securities, registered as such on the relevant Record Date according to their terms. The Company agrees to give the holder of this Security notice of any Change in Control, by facsimile transmission confirmed in writing by overnight courier service, promptly and in any event within two (2) Trading Days of the occurrence thereof. (b) To exercise a repurchase right, the holder shall deliver to the Company on or before the fifth (5th) Trading Day prior to the Repurchase Date, together with this Security, written notice of the holder's exercise of such right, which notice shall set forth the name of the holder, the number of shares of Common Stock then owned by such holder and its affiliates, the principal amount of this Security to be repurchased (and, if this Security is to be repurchased in part, the portion of the principal amount thereof to be repurchased and the name of the person in which the portion thereof to remain outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby. Such written notice shall be irrevocable, except that the right of the holder to convert this Security (or the portion hereof with respect to which the repurchase right is being exercised) shall continue until the close of business on the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the holder the Repurchase Price in cash, provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash, to the holders of this Security, or one or more predecessor Securities, registered as such at the close of business on the relevant regular record date. (d) If this Security (or portion thereof) is surrendered for repurchase and is not so paid on or prior to the Repurchase Date, the principal amount of this Security (or such portion hereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate per annum borne by this Security, and shall remain convertible into Common Stock until the principal of this Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) If this Security is to be repurchased only in part, it shall be surrendered to the Company at the Designated Office (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing), and the Company shall execute and make available for delivery to the holder without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in *Confidential treatment requested: Material has been omitted and filed with the Commission aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) For purposes of this Section 3. (1) the term "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act; and (2) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of this Security, of: (a) the acquisition by any person of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such person to exercise more than 30% of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors (any shares of voting stock of which such person is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage) other than any such acquisition by the Company or any employee benefit plan of the Company; or (b) any consolidation or merger of the Company with or into, any other person, any merger of another person with or into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the assets of the Company to another person (other than (i) any such transaction (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock and (y) pursuant to which holders of Common Stock immediately prior to such transaction have the entitlement to exercise, directly or indirectly, more than 30% of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving person immediately after such transaction and (ii) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock. 4. Events of Default. (a) "EVENT of DEFAULT", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to *Confidential treatment requested: Material has been omitted and filed with the Commission any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) (a) default in the payment of any principal or premium, if any, upon this Security when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, including, without limitation, the failure to pay the Returned Amount when the Returned Amount is required to be paid under the Note Purchase Agreement or (b) default in the payment of any interest upon this Security when it becomes due and payable, and continuance of such default for a period of five (5) business days; or (2) default by the Company in the performance of-its obligations in respect of any conversion of this Security (or any portion hereof) in accordance with Section 2; or (3) failure by the Company to give any notice of a Change of Control required to be delivered in accordance with Section 3(a); or (4) default in the performance, or breach, of any other covenant of the Company herein, in the Note Purchase Agreement, or in the Registration Rights Agreement (other than a covenant default for which the performance or breach is specifically dealt with elsewhere in this Section 4(a) and continuance of such default or breach for a period of 30 days; (5) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; (6) aggregating in excess of $[ ]* are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within sixty (60) days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; or (7) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company, or under any agreement, 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 Company, with a principal amount then outstanding in excess of $[ ]* whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay the principal of such indebtedness (in whole or in any part greater than $[ ]* when due and payable or shall have resulted in such indebtedness (in whole or in any part greater than $[ ]* becoming or being declared *Confidential treatment requested: Material has been omitted and filed with the Commission due and payable prior to the date on which it would otherwise have become due and payable; or (8) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such a final judgment or judgments for the payment of money standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $[ ]*, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 4(a)(8), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. (9) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; *Confidential treatment requested: Material has been omitted and filed with the Commission (10) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or not paying its debts as they become due or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (11) the occurrence of any Event of Default (as defined in the Mortgage) under the Mortgage, or the occurrence of any Event of Default (as defined in the Assignment of Leases and Rents) under the Assignment of Leases and Rents or any default under the Environmental Indemnity. (b) If an Event of Default (other than an Event of Default specified in Section 4(a)(9) or 4(a)(10)) occurs and is continuing, then in every such case the holder of this Security may declare the principal hereof to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security(, the entire principal of and interest accrued on this Security, and ii in addition, to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty; and, in case of the occurrence of an Event of Default of the character described in subdivisions 4(a)(9) and 4(a)(10) the principal of and accrued interest on this Security, IPSO FACTO shall become immediately due and payable without any declaration or other act of the holder of this Security and without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security (x) the entire principal of and interest accrued on this Security and (y) in addition, if such Event of Default is "Voluntary" (as hereinafter defined), to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty. *Confidential treatment requested: Material has been omitted and filed with the Commission For purposes of this section 4(b), "Voluntary" shall mean an Event of Default of the character described in subdivisions 4(a)(9) or 4(a)(10) which shall have been (x procured by the Company or any officer, director, stockholder or Affiliate of the Company or (y) primarily the result of action or inaction by the Company or by any officer, director, stockholder or Affiliate of the Company. (c) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, and irrespective of whether this Security has become or has been declared immediately due and payable under Section 4(a), the holder of this Security may proceed to protect and enforce its rights either by suit in equity or by action at law, or both. The Company stipulates that the remedies at law of the holder of this Security in the event of any Default or threatened Default by the Company in the performance of or compliance with any covenant or agreement in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance thereof, whether by an injunction against a violation thereof or otherwise. (d) No remedy conferred in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or otherwise. (e) No course of dealing between the Company and any of its Subsidiaries, on the one hand, and the holder of this Security, on the other hand, and no delay by any such holder in exercising any rights hereunder or under the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents shall operate as a waiver of any rights of such holder. (f) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, all amounts to be applied to the prepayment or payment of this Security shall be applied, after the payment of all related costs and expenses incurred by the holder of this Security (including, without limitation, compensation to any and all trustees, liquidators, receivers or similar officials and reasonable fees, expenses and disbursements of counsel) in such order of priority as is determined by the holder of this Security. (g) The term "Make-Whole Amount" means, with respect to this Security, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of this Security over the amount of such Called Principal, PROVIDED that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: *Confidential treatment requested: Material has been omitted and filed with the Commission "Called Principal" means, with respect to this Security, the principal of this Security that has become or is declared to be immediately due and payable pursuant to Section 4(b). "Discounted Value" means, with respect to the Called Principal of this Security, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on this Security is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of this Security, the yield to maturity implied by (1) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "PX-1" of the Bloomberg Financial Markets Services Screen for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (2) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (i) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (ii) the actively traded U.S, Treasury security with the duration closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (1)such Called Principal into (2) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payment" means, with respect to the Called Principal of this Security, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled *Confidential treatment requested: Material has been omitted and filed with the Commission due date, PROVIDED that if such Settlement Date is not a date on which interest payments are due to be made under the terms of this Security, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date. "Settlement Date" means, with respect to the Called Principal of this Security, the date on which such Called Principal has become or is declared to be immediately due and payable pursuant to Section 4(b), as the context requires. 5. CONSOLIDATION, MERGER, ETC. (a) The Company shall not consolidate with or merge into any other person or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to any person, and the Company shall not permit any person to consolidate with or merge into the Company or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to the Company, unless: (1) in case the Company shall consolidate with or merge into another person or convey, transfer, sell or lease all or substantially all of its properties and assets to any person, the person formed by such consolidation or into which the Company is merged or the person which acquires by conveyance, transfer or sale, or which leases, all or substantially all the properties and assets of the Company shall be a corporation, limited liability company, partnership or trust, shall be 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 agreement supplemental hereto, executed and delivered to the holder of this Security in form satisfactory to the holder, the due and punctual payment of the principal of (and premium, if any) and interest on this Security and the performance or observance of every covenant of this Security on the part of the Company to be performed or observed, including the conversion rights provided herein (which shall thereafter relate to common stock of such successor, on a basis reasonably designed to preserve the economic value to the holder of this Security of such conversion rights); (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary of the Company as a result of such transaction as having been incurred by the Company or such Subsidiary of the Company at the time of 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; *Confidential treatment requested: Material has been omitted and filed with the Commission (3) the Company has delivered to the holder of this Security an officers' certificate stating that such consolidation, merger, conveyance, transfer, sale or lease and, if a supplemental agreement is required in connection with such transaction, such supplemental agreement, comply with this Section and that all conditions precedent herein provided for relating to such transaction have been complied with; and (4) counsel for the Company or any successor thereto has delivered to the holder of this Security an opinion of such counsel with respect to such consolidation, merger, conveyance, transfer, sale or lease, and if a supplemental agreement is required in connection with such transaction, such supplemental agreement, which opinion shall be, in form and substance, reasonably acceptable to such holder and its counsel. (b) Upon any consolidation of the Company with, or merger of the Company into, any other person or any conveyance, transfer, sale or lease of all or substantially all of the properties and assets of the Company in accordance with Section 5(a), the successor person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer, sale or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Security with the same effect as if such successor person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor person shall be relieved of all obligations and covenants under this Security. 6. OTHER. (a) No provision of this Security shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security in cash at the times; places and rate, and in the coin or currency, herein prescribed or to convert this Security as herein provided. (b) The Company will give prompt written notice to the holder of Security of any change in the location of the Designated Office. (c) (i) Subject to clause (ii) below, the transfer of this Security is registrable on the Security Register of the Company upon surrender of this Security for registration of transfer at the Designated Office, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Such Securities are issuable only in registered form without coupons in denominations of the lesser of (x) $1,000,000 and (y) the outstanding principal amount of any Security then being registered. No service *Confidential treatment requested: Material has been omitted and filed with the Commission charge shall be made for any such registration of transfer, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of this Security for registration of transfer, the Company and any agent of the Company may treat the person in whose name this Security is registered as the owner thereof for all purposes, whether or not this Security be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. (ii) Any sale, assignment, transfer or other disposition of this Security (or any portion hereof) by any holder of this Security shall be made in compliance with all applicable securities laws. (d) The Company shall keep at the Designated Office a register for the registration and registration of transfers of Convertible Notes. The name and address of each holder of one or more Convertible Notes, each transfer thereof and the name and address of each transferee of one or more Convertible Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Convertible Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Convertible Note promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Convertible Notes. (e) Upon surrender of any Convertible Note at the Designated Office for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Convertible Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Convertible Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Convertible Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Convertible Note. Each such new Convertible Note shall be payable to such Person as such holder may request and shall be substantially in the form of this Security. Each such new Convertible Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Convertible Note or dated the date of the surrendered Convertible Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of this Security. Convertible Notes shall not be transferred in denominations of less than $100,000, PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Convertible Notes, one Convertible Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Convertible Note registered in its name (or the *Confidential treatment requested: Material has been omitted and filed with the Commission name of its nominee), shall be deemed to have made the representation set forth in section 3 of the Note Purchase Agreement. (f) Upon receipt by the Company of a written request from the holder, and (1) in the case of loss, theft or destruction, of an unsecured agreement of indemnity, or (2) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Convertible Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Convertible Note or dated the date of such lost, stolen, destroyed or mutilated Convertible Note if no interest shall have been paid thereon. (g) This Security shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, United States of America. (h) So long as you or your nominee shall be holder of this Security and notwithstanding anything in this Security to the contrary, the Company will pay all sums becoming due hereunder for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule 1, or by such other method provided in the Preamble or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of this Security, or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment in full of this Security, you shall surrender this Security for cancellation, reasonably promptly after any such request to the Company at its principal executive office or at the place of payment most recently designated by the Company. Prior to any sale or other disposition of this Security you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender this Security to the Company in exchange for a new Convertible Note pursuant to the terms hereof. The Company will afford the benefits of this Section to any institutional investor that is the direct or indirect transferee of this Security. *Confidential treatment requested: Material has been omitted and filed with the Commission [SIGNATURE PAGE FOR SENIOR CONVERTIBLE NOTE] IN WITNESS WHEREOF, the Company has caused this Security to be duly executed under its corporate seal. Dated: September 8, 2000 CUBIST PHARMACEUTICALS, INC. By: /s/ THOMAS A. SHEA ----------------------------------- Attest: /s/ JOSEPH GILDAY - ------------------------------- Name: Title: *Confidential treatment requested: Material has been omitted and filed with the Commission EX-10.66 19 a2042768zex-10_66.txt EXHIBIT 10.66 EXHIBIT 10.66 CONFIDENTIAL TREATMENT THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS SECURITY UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. CUBIST PHARMACEUTICALS, INC. 8.5% SENIOR CONVERTIBLE NOTE DUE SEPTEMBER 8, 2005 No. R-5 September 8, 2000 $6,000,000 PPN 229678 A* CUBIST PHARMACEUTICALS, INC., a corporation duly organized and existing under the laws of Delaware (the "Company") for value received, hereby promises to pay to HARE & CO., or registered assigns, the principal sum of Six Million Dollars ($6,000,000) on September 8, 2005 and to pay interest thereon from the date hereof until this security (this "Security") together with all other amounts due under the Operative Documents have been paid in full, semi-annually on March 31 and September 31 in each year, commencing March 31, 2001, at the rate of 8.5% per annum, until the principal hereof is due, and at the rate of 10.5% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any interest payment date will be paid to the person in whose name this Security (or one or more predecessor securities) is registered at the close of business on the regular record date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such interest payment date. Payment of the principal of (and premium, if any, on) this Security shall be made upon the surrender of this Security to the Company, at its office at 24 Emily Street, Cambridge, Massachusetts 02139 (or such other office within the United States as shall be notified by the Company to the holder hereof) (the "Designated Office"), in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, by transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America. Payment of interest on this Security shall be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America, provided that if the holder shall not have furnished wire instructions in -writing to the Company no later than the record date relating to an interest payment date, such payment *Confidential treatment requested: Material has been omitted and filed with the Commission may be made by U.S. dollar check mailed to the address of the person entitled thereto as such address shall appear in the Company security register. This Security will rank pari passu with all existing and future senior debt of the Company. This Security is one of the Company's 8.5% Senior Convertible Notes due September 8, 2005, limited to $39,000,000 aggregate principal amount, issued pursuant to that certain Note Purchase Agreement dated September 8, 2000 (such agreement, as amended, modified and supplemented from time to time, the "Note Purchase Agreement") between the Company and the institutional investors named therein, and the holder hereof is entitled to the benefits of the Note Purchase Agreement, and may enforce the agreements contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereof and thereof, all in accordance with the terms hereof and thereof. 1. OPTIONAL REDEMPTION WITH PREMIUM. This Security is subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time on or after September 8, 2003, as a whole or in part, (in any amount that is an integral multiple of $1,000) at the election of the Company, at a redemption price, paid in cash, of 103% of the principal amount thereof, together with accrued interest to the redemption date, but interest installments whose stated maturity is on or prior to such redemption date will be payable to the holder of this Security, or one or more predecessor Securities, of record at the close of business on the relevant record dates referred to on the face hereof. The term "Conversion Price" on any day shall equal $1,000 divided by the Conversion Rate in effect on each such day. 2. Conversion. (a) The holder of this Security is entitled at any time that this Security is outstanding (or, in case this Security or a portion hereof is called for redemption or the holder hereof has exercised its right to require the Company to repurchase this Security or a portion hereof, then in respect of this Security or such portion hereof, as the case may be, until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the redemption date or the Repurchase Date, as the case may be) to convert the outstanding principal amount of this Security (or any portion of the outstanding principal amount hereof that is an integral multiple of $1,000), into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the rate of one (1) share of Common Stock for each $63.8625 principal amount of Security (or at the current adjusted rate if an adjustment has been made as provided below) (the "Conversion Rate") by surrender of this Security, to the attorneys for the Company at the office for the attorneys for the Company designated in writing and provided to the holder, accompanied by written notice to the Company that the holder hereof elects to convert this Security (or if less than the entire principal amount hereof is to be converted, specifying the portion hereof to be converted). Upon surrender of this Security for *Confidential treatment requested: Material has been omitted and filed with the Commission conversion, the holder will be entitled to receive the interest accruing on the principal amount of this Security then being converted from the interest payment date next preceding the date of such conversion to such date of conversion. No adjustment to the Conversion Rate is to be made on conversion for dividends on the Common Stock issued on conversion hereof. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest, the Company shall pay a cash adjustment, computed on the basis of the Closing Price of the Common Stock on the date of conversion, or, at its option, the Company shall round up to the next higher whole share. This Security shall be deemed to have been converted immediately prior to the close of business on the day of surrender hereof for conversion, in accordance with the foregoing provisions, and at such time the rights of the holder hereof, as a holder hereof, shall cease, and the person or persons entitled to receive the Common Stock issuable on conversion shall be treated by all Persons as the holder or holders of such Common Stock at such time. Upon any partial conversion of this Security, the Company, at its expense, will forthwith issue and deliver to, or upon the order of the holder hereof, a new Convertible Note or Convertible Notes in principal amount equal to the unconverted principal amount of such surrendered Convertible Note, such new Convertible Note or Convertible Notes to be dated and to bear interest from the date to which interest has been paid on such surrendered Convertible Note. As promptly as possible after the conversion of this Security, in whole or in part, and in any event within two (2) Business Days thereafter, the Company, at its expense, will issue and deliver a certificate or certificates, or if so requested in writing by the holder will enter or cause to be entered electronically by book entry such shares on the electronic system designated by the holder for the number of full shares of Common Stock issuable upon such conversion. (b) The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company payable in shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the Determination Date for such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes of this paragraph (1), the number of shares of Common Stock at any .time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in *Confidential treatment requested: Material has been omitted and filed with the Commission lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) Subject to the last sentence of paragraph (7) of this Section 2(b) and the last sentence of this paragraph 2(b)(2), in case the Company shall issue rights, options, warrants or convertible securities entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on the Determination Date for such distribution, the Conversion Rate in effect at the opening of business on the day following such Determination Date shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock which the aggregate amount received by the Company upon the issuance of such rights, options, warrants or convertible securities of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would -purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options, warrants or convertible securities in respect of shares of Common Stock held in the treasury of the Company. Anything in this paragraph 2(b)(2) to the contrary notwithstanding, no adjustment to the Conversion Price shall be made, (i) in the case of the issuance of shares of Common Stock in a PIPE Transaction PROVIDED that the price per share for the shares of Common Stock issued or to be issued in connection with each PIPE Transaction is at least [ ]*% of the market price per share on the date such shares are issued or (ii) in connection with the acquisition of TerraGen Discovery, Inc. in accordance with the disclosure in the Note Purchase Agreement. (3) In case outstanding shares of Common Stock shall each be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business *Confidential treatment requested: Material has been omitted and filed with the Commission on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) Subject to the last sentence of paragraph (7) of this Section 2(b), in case the Company shall, by dividend or otherwise, distribute evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options, warrants or convertible security referred to in paragraph (2) of this Section 2(b), (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section 2(b) and (iv) any merger or consolidation to which Section 2(h) applies), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less the then fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such Determination Date. If the Board of Directors determines the fair market value of any distribution for purposes of this paragraph (4) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share pursuant to paragraph (8) of this Section 2(b). (5) In case the Company shall, by dividend or otherwise, make a Cash Distribution, then, and in each such case, immediately after the close of business on the Determination Date for such Cash Distribution, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on such Determination Date by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (1) the amount of such Cash Distribution divided by (2) the number of shares of Common Stock outstanding on such Determination Date, and (b) the denominator of which shall be equal to the current *Confidential treatment requested: Material has been omitted and filed with the Commission market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date. (6) In case the Company or any Subsidiary shall make an Excess Purchase Payment, then, and in each such case, immediately prior to the opening of business on the day after the tender offer in respect of which such Excess Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such tender offer by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (A) the Excess Purchase Payment divided by (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Determination Date less the number of all shares validly tendered and not withdrawn as of the Determination Date and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock as of such Determination Date. (7) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 2(h) applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be the Determination Date), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 2(b). Rights, options, warrants or convertible securities issued by the Company entitling the holders thereof to subscribe for or purchase shares of Common Stock, which rights, options, warrants or convertible securities (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case in clauses (i) through (iii) until the occurrence of a specified event or events ("Trigger Event"), shall for purposes of this Section 2(b) not be deemed issued until the occurrence of the earliest Trigger Event. (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 2(b) the current market price per share of *Confidential treatment requested: Material has been omitted and filed with the Commission Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices for the five (5) consecutive Trading Days selected by the Company commencing not more than ten (10) Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation PROVIDED that in the event the Company shall issue rights, options, warrants or convertible securities giving the holders thereof the right to receive shares of Common Stock at a price equal to the closing price on the date that such securities are issued under (i) any management or employee stock option plan or other equity incentive plan approved by the Board of Directors of the Company or (ii) in connection with a corporate acquisition transaction (such as the TerraGen Discovery, Inc. transaction) approved by the Board of Directors of the Company, then for purposes of paragraph (2) above, the market price shall equal the closing price on the Trading Day such securities are issued. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may make such increases in the Conversion Rate, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 2(b) as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights, options, warrants or convertible securities to purchase or subscribe for stock or from any event treated as such for income tax purposes. (c) Whenever the Conversion Rate is adjusted as provided in Section 2(b), the Company shall compute the adjusted Conversion Rate in accordance with Section 2(b) and shall prepare a certificate signed by the Senior Financial Officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and shall promptly deliver such certificate to the holder of this Security. If the Majority Convertible Note Holders and the Company cannot agree in writing as to the *Confidential treatment requested: Material has been omitted and filed with the Commission adjusted Conversion Rate in accordance with Section 2(b), the holders of the Convertible Notes and the Company shall determine the adjusted Conversion Rate in accordance with the following procedure. The Majority Convertible Note Holders and the Company shall each appoint one registered securities broker, licensed with the Securities and Exchange commission to sell securities to the public, which broker shall be a senior vice president, managing director or equivalent of a major securities brokerage company with offices in Boston, Massachusetts. Each of such brokers shall have no less than ten (10) years experience in such field, shall be unaffiliated with, and their employer securities brokerage company shall be unaffiliated with, the holders of the Convertible Notes and the Company and shall not have previously participated in any underwriting of the Company's Common Stock in any public offering or provided any material investment banking or corporate advisory services to the Company. The Majority Convertible Note Holders and the Company shall make their appointments promptly and, in any event, within thirty (30) days from the date of the Conversion Rate Certificate. The two brokers shall meet in person or have a meeting by telephone and shall be instructed to render a determination of the adjusted Conversion Rate to the holders of the Convertible Notes and the Company within sixty (60) days of the date of the Conversion Rate Certificate. If the two brokers cannot agree, then each broker shall render their independent determination and the two brokers shall simultaneously therewith provide the name of a third broker acceptable to the two brokers meeting the criteria set forth above. The third broker shall be instructed to render a determination of the adjusted Conversion Rate within thirty (30) days of his or her appointment. The two closest determinations of the adjusted Conversion Rate shall be averaged and shall constitute the adjusted Conversion Rate. If the two brokers cannot agree upon a third broker, the selection of a third broker shall be submitted to binding arbitration in Boston, Massachusetts under the rules of the American Arbitration Association. In the event that the difference between the Company's calculation of the adjusted Conversion Rate and the calculation of the adjusted Conversion Rate determined by the foregoing process is five percent (5%) or greater then the costs and expenses of the . brokers and any arbitration shall be paid by and be the obligation of the Company and in the event that such difference is less than five percent (5%) then the costs and expenses of the brokers and any arbitration shall be paid by the holders of the Convertible Notes (as a group on a pro rata basis). (d) In case: (1) the Company shall declare a dividend or other distribution on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 2(b); or (2) the Company shall authorize the granting to the holders of its Common Stock of rights, options, warrants or convertible securities to *Confidential treatment requested: Material has been omitted and filed with the Commission subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock of the Company, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (5) the Company or any Subsidiary shall commence a tender offer for all or a portion of the Company's outstanding shares of Common Stock (or shall amend any such tender offer); then the Company shall cause to be delivered to the holder of this Security, at least twenty (20) days (or ten (10) days in any case specified in clause (1) or (2) above) prior to the applicable record, expiration or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options, warrants or convertible securities or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options, warrants or convertible securities are to be determined, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (5) of this Section 2(d). (e) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Security, the full number of shares of Common Stock then issuable upon the conversion of this Security. (f) Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of this Security. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of this Security, and no such issue or delivery *Confidential treatment requested: Material has been omitted and filed with the Commission shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. (g) The Company agrees that all shares of Common Stock which may be delivered by actual certificates or by electronic book entry upon conversion of the Security, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable (and shall be issued out of the Company's authorized but unissued Common Stock) and, except as provided in the second sentence of Section 2(f), the Company will pay all taxes, liens and charges with respect to the issue thereof. (h) In case of any consolidation of the Company with any other person, any merger of the Company into another person or of another person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the properties and assets of the Company, the person formed by such consolidation or resulting from such merger or which acquires such properties and assets, as the case may be, shall execute and deliver to the holder of this Security a supplemental agreement providing that such holder has the right, during the period this Security shall be convertible as specified in Section 2(a), to convert this Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (including any Common Stock retainable) by a holder of the number of shares of Common Stock of the Company into which this Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (1) is not a person with which the Company consolidated, into which the Company merged or which merged into the Company or to which such conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (2) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (PROVIDED that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 2(h) the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Nonelecting Shares). Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be as *Confidential treatment requested: Material has been omitted and filed with the Commission nearly equivalent as may be practicable to the adjustments provided for in this Section 2. The above provisions of this Section 2(h) shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. In this paragraph, "securities of the kind receivable" upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of Common Stock means securities that, among other things, are registered and transferable under the Securities Act, and listed and approved for quotation in all securities markets, in each case to the same extent as such securities so receivable by a holder of Common Stock. (i) The Company (1) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) for the shares of Common Stock issuable upon conversion of this Security to be lawfully issued and delivered as provided herein, and thereafter publicly traded (if permissible under the Securities Act) and qualified or listed as contemplated by clause (2) (it being understood that the Company shall not be required to register the Common Stock issuable on conversion hereof under the Securities Act, except pursuant to the Registration Rights Agreement between the Company and the Purchasers (as defined in the Note Purchase Agreement), subject to the transfer restriction set forth in Section 6; and (2) will list the shares of Common Stock required to be issued and delivered upon conversion of Securities, prior to such issuance or delivery, on each national securities exchange on which outstanding Common Stock is listed or quoted at the time of such delivery, or if the Common Stock is not then listed on any securities exchange, to qualify the Common Stock for quotation on the Nasdaq National Market or such other interdealer quotation system, if any, on which the Common Stock is then quoted. (j) For purposes hereof: (references to Sections shall mean Sections of this Security unless otherwise specified) "AFFILIATE" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control", when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "ASSIGNMENT OF LEASES AND RENTS" shall mean the Assignment of Leases and Rents dated September 8, 2000 made by the Company in favor of the Trustee. "BUSINESS DAY" means any day other than a Saturday, a Sunday or other day which shall be in Boston, Massachusetts on a legal holiday or a day on which commercial banks in Boston, Massachusetts are required or authorized to be closed. *Confidential treatment requested: Material has been omitted and filed with the Commission "CASH DISTRIBUTION" means the distribution by the Company to holders of its Common Stock of cash, other than any cash that is distributed upon a merger or consolidation to which Section 2(h) applies or as part of a distribution referred to in paragraph (4) of Section 2(b). "CHANGE OF CONTROL" is defined in Section 3(f)(2). "CLOSING" is defined in Section 1 of the Note Purchase Agreement. "CLOSING PRICE" means, with respect to the Common Stock of the Company, for any day, the reported closing sale price per share on the Nasdaq National Market, or, if no closing price is so reported, the last sale price per share on the Nasdaq National Market, or, if the Common Stock is not admitted to trading on the Nasdaq National Market on the principal national securities exchange or inter-dealer quotation system on which the Common Stock is listed or admitted to trading, or if not admitted to trading on the Nasdaq National Market or listed or admitted to trading on any national securities exchange or inter-dealer quotation system, the average of the closing bid and asked prices per share in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMMON STOCK" means the Common Stock, par value $.01 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 2(h), shares issuable on conversion or repurchase of this Security shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; PROVIDED, HOWEVER, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of this Security shall include shares of all such classes, and the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "CONVERTIBLE NOTES" shall mean one or more of the Company's 8.5% Senior Convertible Notes due September 8, 2005. "CONVERSION PRICE" is defined in Section 1. "CONVERSION RATE" is defined in Section 2(a). "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. *Confidential treatment requested: Material has been omitted and filed with the Commission "DESIGNATED OFFICE" is defined in the Preamble. "DETERMINATION DATE" means, in the case of a dividend or other distribution, including the issuance of rights, options, warrants or convertible securities, to shareholders, the date fixed for the determination of shareholders entitled to receive such dividend or other distribution and, in the case of a tender offer, the last time that tenders could have been made pursuant to such tender offer, provided that if no date is fixed for the determination of holders entitled to receive such rights, options, warrants or convertible securities, then the Determination Date shall be the date of issuance of such rights, options, warrants or convertible securities. "ENVIRONMENTAL INDEMNITY" shall mean that Environmental Indemnity Agreement dated September 8, 2000 made by the Company in favor of the Trustee and the holders. "ENVIRONMENTAL LAWS" means any and all Federal, state and local laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EXCESS PURCHASE PAYMENT" means the product of (1) the excess, if any, of (a) the amount of cash plus the fair market value (as determined in good faith by the Company's Board of Directors) of any non-cash consideration required to be paid with respect to one share of Common Stock acquired or to be acquired in a tender offer made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock over (b) the current market price per share as of the last time that tenders could have been made pursuant to such tender offer and (2) the number of shares validly tendered and not withdrawn as of the Determination Date in respect of such tender offer. "EVENT OF DEFAULT" is defined in the preamble to Section 4. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. *Confidential treatment requested: Material has been omitted and filed with the Commission "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "HOLDERS" means, with respect to this Security or any other Convertible Note, the Person in whose name it is registered in the register to be maintained by the Company pursuant to Section 6(d). "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or capital lease (as such term is defined by GAAP), upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAJORITY CONVERTIBLE NOTE HOLDERS", as applied to describe the requisite holder or holders of the Convertible Notes, shall mean, at any date, the holder or holders of 66-2/3% or more in interest in the Convertible Notes at the time outstanding (excluding Convertible Notes at the time owned by the Company or any Affiliate of the Company). "MAKE-WHOLE AMOUNT" is defined in Section 4(g). "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (A) the business, operations, affairs, financial condition, assets, properties or prospects of the Company and its Subsidiaries taken as a whole, or (B) the ability of the Company to perform its obligations under the Note Purchase Agreement, the Registration Rights Agreement and the Convertible Notes, or (c the validity or enforceability of the Note Purchase Agreement or the Convertible Notes. "MORTGAGE" shall mean shall mean the Mortgage, Assignment of Leases and Rents and Security Agreement dated September8, 2000 made by the Company in favor of the Trustee. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTE PURCHASE AGREEMENT" is defined in the Preamble. "OPERATIVE DOCUMENTS" shall mean the Convertible Notes, the Note Purchase Agreement, the Registration Rights Agreement, the Mortgage, the Assignment of Leases and Rents, the Trust Agreement, the Environmental Indemnity, and each of the other agreements, documents and instruments *Confidential treatment requested: Material has been omitted and filed with the Commission executed in connection herewith and therewith, each as it may from time to time be amended, modified or supplemented. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PIPE TRANSACTION" shall mean a so called "private investment, public equity" private placement transaction which uses a procedure in which investors agree to purchase securities in a private offering conditioned upon or otherwise requiring the filing of a registration statement covering the securities so purchased. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof among the holders and the Company. "REPURCHASE DATE" is defined in Section 3(a). "REPURCHASE PRICE" is defined in Section 3(a). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other senior officer of the Company with responsibility for the administration of the relevant covenants in this Security or in the Note Purchase Agreement. "RETURNED AMOUNT" shall have the meaning given such term in the Note Purchase Agreement. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "SECURITY" is defined in the preamble hereof. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. *Confidential treatment requested: Material has been omitted and filed with the Commission "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "TRADING DAY" means (1) if the Common Stock is admitted to trading on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; (2) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (3) if the Common Stock is not admitted to trading on the Nasdaq National Market or listed or admitted for trading on any national securities exchange or any other system of automated dissemination of quotation of securities prices, a day on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "TRUST AGREEMENT" shall mean that certain Collateral Trust Agreement dated September 8, 2000 to which the Company, the holders and the Trustee are parties, as amended, modified or supplemented from time to time. "TRUSTEE" shall mean Fleet National Bank, together with its successors and assigns and any substitute and/or additional entity from time to time serving as Trustee under the Trust Agreement. 3. Right to Require Repurchase. (a) In the event that a Change in Control shall occur, then the holder of this Security shall have the right, at such holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, this Security, or any portion of the principal amount hereof that is equal to $1,000 or any integral multiple thereof, on the date (the "Repurchase Date") that is twenty (20) Trading Days after the date on which the Company gives notice to the holder of this Security that a Change in Control has occurred, at a purchase price equal to 100% of the principal amount of this Security to be repurchased plus interest accrued to the Repurchase Date (such principal plus interest hereinafter referred to as the "Repurchase Price"); PROVIDED, HOWEVER, that installments of interest on this Security whose stated maturity is on or prior to the Repurchase *Confidential treatment requested: Material has been omitted and filed with the Commission Date shall be payable to the holder of this Security, or one or more predecessor Securities, registered as such on the relevant Record Date according to their terms. The Company agrees to give the holder of this Security notice of any Change in Control, by facsimile transmission confirmed in writing by overnight courier service, promptly and in any event within two (2) Trading Days of the occurrence thereof. (b) To exercise a repurchase right, the holder shall deliver to the Company on or before the fifth (5th) Trading Day prior to the Repurchase Date, together with this Security, written notice of the holder's exercise of such right, which notice shall set forth the name of the holder, the number of shares of Common Stock then owned by such holder and its affiliates, the principal amount of this Security to be repurchased (and, if this Security is to be repurchased in part, the portion of the principal amount thereof to be repurchased and the name of the person in which the portion thereof to remain outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby. Such written notice shall be irrevocable, except that the right of the holder to convert this Security (or the portion hereof with respect to which the repurchase right is being exercised) shall continue until the close of business on the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the holder the Repurchase Price in cash, provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash, to the holders of this Security, or one or more predecessor Securities, registered as such at the close of business on the relevant regular record date. (d) If this Security (or portion thereof) is surrendered for repurchase and is not so paid on or prior to the Repurchase Date, the principal amount of this Security (or such portion hereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate per annum borne by this Security, and shall remain convertible into Common Stock until the principal of this Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) If this Security is to be repurchased only in part, it shall be surrendered to the Company at the Designated Office (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing), and the Company shall execute and make available for delivery to the holder without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. *Confidential treatment requested: Material has been omitted and filed with the Commission (f) For purposes of this Section 3. (1) the term "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act; and (2) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of this Security, of: (a) the acquisition by any person of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such person to exercise more than 30% of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors (any shares of voting stock of which such person is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage) other than any such acquisition by the Company or any employee benefit plan of the Company; or (b) any consolidation or merger of the Company with or into, any other person, any merger of another person with or into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the assets of the Company to another person (other than (i) any such transaction (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock and (y) pursuant to which holders of Common Stock immediately prior to such transaction have the entitlement to exercise, directly or indirectly, more than 30% of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving person immediately after such transaction and (ii) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock. 4. Events of Default. (a) "EVENT of DEFAULT", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): *Confidential treatment requested: Material has been omitted and filed with the Commission (1) (a) default in the payment of any principal or premium, if any, upon this Security when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, including, without limitation, the failure to pay the Returned Amount when the Returned Amount is required to be paid under the Note Purchase Agreement or (b) default in the payment of any interest upon this Security when it becomes due and payable, and continuance of such default for a period of five (5) business days; or (2) default by the Company in the performance of-its obligations in respect of any conversion of this Security (or any portion hereof) in accordance with Section 2; or (3) failure by the Company to give any notice of a Change of Control required to be delivered in accordance with Section 3(a); or (4) default in the performance, or breach, of any other covenant of the Company herein, in the Note Purchase Agreement, or in the Registration Rights Agreement (other than a covenant default for which the performance or breach is specifically dealt with elsewhere in this Section 4(a) and continuance of such default or breach for a period of 30 days; (5) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; (6) aggregating in excess of $[ ]* are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within sixty (60) days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; or (7) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company, or under any agreement, 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 Company, with a principal amount then outstanding in excess of $[ ]* whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay the principal of such indebtedness (in whole or in any part greater than $ [ ]* when due and payable or shall have resulted in such indebtedness (in whole or in any part greater than $[ ]* becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable; or *Confidential treatment requested: Material has been omitted and filed with the Commission (8) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such a final judgment or judgments for the payment of money standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $[ ]*, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 4(a)(8), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. (9) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; (10) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of *Confidential treatment requested: Material has been omitted and filed with the Commission a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or not paying its debts as they become due or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (11) the occurrence of any Event of Default (as defined in the Mortgage) under the Mortgage, or the occurrence of any Event of Default (as defined in the Assignment of Leases and Rents) under the Assignment of Leases and Rents or any default under the Environmental Indemnity. (b) If an Event of Default (other than an Event of Default specified in Section 4(a)(9) or 4(a)(10)) occurs and is continuing, then in every such case the holder of this Security may declare the principal hereof to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security(, the entire principal of and interest accrued on this Security, and ii in addition, to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty; and, in case of the occurrence of an Event of Default of the character described in subdivisions 4(a)(9) and 4(a)(10) the principal of and accrued interest on this Security, IPSO FACTO shall become immediately due and payable without any declaration or other act of the holder of this Security and without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security (x) the entire principal of and interest accrued on this Security and (y) in addition, if such Event of Default is "Voluntary" (as hereinafter defined), to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty. For purposes of this section 4(b), "Voluntary" shall mean an Event of Default of the character described in subdivisions 4(a)(9) or 4(a)(10) which shall have been (x procured by the Company or any officer, director, stockholder or *Confidential treatment requested: Material has been omitted and filed with the Commission Affiliate of the Company or (y) primarily the result of action or inaction by the Company or by any officer, director, stockholder or Affiliate of the Company. (c) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, and irrespective of whether this Security has become or has been declared immediately due and payable under Section 4(a), the holder of this Security may proceed to protect and enforce its rights either by suit in equity or by action at law, or both. The Company stipulates that the remedies at law of the holder of this Security in the event of any Default or threatened Default by the Company in the performance of or compliance with any covenant or agreement in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance thereof, whether by an injunction against a violation thereof or otherwise. (d) No remedy conferred in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or otherwise. (e) No course of dealing between the Company and any of its Subsidiaries, on the one hand, and the holder of this Security, on the other hand, and no delay by any such holder in exercising any rights hereunder or under the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents shall operate as a waiver of any rights of such holder. (f) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, all amounts to be applied to the prepayment or payment of this Security shall be applied, after the payment of all related costs and expenses incurred by the holder of this Security (including, without limitation, compensation to any and all trustees, liquidators, receivers or similar officials and reasonable fees, expenses and disbursements of counsel) in such order of priority as is determined by the holder of this Security. (g) The term "Make-Whole Amount" means, with respect to this Security, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of this Security over the amount of such Called Principal, PROVIDED that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: *Confidential treatment requested: Material has been omitted and filed with the Commission "Called Principal" means, with respect to this Security, the principal of this Security that has become or is declared to be immediately due and payable pursuant to Section 4(b). "Discounted Value" means, with respect to the Called Principal of this Security, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on this Security is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of this Security, the yield to maturity implied by (1) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "PX-1" of the Bloomberg Financial Markets Services Screen for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (2) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (i) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (ii) the actively traded U.S, Treasury security with the duration closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (1)such Called Principal into (2) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payment" means, with respect to the Called Principal of this Security, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled *Confidential treatment requested: Material has been omitted and filed with the Commission due date, PROVIDED that if such Settlement Date is not a date on which interest payments are due to be made under the terms of this Security, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date. "Settlement Date" means, with respect to the Called Principal of this Security, the date on which such Called Principal has become or is declared to be immediately due and payable pursuant to Section 4(b), as the context requires. 5. CONSOLIDATION, MERGER, ETC. (a) The Company shall not consolidate with or merge into any other person or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to any person, and the Company shall not permit any person to consolidate with or merge into the Company or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to the Company, unless: (1) in case the Company shall consolidate with or merge into another person or convey, transfer, sell or lease all or substantially all of its properties and assets to any person, the person formed by such consolidation or into which the Company is merged or the person which acquires by conveyance, transfer or sale, or which leases, all or substantially all the properties and assets of the Company shall be a corporation, limited liability company, partnership or trust, shall be 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 agreement supplemental hereto, executed and delivered to the holder of this Security in form satisfactory to the holder, the due and punctual payment of the principal of (and premium, if any) and interest on this Security and the performance or observance of every covenant of this Security on the part of the Company to be performed or observed, including the conversion rights provided herein (which shall thereafter relate to common stock of such successor, on a basis reasonably designed to preserve the economic value to the holder of this Security of such conversion rights); (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary of the Company as a result of such transaction as having been incurred by the Company or such Subsidiary of the Company at the time of 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; *Confidential treatment requested: Material has been omitted and filed with the Commission (3) the Company has delivered to the holder of this Security an officers' certificate stating that such consolidation, merger, conveyance, transfer, sale or lease and, if a supplemental agreement is required in connection with such transaction, such supplemental agreement, comply with this Section and that all conditions precedent herein provided for relating to such transaction have been complied with; and (4) counsel for the Company or any successor thereto has delivered to the holder of this Security an opinion of such counsel with respect to such consolidation, merger, conveyance, transfer, sale or lease, and if a supplemental agreement is required in connection with such transaction, such supplemental agreement, which opinion shall be, in form and substance, reasonably acceptable to such holder and its counsel. (b) Upon any consolidation of the Company with, or merger of the Company into, any other person or any conveyance, transfer, sale or lease of all or substantially all of the properties and assets of the Company in accordance with Section 5(a), the successor person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer, sale or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Security with the same effect as if such successor person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor person shall be relieved of all obligations and covenants under this Security. 6. OTHER. (a) No provision of this Security shall alter or impair the obligation of the Company,- which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security in cash at the times; places and rate, and in the coin or currency, herein prescribed or to convert this Security as herein provided. (b) The Company will give prompt written notice to the holder of Security of any change in the location of the Designated Office. (c) (i) Subject to clause (ii) below, the transfer of this Security is registrable on the Security Register of the Company upon surrender of this Security for registration of transfer at the Designated Office, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Such Securities are issuable only in registered form without coupons in denominations of the lesser of (x) $1,000,000 and (y) the outstanding principal amount of any Security then being registered. No service *Confidential treatment requested: Material has been omitted and filed with the Commission charge shall be made for any such registration of transfer, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of this Security for registration of transfer, the Company and any agent of the Company may treat the person in whose name this Security is registered as the owner thereof for all purposes, whether or not this Security be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. (ii) Any sale, assignment, transfer or other disposition of this Security (or any portion hereof) by any holder of this Security shall be made in compliance with all applicable securities laws. (d) The Company shall keep at the Designated Office a register for the registration and registration of transfers of Convertible Notes. The name and address of each holder of one or more Convertible Notes, each transfer thereof and the name and address of each transferee of one or more Convertible Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Convertible Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Convertible Note promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Convertible Notes. (e) Upon surrender of any Convertible Note at the Designated Office for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Convertible Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Convertible Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Convertible Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Convertible Note. Each such new Convertible Note shall be payable to such Person as such holder may request and shall be substantially in the form of this Security. Each such new Convertible Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Convertible Note or dated the date of the surrendered Convertible Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of this Security. Convertible Notes shall not be transferred in denominations of less than $100,000, PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Convertible Notes, one Convertible Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Convertible Note registered in its name (or the *Confidential treatment requested: Material has been omitted and filed with the Commission name of its nominee), shall be deemed to have made the representation set forth in section 3 of the Note Purchase Agreement. (f) Upon receipt by the Company of a written request from the holder, and (1) in the case of loss, theft or destruction, of an unsecured agreement of indemnity, or (2) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Convertible Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Convertible Note or dated the date of such lost, stolen, destroyed or mutilated Convertible Note if no interest shall have been paid thereon. (g) This Security shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, United States of America. (h) So long as you or your nominee shall be holder of this Security and notwithstanding anything in this Security to the contrary, the Company will pay all sums becoming due hereunder for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule 1, or by such other method provided in the Preamble or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of this Security, or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment in full of this Security, you shall surrender this Security for cancellation, reasonably promptly after any such request to the Company at its principal executive office or at the place of payment most recently designated by the Company. Prior to any sale or other disposition of this Security you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender this Security to the Company in exchange for a new Convertible Note pursuant to the terms hereof. The Company will afford the benefits of this Section to any institutional investor that is the direct or indirect transferee of this Security. *Confidential treatment requested: Material has been omitted and filed with the Commission [SIGNATURE PAGE FOR SENIOR CONVERTIBLE NOTE] IN WITNESS WHEREOF, the Company has caused this Security to be duly executed under its corporate seal. Dated: September 8, 2000 CUBIST PHARMACEUTICALS, INC. By: /s/ THOMAS A. SHEA ----------------------------------- Attest: /s/ JOSEPH GILDAY - ------------------------------- Name: Title: *Confidential treatment requested: Material has been omitted and filed with the Commission EX-10.67 20 a2042768zex-10_67.txt EXHIBIT 10.67 EXHIBIT 10.67 CONFIDENTIAL TREATMENT THIS SECURITY AND THE COMMON STOCK ISSUABLE UPON ITS CONVERSION HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS SECURITY UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. CUBIST PHARMACEUTICALS, INC. 8.5% SENIOR CONVERTIBLE NOTE DUE SEPTEMBER 8, 2005 No. R-6 September 8, 2000 $500,000 PPN 229678 A* CUBIST PHARMACEUTICALS, INC., a corporation duly organized and existing under the laws of Delaware (the "Company") for value received, hereby promises to pay to INVESTORS PARTNER LIFE INSURANCE COMPANY, or registered assigns, the principal sum of Five Hundred Thousand Dollars ($500,000) on September 8, 2005 and to pay interest thereon from the date hereof until this security (this "Security") together with all other amounts due under the Operative Documents have been paid in full, semi-annually on March 31 and September 31 in each year, commencing March 31, 2001, at the rate of 8.5% per annum, until the principal hereof is due, and at the rate of 10.5% per annum on any overdue principal and premium, if any, and, to the extent permitted by law, on any overdue interest. The interest so payable, and punctually paid or duly provided for, on any interest payment date will be paid to the person in whose name this Security (or one or more predecessor securities) is registered at the close of business on the regular record date for such interest, which shall be the March 1 or September 1 (whether or not a Business Day), as the case may be, next preceding such interest payment date. Payment of the principal of (and premium, if any, on) this Security shall be made upon the surrender of this Security to the Company, at its office at 24 Emily Street, Cambridge, Massachusetts 02139 (or such other office within the United States as shall be notified by the Company to the holder hereof) (the "Designated Office"), in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, by transfer to a U.S. dollar account maintained by the *Confidential treatment requested: Material has been omitted and filed with the Commission. payee with a bank in the United States of America. Payment of interest on this Security shall be made by wire transfer to a U.S. dollar account maintained by the payee with a bank in the United States of America, provided that if the holder shall not have furnished wire instructions in -writing to the Company no later than the record date relating to an interest payment date, such payment may be made by U.S. dollar check mailed to the address of the person entitled thereto as such address shall appear in the Company security register. This Security will rank pari passu with all existing and future senior debt of the Company. This Security is one of the Company's 8.5% Senior Convertible Notes due September 8, 2005, limited to $39,000,000 aggregate principal amount, issued pursuant to that certain Note Purchase Agreement dated September 8, 2000 (such agreement, as amended, modified and supplemented from time to time, the "Note Purchase Agreement") between the Company and the institutional investors named therein, and the holder hereof is entitled to the benefits of the Note Purchase Agreement, and may enforce the agreements contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereof and thereof, all in accordance with the terms hereof and thereof. 1. OPTIONAL REDEMPTION WITH PREMIUM. This Security is subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time on or after September 8, 2003, as a whole or in part, (in any amount that is an integral multiple of $1,000) at the election of the Company, at a redemption price, paid in cash, of 103% of the principal amount thereof, together with accrued interest to the redemption date, but interest installments whose stated maturity is on or prior to such redemption date will be payable to the holder of this Security, or one or more predecessor Securities, of record at the close of business on the relevant record dates referred to on the face hereof. The term "Conversion Price" on any day shall equal $1,000 divided by the Conversion Rate in effect on each such day. 2. Conversion. (a) The holder of this Security is entitled at any time that this Security is outstanding (or, in case this Security or a portion hereof is called for redemption or the holder hereof has exercised its right to require the Company to repurchase this Security or a portion hereof, then in respect of this Security or such portion hereof, as the case may be, until and including, but (unless the Company defaults in making the payment due upon redemption or repurchase, as the case may be) not after, the close of business on the redemption date or the Repurchase Date, as the case may be) to convert the outstanding principal amount of this Security (or any portion of the outstanding principal amount hereof that is an integral multiple of $1,000), into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock of the Company at the rate of one (1) share of Common Stock for each $63.8625 principal amount of Security (or at the current adjusted rate if an adjustment has been made as provided below) (the "Conversion Rate") by surrender of this Security, to the attorneys for the Company at the office for the attorneys for the Company designated in writing and provided to the holder, accompanied by *Confidential treatment requested: Material has been omitted and filed with the Commission. written notice to the Company that the holder hereof elects to convert this Security (or if less than the entire principal amount hereof is to be converted, specifying the portion hereof to be converted). Upon surrender of this Security for conversion, the holder will be entitled to receive the interest accruing on the principal amount of this Security then being converted from the interest payment date next preceding the date of such conversion to such date of conversion. No adjustment to the Conversion Rate is to be made on conversion for dividends on the Common Stock issued on conversion hereof. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest, the Company shall pay a cash adjustment, computed on the basis of the Closing Price of the Common Stock on the date of conversion, or, at its option, the Company shall round up to the next higher whole share. This Security shall be deemed to have been converted immediately prior to the close of business on the day of surrender hereof for conversion, in accordance with the foregoing provisions, and at such time the rights of the holder hereof, as a holder hereof, shall cease, and the person or persons entitled to receive the Common Stock issuable on conversion shall be treated by all Persons as the holder or holders of such Common Stock at such time. Upon any partial conversion of this Security, the Company, at its expense, will forthwith issue and deliver to, or upon the order of the holder hereof, a new Convertible Note or Convertible Notes in principal amount equal to the unconverted principal amount of such surrendered Convertible Note, such new Convertible Note or Convertible Notes to be dated and to bear interest from the date to which interest has been paid on such surrendered Convertible Note. As promptly as possible after the conversion of this Security, in whole or in part, and in any event within two (2) Business Days thereafter, the Company, at its expense, will issue and deliver a certificate or certificates, or if so requested in writing by the holder will enter or cause to be entered electronically by book entry such shares on the electronic system designated by the holder for the number of full shares of Common Stock issuable upon such conversion. (b) The Conversion Rate shall be subject to adjustments from time to time as follows: (1) In case the Company shall pay or make a dividend or other distribution on any class of capital stock of the Company payable in shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the Determination Date for such dividend or other distribution shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes *Confidential treatment requested: Material has been omitted and filed with the Commission. of this paragraph (1), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. (2) Subject to the last sentence of paragraph (7) of this Section 2(b) and the last sentence of this paragraph 2(b)(2), in case the Company shall issue rights, options, warrants or convertible securities entitling the holders thereof to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on the Determination Date for such distribution, the Conversion Rate in effect at the opening of business on the day following such Determination Date shall be increased by dividing such Conversion Rate by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock which the aggregate amount received by the Company upon the issuance of such rights, options, warrants or convertible securities of the offering price of the total number of shares of Common Stock so offered for subscription or purchase would -purchase at such current market price and the denominator shall be the number of shares of Common Stock outstanding at the close of business on such Determination Date plus the number of shares of Common Stock so offered for subscription or purchase, such increase to become effective immediately after the opening of business on the day following such Determination Date. For the purposes of this paragraph (2), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company will not issue any rights, options, warrants or convertible securities in respect of shares of Common Stock held in the treasury of the Company. Anything in this paragraph 2(b)(2) to the contrary notwithstanding, no adjustment to the Conversion Price shall be made, (i) in the case of the issuance of shares of Common Stock in a PIPE Transaction PROVIDED that the price per share for the shares of Common Stock issued or to be issued in connection with each PIPE Transaction is at least [ ]*% of the market price per share on the date such shares are issued or (ii) in connection with the acquisition of TerraGen Discovery, Inc. in accordance with the disclosure in the Note Purchase Agreement. (3) In case outstanding shares of Common Stock shall each be subdivided into a greater number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be *Confidential treatment requested: Material has been omitted and filed with the Commission. proportionately increased, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the Conversion Rate in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately reduced, such increase or reduction, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (4) Subject to the last sentence of paragraph (7) of this Section 2(b), in case the Company shall, by dividend or otherwise, distribute evidences of its indebtedness, shares of any class of capital stock, or other property (including securities, but excluding (i) any rights, options, warrants or convertible security referred to in paragraph (2) of this Section 2(b), (ii) any dividend or distribution paid exclusively in cash, (iii) any dividend or distribution referred to in paragraph (1) of this Section 2(b) and (iv) any merger or consolidation to which Section 2(h) applies), the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such distribution by a fraction of which the numerator shall be the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less the then fair market value (as determined in good faith by the Board of Directors of the Company) of the portion of the assets, shares or evidences of indebtedness so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such adjustment to become effective immediately prior to the opening of business on the day following such Determination Date. If the Board of Directors determines the fair market value of any distribution for purposes of this paragraph (4) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share pursuant to paragraph (8) of this Section 2(b). (5) In case the Company shall, by dividend or otherwise, make a Cash Distribution, then, and in each such case, immediately after the close of business on the Determination Date for such Cash Distribution, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on such Determination Date by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (1) the amount of such Cash Distribution divided by (2) the *Confidential treatment requested: Material has been omitted and filed with the Commission. number of shares of Common Stock outstanding on such Determination Date, and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date. (6) In case the Company or any Subsidiary shall make an Excess Purchase Payment, then, and in each such case, immediately prior to the opening of business on the day after the tender offer in respect of which such Excess Purchase Payment is to be made expires, the Conversion Rate shall be adjusted so that the same shall equal the rate determined by dividing the Conversion Rate in effect immediately prior to the close of business on the Determination Date for such tender offer by a fraction (a) the numerator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock on such Determination Date less an amount equal to the quotient of (A) the Excess Purchase Payment divided by (B) the number of shares of Common Stock outstanding (including any tendered shares) as of the Determination Date less the number of all shares validly tendered and not withdrawn as of the Determination Date and (b) the denominator of which shall be equal to the current market price per share (determined as provided in paragraph (8) of this Section 2(b)) of the Common Stock as of such Determination Date. (7) The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 2(h) applies) shall be deemed to involve (a) a distribution of such securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be the Determination Date), and (b) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" or "the day upon which such combination becomes effective", as the case may be, and "the day upon which such subdivision or combination becomes effective" within the meaning of paragraph (3) of this Section 2(b). Rights, options, warrants or convertible securities issued by the Company entitling the holders thereof to subscribe for or purchase shares of Common Stock, which rights, options, warrants or convertible securities (i) are deemed to be transferred with such shares of Common Stock, (ii) are not exercisable and (iii) are also issued in respect of future issuances of Common Stock, in each case in clauses (i) through (iii) until the occurrence of a specified event or events ("Trigger Event"), shall for purposes of this Section 2(b) not be deemed issued until the occurrence of the earliest Trigger Event. *Confidential treatment requested: Material has been omitted and filed with the Commission. (8) For the purpose of any computation under paragraphs (2), (4), (5) or (6) of this Section 2(b) the current market price per share of Common Stock on any date shall be calculated by the Company and be deemed to be the average of the daily Closing Prices for the five (5) consecutive Trading Days selected by the Company commencing not more than ten (10) Trading Days before, and ending not later than, the earlier of the day in question and the day before the "ex date" with respect to the issuance or distribution requiring such computation PROVIDED that in the event the Company shall issue rights, options, warrants or convertible securities giving the holders thereof the right to receive shares of Common Stock at a price equal to the closing price on the date that such securities are issued under (i) any management or employee stock option plan or other equity incentive plan approved by the Board of Directors of the Company or (ii) in connection with a corporate acquisition transaction (such as the TerraGen Discovery, Inc. transaction) approved by the Board of Directors of the Company, then for purposes of paragraph (2) above, the market price shall equal the closing price on the Trading Day such securities are issued. For purposes of this paragraph, the term "ex date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades regular way in the applicable securities market or on the applicable securities exchange without the right to receive such issuance or distribution. (9) No adjustment in the Conversion Rate shall be required unless such adjustment (plus any adjustments not previously made by reason of this paragraph (9)) would require an increase or decrease of at least one percent in such rate; PROVIDED, HOWEVER, that any adjustments which by reason of this paragraph (9) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 2 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. (10) The Company may make such increases in the Conversion Rate, for the remaining term of the Securities or any shorter term, in addition to those required by paragraphs (1), (2), (3), (4), (5) and (6) of this Section 2(b) as it considers to be advisable in order to avoid or diminish any income tax to any holders of shares of Common Stock resulting from any dividend or distribution of stock or issuance of rights, options, warrants or convertible securities to purchase or subscribe for stock or from any event treated as such for income tax purposes. (c) Whenever the Conversion Rate is adjusted as provided in Section 2(b), the Company shall compute the adjusted Conversion Rate in accordance with Section 2(b) and shall prepare a certificate signed by the Senior Financial Officer of the Company setting forth the adjusted Conversion Rate and showing in reasonable detail the facts upon which such adjustment is based, and shall *Confidential treatment requested: Material has been omitted and filed with the Commission. promptly deliver such certificate to the holder of this Security. If the Majority Convertible Note Holders and the Company cannot agree in writing as to the adjusted Conversion Rate in accordance with Section 2(b), the holders of the Convertible Notes and the Company shall determine the adjusted Conversion Rate in accordance with the following procedure. The Majority Convertible Note Holders and the Company shall each appoint one registered securities broker, licensed with the Securities and Exchange commission to sell securities to the public, which broker shall be a senior vice president, managing director or equivalent of a major securities brokerage company with offices in Boston, Massachusetts. Each of such brokers shall have no less than ten (10) years experience in such field, shall be unaffiliated with, and their employer securities brokerage company shall be unaffiliated with, the holders of the Convertible Notes and the Company and shall not have previously participated in any underwriting of the Company's Common Stock in any public offering or provided any material investment banking or corporate advisory services to the Company. The Majority Convertible Note Holders and the Company shall make their appointments promptly and, in any event, within thirty (30) days from the date of the Conversion Rate Certificate. The two brokers shall meet in person or have a meeting by telephone and shall be instructed to render a determination of the adjusted Conversion Rate to the holders of the Convertible Notes and the Company within sixty (60) days of the date of the Conversion Rate Certificate. If the two brokers cannot agree, then each broker shall render their independent determination and the two brokers shall simultaneously therewith provide the name of a third broker acceptable to the two brokers meeting the criteria set forth above. The third broker shall be instructed to render a determination of the adjusted Conversion Rate within thirty (30) days of his or her appointment. The two closest determinations of the adjusted Conversion Rate shall be averaged and shall constitute the adjusted Conversion Rate. If the two brokers cannot agree upon a third broker, the selection of a third broker shall be submitted to binding arbitration in Boston, Massachusetts under the rules of the American Arbitration Association. In the event that the difference between the Company's calculation of the adjusted Conversion Rate and the calculation of the adjusted Conversion Rate determined by the foregoing process is five percent (5%) or greater then the costs and expenses of the . brokers and any arbitration shall be paid by and be the obligation of the Company and in the event that such difference is less than five percent (5%) then the costs and expenses of the brokers and any arbitration shall be paid by the holders of the Convertible Notes (as a group on a pro rata basis). (d) In case: (1) the Company shall declare a dividend or other distribution on its Common Stock payable (i) otherwise than exclusively in cash or (ii) exclusively in cash in an amount that would require any adjustment pursuant to Section 2(b); or *Confidential treatment requested: Material has been omitted and filed with the Commission. (2) the Company shall authorize the granting to the holders of its Common Stock of rights, options, warrants or convertible securities to subscribe for or purchase any shares of capital stock of any class or of any other rights; or (3) of any reclassification of the Common Stock of the Company, or of any consolidation, merger or share exchange to which the Company is a party and for which approval of any shareholders of the Company is required, or of the conveyance, sale, transfer or lease of all or substantially all of the assets of the Company; or (4) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; or (5) the Company or any Subsidiary shall commence a tender offer for all or a portion of the Company's outstanding shares of Common Stock (or shall amend any such tender offer); then the Company shall cause to be delivered to the holder of this Security, at least twenty (20) days (or ten (10) days in any case specified in clause (1) or (2) above) prior to the applicable record, expiration or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, rights, options, warrants or convertible securities or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, options, warrants or convertible securities are to be determined, (y) the date on which the right to make tenders under such tender offer expires or (z) the date on which such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, share exchange, conveyance, transfer, sale, lease, dissolution, liquidation or winding up. Neither the failure to give such notice nor any defect therein shall affect the legality or validity of the proceedings described in clauses (1) through (5) of this Section 2(d). (e) The Company shall at all times reserve and keep available, free from preemptive rights, out of its authorized but unissued Common Stock, for the purpose of effecting the conversion of the Security, the full number of shares of Common Stock then issuable upon the conversion of this Security. (f) Except as provided in the next sentence, the Company will pay any and all taxes and duties that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of this Security. The Company shall not, however, be required to pay any tax or duty which may be payable in respect of *Confidential treatment requested: Material has been omitted and filed with the Commission. any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the holder of this Security, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax or duty, or has established to the satisfaction of the Company that such tax or duty has been paid. (g) The Company agrees that all shares of Common Stock which may be delivered by actual certificates or by electronic book entry upon conversion of the Security, upon such delivery, will have been duly authorized and validly issued and will be fully paid and nonassessable (and shall be issued out of the Company's authorized but unissued Common Stock) and, except as provided in the second sentence of Section 2(f), the Company will pay all taxes, liens and charges with respect to the issue thereof. (h) In case of any consolidation of the Company with any other person, any merger of the Company into another person or of another person into the Company (other than a merger which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company) or any conveyance, sale, transfer or lease of all or substantially all of the properties and assets of the Company, the person formed by such consolidation or resulting from such merger or which acquires such properties and assets, as the case may be, shall execute and deliver to the holder of this Security a supplemental agreement providing that such holder has the right, during the period this Security shall be convertible as specified in Section 2(a), to convert this Security only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (including any Common Stock retainable) by a holder of the number of shares of Common Stock of the Company into which this Security might have been converted immediately prior to such consolidation, merger, conveyance, sale, transfer or lease, assuming such holder of Common Stock of the Company (1) is not a person with which the Company consolidated, into which the Company merged or which merged into the Company or to which such conveyance, sale, transfer or lease was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (2) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease (PROVIDED that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer, or lease is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, conveyance, sale, transfer or lease by others than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("Non-electing Share"), then for the purpose of this Section 2(h) the kind and amount of securities, cash and other property receivable upon such consolidation, merger, conveyance, sale, transfer or lease by the holders of each Non-electing Share shall be deemed to be the kind and amount so receivable per share by a plurality of the Nonelecting Shares). *Confidential treatment requested: Material has been omitted and filed with the Commission. Such supplemental agreement shall provide for adjustments which, for events subsequent to the effective date of such supplemental agreement, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 2. The above provisions of this Section 2(h) shall similarly apply to successive consolidations, mergers, conveyances, sales, transfers or leases. In this paragraph, "securities of the kind receivable" upon such consolidation, merger, conveyance, transfer, sale or lease by a holder of Common Stock means securities that, among other things, are registered and transferable under the Securities Act, and listed and approved for quotation in all securities markets, in each case to the same extent as such securities so receivable by a holder of Common Stock. (i) The Company (1) will effect all registrations with, and obtain all approvals by, all governmental authorities that may be necessary under any United States Federal or state law (including the Securities Act, the Exchange Act and state securities and Blue Sky laws) for the shares of Common Stock issuable upon conversion of this Security to be lawfully issued and delivered as provided herein, and thereafter publicly traded (if permissible under the Securities Act) and qualified or listed as contemplated by clause (2) (it being understood that the Company shall not be required to register the Common Stock issuable on conversion hereof under the Securities Act, except pursuant to the Registration Rights Agreement between the Company and the Purchasers (as defined in the Note Purchase Agreement), subject to the transfer restriction set forth in Section 6; and (2) will list the shares of Common Stock required to be issued and delivered upon conversion of Securities, prior to such issuance or delivery, on each national securities exchange on which outstanding Common Stock is listed or quoted at the time of such delivery, or if the Common Stock is not then listed on any securities exchange, to qualify the Common Stock for quotation on the Nasdaq National Market or such other interdealer quotation system, if any, on which the Common Stock is then quoted. (j) For purposes hereof: (references to Sections shall mean Sections of this Security unless otherwise specified) "AFFILIATE" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, "control", when used with respect to any specified person, means the power to direct the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "ASSIGNMENT OF LEASES AND RENTS" shall mean the Assignment of Leases and Rents dated September 8, 2000 made by the Company in favor of the Trustee. "BUSINESS DAY" means any day other than a Saturday, a Sunday or other day which shall be in Boston, Massachusetts on a legal holiday or a day on which *Confidential treatment requested: Material has been omitted and filed with the Commission. commercial banks in Boston, Massachusetts are required or authorized to be closed. "CASH DISTRIBUTION" means the distribution by the Company to holders of its Common Stock of cash, other than any cash that is distributed upon a merger or consolidation to which Section 2(h) applies or as part of a distribution referred to in paragraph (4) of Section 2(b). "CHANGE OF CONTROL" is defined in Section 3(f)(2). "CLOSING" is defined in Section 1 of the Note Purchase Agreement. "CLOSING PRICE" means, with respect to the Common Stock of the Company, for any day, the reported closing sale price per share on the Nasdaq National Market, or, if no closing price is so reported, the last sale price per share on the Nasdaq National Market, or, if the Common Stock is not admitted to trading on the Nasdaq National Market on the principal national securities exchange or inter-dealer quotation system on which the Common Stock is listed or admitted to trading, or if not admitted to trading on the Nasdaq National Market or listed or admitted to trading on any national securities exchange or inter-dealer quotation system, the average of the closing bid and asked prices per share in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Company for that purpose. "CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "COMMON STOCK" means the Common Stock, par value $.01 per share, of the Company authorized at the date of this instrument as originally executed. Subject to the provisions of Section 2(h), shares issuable on conversion or repurchase of this Security shall include only shares of Common Stock or shares of any class or classes of common stock resulting from any reclassification or reclassifications thereof; PROVIDED, HOWEVER, that if at any time there shall be more than one such resulting class, the shares so issuable on conversion of this Security shall include shares of all such classes, and the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. "CONVERTIBLE NOTES" shall mean one or more of the Company's 8.5% Senior Convertible Notes due September 8, 2005. "CONVERSION PRICE" is defined in Section 1. "CONVERSION RATE" is defined in Section 2(a). *Confidential treatment requested: Material has been omitted and filed with the Commission. "DEFAULT" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "DESIGNATED OFFICE" is defined in the Preamble. "DETERMINATION DATE" means, in the case of a dividend or other distribution, including the issuance of rights, options, warrants or convertible securities, to shareholders, the date fixed for the determination of shareholders entitled to receive such dividend or other distribution and, in the case of a tender offer, the last time that tenders could have been made pursuant to such tender offer, provided that if no date is fixed for the determination of holders entitled to receive such rights, options, warrants or convertible securities, then the Determination Date shall be the date of issuance of such rights, options, warrants or convertible securities. "ENVIRONMENTAL INDEMNITY" shall mean that Environmental Indemnity Agreement dated September 8, 2000 made by the Company in favor of the Trustee and the holders. "ENVIRONMENTAL LAWS" means any and all Federal, state and local laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA AFFILIATE" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "EXCESS PURCHASE PAYMENT" means the product of (1) the excess, if any, of (a) the amount of cash plus the fair market value (as determined in good faith by the Company's Board of Directors) of any non-cash consideration required to be paid with respect to one share of Common Stock acquired or to be acquired in a tender offer made by the Company or any Subsidiary of the Company for all or any portion of the Common Stock over (b) the current market price per share as of the last time that tenders could have been made pursuant to such tender offer and (2) the number of shares validly tendered and not withdrawn as of the Determination Date in respect of such tender offer. "EVENT OF DEFAULT" is defined in the preamble to Section 4. *Confidential treatment requested: Material has been omitted and filed with the Commission. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "HOLDERS" means, with respect to this Security or any other Convertible Note, the Person in whose name it is registered in the register to be maintained by the Company pursuant to Section 6(d). "LIEN" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or capital lease (as such term is defined by GAAP), upon or with respect to any property or asset of such Person (including in the case of stock, stockholder agreements, voting trust agreements and all similar arrangements). "MAJORITY CONVERTIBLE NOTE HOLDERS", as applied to describe the requisite holder or holders of the Convertible Notes, shall mean, at any date, the holder or holders of 66-2/3% or more in interest in the Convertible Notes at the time outstanding (excluding Convertible Notes at the time owned by the Company or any Affiliate of the Company). "MAKE-WHOLE AMOUNT" is defined in Section 4(g). "MATERIAL" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "MATERIAL ADVERSE EFFECT" means a material adverse effect on (A) the business, operations, affairs, financial condition, assets, properties or prospects of the Company and its Subsidiaries taken as a whole, or (B) the ability of the Company to perform its obligations under the Note Purchase Agreement, the Registration Rights Agreement and the Convertible Notes, or (c the validity or enforceability of the Note Purchase Agreement or the Convertible Notes. "MORTGAGE" shall mean shall mean the Mortgage, Assignment of Leases and Rents and Security Agreement dated September8, 2000 made by the Company in favor of the Trustee. "MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001(a)(3) of ERISA). "NOTE PURCHASE AGREEMENT" is defined in the Preamble. *Confidential treatment requested: Material has been omitted and filed with the Commission. "OPERATIVE DOCUMENTS" shall mean the Convertible Notes, the Note Purchase Agreement, the Registration Rights Agreement, the Mortgage, the Assignment of Leases and Rents, the Trust Agreement, the Environmental Indemnity, and each of the other agreements, documents and instruments executed in connection herewith and therewith, each as it may from time to time be amended, modified or supplemented. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "PERSON" means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. "PIPE TRANSACTION" shall mean a so called "private investment, public equity" private placement transaction which uses a procedure in which investors agree to purchase securities in a private offering conditioned upon or otherwise requiring the filing of a registration statement covering the securities so purchased. "PLAN" means an "employee benefit plan" (as defined in section 3(3) of ERISA) that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement dated as of the date hereof among the holders and the Company. "REPURCHASE DATE" is defined in Section 3(a). "REPURCHASE PRICE" is defined in Section 3(a). "RESPONSIBLE OFFICER" means any Senior Financial Officer and any other senior officer of the Company with responsibility for the administration of the relevant covenants in this Security or in the Note Purchase Agreement. "RETURNED AMOUNT" shall have the meaning given such term in the Note Purchase Agreement. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time. "SECURITY" is defined in the preamble hereof. *Confidential treatment requested: Material has been omitted and filed with the Commission. "SENIOR FINANCIAL OFFICER" means the chief financial officer, principal accounting officer, treasurer or comptroller of the Company. "SUBSIDIARY" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "TRADING DAY" means (1) if the Common Stock is admitted to trading on the Nasdaq National Market or any other system of automated dissemination of quotations of securities prices, a day on which trades may be effected through such system; (2) if the Common Stock is listed or admitted for trading on the New York Stock Exchange or any other national securities exchange, a day on which such exchange is open for business; or (3) if the Common Stock is not admitted to trading on the Nasdaq National Market or listed or admitted for trading on any national securities exchange or any other system of automated dissemination of quotation of securities prices, a day on which the Common Stock is traded regular way in the over-the-counter market and for which a closing bid and a closing asked price for the Common Stock are available. "TRUST AGREEMENT" shall mean that certain Collateral Trust Agreement dated September 8, 2000 to which the Company, the holders and the Trustee are parties, as amended, modified or supplemented from time to time. "TRUSTEE" shall mean Fleet National Bank, together with its successors and assigns and any substitute and/or additional entity from time to time serving as Trustee under the Trust Agreement. 3. Right to Require Repurchase. (a) In the event that a Change in Control shall occur, then the holder of this Security shall have the right, at such holder's option, to require the Company to repurchase, and upon the exercise of such right the Company shall repurchase, this Security, or any portion of the principal amount hereof that is equal to $1,000 or any integral multiple thereof, on the date (the "Repurchase Date") that is twenty (20) Trading Days after the date on which the Company gives notice to the holder of this Security that a Change in Control has occurred, at a purchase price equal to 100% of the principal amount of this Security to be repurchased plus *Confidential treatment requested: Material has been omitted and filed with the Commission. interest accrued to the Repurchase Date (such principal plus interest hereinafter referred to as the "Repurchase Price"); PROVIDED, HOWEVER, that installments of interest on this Security whose stated maturity is on or prior to the Repurchase Date shall be payable to the holder of this Security, or one or more predecessor Securities, registered as such on the relevant Record Date according to their terms. The Company agrees to give the holder of this Security notice of any Change in Control, by facsimile transmission confirmed in writing by overnight courier service, promptly and in any event within two (2) Trading Days of the occurrence thereof. (b) To exercise a repurchase right, the holder shall deliver to the Company on or before the fifth (5th) Trading Day prior to the Repurchase Date, together with this Security, written notice of the holder's exercise of such right, which notice shall set forth the name of the holder, the number of shares of Common Stock then owned by such holder and its affiliates, the principal amount of this Security to be repurchased (and, if this Security is to be repurchased in part, the portion of the principal amount thereof to be repurchased and the name of the person in which the portion thereof to remain outstanding after such repurchase is to be registered) and a statement that an election to exercise the repurchase right is being made thereby. Such written notice shall be irrevocable, except that the right of the holder to convert this Security (or the portion hereof with respect to which the repurchase right is being exercised) shall continue until the close of business on the Repurchase Date. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid to the holder the Repurchase Price in cash, provided, however, that installments of interest that mature on or prior to the Repurchase Date shall be payable in cash, to the holders of this Security, or one or more predecessor Securities, registered as such at the close of business on the relevant regular record date. (d) If this Security (or portion thereof) is surrendered for repurchase and is not so paid on or prior to the Repurchase Date, the principal amount of this Security (or such portion hereof, as the case may be) shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at the rate per annum borne by this Security, and shall remain convertible into Common Stock until the principal of this Security (or portion thereof, as the case may be) shall have been paid or duly provided for. (e) If this Security is to be repurchased only in part, it shall be surrendered to the Company at the Designated Office (with, if the Company so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing), and the Company shall execute and make available for delivery to the holder without service charge, a new Security or Securities, containing identical terms and conditions, each in an authorized denomination in *Confidential treatment requested: Material has been omitted and filed with the Commission. aggregate principal amount equal to and in exchange for the unrepurchased portion of the principal of the Security so surrendered. (f) For purposes of this Section 3. (1) the term "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act; and (2) a "Change in Control" shall be deemed to have occurred at the time, after the original issuance of this Security, of: (a) the acquisition by any person of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions, of shares of capital stock of the Company entitling such person to exercise more than 30% of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors (any shares of voting stock of which such person is the beneficial owner that are not then outstanding being deemed outstanding for purposes of calculating such percentage) other than any such acquisition by the Company or any employee benefit plan of the Company; or (b) any consolidation or merger of the Company with or into, any other person, any merger of another person with or into the Company, or any conveyance, transfer, sale, lease or other disposition of all or substantially all of the assets of the Company to another person (other than (i) any such transaction (x) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock and (y) pursuant to which holders of Common Stock immediately prior to such transaction have the entitlement to exercise, directly or indirectly, more than 30% of the total voting power of all shares of capital stock entitled to vote generally in the election of directors of the continuing or surviving person immediately after such transaction and (ii) any merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock into solely shares of common stock. 4. Events of Default. (a) "EVENT of DEFAULT", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to *Confidential treatment requested: Material has been omitted and filed with the Commission. any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) (a) default in the payment of any principal or premium, if any, upon this Security when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise, including, without limitation, the failure to pay the Returned Amount when the Returned Amount is required to be paid under the Note Purchase Agreement or (b) default in the payment of any interest upon this Security when it becomes due and payable, and continuance of such default for a period of five (5) business days; or (2) default by the Company in the performance of-its obligations in respect of any conversion of this Security (or any portion hereof) in accordance with Section 2; or (3) failure by the Company to give any notice of a Change of Control required to be delivered in accordance with Section 3(a); or (4) default in the performance, or breach, of any other covenant of the Company herein, in the Note Purchase Agreement, or in the Registration Rights Agreement (other than a covenant default for which the performance or breach is specifically dealt with elsewhere in this Section 4(a) and continuance of such default or breach for a period of 30 days; (5) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; (6) aggregating in excess of $[ ]* are rendered against one or more of the Company and its Subsidiaries and which judgments are not, within sixty (60) days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within sixty (60) days after the expiration of such stay; or (7) a default under any bond, debenture, note or other evidence of indebtedness for money borrowed by the Company, or under any agreement, 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 Company, with a principal amount then outstanding in excess of $[ ]* whether such indebtedness now exists or shall hereafter be created, which default shall constitute a failure to pay the principal of such indebtedness (in whole or in any part greater than $[ ]* when due and payable or shall have resulted in such indebtedness (in whole or in any part greater than $[ ]* becoming or being declared *Confidential treatment requested: Material has been omitted and filed with the Commission. due and payable prior to the date on which it would otherwise have become due and payable; or (8) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such a final judgment or judgments for the payment of money standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $[ ]*, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 4(a)(8), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. (9) the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; *Confidential treatment requested: Material has been omitted and filed with the Commission. (10) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or similar relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or not paying its debts as they become due or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or (11) the occurrence of any Event of Default (as defined in the Mortgage) under the Mortgage, or the occurrence of any Event of Default (as defined in the Assignment of Leases and Rents) under the Assignment of Leases and Rents or any default under the Environmental Indemnity. (b) If an Event of Default (other than an Event of Default specified in Section 4(a)(9) or 4(a)(10)) occurs and is continuing, then in every such case the holder of this Security may declare the principal hereof to be due and payable immediately, by a notice in writing to the Company, and upon any such declaration such principal and all accrued interest thereon shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security(, the entire principal of and interest accrued on this Security, and ii in addition, to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty; and, in case of the occurrence of an Event of Default of the character described in subdivisions 4(a)(9) and 4(a)(10) the principal of and accrued interest on this Security, IPSO FACTO shall become immediately due and payable without any declaration or other act of the holder of this Security and without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, and the Company shall forthwith upon any such acceleration pay to the holder of this Security (x) the entire principal of and interest accrued on this Security and (y) in addition, if such Event of Default is "Voluntary" (as hereinafter defined), to the extent permitted by applicable law, an amount equal to the Make-Whole Amount, as liquidated damages and not as a penalty. *Confidential treatment requested: Material has been omitted and filed with the Commission. For purposes of this section 4(b), "Voluntary" shall mean an Event of Default of the character described in subdivisions 4(a)(9) or 4(a)(10) which shall have been (x procured by the Company or any officer, director, stockholder or Affiliate of the Company or (y) primarily the result of action or inaction by the Company or by any officer, director, stockholder or Affiliate of the Company. (c) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, and irrespective of whether this Security has become or has been declared immediately due and payable under Section 4(a), the holder of this Security may proceed to protect and enforce its rights either by suit in equity or by action at law, or both. The Company stipulates that the remedies at law of the holder of this Security in the event of any Default or threatened Default by the Company in the performance of or compliance with any covenant or agreement in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance thereof, whether by an injunction against a violation thereof or otherwise. (d) No remedy conferred in this Security, the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or thereunder or now or hereafter existing at law or in equity or by statute or otherwise. (e) No course of dealing between the Company and any of its Subsidiaries, on the one hand, and the holder of this Security, on the other hand, and no delay by any such holder in exercising any rights hereunder or under the Note Purchase Agreement, the Registration Rights Agreement or the other Operative Documents shall operate as a waiver of any rights of such holder. (f) In case any one or more of the Events of Default specified in Section 4(a) shall have occurred, all amounts to be applied to the prepayment or payment of this Security shall be applied, after the payment of all related costs and expenses incurred by the holder of this Security (including, without limitation, compensation to any and all trustees, liquidators, receivers or similar officials and reasonable fees, expenses and disbursements of counsel) in such order of priority as is determined by the holder of this Security. (g) The term "Make-Whole Amount" means, with respect to this Security, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of this Security over the amount of such Called Principal, PROVIDED that the Make-Whole Amount may in no event be less than zero. For the purposes of determining the Make-Whole Amount, the following terms have the following meanings: *Confidential treatment requested: Material has been omitted and filed with the Commission. "Called Principal" means, with respect to this Security, the principal of this Security that has become or is declared to be immediately due and payable pursuant to Section 4(b). "Discounted Value" means, with respect to the Called Principal of this Security, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on this Security is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of this Security, the yield to maturity implied by (1) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "PX-1" of the Bloomberg Financial Markets Services Screen for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (2) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between (i) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (ii) the actively traded U.S, Treasury security with the duration closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (1)such Called Principal into (2) the sum of the products obtained by multiplying (a) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payment" means, with respect to the Called Principal of this Security, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled *Confidential treatment requested: Material has been omitted and filed with the Commission. due date, PROVIDED that if such Settlement Date is not a date on which interest payments are due to be made under the terms of this Security, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date. "Settlement Date" means, with respect to the Called Principal of this Security, the date on which such Called Principal has become or is declared to be immediately due and payable pursuant to Section 4(b), as the context requires. 5. CONSOLIDATION, MERGER, ETC. (a) The Company shall not consolidate with or merge into any other person or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to any person, and the Company shall not permit any person to consolidate with or merge into the Company or, directly or indirectly, convey, transfer, sell or lease all or substantially all of its properties and assets to the Company, unless: (1) in case the Company shall consolidate with or merge into another person or convey, transfer, sell or lease all or substantially all of its properties and assets to any person, the person formed by such consolidation or into which the Company is merged or the person which acquires by conveyance, transfer or sale, or which leases, all or substantially all the properties and assets of the Company shall be a corporation, limited liability company, partnership or trust, shall be 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 agreement supplemental hereto, executed and delivered to the holder of this Security in form satisfactory to the holder, the due and punctual payment of the principal of (and premium, if any) and interest on this Security and the performance or observance of every covenant of this Security on the part of the Company to be performed or observed, including the conversion rights provided herein (which shall thereafter relate to common stock of such successor, on a basis reasonably designed to preserve the economic value to the holder of this Security of such conversion rights); (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary of the Company as a result of such transaction as having been incurred by the Company or such Subsidiary of the Company at the time of 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; *Confidential treatment requested: Material has been omitted and filed with the Commission. (3) the Company has delivered to the holder of this Security an officers' certificate stating that such consolidation, merger, conveyance, transfer, sale or lease and, if a supplemental agreement is required in connection with such transaction, such supplemental agreement, comply with this Section and that all conditions precedent herein provided for relating to such transaction have been complied with; and (4) counsel for the Company or any successor thereto has delivered to the holder of this Security an opinion of such counsel with respect to such consolidation, merger, conveyance, transfer, sale or lease, and if a supplemental agreement is required in connection with such transaction, such supplemental agreement, which opinion shall be, in form and substance, reasonably acceptable to such holder and its counsel. (b) Upon any consolidation of the Company with, or merger of the Company into, any other person or any conveyance, transfer, sale or lease of all or substantially all of the properties and assets of the Company in accordance with Section 5(a), the successor person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer, sale or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Security with the same effect as if such successor person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor person shall be relieved of all obligations and covenants under this Security. 6. OTHER. (a) No provision of this Security shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Security in cash at the times; places and rate, and in the coin or currency, herein prescribed or to convert this Security as herein provided. (b) The Company will give prompt written notice to the holder of Security of any change in the location of the Designated Office. (c) (i) Subject to clause (ii) below, the transfer of this Security is registrable on the Security Register of the Company upon surrender of this Security for registration of transfer at the Designated Office, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by, the holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. Such Securities are issuable only in registered form without coupons in denominations of the lesser of (x) $1,000,000 and (y) the outstanding principal amount of any Security then being registered. No service *Confidential treatment requested: Material has been omitted and filed with the Commission. charge shall be made for any such registration of transfer, but the Company may require payment of a sum sufficient to recover any tax or other governmental charge payable in connection therewith. Prior to due presentation of this Security for registration of transfer, the Company and any agent of the Company may treat the person in whose name this Security is registered as the owner thereof for all purposes, whether or not this Security be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. (ii) Any sale, assignment, transfer or other disposition of this Security (or any portion hereof) by any holder of this Security shall be made in compliance with all applicable securities laws. (d) The Company shall keep at the Designated Office a register for the registration and registration of transfers of Convertible Notes. The name and address of each holder of one or more Convertible Notes, each transfer thereof and the name and address of each transferee of one or more Convertible Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Convertible Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Convertible Note promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Convertible Notes. (e) Upon surrender of any Convertible Note at the Designated Office for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Convertible Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Convertible Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Convertible Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Convertible Note. Each such new Convertible Note shall be payable to such Person as such holder may request and shall be substantially in the form of this Security. Each such new Convertible Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Convertible Note or dated the date of the surrendered Convertible Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of this Security. Convertible Notes shall not be transferred in denominations of less than $100,000, PROVIDED that if necessary to enable the registration of transfer by a holder of its entire holding of Convertible Notes, one Convertible Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Convertible Note registered in its name (or the *Confidential treatment requested: Material has been omitted and filed with the Commission. name of its nominee), shall be deemed to have made the representation set forth in section 3 of the Note Purchase Agreement. (f) Upon receipt by the Company of a written request from the holder, and (1) in the case of loss, theft or destruction, of an unsecured agreement of indemnity, or (2) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Convertible Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Convertible Note or dated the date of such lost, stolen, destroyed or mutilated Convertible Note if no interest shall have been paid thereon. (g) This Security shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, United States of America. (h) So long as you or your nominee shall be holder of this Security and notwithstanding anything in this Security to the contrary, the Company will pay all sums becoming due hereunder for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule 1, or by such other method provided in the Preamble or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of this Security, or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment in full of this Security, you shall surrender this Security for cancellation, reasonably promptly after any such request to the Company at its principal executive office or at the place of payment most recently designated by the Company. Prior to any sale or other disposition of this Security you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender this Security to the Company in exchange for a new Convertible Note pursuant to the terms hereof. The Company will afford the benefits of this Section to any institutional investor that is the direct or indirect transferee of this Security. *Confidential treatment requested: Material has been omitted and filed with the Commission. [SIGNATURE PAGE FOR SENIOR CONVERTIBLE NOTE] IN WITNESS WHEREOF, the Company has caused this Security to be duly executed under its corporate seal. Dated: September 8, 2000 CUBIST PHARMACEUTICALS, INC. By: /s/ THOMAS A. SHEA ----------------------------------- Attest: /s/ JOSEPH GILDAY - ------------------------------ Name: Title: *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.68 21 a2042768zex-10_68.txt EXHIBIT 10.68 EXHIBIT 10.68 CONFIDENTIAL TREATMENT RESEARCH & DEVELOPMENT COLLABORATION AND OPTION AGREEMENT Research and Development Collaboration and Option Agreement (the "Agreement"), dated and effective as of September --, 2000 (the "EFFECTIVE DATE") between Emisphere Technologies, Inc., 765 Old Saw Mill River Road, Tarrytown, NY 10591, a Delaware corporation ("EMISPHERE"), and Cubist Pharmaceuticals Inc., 24 Emily Street, Cambridge, MA 02139, a Delaware corporation ("CUBIST"). WHEREAS, Emisphere is engaged in the research and development of proprietary synthetic chemical compounds, compositions and methods that facilitate and/or enable the improved systemic delivery of therapeutic macromolecules and other compounds. Whereas Emisphere owns compounds and technology (including patents, patent applications, trade secrets, know-how and other intellectual property rights) and will develop pursuant to the Program (as defined below) certain compounds and technology, collectively the "EMISPHERE TECHNOLOGY"); and WHEREAS, Cubist produces, or is engaged in research to produce, therapeutic macromolecules and other compounds, has significant expertise in identifying and developing compounds that mediate a variety of disorders, and has proprietary compounds and technology (including patents, patent applications, trade secrets, know-how and other intellectual property rights presently owned or controlled by Cubist and to be developed by Cubist pursuant to the Program); and WHEREAS, Emisphere and Cubist desire to collaborate in research regarding the applicability of the Emisphere Technology to the oral delivery of Cubist's compounds, and to provide for certain rights and obligations of Emisphere and Cubist in the event such research produces commercially viable applications; and WHEREAS, Emisphere desires to grant certain options and rights to Cubist to jointly with Emisphere research and develop Cubist's products using the Emisphere Technology. *Confidential treatment requested: Material has been omitted and filed with the Commission NOW, THEREFORE, in consideration of the mutual promises and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Emisphere and Cubist (each a "Party" and together "the Parties") agree as follows: ARTICLE I RESEARCH PROGRAM 1.1 COLLABORATION. Cubist and Emisphere hereby agree to collaborate on a research and development program (the "PROGRAM"), as specified in Exhibit A of this Agreement and modified as needed during the term of this Agreement, to research and develop the use of the Emisphere Technology for the oral delivery of Daptomycin, its Cubist developed analogues and derivatives thereof (the "Compound"). Emisphere will make available to Cubist, Emisphere Technology including chemical compounds (the "Carriers") that it identifies as relevant to the Program, which can be used to facilitate and/or enable improved transport of therapeutic compounds through membranes. 1.2 PROGRAM MANAGEMENT. (a) Cubist and Emisphere shall establish a steering committee (the "STEERING COMMITTEE"). The function of the Steering Committee shall be to plan, coordinate and manage the Program. The Steering Committee is not intended to, replace any internal management procedures of either Party. Rather, it is intended to be a vehicle to ensure that the Program proceeds in a timely, coordinated, and well planned fashion. It shall be made up of a maximum of six (6) members, with an equal number appointed by each of Cubist and Emisphere and with a central contact person appointed by each Party. Each Party hereto shall name one member to be a co chairperson of the Steering Committee. Meetings of the Steering Committee will alternate between Emisphere's designated facility and Cubist's designated facility. The first responsibility of the Steering Committee shall be to establish and approve a work plan to assure the timely completion of the various tasks of the Program. The second responsibility of the Steering Committee shall be to define acceptance criteria (e.g., bioavailability, % absorption) which will be used to make the "go/no go" decisions with respect to continued research into and/or development of the use of the Carriers for oral delivery of the Compound (the "CRITERIA"). Cubist and Emisphere shall establish the Criteria within thirty (30) days of the Effective Date and shall determine whether the Criteria have been met. On at least a quarterly basis, the Steering Committee shall meet to review the results of the Program and to modify the *Confidential treatment requested: Material has been omitted and filed with the Commission work plan as necessary. On a quarterly basis or time frame agreed to by the parties, each party's respective patent counsel shall meet to discuss patent filings and intellectual property matters. (b) The Steering Committee shall keep minutes of its meetings, and shall be responsible only for the development and implementation of the work plan. If the members of the Steering Committee cannot agree jointly on a task in the work plan, it will be up to the Co-Chairmen to reach a decision. If the Co-Chairmen cannot reach agreement, the matter shall be brought to the CEO of Emisphere and CEO of Cubist. In the event that the CEO's cannot resolve the issues then Cubist shall make the final decision. Notwithstanding the preceding sentence, if the CEO's cannot resolve a matter that relates to the manufacture and qualification of the Carrier, and if Emisphere reasonably believes that the final decision by Cubist could materially adversely affect Emisphere's other then current research programs or collaborations or Emisphere's business, then Emisphere shall have the right to invoke the dispute resolution mechanism outlined in section 4.19 in which case Emisphere may suspend the Program and implementation of the decision by Cubist, pending completion of such dispute resolution mechanism. It is further understood and agreed by the Parties that Emisphere shall use its reasonable commercial efforts tonsure that it takes all reasonable steps necessary to be able to meet Cubist's needs for the manufacture of the Carrier. It is further understood and agreed by the Parties that Cubist shall use its reasonable commercial efforts to ensure that it takes all reasonable steps necessary to advance the progress of the development efforts. 1.3 TERM; TERMINATION. (a) The Agreement is in effect as of the Effective Date. Subject to articles 1.3(b), (c), (d), and (e), the Program shall proceed as outlined in Exhibit A. The Parties will determine whether the Criteria have been met. If the Criteria have been met, then the Program shall continue provided that the Steering Committee determines that the profile of the Compound itself does not preclude its further development (e.g. efficacy, toxicity, side effects, etc.). (b) If the Steering Committee determines that preclinical or clinical findings prevent initiation or completion of the Program with respect to the Emisphere Technology and/or the Compound, either Cubist or Emisphere will have the option of immediately terminating the Program. (c) Either Party may terminate this Agreement upon written notice to the other Party that such other Party has committed a material breach of *Confidential treatment requested: Material has been omitted and filed with the Commission this Agreement if, within [ ]* days of receipt of such notice, such breach has not been cured, or the Parties have not agreed in writing to amend the Agreement to waive such breach or to give extra time to cure such breach. (d) Termination or expiration of this Agreement shall not affect the rights and obligations of the Parties accrued hereunder prior to termination or expiration. (e) Should the License (defined below) not be executed by the parties by the Deadline (defined below) or should the Parties not agree to an extension in the absence of a License after the Deadline this Agreement shall terminate. (f) Cubist may terminate this Agreement at any time for any reason upon [ ]* days notice to Emisphere. Should Cubist terminate this Agreement for any reason other than an inability of the Emisphere technology to deliver the drug via oral administration, then Cubist and Emisphere, at Emisphere's option, shall issue a joint press release indicating that the Agreement was terminated for reasons unconnected with the Emisphere technology. 1.4 PAYMENTS. (a) As part of the work plan established by the Steering Committee, the Parties shall jointly define the number of Emisphere Full Time Equivalent personnel ("FTE'S") required to complete each-Stage of the Program in a timely manner. Cubist shall pay to Emisphere US $[ ]* per quarter for each Emisphere FTE who works on the Program pursuant to the work plan as supported by appropriate documentation. Cubist shall be required to fund all Emisphere FTE's required by the work plan. All payments shall be paid within [ ]* days following receipt of Emisphere's invoice by Cubist. (b) "FTE" means a full-time equivalent scientific person year directly related to the Program wherein said scientific person year refers to chemical, biological or engineering research scientists and does not include administrative or support staff. Scientific work on or directly related to the Program to be performed by Emisphere can include, but is not limited to, experimental laboratory work, recording and writing up results, reviewing literature and references, holding scientific discussions, managing and leading scientific staff, and carrying out Program management duties or such other activities as may be appropriate to the conduct of the Program. *Confidential treatment requested: Material has been omitted and filed with the Commission (c) If Cubist desires to expand research beyond the scope of the program and, if acceptable to Emisphere, the Parties hereto will mutually agree in writing upon the research programs to be added and the number of Emisphere FTE's necessary to achieve the objectives of the expanded research. The additional cost for each Emisphere FTE shall be US $[ ]* per quarter to be paid as follows: (i) an initial payment shall be made on the next date a payment is due, pro-rated for the period between such day the Emisphere FTE is added and the next quarterly payment due pursuant to Section 1.4(a), above, and (ii) all subsequent payments shall be made at the same time as the payments for the Program. 1.5 INTELLECTUAL PROPERTY. (a) "EMISPHERE KNOW-HOW" means all materials, trade secrets, confidential scientific, technical and medical information, experimental results and expertise from time to time developed, produced, created or acquired by or on behalf of Emisphere either prior to the Effective Date and pertaining to the Program or during the term and in the course of carrying out the Program, including, but not limited to, unpatented inventions, discoveries, theories, plans, ideas or designs (whether or not reduced to practice) relating to the research and development, registration for marketing, use, or sale of the Carriers, or products utilizing the Carriers, preclinical toxicology and manufacturing for the Carriers, and toxicological, pharmacological, analytical and clinical data, bioavailability studies and formulations, control assays and specification, methods of preparation, tableting techniques, salt and other physical forms, and stability data related thereto. To the extent that any of the items listed above are acquired by Emisphere, they shall only fall within the definition of Know-How hereunder to the extent to which there are no obligations or restrictions in respect of such items that would prohibit disclosure by Emisphere or free use by Cubist. (b) "Cubist Improvements of Emisphere Know-How" shall mean any improvement specifically relating to the Carriers alone, or Carrier/Compound combination and invented or made solely by Cubist during the term and in the course of carrying out the Program. (c) "CUBIST KNOW-HOW" means all trade secrets, confidential scientific, technical and medical information, experimental results and expertise from time to time developed, produced, created or acquired by or on behalf of Cubist either prior to the Effective Date and pertaining to the Program or during the term and in the course of carrying out the Program, including, but not limited to, unpatented inventions, discoveries, theories, plans, ideas or designs (whether or not reduced to practice) relating to the *Confidential treatment requested: Material has been omitted and filed with the Commission research and development, registration for marketing, use, or sale of the Compound, preclinical toxicology and manufacturing for the Compounds, and toxicological, pharmacological, analytical and clinical data, bioavailability studies and formulations, control assays and specification, methods of preparation, and stability data related thereto. To the extent that any of the items listed above are acquired by Cubist, they shall only fall within the definition of Know-How hereunder to the extent to which there are no obligations or restrictions in respect of such items which would prohibit disclosure by Cubist or free use by Emisphere. (d) "EMISPHERE IMPROVEMENTS OF CUBIST KNOW-HOW" shall mean any improvement specifically relating to the Compound alone and invented or made solely by Emisphere during the term and in the course of carrying out the Program. (e) "JOINT IMPROVEMENTS" shall mean any improvement invented or made jointly by Emisphere and Cubist during the term and in the course of carrying out the Program. (f) Emisphere shall have the right to use any data including preclinical and toxicology data, protocols and methods pertaining to the Carriers and the Compound/Carrier combinations that are generated for the Program, such use being subject to the confidentiality provisions of Article IV except that Emisphere shall have the right to include data in patent applications. Cubist shall have the right to use any data including preclinical and toxicology data, protocols and methods that are generated for the Program pertaining to the Compound and the Compound/Carrier combinations, such use being subject to the-confidentiality provisions of Article IV except that Cubist shall have the right to include data in patent applications. (g) "INTELLECTUAL PROPERTY" shall mean all patents, patent applications, copyrights, Know-How, trade secrets, data generated during the Program, and other intangible property rights relating to the inventions and/or developments that pertain to the Program. (h) Ownership with respect to Intellectual Property conceived and/or developed by Emisphere or a third party working on behave of Emisphere, Cubist, or a third party working on behalf of Cubist, or jointly or a third-party working on behalf of Emisphere and Cubist jointly as a result of activities carried out pursuant to this Agreement, the extent of ownership of such Intellectual Property shall be as follows: *Confidential treatment requested: Material has been omitted and filed with the Commission i) if the Intellectual Property relates to the Carriers alone or the Carrier/Compound combination, Emisphere shall own such Intellectual Property without regard to which party invented, made, conceived or developed the Intellectual Property; ii) if the Intellectual Property relates to the Compound alone, Cubist shall own such Intellectual Property without regard to which party invented, made, conceived or developed the Intellectual Property iii) if the Intellectual Property is invented, made, conceived, or developed-jointly-by employees of Cubist and Emisphere and the Intellectual Property does not relate to the Carrier alone, Carrier/Compound combination, or the Compound alone, Cubist and Emisphere shall each own an undivided one-half interest in such Intellectual Property; iv) if the Intellectual Property is invented, made, conceived, or developed solely by Emisphere or solely by Cubist and the Intellectual Property does not relate to the Carrier alone, Carrier/Compound combination, or the Compound alone, then the respective party shall own the Intellectual Property. (i) Patent counsel mutually acceptable to the parties shall determine inventorship of all Intellectual Property as defined in 1.51. in accordance with U.S. patent law when determining whether such Intellectual Property is jointly owned or is owned solely by Emisphere or by Cubist. (j) Cubist and Emisphere each agree to communicate promptly and disclose to the other party, information, details and data pertaining to any Intellectual Property described in Section 1.5, and to execute and deliver to the other Party such formal transfers and assignments and such other papers and documents and shall give such testimony as may be necessary for the party that owns such Intellectual Property to file and prosecute patent applications and, as to copyrightable material, to obtain copyrights thereof in any and all countries of the world. The obligations of each Party under this Section 1.50) shall survive any expiration of this Agreement and shall be subject to the Party receiving such assistance paying the reasonable expenses of the Party providing such assistance. (k) Cubist and Emisphere shall cooperate with each other in obtaining patent term extensions or supplemental protection certificates or their equivalents in any country with respect to the Intellectual Property. In the event that elections with respect to obtaining such patent term extensions or supplemental protections certificates or their equivalents are to *Confidential treatment requested: Material has been omitted and filed with the Commission be made, the owner of the Intellectual Property shall have the right to make the election. ARTICLE II RIGHTS AND OPTIONS 2.1 THE OPTION. Cubist is hereby granted an exclusive option (the "Option") to obtain an exclusive worldwide (the "TERRITORY") license (the "License") to develop (in conjunction with Emisphere) and to make, have made, use and sell products embodying the Emisphere Technology for the Compound for oral delivery thereof (the "PRODUCT"). The License shall be based upon the terms set forth in the outline attached hereto as Exhibits B and C. 2.2 THE OPTION PERIOD. The Option shall expire [ ]* days from the Effective Date ("the Deadline") or upon execution of a License whichever is sooner (the "Option Period"). 2.3 THE LICENSE. The language of the License shall be negotiated in good faith during the Option Period and a final, executable License shall be attached to this agreement as Exhibit D no later than the Deadline. The Royalty rates shown in Exhibit B and the Program Milestones shown in Exhibit C shall be the final financial terms in the License. 2.4 THE LICENSE FEE. In order to exercise the Option to obtain the License, Cubist shall send Emisphere a letter (the "License Letter") prior to the Deadline indicating Cubist's intent to exercise its Option, and Cubist shall pay Emisphere US $[ ]* (the "License Fee") by wire transfer within [ ]* days after receipt by Emisphere of the License Letter. 2.5 EXECUTING THE LICENSE. At such time upon exercise of the Option the License shall be executed and become effective upon execution. However should Emisphere not receive the License Fee within [ ]* days of the execution of the Option then the License shall immediately terminate. 2.6 RESPONSIBILITIES OF THE PARTIES DURING THE OPTION PERIOD. During the Option Period as described in Exhibit A, Emisphere shall, in accordance with the agreed Program workplan, (i) select and provide Carrier preparations for in vivo experiments, (ii) assist in the formulation development, and (iii) assist in Product development. Cubist shall, in accordance-with the agreed Program workplan, (i) supply bulk Compounds for the Program, (ii) provide necessary physical or chemical data on the *Confidential treatment requested: Material has been omitted and filed with the Commission Compounds, and (iii) take responsibility for the necessary preclinical or clinical studies. Each Party shall perform its respective tasks as decried in Exhibit A. 2.7 PROGRAM CARRIER MATERIALS. During the Program Emisphere may require a third party to manufacture the Carrier. Upon approval of such third party by Cubist, which shall not be unreasonably withheld, Cubist shall reimburse Emisphere for the actual cost paid by Emisphere to supply, produce or procure the Carrier used in the Program. It is understood by the Parties that the total number of kilograms of Carrier required in the Program will have to be specified and agreed in writing between the members of the Steering Committee of each Party. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 DUE INCORPORATION. Each of the Parties represents and warrants to the other that it is duly incorporated under the relevant laws of incorporation and each has full corporate authority to enter into and to perform its obligations under this Agreement. 3.2 DUE AUTHORIZATION. Each of the Parties represents and warrants to the other that this Agreement has been fully authorized, executed and delivered by it and it has full legal right, power and authority to enter into and perform this Agreement, which constitutes a valid and binding agreement between the Parties and that it does not conflict with or result in a breach of the terms of such Party's organizational documents and applicable laws, regulation or order or any agreement or other obligation to which such party is a party. 3.3 LITIGATION. Each of the Parties represents and warrants to the other that it is not engaged in any litigation or arbitration, or in any dispute or controversy reasonably likely to lead to litigation, arbitration or other proceeding, which would materially affect the validity of this Agreement or such Party's ability to fulfill its respective obligations under this Agreement. 3.4 NO BREACH. Each of Emisphere and Cubist represent and warrant for the benefit of the other that the execution of this Agreement by them and performance by them of their respective obligations under this Agreement will not (a) breach the terms and conditions of any agreement between them and any third party or (b) conflict with any laws or regulations that apply to them. *Confidential treatment requested: Material has been omitted and filed with the Commission 3.5 NO INFRINGEMENT; NO ENCUMBRANCES. Each of Emisphere and Cubist represent and warrant for the benefit of the other Party that as of the Execution Date of this Agreement, to the best of their present, respective knowledge regarding their own technology, that currently there are no patents, trade secrets or other intellectual property rights of third parties that would be infringed by or misappropriated by Emisphere or Cubist in the development, marketing, sale, use, manufacture, and offer for sale of oral forms of the Compound, that both parties have sufficient intellectual property rights to grant the licenses to be granted under this Agreement and to perform their obligations under this Agreement and that there is no known claim or threat with respect thereto. ARTICLE IV MISCELLANEOUS 4.1 CONFIDENTIALITY. 4.1.1 EMISPHERE INFORMATION. Cubist will maintain in confidence, and will ensure that its Affiliates and its and their consultants, employees, agents and representatives maintain in confidence, all proprietary and confidential information which has been or is provided by Emisphere to Cubist, including but not limited to, Emisphere's data, Know-How, inventions, discoveries, improvements, trade secrets, carriers (including structures and physical properties), methods, scientific protocols, business plans, marketing techniques or plans, manufacturing and other plant designs, location of operations, and any other information affecting the business operations of Emisphere ("Emisphere Information"), and will not use for any purpose other than the completion of the Agreement and will not publish, disseminate, or disclose, in any manner, to any person any Emisphere Information unless: (i) Cubist is legally required to do so provided that Emisphere is advised in advance in order to seek legal protection from such disclosure, (ii) the Emisphere Information has entered or enters the public domain through no fault of Cubist, (iii) the Emisphere Information was already known by Cubist before receipt from Emisphere, or is developed independently by Cubist without breach of this Agreement, in either case as shown by contemporaneous written records, or (iv) the Emisphere Information is received by Cubist from a third party who may lawfully make such disclosure and who is under no confidentiality obligation to Emisphere. 4.1.2 CUBIST INFORMATION. Emisphere will maintain in confidence, and will ensure that its Affiliates and its and their consultants, employees, agents *Confidential treatment requested: Material has been omitted and filed with the Commission and representatives maintain in confidence, all proprietary and confidential information which has been or is provided by Cubist to Emisphere, including but not limited to, Cubist's data, Know-How, inventions, discoveries; improvements and methods, business plans, marketing techniques or plans, manufacturing and other plant designs, location of operations, and any other information affecting the business operations of Cubist ("Cubist information"), and will not use for any purpose other than the completion of the Agreement, and will not publish, disseminate, or disclose, in any manner, to any person any Cubist Information unless: (i) Emisphere is legally required to do so provided that Emisphere is advised in advance in order to seek legal protection from such disclosure, (ii) the Cubist Information has entered or enters the public domain through no fault of Emisphere, (iii) the Cubist Information was already known by Emisphere before receipt from Cubist, or is developed independently by Emisphere without breach of this Agreement, in either case as shown by contemporaneous written records, or (iv) the Cubist Information is received by Emisphere from a third party who may lawfully make such disclosure and who is under no confidentiality obligation to Cubist. 4.1.3 REQUIRED DISCLOSURE. In the event that either Party is requested or required (by oral questions, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand or other similar process) to disclose any of the confidential information of the other Party, the Party requested or required to make the disclosure shall provide the other Party with prompt notice of any such request or requirement so that the other Party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. If in the absence of a protective order or other remedy or the receipt of a waiver by such other Party, the Party requested or required to make the disclosure are nonetheless, in the opinion of counsel, legally compelled to disclose the other Party's Confidential information to any tribunal, the Party requested or required the disclosure may without liability hereunder, disclose to such tribunal only that portion of the other Party's Confidential Information which such counsel advises is legally required to be disclosed, provided that the Party requested or required to make the disclosure exercises its reasonable efforts to preserve the confidentiality of the other Party's Confidential information, including without limitation, by cooperating with the other Party to obtain an appropriate protective order or other reliable assurance that confidential treatment will be accorded the other Party's Confidential Information by such tribunal. 4.1.5 CERTAIN DISCLOSURE. To the extent it is reasonably necessary or appropriate to fulfill its obligations under this Agreement, either Party may *Confidential treatment requested: Material has been omitted and filed with the Commission disclose Confidential Information to its affiliates, potential licensees, licensees and parent companies on a need-to-know basis on condition that such affiliates, potential licensees, licensees and parent companies agree to keep the Confidential Information confidential for the same periods and to the same extent as the Parties are required to keep the Confidential Information confidential under this Agreement. 4.2 INDEMNITY. 4.2.1 Subject to Section 4.2.4, Cubist shall indemnify, defend and hold harmless Emisphere, its affiliates, agents, directors, officers and employees, successors and assigns from and against any loss, damage, action, proceeding, expense or liability (including attorney's fees, but excluding internal overhead) (collectively, "Loss") arising from or in connection with any claim by a third party with regard to the manufacture, importation, exportation, distribution, sale, offer for sale, storage, possession or use of any Compound or Product supplied by Cubist or its third party suppliers to Emisphere or prepared pursuant to the Program, except in the event and to the extent that a court of competent jurisdiction for an arbitrator pursuant to Section 4.19) determines that such Loss is caused by Emisphere's negligence or intentional misconduct. 4.2.2 Subject to Section 4.2.4, Emisphere shall indemnify, defend and hold harmless Cubist, its affiliates, agents, directors, officers and employees, successors and assigns from and against any Loss arising from or in connection with any claim by a third party with regard to the manufacture, importation, exportation distribution, storage, possession or use of any Carrier prepared and supplied by Emisphere or its third party suppliers to Cubist, except in the event and to the extent that a court of competent jurisdiction (or an arbitrator pursuant to Section 4.19) determines that such Loss is caused by Cubist's negligence or intentional misconduct. 4.2.3 (a) Subject to the provisions of Section 4.2.4, Emisphere shall defend, indemnify and hold harmless Cubist, its affiliates, agents, directors, officers and employees, successors and assigns from and against any Loss arising from or in connection with any claim by a third party based upon an allegation that the Emisphere Know-How or Emisphere Improvements of Cubist Know-How infringes or misappropriates any intellectual property right of any third party (including without limitation, any patent, copyright, trade secret or trademark); PROVIDED that Emisphere will not be obligated to indemnify Cubist if and only to the extent that the alleged infringement is caused by: (i) Cubist Know-How or (ii) Cubist's modification of the Emisphere Know-How or Emisphere Improvements of Cubist Know-How; or (iii) Cubist's *Confidential treatment requested: Material has been omitted and filed with the Commission use of the Emisphere Know-How or Emisphere Improvements of Cubist Know-How in combination with any products or materials not provided by Emisphere (except for the products or materials with which the Emisphere Know-How or Emisphere Improvements of Cubist Know-How is designed to be used, as provided in the Criteria). If the Emisphere Know-How or Emisphere Improvements of Cubist Know-How or its use is held to constitute an infringement or misappropriation of any third party's intellectual property rights or if in Emisphere's opinion, any portion of the Emisphere Know-How or Emisphere Improvements of Cubist Know-How is, or is likely to be held to constitute, an infringement or misappropriation, Emisphere will at its expense and option: (1) procure the right for Cubist to continue using the Emisphere Know-How or Emisphere Improvements of Cubist Know-How; or (2) replace or modify the Emisphere Know-How or Emisphere Improvements of Cubist Know-How with a non-infringing and non-misappropriating equivalent conforming to the applicable Criteria. If none of the foregoing options is economically feasible, Emisphere shall so notify Cubist and shall be entitled to terminate this Agreement. (b) Subject to the provisions of Section 4.2.4, Cubist shall defend, indemnify and hold harmless Emisphere, its affiliates, agents, directors, officers and employees, successors and assigns from and against any Loss arising from or in connection with any claim by a third party based upon an allegation that the Compound, the Cubist Know-How or Cubist Improvements to Emisphere Know-How infringes or misappropriates any intellectual property right of any third party (including without limitation, any patent, copyright, trade secret or trademark); PROVIDED that Cubist will not be obligated to indemnify Emisphere if and only to the extent that the alleged infringement is caused by: (i) the Emisphere Know-How or use of the Emisphere Know-How as contemplated by this Agreement. If any Compound, the Cubist Know-How or Cubist Improvements to Emisphere Know-How is held to constitute an infringement or misappropriation of any third party's intellectual property rights or if in Cubist's opinion, any Compound, the Cubist Know-How or Cubist Improvements to Emisphere Know-How is, or is likely to be held to constitute, an infringement or misappropriation, Cubist will at its expense and option: (1) procure the right for Emisphere to continue using the Cubist Know-How or Cubist Improvements of Emisphere Know-How; or (2) replace or modify the Compound, the Cubist Know-How or Cubist Improvements to Emisphere Know-How to make it non-infringing and non-misappropriating while conforming to the applicable Criteria. If none of the foregoing options is economically feasible, Cubist shall so notify Emisphere and shall be entitled to terminate this Agreement. *Confidential treatment requested: Material has been omitted and filed with the Commission 4.2.4 To receive the benefit of indemnification under Sections 4.2.1 or 4.2.2 or 4.2.3, the Party seeking indemnification must promptly notify the other Party in writing of a claim or suit and provide reasonable cooperation (at the indemnifying Party's expense) and tender to the indemnifying Party (and its insurer) full authority to defend or settle the claim or suit. Neither Party has any obligation to indemnify the other Party in connection with any settlement made without the indemnifying Party's written consent. The Party seeking indemnification has the right to participate at its own expense in the claim or suit and to select counsel to represent it at its own expense. The Party seeking indemnification shall cooperate with the indemnifying Party (and its insurer), as reasonably requested, at the indemnifying Party's cost and expense. 4.3 PUBLIC DISCLOSURE. The Parties hereto agree to disclose publicly via a joint press release, upon signing the License, the nature and scope of the collaboration. All press releases and other public disclosures shall be approved in writing in advance by both Parties, except for such disclosures permitted pursuant to Section 4.1 above, such approval not to be unreasonably withheld or delayed. Upon the occurrence of other material events in the Program, Emisphere and Cubist agree to make joint press releases. 4.4 (a) CUBIST STANDSTILL. For the term of this Agreement or the License, whichever is longer, or unless Cubist shall have been specifically invited in writing by Emisphere (it being understood that Cubist's acknowledgment of this Agreement does not constitute such an invitation), and unless and until a third party does such, Cubist will not, and will cause each of its Affiliates (as defined in the License Agreement attachment) not to, directly or indirectly, solicit, seek or offer to effect, negotiate with, encourage or support (including by providing financing for another person) any person with respect to, or make any statement or proposal, whether written or oral, either alone or in concert with others, to Emisphere, or any of its Affiliates (whether to the Board of Directors of Emisphere, to any director or officer of Emisphere or otherwise) or to any security holder of Emisphere, or otherwise make any public announcement or proposal or offer whatsoever, with respect to (i) any form of business combination or transaction involving Emisphere or any Affiliate thereof, including, without limitation, a merger, consolidation, tender or exchange offer, sale or purchase of assets or securities, or dissolution or liquidation of Emisphere or any direct or indirect subsidiary thereof, (ii) any form of restructuring, recapitalization or similar transaction with respect to Emisphere or any affiliate thereof, (iii) any proposal or other statement inconsistent with the terms of this Agreement, (iv) any demand or *Confidential treatment requested: Material has been omitted and filed with the Commission proposal to amend waive or terminate any provision of this section 4.4; or (v) instigate, encourage or assist any person to do any of the foregoing. As of the date hereof, neither Cubist nor any Affiliate of Cubist beneficially owns any securities of Emisphere. Cubist agrees that without the express prior written consent of Emisphere unless and until a third party does such that Cubist will not, and will cause each of its Affiliates not to, singly or as part of a "partnership, limited partnership, syndicate or other group" (as those terms are used within the meaning of Section 13(d)(3) of the Exchange Act, which meanings shall apply for all purposes of this Agreement), directly or indirectly, through one or more intermediaries or otherwise; i) acquire, offer or propose to acquire, or agree to acquire, by purchase or otherwise, any securities entitled to, or that may be entitled to, vote generally in the election of Emisphere's Board of Directors (collectively, "Voting Securities") or any direct or indirect rights or options to acquire (through purchase, exchange, conversion or otherwise) any Voting Securities; ii) make, or in any way participate in, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A of the Exchange Act) with respect to the Voting Securities (including by the execution of action by written consent), seek to advise, encourage or influence any person or entity with respect to the voting of any Voting Securities or demand a copy of Emisphere's stock ledger, list of its stockholders, or other books and record; iii) participate in, encourage or support any person (or the formation of any group) which owns or seeks or offers to acquire beneficial ownership of securities of Emisphere or rights to acquire such securities or which seeks or offers to affect control of Emisphere or for the purpose of circumventing any provision of this Agreement; or iv) otherwise act, alone or in concert with others (including by providing financing for another person), to seek or offer to control or influence, in any manner, the management, Board of Directors or policies of Emisphere; or seek, alone or in concert with others, representation on the Board of Directors of Emisphere or seek the removal of any member of the Board of Directors. *Confidential treatment requested: Material has been omitted and filed with the Commission (b) EMISPHERE STANDSTILL. For the term of this-agreement or the License Agreement, whichever is longer, or unless Emisphere shall have been specifically invited in writing by Cubist (it being understood that Emisphere's acknowledgment of this Agreement does not constitute such an invitation), and unless and until a third party does such, Emisphere will not, and-will cause each of its Affiliates (as defined in the License Agreement attachment) not to, directly or indirectly, solicit, seek or offer to effect, negotiate with, encourage or support (including by providing financing for another person) any person with respect to, or make any statement or proposal, whether written or oral, either alone or in concert with others, to Cubist or any of its Affiliates (whether to the Board of Directors of Cubist, to any director or officer of Cubist or otherwise) or to any security holder of Cubist, or otherwise make any public announcement or proposal or offer whatsoever, with respect to (i) any form of business combination or transaction-involving Cubist or any Affiliate thereof, including, without limitation, a merger, consolidation, tender or exchange offer, sale or purchase of assets or securities, or dissolution or liquidation of Cubist or any director indirect subsidiary thereof; (ii) any form of restructuring, recapitalization or similar transaction with respect to Cubist or any affiliate thereof, (iii) any proposal or other statement inconsistent with the terms of this Agreement, (iv) any demand or proposal to amend waive or terminate any provision of this section 4.4; or (v) instigate, encourage or assist any person to do any of the foregoing. As of the date hereof, neither Emisphere nor any Affiliate of Emisphere beneficially owns any securities of Cubist. Emisphere agrees that without the express prior written consent of Cubist unless and until a third party does such that Emisphere will not, and will cause each of its Affiliates not to, singly or as part of a "partnership, limited partnership, syndicate or other group" directly or indirectly, through one or more intermediaries or otherwise; i) acquire, offer or propose to acquire, or agree to acquire, by purchase or otherwise, any securities entitled to, or that may be entitled to, vote generally in the election of Cubist's Board of Directors (collectively, "Voting Securities") or any direct or indirect rights or options to acquire (through purchase, exchange, conversion or otherwise) any Voting Securities; ii) make, or in any way participate in, any "solicitation" of "proxies" (as such terms are defined or used in Regulation 14A of the Exchange Act) with respect to the Voting Securities (including by the execution of action by written consent), seek to advise, encourage or influence any person or entity with respect to the *Confidential treatment requested: Material has been omitted and filed with the Commission voting of any Voting Securities or demand a copy of Cubist's stock ledger, list of its stockholders, or other books and record; iii) participate in, encourage or support any person (or the formation of any group which owns or seeks or offers to acquire beneficial ownership of securities of Cubist or rights to acquire such securities or which seeks or offers to affect control of Cubist or for the purpose of circumventing any provision of this Agreement; iv) otherwise act, alone or in concert with others (including by providing financing for another person), to seek or offer to control or influence, in any manner, the management, Board of Directors or policies of Cubist; or seek, alone or in concert with others, representation on the board of Directors of Cubist or seek the removal of any member of the Board of Directors. 4.5 CHANGE OF CONTROL. Upon any occurrence of a change in control of Emisphere or Cubist prior to commercial introduction of the Product, the other Party shall have the right to terminate this Agreement; however, all provisions of Articles 1.4, 1.5, 2 and 4, herein shall survive said termination. For purposes of this Section 4.5 a "change-of control" shall mean that (A) in any three-year period, a majority of the members of the Board of Directors or similar governing body elected during such three-year period shall have been so elected against the recommendation of the management of the company or the Board of Directors or similar governing body in office immediately prior to such election; and (B) a person, singly or as a part of a partnership, syndicate or other group owns 50% or more of the company's capital or business assets, has the power to exercise 50% or more of the voting rights or to appoint 50% or more of the Board of Directors of the company, or otherwise has the right to control the company's affairs. 4.6 AMENDMENT. No amendment, waiver or consent to this Agreement shall be effective unless signed in writing by both Parties hereto. 4.7 ASSIGNMENT. Neither Party may assign its rights or obligations under this Agreement without the prior written consent of the other Party, except that a Party hereto may, without such prior written consent, assign any of its rights or obligations to an Affiliate in the pharmaceutical business. 4.8 ENTIRE AGREEMENT. This Agreement, constitutes the entire agreement of the Parties with respect to the subject matter hereof *Confidential treatment requested: Material has been omitted and filed with the Commission and supersedes any and all prior negotiations, correspondence understandings and agreements between the Parties with respect to the subject matter hereof, whether oral or in writing. 4.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF. 4.10 NOTICES. All notices and other communications pursuant to this Agreement shall be in writing, shall be effective when received, and shall be deemed to have been received on the date of delivery if delivered personally; or on the second business day after the business day of deposit with Federal Express or other similar courier for overnight delivery, freight prepaid; in each such case, addressed as follows (until any-such address is changed by notice duly given): to Emisphere: Emisphere Technologies, Inc. 765 Old Saw Mill River Road Tarrytown, NY 10591 Attention: Lewis H. Bender Telecopy: (914) 347-2498 with copy to: Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, NY 10019-6064 Attention: Edwin S. Maynard Telecopy: (212) 757-3990 to Cubist: Cubist Pharmaceuticals, Inc. 24 Emily Street Cambridge, MA 02139 Attention: Dr. Alan D. Watson Telecopy: (617) 234-5592 with copy to: Bingham Dana LLP 150 Federal Street Boston, MA 02110 Attention: Julio E. Vega Telecopy: (617) 951-8736 *Confidential treatment requested: Material has been omitted and filed with the Commission 4.11 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. 4.12 DILIGENCE. Each Party will use diligent efforts to conduct the tasks assigned to it hereunder. Each Party, further, agrees to conduct such tasks at least as diligently as the Party conducts research and development for other projects of similar commercial potential and at similar stages of development. Neither Party will be responsible for delays due to factors beyond its control. 4.13 NO AGENCY. It is understood and agreed that Emisphere and Cubist each shall have the status of independent contractors under this Agreement and that nothing in this Agreement shall be construed as authorization for either Party to act as agent for the other. Members of the Steering Committee who are employees of Emisphere shall be and shall remain employees of Emisphere. Cubist shall not incur any liability for any act or failure to act by such employees. Members of the Steering Committee who are employees of Cubist shall be and shall remain employees of Cubist and Emisphere shall not incur any liability for any act or failure to act by such employees. 4.14 FORCE MAJEURE. Each Party hereto shall be relieved of its obligations hereunder to the extent that fulfillment of such obligations shall be prevented by acts beyond its reasonable control. 4.15 TITLES. The titles of the Articles and Sections of this Agreement are for general information and reference only, and this Agreement shall not be construed by reference to such titles. 4.16 SEVERABILITY. Each Party agrees that, should any provision of this Agreement be determined by a court of competent jurisdiction to violate- or contravene any applicable law or policy, such provision will be severed or modified by the court to the extent necessary to comply with the applicable law or policy, and such modified provision and the remainder of the provisions hereof will continue in full force and effect. 4.17 WAIVER. Failure by either Party to enforce any rights under this Agreement shall not be construed as a waiver of such rights nor shall a waiver by either Party in one or more instances be construed as constituting a continuing waiver or as a waiver in other instances. *Confidential treatment requested: Material has been omitted and filed with the Commission 4.18 NO STRICT CONSTRUCTION. This Agreement has been prepared jointly and shall not be strictly construed against either Party. 4.19 DISPUTE RESOLUTION. Any dispute regarding this Agreement or the enforcement of a Party's rights or obligations hereunder shall be submitted in the first instance to the Chief Executive Officers of Emisphere and of Cubist. If the dispute cannot be resolved by the designated individuals within thirty (30) days after such submission, then the matter may be submitted to binding arbitration in accordance with such rules as may be agreed upon by the Parties, or, failing agreement within thirty (30) days after arbitration is demanded, pursuant to the rules of the American Arbitration Association applicable to commercial disputes, such arbitration to take place in New York, NY, as such rules may be modified by this Agreement. This agreement to arbitrate shall continue in full force and effect despite the expiration, rescission or termination of this Agreement. If the Parties are unable to agree upon a single arbitrator within thirty (30) days following the date arbitration is demanded, three (3) arbitrators knowledgeable in the field of biotechnology shall be used, one selected by each Party within ten (10) days after the conclusion of the thirty (30) day period and a third selected by the first two within ten (10) days thereafter. Unless the Parties agree otherwise, the scope of discovery shall be reasonable given the nature of the dispute. Additional rules regarding discovery shall be agreed upon by the Parties, and if the Parties cannot agree, the rules shall be decided by the arbitrator(s). The arbitrator(s) shall resolve any discovery disputes. The arbitrator(s) shall only have the authority to award actual money damages (with interest on unpaid amounts from the date due) and the arbitrator(s) shall not have the authority to award exemplary or punitive damages and the Parties waive any claimed right to such damages. The arbitration shall be of each Party's individual claims only, and no claim of any other party shall be subject to arbitration in such proceeding. The costs and expenses of the arbitration, but not the costs and expenses of the Parties, shall be shared equally by the Parties. Except as otherwise required by law, the Parties and the arbitrator(s) shall maintain as confidential all information or documents obtained during the arbitration process, including the resolution of the dispute. 4.20 DISCLOSURE OF EVALUATION RESULTS. Each party recognizes that the other may wish to publish a scientific article or make any other public disclosure based upon the results of the Program (the "Disclosure"). Each party agrees that as a condition of any Disclosure, the disclosing party must (i) provide the other party with a copy of the proposed Disclosure prior to its submission to any public forum, (ii) receive from the other party its approval *Confidential treatment requested: Material has been omitted and filed with the Commission of the form and content of the proposed Disclosure, which approval shall not be unreasonably withheld or delayed, and Emisphere and Cubist agree that no Disclosure will be submitted to any third party without the prior written consent of the other. Both Parties hereby agree that either party shall have the right to withhold its approval of any Disclosure if such Disclosure (a) contains the chemical structure of the Carrier or Compound(s) (b) otherwise contains any of the Confidential Information of the non-disclosing party or (c) would require the filing of a patent application. 4.21 BANKRUPTCY. DEFINITION. For purposes of this Section 4.21, the term "Event of Bankruptcy" relating to either Party shall mean: (A) an application or petition for bankruptcy, whether voluntary or involuntary, under the law of any applicable jurisdiction that is not discharged within thirty (30) days; (B) a declaration of bankruptcy or insolvency by the relevant authority under the law of the applicable jurisdiction; (D) an assignment for the benefit or creditors, whether voluntary or involuntary; or involuntary; or (E) a dissolution, winding-up, confiscation or sequestration of substantially all of a Party's assets under the law of the applicable jurisdiction. (ii) EMISPHERE BANKRUPTCY. If at any time during the Term of this Agreement, an Event of Bankruptcy relating to Emisphere occurs, Cubist shall have, in addition to all other legal and equitable rights and remedies available hereunder, the option to terminate this Agreement upon thirty (30) days' written notice, given within sixty (60) days following the date that Cubist becomes aware of the Event of Bankruptcy. Upon such termination, Cubist shall be entitled to the continued benefits of any license granted to it pursuant to this Agreement and shall be entitled to solely continue the activities conducted or to be conducted pursuant to this Agreement but for the Event of Bankruptcy. (iii) CUBIST BANKRUPTCY. If at any time during the Term of this Agreement, an Event of Bankruptcy relating to Cubist occurs, Emisphere shall have, in addition to all other legal *Confidential treatment requested: Material has been omitted and filed with the Commission and equitable rights and remedies available hereunder, the option to terminate this Agreement upon thirty (30) days' written notice, given within sixty (60) days following the date that Emisphere becomes aware of the Event of Bankruptcy. Upon such termination by Emisphere, Emisphere shall be entitled to the continued benefits of any license granted to it pursuant to this Agreement and shall be entitled to solely continue the activities conducted or to be conducted pursuant to this Agreement but for the Event of Bankruptcy. 4.22 NON-SOLICITATION. Without the prior written consent of the other party, Cubist and Emisphere each agree that during the Term of this Agreement and for one year following the termination of this Agreement, it will not directly or indirectly solicit for purposes of hiring any person employed by the other Party or who was employed by the other Party within the then prior six (6) months. 4.23 SURVIVAL. The provisions of Articles 1.5, 4.1, 4.2, 4.9, 4.10-4.20, 4.22 will survive the termination or expiration of this Agreement. IN WITNESS WHEREOF, the undersigned have executed this Agreement on the day and year first above written. EMISPHERE TECHNOLOGIES, INC. By: /s/ Lewis H. Bender -------------------------------------------------- Name: /s/ Lewis H. Bender ------------------------------------------------ Title: Sr. VP, Business Development ----------------------------------------------- Date: October 4th, 2000 ------------------------------------------------ CUBIST PHARMACEUTICALS INC. By: /s/ Alan Watson -------------------------------------------------- Name: Alan Watson ------------------------------------------------ Title: Sr. Vice President, Corporate Development ----------------------------------------------- Date: September 27, 2000 ------------------------------------------------ *Confidential treatment requested: Material has been omitted and filed with the Commission EX-10.69 22 a2042768zex-10_69.txt EXHIBIT 10.69 EXHIBIT 10.69 CONFIDENTIAL TREATMENT LICENSE AGREEMENT THIS LICENSE AGREEMENT (AGREEMENT) is entered into as of November 22, 2000 (EFFECTIVE DATE) by and between International Health Management Associates, Inc., an Illinois corporation, (IHMA) and Cubist Pharmaceuticals, Inc., a Delaware corporation (CUBIST). BACKGROUND 1. CUBIST desires to license technology developed by IHMA and claimed, in part, in patent application filed by IHMA. By this Agreement, CUBIST AND IHMA desire to create a collaboration that will enable CUBIST to use IHMA's expertise and experience in "bridge" oral drug delivery technologies to research, develop and commercialize oral forms of ceftriaxone. 2. IHMA will grant CUBIST an exclusive license to use IHMA technology resulting from the research for development and commercialization of oral forms of ceftriaxone ("the CUBIST Field,"as defined below). 3. This Agreement sets forth the terms under which the parties shall collaborate on the development and commercialization of oral forms of ceftriaxone. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, IHMA and CUBIST agree as follows: 1. DEFINITIONS. 1.1 DEFINED TERMS. Capitalized terms used in this Agreement and not otherwise defined herein shall have the meanings set forth below: AFFILIATE means with respect to either party, any Person that, directly or indirectly, is controlled by, controls or is under common control with such party. For purposes of this Agreement, "control" means, with respect to any Person, the direct or indirect ownership of more than fifty percent (50%) of the voting or income interest in such Person or the possession otherwise, directly or indirectly, of the power to direct the management or policies of such Person. CONTRACTUAL OBLIGATION means, with respect to any Person(s), any contract, agreement, purchase order, deed, mortgage, lease, license, indenture, other instrument, commitment, undertaking, arrangement or understanding, written or oral, or other document, including without limitation any charter or by-law provision and any document or instrument evidencing indebtedness, to which or by which any such person *Confidential treatment requested: Material has been omitted and filed with the Commission. is a party or otherwise subject or bound, or to which or by which any property or right of any such Person is subject or bound. CUBIST FIELD means development, production and sale of oral dosage forms of ceftriaxone for all applications that utilize IHMA Technology. CUBIST TECHNOLOGY means, individually and collectively, all discoveries, inventions, know-how, trade secrets, techniques, methodologies, modifications, improvements, works of authorship, designs and data (whether or not protectable under patent, copyright, trade secrecy or similar laws) that are conceived, discovered, developed, created or reduced to practice or tangible medium of expression by consultants or employees of CUBIST (but excluding any persons who are or were consultants or employees of IHMA prior to becoming a consultant or employee of CUBIST). CONFIDENTIAL INFORMATION means all data, specifications and any other know-how related to the design, implementation, performance or manufacture of the Licensed Products, as well as all other information and data provided by either party ("disclosing party") to the other party ("receiving party") pursuant to this Agreement. Information and data provided in writing or other tangible medium shall be marked as confidential or otherwise designated in writing to be confidential. If disclosed orally or displayed visually, it shall be confirmed in writing to be confidential, within thirty (30) days after disclosure. However, material which would otherwise qualify as Confidential Information hereunder shall not be included, provided it: (i) is known to the receiving party before receipt thereof pursuant to this Agreement, as evidenced by the receiving party's written records; (ii) is disclosed to the receiving party by a third person who is under no obligation of confidentiality to the disclosing party with respect to such information and who otherwise has a right to make such disclosure; (iii) is or becomes generally and publicly known in the pharmaceutical industry through no fault of the receiving party; or (iv) is independently developed by the receiving party, as evidenced by the receiving party's written records, without any use of Confidential Information from the disclosing party. FORCE MAJEURE means any event beyond the control of the parties, including, without limitation, fire, flood, riots, strikes, epidemics, war (declared or undeclared and including the continuance, expansion or new outbreak of any war or conflict now in existence), embargoes and governmental actions or decrees. IHMA TECHNOLOGY means, individually and collectively, the intellectual property rights embodied or disclosed in: (a) all patents, patent applications and rights to file patent applications owned or controlled by IHMA, its Affiliates or any third parties and now or hereafter licensed to IHMA or its Affiliates that relate to oral formulations of ceftriaxone, utilizing the "bridge" oral drug delivery technology described in ATTACHMENT A, including but not limited to (i) the patent applications) and patents listed in ATTACHMENT B as it may be updated from time to time during the term of this Agreement in accordance with Section 2.7, or to reflect Improvements;(ii) any patent application *Confidential treatment requested: Material has been omitted and filed with the Commission. filed as a continuation, division, or continuation-in part of the application(s) described in clause (a)(i) - (ii), patents issuing therefrom and reissues, reexaminations and extensions of such patents; and (iii) any foreign counterpart to the application(s) described in clauses (a)(i)-(ii) (including divisions, continuations, confirmations, additions, renewals or continuations-in-part of such patent application), patents issuing therefrom and extensions thereof, to the extent that they relate to oral formulations of ceftriaxone; and (ii) all other Confidential Information provided by IHMA, including discoveries, inventions, know-how, techniques, methodologies, modifications, improvements, works of authorship, designs and data (whether or not protectable under patent, copyright, trade secrecy or similar laws) that are conceived, discovered, developed, created or reduced to practice or tangible medium of expression by employees of or consultants to IHMA, and which relate to oral formulations of ceftriaxone. IMPROVEMENTS means any additions, developments, reformulations, enhancements, updates, revisions and other changes in the IHMA Technology. LEGAL REQUIREMENT means any federal, state, local or foreign law, statute, standard, ordinance, code, order, rule, regulation, resolution, promulgation, or any order, judgment or decree of any court, arbitrator, tribunal or governmental authority, or any license, franchise, permit or similar right granted under any of the foregoing, or any similar provision having the force and effect of law as in effect on or prior to the Effective Date. LICENSED PRODUCT(S) means any oral formulations of ceftriaxone, or processes for producing oral formulations of ceftriaxone, the development, manufacture, use, license or sale of which is covered by one or more Valid Claims of any issued IHMA patents (defined below) or which, absent the license granted under this Agreement, would infringe the IHMA Technology. NET SALES means the aggregate invoiced gross revenue received by CUBIST or any of its Affiliates, or any sublicensee of CUBIST from the sale of Licensed Products less (i) amounts repaid or credited by reason of defects, returns, rejections, rebates, wholesale charge-backs, retroactive price reductions or allowances, (ii) sales, excise, value added, purchase, turnover, use, and other like taxes, and customs duties, paid, absorbed or allowed, (iii) commissions actually paid to independent brokers or agents necessary to market the Licensed Products in particular countries, (iv) shipping charges (including freight and insurance) separately billed to the customer or paid by CUBIST, and (v) trade and quantity discounts actually allowed and taken after invoice, when customary in the market. However, Net Sales shall not include revenue received by CUBIST (or any of its Affiliates) from transactions with an Affiliate, where the Licensed Products in question will be resold by the Affiliate paying such revenue, so long as the revenue received by the Affiliate from resale of the Licensed Products is included in Net Sales in accordance with Section 3.2. Revenue received by CUBIST (or any of its Affiliates) from transactions with an Affiliate, where the Licensed Products are used by the Affiliate *Confidential treatment requested: Material has been omitted and filed with the Commission. solely for such Affiliate's internal purposes, shall be included in Net Sales and the price charged such Affiliate shall be at least the fair market value of such Licensed Products. PERSON means any individual, corporation, association partnership (general or limited), joint venture, trust, estate, limited liability company, limited liability partnership, unincorporated organization, government (or any agency or political subdivision thereof) or other legal entity or organization. PRODUCT APPROVALS means those regulatory approvals required for importation, promotion, pricing, marketing and sale of the Licensed Products in the United States or any other country selected by CUBIST as part of its market development plan in the CUBIST Field. REIMBURSEMENT APPROVALS means governmental and other approvals in the United States or any other country selected by CUBIST as part of the market development plan in the CUBIST Field, for a buyer to claim reimbursement at any level for the purchase or use of the Licensed Products for use in the CUBIST Field, from private or public health insurance organizations in such country. TERRITORY means all countries of the world. VALID CLAIM means: (i) a claim of any issued patent which is contained within IHMA Technology and which has not expired, lapsed, or been held invalid, unpatentable or unenforceable in a final decision of a court of competent jurisdiction or of an administrative agency having authority over patents; and (ii) a claim in any patent application (excluding continuation and divisional patent applications and claims embodied in a continuation-in-part patent application that could have been claimed in a parent patent application) that has not been the subject of a rejection, notice from which an appeal cannot be taken or with respect of which the applicable period for appeal has expired. 1.2 OTHER DEFINED TERMS. Each of the following terms has that meanings ascribed to it in the section set forth opposite such term: AGREEMENT Recitals COMMENCEMENT DATE Section 3.2 CONTRACT TECHNOLOGY Section 2.5 CUBIST Recitals DISCLOSING PARTY Section 8.1 DR. CHOI IMPROVEMENTS Section 2.8 EFFECTIVE DATE Recitals IHMA Recitals INDEMNIFYING PARTY Section 5.3 INDEMNITEE Section 5.3 LOSSES Section 5.2 RECEIVING PARTY Section 8.1 *Confidential treatment requested: Material has been omitted and filed with the Commission. REPRESENTATIVE Section 7.1 ROFO Section 2.9 ROFO FEE Section 2.9 ROFO FIELD Section 2.9 2. GRANT OF LICENSE; COMMERCIALIZATION. 2.1 GRANT OF LICENSE. Subject to the terms and conditions of this Agreement (including the provisions of Section 3.1), IHMA hereby grants to CUBIST, and CUBIST hereby accepts an exclusive, royalty-bearing right and license to research, develop, make, have made, import, use, lease and sell Licensed Products in the CUBIST Field in the Territory. CUBIST also may grant sublicenses of its rights under Section 2.1, provided that CUBIST shall first: (i) obtain each sublicensee's written agreement to be bound by the provisions of Sections 2.2-2.3, 3.4, 5.1-5.2, and 8.1-8.2 of this Agreement; and (ii) give IHMA written notice of each sublicensee, prior to the sublicense taking effect, and the non-financial terms of the sublicense following execution by CUBIST of the sublicense. Any sublicenses granted by CUBIST under this Agreement shall provide for termination or assignment to IHMA upon termination of this Agreement. CUBIST shall not be relieved of any of its obligations hereunder as a consequence of any such sublicense(s). 2.2 PROPRIETARY RIGHTS NOTICES. CUBIST shall mark or have marked all containers or packages of Licensed Products that are the subject of the license granted under Section 2.1 in accordance with the patent marking laws of the jurisdiction in which such Licensed Products are manufactured, used or sold to protect the intellectual property rights of IHMA hereby licensed to CUBIST. 2.3 [ ]*. 2.4 PATENT PROSECUTION. (a) CUBIST, at its expense, shall have its independent patent counsel provide a written report confirming such counsel's opinion relating to the infringement, validity and enforceability of existing patents on ceftriaxone sodium and any oral dosage forms thereof. (b) IHMA, in consultation with CUBIST and using patent counsel chosen by CUBIST, shall be responsible for preparing, filing and prosecuting United States and foreign patent applications in up to twenty-five (25) foreign countries selected by CUBIST as part of its market development plan in the CUBIST field, and for maintaining patents on IHMA Technology in the United States and in up to twenty-five (25) foreign countries selected by CUBIST. IHMA shall furnish or have furnished to CUBIST copies of documents relevant to patent applications, and maintenance of patent applications, and IHMA shall confer with CUBIST regarding any patent application applicable to IHMA Technology licensed in this Agreement, so that each such patent application may be satisfactory to IHMA and to CUBIST. Any differences between IHMA and CUBIST with respect to filing, prosecution and maintenance of patents covered by this Agreement will be discussed and resolved to their mutual satisfaction. *Confidential treatment requested: Material has been omitted and filed with the Commission. IHMA shall be responsible for all expenses associated with the filing, prosecution and maintenance of patents applying IHMA Technology licensed in this Agreement in up to twenty-five (25) countries specified by CUBIST in the Territory. At the request of CUBIST, IHMA shall provide written evidence that it has performed this obligation. CUBIST shall be responsible for all expenses associated with the preparation, filing, prosecution, issuance and maintenance of patents for IHMA Technology licensed in this Agreement in such additional countries as CUBIST may direct, and shall reimburse IHMA for all such expenses. IHMA shall provide CUBIST with detailed invoices for all reimbursable patent expenses for additional countries, which CUBIST shall pay directly or reimburse to IHMA, within thirty (30) days following receipt of invoices. 2.5 ENFORCEMENT. (a) CUBIST and IHMA shall each promptly inform the other in writing of any potential or actual infringement of IHMA Technology as embodied in Licensed Products, by one or more independent third persons, of which each learns, and shall provide the other with readily-available information relating to such infringement. In no event shall such information be given later than twenty-five (25) days after the first of them first becomes aware of any potential or actual infringement. (b) CUBIST shall have the first option but not the obligation, to pursue any enforcement or defense of the IHMA Technology to pursue any litigation against third parties with respect to enforcement or defense of IHMA Technology within the CUBIST Field and the Territory in its own name or in the name of IHMA; PROVIDED, that CUBIST pays all costs and expenses related to the same, keeps IHMA reasonably informed of its progress and provides IHMA with copies of any documents related to such proceedings and reasonable notice of all proceedings relating to same. IHMA shall have the right to participate in such proceeding at its own expense. CUBIST shall notify IHMA of its decision to exercise its right to enforce as soon as possible, but not later than ninety (90) days following its discovery or receipt of notice of the alleged infringement. If CUBIST does not exercise its option to enforce or defend any IHMA Technology or continue to pursue such matter, then IHMA shall have the right to pursue the alleged infringer at IHMA's own expense. (c) Any recovery of damages with regard to IHMA Technology in any suit that is the subject of this Section 2.5 shall be applied first in satisfaction of any unreimbursed expenses and legal fees of the litigant handling such matter (whether CUBIST pursuant to the first sentence of Section 2.5(b) or IHMA pursuant to the last sentence of Section 2.5(b)) relating to the suit or settlement thereof, and then to reimburse CUBIST for lost sales and IHMA for lost royalties on account of such lost sales. The balance, if any, remaining after CUBIST has been compensated for lost sales and IHMA has been compensated for lost royalties shall be [ ]*. No settlement, or consent judgment or other voluntary final disposition of any suit regarding IHMA Technology with application to the CUBIST Field and the Territory may be entered into without the consent of the other party, which consent shall not be unreasonably withheld. If necessary, the parties shall use the procedure specified in Section 7 to resolve any disputes over Enforcement. *Confidential treatment requested: Material has been omitted and filed with the Commission. (d) In any infringement suit as either party may institute to enforce IHMA Technology, or in any declaratory judgment action alleging invalidity or non-infringement of any IHMA Technology brought against IHMA or CUBIST, the other party shall, at the request and expense of the party initiating or defending the suit or action, cooperate and assist in all reasonable respects, having its employees testify when requested and making available relevant records, papers, information, specimens and the like. 2.6 PRODUCT DEVELOPMENT. During the Term of this Agreement, CUBIST will diligently pursue research, development and commercialization of IHMA Technology. Further, CUBIST will give development and commercialization of an oral formulation of ceftriaxone using IHMA Technology that priority which is consistent with its development efforts for other products using different technology that is at similar stages of evolution and similar applicability, undertaken in good faith and using good business judgment by CUBIST. During product development prior to the manufacture and marketing of any Licensed Products, CUBIST and IHMA shall confer regularly concerning the status of research and development efforts, and means to advance commercialization. This duty to confer may be fulfilled by written reports of status and progress acceptable to IHMA. In no event shall written reports be provided to IHMA less frequently than twice each year, and such reports shall discuss any problems or challenges encountered in developing Licensed Products since the latest report. 2.7 MARKET DEVELOPMENT. (a) During the term of this Agreement, and subject to the receipt of Product Approvals and Reimbursement Approvals for the Licensed Products, CUBIST will use commercially reasonable efforts to promote, market, sell and distribute the Licensed Products in the CUBIST Field. CUBIST shall, at its expense and its discretion, use commercially reasonable efforts to: (i) obtain all necessary Product Approvals and Reimbursement Approvals in the United States and each other country selected by CUBIST as part of its market development plan and (ii) maintain such Product Approvals and Reimbursement Approvals in effect throughout the term of this Agreement. All Product Approvals and Reimbursement Approvals shall be applied for and maintained in the name of CUBIST (or its designee). CUBIST may determine that it is not commercially reasonable to pursue Product Approvals and Reimbursement Approvals in particular countries selected as part of the market development plan, in cases where the difficulty and expense of obtaining approvals for such countries cannot be justified in comparison to the profits that sales of Licensed Products in such country are likely to yield. When CUBIST makes such determination, it shall give IHMA written notice of its decision not to pursue Product Approvals and CUBIST and IHMA shall confer regarding CUBIST's determination and concerning whether CUBIST shall authorize IHMA or a sublicensee to pursue Product Approvals and Reimbursement Approvals in that particular country, compatible with CUBIST's market development plan with respect to other countries. *Confidential treatment requested: Material has been omitted and filed with the Commission. (b) IHMA shall promptly provide reasonable advice and assistance to CUBIST as may be necessary to obtain and maintain Product Approvals and, if applicable, satisfactory Reimbursement Approvals for the Licensed Products in the CUBIST Field. (c) If a regulatory authority United States or another country selected by CUBIST as part of its market development plan withdraws the approval to sell the Licensed Products in such country for product safety reasons, CUBIST shall not be obligated to sell the Licensed Products in such country from the date of such withdrawal and until CUBIST is again authorized to sell Licensed Products in that country. 2.8 ADDITIONAL RESEARCH AND CONSULTING. IHMA agrees to make available to CUBIST the services of MC Technologies, Inc., as a contractor working under contract to IHMA, to conduct further research into oral formulations of oral ceftriaxone. CUBIST will pay to IHMA [ ]* for each full time equivalent researcher, up to [ ]*, such amounts to be paid in four, equal quarterly payments on January 1, April 1, July 1, and October 1, 2001. For these payments, IHMA shall cause MC Technologies, Inc. to provide the research services of Dr. Choi and his professional colleagues, who are employees or subcontractors of MC Technologies, Inc., for their research during 2001. If, in CUBIST's sole discretion, this total sum is not sufficient to develop dosage forms for use in human subject tests, the parties shall agree upon such further amount for additional research and consulting during a second year of research. The professional research by MC Technologies, Inc., and its employees and subcontractors shall be entirely at the request and direction of CUBIST, but shall be limited to application of the IHMA Technology to develop Licensed Products. All improvements discovered or developed solely by MC Technologies, Inc. (including its employees and consultants), at the expense of CUBIST shall become the property of IHMA (DR. CHOI'S IMPROVEMENTS) and licensed to CUBIST as part of the IHMA Technology. However, all improvements discovered or developed by CUBIST at its sole expense and through the efforts of its employees and subcontractors (who are not present or prior employees or subcontractors of IHMA, including Dr. Choi, MC Technologies, Inc., and any of their subcontractors or employees) shall be part of the CUBIST Technology. Insofar as improvements constituting CUBIST Technology receive patent protection that includes claims which, if enforced against IHMA may prevent IHMA from practicing the IHMA Technology for oral formulations of other pharmaceuticals besides ceftriaxone, then CUBIST and IHMA shall confer and negotiate in good faith a license for CUBIST Technology (or such part of CUBIST Technology) which enables IHMA to continue to practice IHMA Technology for products other than Licensed Products. 2.9 (a) [ ]*. (b) [ ]*. (c) [ ]*. (d) [ ]*. *Confidential treatment requested: Material has been omitted and filed with the Commission. (e) [ ]*. (f) [ ]*. 3. LICENSING AND ROYALTY FEES; RECORD KEEPING; REPORTING 3.1 LICENSING FEES. The licensing fees which shall be paid by CUBIST to IHMA, are as follows: (a) CUBIST shall pay to IHMA the sum of [ ]*, of which [ ]* shall be paid within five (5) business days of the Effective Date, and [ ]* paid within sixty (60) days of the Effective Date. And, (b) CUBIST will pay to IHMA the sum of [ ]* within thirty (30) days following the refiling of US patent application 09/598,089. And, (c) CUBIST will pay to IHMA the sum of [ ]* within thirty (30) days of CUBIST selecting the first single oral formulation of oral ceftriaxone for clinical trials. And, (d) CUBIST will pay IHMA the sum of [ ]* within thirty (30) days following the date on which CUBIST completes its initial first-into-man study. Initial first-into-man study means, for purposes of this milestone payment, a single dose pharmacokinetic study (including a study that may be conducted outside the U.S. before any Investigational New Drug Application (IND) is filed, or in the U.S. after an IND is approved), completion of which means preparation of the final report on the data in the study. And, (e) CUBIST will pay IHMA the sum of [ ]* within thirty (30) days following the date on which the United States Patent and Trademark Office issues IHMA a patent covering the oral formulation of ceftriaxone chosen for clinical development. And, (f) CUBIST will pay IHMA the sum of [ ]* within thirty (30) days following the date on which CUBIST successfully completes its first pivotal Phase III clinical drug trials relating to any Licensed Products. "Completion," for purposes of this milestone payment, means the final report on the data in the first pivotal Phase III clinical drug trial. And, (g) CUBIST will pay IHMA the sum of [ ]* within thirty (30) days following the date on which CUBIST files a New Drug Application (NDA) with the FDA covering any Licensed Products. And, (h) CUBIST will pay IHMA the sum of [ ]* within thirty (30) days following the date on which the FDA approves a NDA of CUBIST covering any Licensed Products. And, *Confidential treatment requested: Material has been omitted and filed with the Commission. (i) CUBIST will pay to IHMA the sum of [ ]* within thirty (30) days of the start of the first quarter during which the cumulative Net Sales of any Licensed Products first exceeds [ ]*. (j) All milestone payments due IHMA under this Section 3.l shall be payable only in respect of the first occurrence of the respective milestone. 3.2 ROYALTIES. (a) Commencing with the initial sale of Licensed Products in any jurisdiction, CUBIST shall pay to IHMA royalties equal to: (i) [ ]* of CUBIST's (and/or its Affiliate's and/or sublicensees) Net Sales of Licensed Products in the Territory up to [ ]*; plus (ii) [ ]* of CUBIST's (and/or its Affiliate's and/or sublicensees') Net Sales of Licensed Products in the Territory above [ ]* up to [ ]*; plus (iii) [ ]* of CUBIST's (and/or its Affiliate's and/or sublicensees') Net Sales of Licensed Products in the Territory above [ ]*. (b) Royalty payments shall be made quarterly, for the preceding three months, and received by IHMA not later than sixty (60) days following each March 31, June 30, September 30 and December 31. The month and day at the end of the quarter for which the first royalty payment is due IHMA listed above, shall be referred to hereafter as the COMMENCEMENT DATE. (c) Royalty payments under this Section 3.2(a) shall be due on a country by country basis until the expiration of the last-to-expire of the patents within IHMA Technology for said country in the Territory, or until the expiration of any market exclusivity provided in respect of the Licensed Products under the laws of said country, whichever is later. However, CUBIST shall be obligated to make only one royalty payment for each unit of any Licensed Products sold, regardless of the number of Valid Claims from any one or more patents covering such Licensed Products or the use of IHMA Technology, including in the methods, processes, or assays which were used in the isolation, discovery, identification, or development of such Licensed Products. (d) Payments due under this Section 3.2 shall be made after adjustment for any advances previously paid pursuant to Section 3.6, as provided in Section 3.6. (e) In CUBIST's reasonable judgement, having reference to: (i) the safety, efficacy and economics of marketing the Licensed Products without licensing patents or technology of a third person which may be infringed by IHMA Technology, or (ii) the efficacy and commercial reasonableness of practicing the IHMA Technology without licensing patents or technology owned by a third person which may be infringed by IHMA Technology, CUBIST may determine to license patents or other intellectual property owned by a third person. For example, when doing so may avoid costs of enforcing or defending the IHMA Technology which CUBIST reasonably believes may exceed the costs of licensing the other's patent(s) or intellectual property. CUBIST, in its sole discretion, may determine to license patents or other intellectual property of a third person, for reasons important to the sale of Licensed Products. CUBIST shall then give IHMA written notice of CUBIST's determination and the bases which support it. As *Confidential treatment requested: Material has been omitted and filed with the Commission. royalty payments by CUBIST to a third person holding patents or intellectual property rights licensed to CUBIST inure to the benefit of both CUBIST and IHMA by avoiding potential costs of enforcement or defense of IHMA Technology, IHMA shall bear [ ]* of the costs to CUBIST of paying such royalties to a third person. Commencing with the next royalty payment due IHMA following CUBIST's first payment of royalties to a third person as described in Section 3.1(e), CUBIST may withhold [ ]* of the royalty amount it paid, up to a maximum of [ ]* of the royalties due to IHMA under Section 3.2(a), with the effect that the withheld sum reimburses the royalties paid by CUBIST under its license with a third person. CUBIST may thereafter withhold from CUBIST's quarterly royalty payment to IHMA, [ ]* of the royalty payments it has made to the third person under CUBIST's license, up to [ ]* of the royalty payment to IHMA that would otherwise have been due. 3.3 REMITTANCE; FOREIGN EXCHANGE. CUBIST shall make licensing and royalty payments required under Sections 3.1, 3.2 and 3.6 by wire transfer of immediately-available funds delivered to the bank account identified by IHMA through notice in accordance with Section 8.6. All payments by CUBIST to IHMA shall be stated and paid in U.S. Dollars. Revenue received by CUBIST in currencies other than U.S. Dollars shall be converted into U.S. Dollars, in accordance with CUBIST's ordinary business practices. CUBIST's current practice with respect to conversion of foreign currencies is to convert such currencies into United States Dollars at the simple average of the last business day of each month's exchange rate for buying United States Dollars for the applicable payment period. CUBIST may withhold such taxes or charges which it incurs for conversion of foreign currencies from the amounts paid to IHMA under this Agreement, and shall deliver to IHMA true copies of the receipts and returns covering all such payments. 3.4 REPORTS. CUBIST shall keep and maintain during the term of this Agreement and for two years thereafter, records sufficient to determine the Net Sales and payments due under Section 3.2. Such records shall be maintained for a period not less than two (2) years following each calendar year to which such Net Sales and payments records apply. Within ninety (90) days following each anniversary of the Commencement Date for which payments are due under Section 3.2, CUBIST shall provide IHMA with a report showing Net Sales for such 12-month period including: (i) the quantities of Licensed Products that CUBIST sold during the preceding 12-month period in the CUBIST Field; (ii) the U.S. dollar-equivalent of such sales; (iii) the calculation of royalty fees thereon; (iv) the amount of and basis for any portion of royalties withheld pursuant to Sections 3.2(d) and (e), and (v) the total royalties so computed and due IHMA. CUBIST shall submit such reports for each royalty period, whether or not any Net Sales have been received during such period, and whether or not any royalties are due. 3.5 AUDITS. IHMA shall have the right to audit the books and records of CUBIST which are relevant to the computation of royalty payments due IHMA, or to have an independent certified public accountant of IHMA's choosing and reasonably acceptable to CUBIST conduct an audit of those books and records. The sole purpose of any audit is to ascertain the accuracy of CUBIST'S reports and computation of royalty payments as *Confidential treatment requested: Material has been omitted and filed with the Commission. provided under Section 3.4 with respect to Net Sales. All audits shall be requested in writing by IHMA, and shall be scheduled within thirty (30) days following delivery of the request to CUBIST. Audits shall be conducted during CUBIST's normal business hours and in a manner that does not unreasonably interfere with CUBIST's normal business activities. An audit of the books and records of CUBIST under Section 3.5 may occur not more than once in any twelve (12) month period. If any audit discloses underpayment of royalties, CUBIST shall promptly pay IHMA any further payments due. IHMA shall be responsible for all expenses it incurs in connection with any audit; provided, that if any audit determines that the reported total royalties were less than ninety five percent (95%) of actual total royalties due for the period in question, the actual out-of-pocket cost of such audit shall be borne by CUBIST. IHMA will hold in strict confidence, and will require any certified public accountant it retains to perform an audit to hold in strict confidence, all information learned in the course of any audit, except to the extent necessary for IHMA to enforce its rights under this Agreement. 3.6 ROFO FEE In consideration of the ROFO granted under Section 2.9, CUBIST shall pay IHMA [ ]* per year, commencing on the first anniversary of the Effective Date, and applying to the year following the payment. CUBIST may, with written notice to IHMA delivered prior to the anniversary of the Effective Date on which a payment would otherwise be due, cease payment of the ROFO Fee. In the event that CUBIST fails to pay the ROFO Fee on or before the anniversary of the Effective Date, then the ROFO in Section 2.9 is ended as of the date CUBIST's payment was due. All payments made by CUBIST pursuant to this Section 3.6 shall be credited as an advance against royalties due to IHMA as provided in Section 3.2. 4. REPRESENTATIONS AND WARRANTIES. 4.1 AUTHORIZATION; ENFORCEABILITY. Each of IHMA and CUBIST represents and warrants that: (a) it is a corporation duly organized, validly existing and in good standing under the laws of its incorporating jurisdiction; (b) it has all requisite corporate power and authority to enter into this Agreement; (c) it is duly authorized to execute and deliver this Agreement, to perform its obligations hereunder and consummate the transactions contemplated hereby, and it has authorized the person signing on its behalf to do so; (d) this Agreement is a valid and binding obligation of such party enforceable in accordance with its terms; and (e) neither the execution, delivery and performance of this Agreement and other agreements and instruments contemplated hereunder, by either party, nor the consummation by such party of the transactions contemplated hereby and by the other agreements and instruments contemplated hereunder, will violate or conflict with, or constitute a default under any Contractual Obligation or Legal Requirement applicable to such party or (in the case of IHMA) the IHMA Technology. 4.2 TECHNOLOGY RIGHTS. (a) IHMA represents and warrants to CUBIST that IHMA owns or otherwise has the right to use the IHMA Technology (including the intellectual property rights embodied therein) for the Licensed Products. Specifically, IHMA represents and warrants that it holds a valid license from MC Technologies, Inc. to the IHMA Technology developed by Seung Ho "Christopher" Choi, Ph.D. and MC Technologies, Inc. for the Licensed Products, and that no other licenses or consents are *Confidential treatment requested: Material has been omitted and filed with the Commission. required in order for IHMA to enter into this Agreement or consummate the transactions contemplated by this Agreement. (b) Each of IHMA and CUBIST represents and warrants that their respective employees, consultants and agents are subject to written agreements requiring the employees and agents to disclose and assign any IHMA Technology and CUBIST Technology to IHMA or to CUBIST, respectively. (c) IHMA represents and warrants to CUBIST that, to the best of its knowledge, it has disclosed to CUBIST all agreements with any funding agency or foundation that has provided support of any kind in the development of the IHMA Technology (d) IHMA represents and warrants to CUBIST that IHMA is not in default under the certain License Agreement dated [ ]*, as amended by the Amendment To [ ]*, and that it has disclosed all other obligations or agreements concerning the IHMA Technology to CUBIST, and that IHMA is not in default under any such other obligations or agreements. (e) IHMA represents and warrants to CUBIST that except as disclosed in ATTACHMENT A: (i) IHMA is the sole and exclusive owner of the IHMA Technology for the Licensed Products, free and clear of all claims, liens, licenses, sublicenses, charges or encumbrances and that no governmental registration of any of the IHMA Technology has lapsed, expired or been canceled, abandoned, opposed or the subject of a reexamination request. (ii) There have been no claims and, to the best knowledge of IHMA, there is no basis for any claim challenging the scope, validity or enforceability of any of the IHMA Technology. (iii) There are no instances in which it has been held, claimed or alleged either directly or indirectly, that any activity of IHMA infringes or may infringe upon, or is in violation of any of the intellectual property rights of a third party, or that any activity of a third party infringes or may infringe upon or is in violation of any of the IHMA Technology and, to the best knowledge of IHMA, there is no basis upon which such a claim may be made. (iv) To the best knowledge of IHMA, no employee of IHMA is in default under any term of any employment contract, agreement or arrangement relating to the IHMA Technology or of any non-competition agreement, contract or restrictive covenant relating to the IHMA Technology or its development or exploitation. (v) All of the IHMA Technology for the Licensed Products has been validly assigned or licensed to IHMA on an exclusive, world-wide basis. *Confidential treatment requested: Material has been omitted and filed with the Commission. (vi) IHMA has not granted to any other Person any license, option or other rights to develop, use, sell or exploit the IHMA Technology in any manner in the CUBIST Field and Territory or in the ROFO Field, whether requiring the payment of royalties or not. (vii) Subject to certain rights of Dr. Choi to publish research in scientific meetings and journals with approval by IHMA as are set out in [ ]*, IHMA has taken appropriate measures to protect the confidential and proprietary nature of the IHMA Technology, including, without limitation, the use of confidentiality agreements with certain of its employees having access to the IHMA Technology, and the use of written confidentiality agreements with all persons provided access to the IHMA Technology. There have been no patents applied for or registered for any part of the IHMA Technology other than as expressly disclosed in the ATTACHMENT A. 5. RISK ALLOCATION 5.1 LIMITATION OF LIABILITY. EXCEPT FOR INFRINGEMENT OF THE OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS OR BREACH OF CONFIDENTIALITY OBLIGATIONS UNDER SECTION 8.1 AND EXCEPT AS OTHERWISE PROVIDED IN SECTIONS 5.2 AND 5.3 WITH RESPECT TO THIRD PARTY CLAIMS, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR LOST PROFITS OR FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY IN ANY DISPUTE BETWEEN THEM. EXCEPT FOR INFRINGEMENT OF THE OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS OR BREACH OF CONFIDENTIALITY OBLIGATIONS UNDER SECTION 8.1 AND EXCEPT AS OTHERWISE PROVIDED IN SECTIONS 5.2 AND 5.3 WITH RESPECT TO THIRD PARTY CLAIMS, THE AGGREGATE LIABILITY OF EITHER PARTY FOR DIRECT DAMAGES TO THE OTHER ARISING OUT OF THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE LIMITED TO THE AGGREGATE AMOUNT PAID TO IHMA BY CUBIST FOR LICENSED PRODUCTS AS OF THE DATE SUCH CLAIM IS FINALLY RESOLVED. 5.2 INFRINGEMENT INDEMNIFICATION. (a) Subject to the provisions of Section 5.4, IHMA shall defend, indemnify and hold harmless CUBIST, its subsidiaries, parent corporations, Affiliates, officers, directors, independent contractors, partners, shareholders, employees, agents, successors and assigns from and against any claim, suit, demand, loss, damage, expense (including reasonable attorney's fees of indemnitee(s) and those that may be asserted by a third party) or liability (collectively, Losses) arising from or related to an allegation that the IHMA Technology infringes or misappropriates any intellectual property right of any third person (including without limitation, any patent, copyright, trade secret or trademark); provided, however, that IHMA will not be obligated to indemnify CUBIST if and only to the extent that the alleged infringement is caused by or contributed to by: (i) CUBIST's (including its Affiliates and sub-distributors) or its *Confidential treatment requested: Material has been omitted and filed with the Commission. customers' manufacture, misuse or modification of the IHMA Technology or use in combination with any products or materials not provided by IHMA, or (ii) CUBIST's (including its Affiliates and sub-distributors) or its customers' manufacture, use, misuse or modification of the Licensed Products. If the IHMA Technology or its use is held to constitute an infringement or misappropriation of any third person's intellectual property rights or if, in IHMA's opinion, any portion of the IHMA Technology is held, or is likely to be held to constitute an infringement or misappropriation, then IHMA may, at its option and expense, either: (i) procure the right for CUBIST to continue using the IHMA Technology; or (ii) replace or modify the IHMA Technology with a non-infringing and non-misappropriating equivalent; or (iii) notify CUBIST that it is not economically feasible to procure the right for CUBIST to continue using IHMA Technology, nor to replace or modify the IHMA Technology with a non-infringing and non-misappropriating equivalent, and CUBIST shall then be entitled to terminate this Agreement. (b) Subject to the provisions of Section 5.4, CUBIST shall defend, indemnify and hold harmless IHMA, its subsidiaries, parent corporations, Affiliates, officers, directors, independent contractors, partners, shareholders, employees, agents, successors and assigns from and against any Losses arising from or related to an allegation that the Licensed Products, or improvements of the IHMA Technology by CUBIST (including CUBIST Technology but excluding Dr. Choi's Improvements) after the Effective Date, infringe or misappropriate any intellectual property right of any third party (including without limitation, any patent, copyright, trade secret or trademark); provided, however, that CUBIST will not be obligated to indemnify IHMA if and only to the extent that the alleged infringement is caused by the IHMA Technology or use of the IHMA Technology as it existed on the Effective Date and as contemplated by this Agreement. If any Licensed Product(s) is held to constitute an infringement or misappropriation of any third person's intellectual property rights or if, in CUBIST's reasonable opinion, any Licensed Product(s) constitutes and infringement or misappropriation or is likely to be held to constitute an infringement or misappropriation, then CUBIST may, at its expense and option: (i) replace the Licensed Product with a non-infringing and non-misappropriating equivalent product conforming to the applicable Product Approval; or (ii) modify the Licensed Product to make it non-infringing and non-misappropriating while conforming to the applicable Product Approval; or (iii) notify IHMA that it is not economically feasible to replace the Licensed Product with a non-infringing and non-misappropriating equivalent product, nor to modify the Licensed Product to make it non-infringing and non-misappropriating, and IHMA shall be entitled to terminate this Agreement. 5.3 OTHER CLAIMS. Excepting claims for infringement provided for in Section 5.2, and subject to the provisions of Sections 5.4 and 5.5, hereafter, IHMA and CUBIST (each, an Indemnifying PartY) will each defend, indemnify and hold harmless the other party, its subsidiaries, parent corporations, affiliates officers directors, partners, shareholders, employees, agents and their successors and assigns (collectively, the Indemnitees) from and against any Losses imposed upon the Indemnitee(s) by any third person arising from or related to: (a) any material breach of such Indemnifying Party's representations and warranties under this Agreement; and (b) any negligence or intentional misconduct by *Confidential treatment requested: Material has been omitted and filed with the Commission. such Indemnifying Party (or its employees, agents or representatives) in performing its obligations under this Agreement. The foregoing indemnification action shall not apply in the event and to the extent that a court of competent jurisdiction determines that such Losses arose in whole or in part as a result of any Indemnitee's negligence, intentional misconduct or breach of this Agreement. 5.4 PRECONDITION. As a precondition to seeking indemnification under Sections 5.2 or 5.3, the Indemnitee, must first demonstrate that it: (a) notified promptly the Indemnifying Party, in writing, of each claim or suit for which indemnity is sought, and (b) defended the claim or, (if defended by the Indemnifying Party) provided reasonable and timely cooperation in the defense by the Indemnifying Party, at the Indemnitee's expense, and (c) tendered promptly the defense of the claim to each of the Indemnitee's insurers which might have a duty to defend any of the claims asserted, and (d) granted to the Indemnifying Party authority to defend or settle the claim or suit, to the extent permitted by the insurer(s) of the Indemnitee which might have a duty to defend or to indemnify. Neither party has any obligation to indemnify the other party in connection with any settlement made without the written consent of the Indemnifying Party and each of its insurers potentially responsible for the defense of the claim. 5.5 PROCEDURE. The parties shall cooperate in defending any claims by third persons. Indemnitee has the right to participate with the Indemnifying Party in the selection of defense counsel for which Indemnitee may have any potential liability. Where a suit or claim is brought by a third person against one party but not the other and which arises out of this Agreement or transactions contemplated in this Agreement, the party named in the suit shall not bring a claim against the other party in that same suit. To protect the rights of each party to seek indemnification from the other after the claim of the third person has been concluded, the parties to this Agreement stipulate to the extension of any statute of limitations or repose which might otherwise terminate a right to indemnification, in order than the Indemnitee may seek indemnification within one (1) year after the final conclusion of the last claim based on the same facts brought by a third person. If agreed to by the parties and their insurers, Indemnitee shall have the right to participate as a party in the defense of a claim or suit by a third person. 6. TERM AND TERMINATION. 6.1 TERM. This Agreement shall take effect as of the Effective Date and, unless sooner terminated in accordance with Section 6.2, shall remain in effect until the later of (a) the expiration of the term of the last-to-expire of the patent rights within IHMA Technology, including any extension to the patent rights described in clause (a) of the definition of IHMA Technology, or (b) ten (10) years following the following the first commercial sale of Licensed Products, whichever is later. 6.2 TERMINATION. (a) Either party may terminate this Agreement at any time upon sixty (60) days prior written notice to the other party in the event that the other party shall have breached any of its material obligations hereunder and shall not have cured such default prior to the expiration of this sixty (60)-day period. The time to cure a default shall be extended for up to sixty (60) additional days if the defaulting party has promptly *Confidential treatment requested: Material has been omitted and filed with the Commission. commenced to cure the default and continues to use commercially reasonable efforts to cure such default during the additional 60-day period. (b) Either party shall have the right to terminate this Agreement upon sixty (60) days notice if a Force Majeure condition has prevented performance by the other party for more than one hundred twenty (120) consecutive days. (c) The parties may terminate this Agreement at any time by mutual written agreement. (d) CUBIST may terminate this Agreement at any time upon notice to IHMA if CUBIST determines, in its sole, reasonable discretion and regardless of whether such determination is based upon the IHMA Technology, that: (i) the Licensed Product(s) is unsafe or ineffective or (ii) the Licensed Product(s) is not a commercially reasonable business opportunity (having reference to the prospective market for the Licensed Products and the costs and pricing for the Licensed Products). (e) CUBIST may terminate this Agreement at its sole election upon one hundred and eighty (180) days notice to IHMA. 6.3 EFFECT OF TERMINATION. Upon termination of this Agreement: (a) The license granted herein ends, and all rights to use IHMA Technology and to develop, manufacture, and market Licensed Products reverts to IHMA. (b) CUBIST may, after the effective date of termination, complete the manufacture of Licensed Products in the process of manufacture at the time of such termination and may sell or otherwise dispose of the same together with Licensed Products in inventory for a period not to exceed twelve (12) months from the effective date of termination. IHMA may purchase from CUBIST any Licensed Products and the rights to sell them, on commercially reasonable terms acceptable to CUBIST. (c) As to any sales by CUBIST, including those after termination, CUBIST shall pay to IHMA those royalties as required by Section 3.2 and shall submit to IHMA reports as required by Section 3.4. (d) Upon termination of this Agreement for any reason, CUBIST shall cease exercising the license granted under Section 2.1 except during the sell-out period set forth in Section 6.3(b). (e) Following any termination of this Agreement, each party upon request shall return to the other party, or certify in writing to the other party that it has destroyed all documents and other tangible items it or its employees or agents have received or created pursuant to this Agreement pertaining, referring or relating to the Confidential Information of the other party. However, each party shall be permitted to retain copies of such documents which it is required to retain by rule of law (e.g., rule or regulation of a *Confidential treatment requested: Material has been omitted and filed with the Commission. government agency) or that it must retain for litigation then pending in which the party retaining the documents is a party. (f) In the event the license granted to CUBIST under Section 2.1 terminates for any reason, each of CUBIST's sublicensees at such time shall continue to have the rights and licenses set forth in their respective sublicense agreements; provided that such sublicensees have agreed in writing that IHMA may enforce the terms of the respective sublicense agreement directly against that sublicensee and that IHMA shall have no greater responsibilities to any sublicensee of CUBIST than those which are set forth in this Agreement. (g) Termination of this Agreement shall not affect rights and obligations of either party that may have accrued prior to the effective date of termination or any obligation specifically stated to survive termination. (h) The provisions of Sections 1, 2.6, 2.3, 3.3-3.4, 4, 5 (solely with respect to third party claims) and 6-8 shall survive any expiration or termination of this Agreement. (i) Neither party shall be entitled to damages resulting from the termination of this Agreement. However, this provision does not affect the right of each party to enforce the terms and consideration in this Agreement, including termination of the Agreement on account of material breach by one party which has not been cured. 7. DISPUTE RESOLUTION. 7.1 DESIGNATED REPRESENTATIVES FOR DISPUTE REPRESENTATION. Each party will designate an individual (Representative) who will have the authority to represent such party in all matters concerning the transactions contemplated by this Agreement. All communications should be addressed to the designated Representative. The initial CUBIST Representative will be Alan Watson. The initial IHMA Representative will be Steven Bluth. Either party may change its Representative at any time with notice to the other party. 7.2 ATTEMPT TO RESOLVE DISPUTES BY NEGOTIATION. In the event that any dispute arises relating to this Agreement, the Representatives shall promptly meet and attempt to resolve same through good faith discussions. If the Representatives are unable to resolve any dispute to their mutual satisfaction within thirty (30) days and if they do not agree to extend the time for resolution of the issue within the thirty (30) days, then either party may commence dispute resolution by an independent body in accordance with Section 7.3. 7.3 DISPUTE RESOLUTION BY AN INDEPENDENT DECISION MAKER. (a) Actions by either party seeking equitable or declaratory relief may be brought in a court of competent jurisdiction without resort to any of the alternative dispute resolution provisions of this Section 7. *Confidential treatment requested: Material has been omitted and filed with the Commission. (b) Any controversy or claim arising between the parties in connection with this Agreement that cannot be resolved by negotiation under sections 7.1-7.2, shall be resolved by binding arbitration in accordance with the terms and conditions of Sections 7.3-7.5. (c) All arbitration shall be undertaken in accordance with the federal policy in the United States favoring arbitration, as set forth in the Federal Arbitration Act, and the decision of the arbitrator(s) shall be enforceable in any court of competent jurisdiction. (d) Each party knowingly and voluntarily waives its respective rights to have their dispute tried and adjudicated by a judge and jury except as expressly provided herein. (e) The arbitrator(s) shall apply the law of the Commonwealth of Massachusetts and the arbitration shall be held in Boston, Massachusetts. (f) This agreement to arbitrate shall continue in full force and effect despite the expiration, rescission or termination of this Agreement. 7.4 ARBITRATION PROCEDURE. (a) Any party may demand arbitration by sending written notice to the other party. (b) The arbitration and the selection of the arbitrator(s) shall be conducted in accordance with the rules of J.A.M.S./Endispute and using a panel of arbitrators associated with J.A.M.S./Endispute, unless otherwise agreed upon by the parties. (c) If, within thirty (30) days following the date arbitration is demanded, the parties are unable to agree upon a single arbitrator from a panel of arbitrators associated with J.A.M.S./Endispute, then the parties shall, by turns, each strike one person on the list of arbitrators provided by J.A.M.S./Endispute, until the last two persons on the list become arbitrators. Those two arbitrators shall then select a third arbitrator from the list (including those persons previously striken), which arbitrator shall become the chief arbitrator of the three (3) arbitrator panel. The arbitration panel shall be formed within 51 days following the date arbitration is demanded. (d) Unless the parties agree otherwise or as determined for good cause shown by the arbitrator(s) based upon the nature of the dispute and the discovery required for its prompt, fair and inexpensive determination, each side shall be limited in its discovery to directly relevant documents and depositions of up to three persons from the opposing party. (e) The arbitrator(s) shall resolve any discovery disputes under the rules of J.A.M.S./Endispute. 7.5 SCOPE OF ARBITRATION AND AWARDS. (a) The arbitration shall be of each party's individual claims arising out of the Agreement, only, and no claim of any other person shall be subject to arbitration in such proceeding. *Confidential treatment requested: Material has been omitted and filed with the Commission. (b) The arbitrator(s) shall only have the authority to award actual money damages (with interest on unpaid amounts from the date due). The arbitrator(s) shall not have the authority to award exemplary or punitive damages based upon the Agreement. (c) The costs and expenses of the arbitration panel, but not the costs and expenses of the parties, shall be shared equally by the parties. However, if the arbitrator(s) determine(s) that the conduct of one party was wholly responsible for the dispute, and was not based upon genuine issues of law or fact which should have required dispute resolution by an independent decision maker, then the arbitrator(s) may, in his/their sole discretion, provide that the party responsible shall bear the entire cost and expense of the arbitration. (d) If a party fails to participate in the arbitration, unsuccessfully challenges the arbitration award, or fails to comply with the arbitration award, then the arbitrators may assess that party the costs incurred by the other party, including reasonable attorneys' fees, for having to compel arbitration or defend or enforce the award. (e) Except as otherwise required by law, the parties and the arbitrator(s) shall maintain as confidential all information, testimony and documents obtained during the arbitration process, including the resolution of the dispute. 8. GENERAL PROVISIONS. 8.1 PROTECTION OF CONFIDENTIAL INFORMATION. (a) For a period of ten (10) years from the date of disclosure, IHMA and CUBIST (each as a RECEIVING PARTY) shall limit access to Confidential Information received from the other party (the DISCLOSING PARTY) pursuant to this Agreement, to those of their employees, consultants and agents who need to have access to such information or material, and who have been obligated to maintain confidentiality sufficient to protect the other party's rights in its Confidential Information. Neither party may use, or permit to be used such Confidential Information by or for the benefit of itself (except as anticipated by this Agreement) or any independent third person. (b) Each party shall exercise at least the same reasonable care it uses to protect its own valuable, proprietary Confidential Information in order to prevent the disclosure of the other party's Confidential Information to independent third parties. Each party shall promptly notify the other party of any actual or suspected unauthorized use or disclosure of the other party's Confidential Information of which it has knowledge and will cooperate in the investigation of and appropriate actions with respect to such unauthorized use or disclosure. Each party shall include the other party's reasonable proprietary rights notices on any media embodying the other party's Confidential Information, including partial copies thereof, which are circulated within that party. (c) Notwithstanding the nondisclosure obligations and limitations on use of Confidential Information set forth in this Section 8.1, in the course of the performance of this Agreement each party may, from time to time, disclose certain Confidential *Confidential treatment requested: Material has been omitted and filed with the Commission. Information to the extent necessary and appropriate to obtain governmental approvals for marketing the Licensed Products. (d) In the event of any request by a government agency (including government agencies responsible for Product Approvals or Reimbursement Approvals) or by any court that the Receiving Party disclose any of the Disclosing Party's Confidential Information, the Receiving Parry shall promptly inform the Disclosing Party of such request prior to responding. If the Disclosing Party informs Receiving Party that the Disclosing Party wishes to oppose the request for disclosure, then: (i) the Disclosing Party may intervene in the proceeding directly and seek protection from the request, at its sole expense, or (ii) the Receiving Party shall (at Disclosing Party's expense) cooperate with and support the Disclosing Party's reasonable efforts to oppose such request, and (iii) the Receiving Party shall disclose the Disclosing Party's Confidential Information only in the event of a final judgment or administrative order requiring such disclosure, and then only to the extent necessary to comply with such request. 8.2 PUBLICITY. Except as is necessary for governmental notification purposes or to comply with applicable laws and regulations or to enforce their respective rights under this Agreement, or to a party's legal or financial advisors, and except as otherwise agreed to by the parties hereto in writing, the parties shall: (a) keep the material terms of this Agreement confidential, (b) agree upon the text and the exact timing of any initial public announcement relating to the transactions contemplated by this Agreement as soon as possible after the Effective Date (such agreement not to be unreasonably withheld), and (c) agree on the text and the timing of any subsequent public announcements regarding this Agreement or the transactions contemplated herein. Neither party shall use the name of the other party or any director, officer or employee of the other party or any adaptation thereof in any advertising, promotional or sales literature or publicity without the prior written approval of the other party. 8.3 INDEPENDENT CONTRACTORS. Each party represents that it is acting on its own behalf as an independent contractor and is not acting as an agent for or on behalf of any third party. This Agreement and the relations hereby established by and between IHMA and CUBIST do not constitute a partnership, joint venture, franchise, agency or contract of employment. CUBIST is not granted, and shall not exercise, the right or authority to assume or create any obligation or responsibility on behalf of or in the name of IHMA or its Affiliates. 8.4 ASSIGNMENT. (a) Except in the case of assignment by either party to an Affiliate or, pursuant to a merger, consolidation or sale of substantially all of the assets or stock of such party, neither party may assign its rights or obligations hereunder without the prior written consent of the other party, which consent shall not be unreasonably withheld in the case of any assignment; provided that the proposed assignee under this Section 8.4 agrees, in writing, to assume all of the obligations of the assignor party under this Agreement, including specifically the duty of product development and market development in Sections 2.6 and 2.7. *Confidential treatment requested: Material has been omitted and filed with the Commission. (b) It is understood that CUBIST or IHMA may from time to time perform some or all of its obligations hereunder through one or more of its Affiliates. When it does so, CUBIST and IHMA shall remain responsible for the performance of such obligations. 8.5 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 8.6 NOTICES. Unless otherwise provided herein, any notice, report, payment or document to be given by one party to the other shall be in writing and shall be deemed given when: (a) delivered personally, or (b) on the fifth (5th ) business days after the date of mailing, when mailed by certified or registered mail, postage prepaid, or (c) one business day after it is deposited with a nationally recognized overnight courier service, prepaid with directions for next business day delivery, or (d)on the date when sent by telefax, when a date and time stamped confirming copy shows the recipient received it during working hours on the business day when sent, and when a confirming copy of the notice is simultaneously sent by certified or registered mail, or overnight courier. Notices to IHMA shall be sent to: International Health Management Associates, Inc. 1675 Winnetka Circle Rolling Meadows, IL 60008 Attention: Mr. Steven Bluth Phone: 847/577-9135 Fax: 847/577-7192 Notices to CUBIST shall be sent to: Cubist Pharmaceuticals, Inc. 24 Emily Street Cambridge, MA 02139 Attention: Dr Alan Watson Phone: (617) 576 4222 Fax: (617)234 5592 or to such other place as either party may designate by written notice to the other party. 8.7 GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the Commonwealth of Massachusetts, United States of America, to the exclusion of both its rules on conflicts of laws and the provisions of the United Nations Convention on Contracts for the international Sale of Goods. 8.8 AMENDMENT AND WAIVER. (a) No provision of or right under this Agreement shall be deemed to have been waived by any act or acquiescence on the part of either party, its agents or employees, but only by an instrument in writing signed by an authorized officer of each party. *Confidential treatment requested: Material has been omitted and filed with the Commission. (b) No waiver by either party of any breach of this Agreement by the other party shall be effective as to any other breach, whether of the same or any other term or condition and whether occurring before or after the date of such waiver. 8.9 SEVERABILITY. In the event any provision of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other term or provision hereof. The parties agree that they will negotiate in good faith to replace any provision hereof so held invalid, illegal or unenforceable with a valid provision which is as similar as possible in substance to the invalid, illegal or unenforceable provision, or will permit a court or arbitrator to do so under the procedures in Section 7.3 - 7.5. 8.10 CONFLICT OR INCONSISTENCY. In the event of any conflict or inconsistency between the terms and conditions hereof and any terms or conditions set forth in any purchase order or other document between CUBIST and IHMA relating to the transactions contemplated by this Agreement, the terms and conditions set forth in this Agreement shall prevail. 8.11 ENTIRE AGREEMENT. The terms and provisions contained in this Agreement (including the Attachments) constitute the entire understanding of the parties with respect to the transactions and matters contemplated hereby and supersede all previous communications, representations, agreements and understandings relating to the subject matter hereof. No representations, inducements, promises or agreements, whether oral or otherwise, between the parties not contained in this Agreement or incorporated by reference in this Agreement shall be of any force or effect. No agreement or understanding extending this Agreement or varying its terms (including any inconsistent terms in any purchase order, acknowledgment or similar form) shall be binding upon either party unless it is in a writing signed by a duly authorized representative of each party. 8.12 CAPTIONS. Captions of the sections and subsections of this Agreement are for reference purposes only and do not constitute terms or conditions of this Agreement and shall not limit or affect the meaning or construction of the terms and conditions hereof. 8.13 WORD MEANINGS. Words such as "herein," "hereinafter," "hereof" and "hereunder" refer to this Agreement as a whole and not merely to a section or paragraph in which such words appear, unless the context otherwise requires. The singular shall include the plural, and each masculine, feminine and neuter reference shall include and refer also to the others, unless the context otherwise requires. 8.14 RULES OF CONSTRUCTION. The parties agree that they have participated equally in the formation of this Agreement and that the language and terms of this Agreement shall not be construed against either party by reason of the extent to which such party or its counsel participated in the preparation of this Agreement. *Confidential treatment requested: Material has been omitted and filed with the Commission. 8.15 COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart. 8.16 FORCE MAJEURE. Except as otherwise provided in this Agreement, in the event that a delay or failure of a party to comply with any obligation, other than a payment obligation, created by this continuance of the Force Majeure condition to the extent the affected party uses commercially reasonable efforts to mitigate the condition. 8.17 FURTHER ASSURANCES. Each party covenants and agrees that it will execute and deliver any further legal instruments and perform any acts which are or may become reasonably necessary to effectuate the purposes of this Agreement.. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers, and have duly delivered and executed this Agreement as of the Effective Date intending it to take effect as an instrument under seal. INTERNATIONAL HEALTH MANAGEMENT, INC. By: /s/ STEVEN W. BLUTH ------------------------------- Steven W. Bluth Vice President CUBIST PHARMACEUTICALS, INC. By: /s/ ALAN D. WATSON ------------------------------- Alan D. Watson Senior Vice President, Corporate Development *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.70 23 a2042768zex-10_70.txt EXHIBIT 10.70 EXHIBIT 10.70 CONFIDENTIAL TREATMENT PATENT CROSS-LICENSE AGREEMENT This agreement ("Agreement"), affective as of the 18th day of November, 1999 ("Effective Date"), is made by and between Terragen Discovery Inc., a British Columbia corporation ("Terragen"), having Its principal place of business at Suite 300-2386 East Mail - UBC, Vancouver, British Columbia, Canada V6T IZ3, and Diversa Corporation, a Delaware corporation ("Diversa"), having its principal place of business at 10665 Sorrento Valley Road, San Diego, California 92121. WHEREAS, Terragen is the owner of certain Terragen Patent Rights (as hereinafter defined), and Diversa is the owner of certain Diversa Patent Rights (as hereinafter defined), both embodying technologies applicable in discovery of multi-gene pathways and biomolecules of interest: WHEREAS, each party is desirous of acquiring certain rights under the other party's patent rights to use the other party's technology for the development, manufacture, sale and use of products and the provision of services; and WHEREAS, each party is willing to grant the other party such rights in accordance with the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions set forth herein, Terragen and Diversa hereby agree as follows: ARTICLE 1--DEFINITIONS "DNA SHUFFLER" shall mean a company whose primary business activity and technology prior to the Effective Date relates to the area of molecular breeding involving in vitro DNA shuffling, and all successor entities thereto. "DIVERSA PATENT RIGHTS" shall mean patents and patent applications set forth in Exhibit A hereto, and all continuations-in-part, continuations, divisionals, reissues, re-examinations or extensions thereof, and any foreign patents and patent applications corresponding thereto, Diversa may modify Exhibit A from time to time by providing written notice to Terragen to include patents and patent applications that may be required in order for Terragen to practice Diversa Patent Rights or Terragen Patent Rights. *Confidential treatment requested: Material has been omitted and filed with the Commission. -2- "DIVERSA PRODUCTS" shall refer to all products made, use, sold, offered for sale or imported by Diversa that but for the licenses granted herein would infringe Terragen Patent Rights. "FIELD 1" shall mean small molecules for pharmaceutical applications. "FIELD 2" shall mean all fields except Field 1. "PATENT RIGHTS" shall refer to Terragen Patent Flights and Diversa Patent Rights. "POLYKETIDE DISCOVERER" shall mean a company whose primary business activity and technology prior to the Effective Date relates to the area of polyketide pathway discovery, and all successor entities thereto. "TERRAGEN PATENT RIGHTS" shall mean patents and patent applications set forth in Exhibit B hereto, and all continuations-in-part, continuations, divisionals, reissues, re-examinations or extensions thereof, and any foreign patents and patent applications corresponding thereto. as well as any patents and patent applications necessary to practice microdroplet screening technologies as described in the patents and patent applications in Exhibit B. Terragen may modify Exhibit B from time to time by providing written notice to Diversa to include patents and patent applications that may be required in order for Diversa to practice Diversa Patent Rights or Terragen Patent Rights. "TERRAGEN PRODUCTS" shall refer to small molecules generated by the expression of partial, complete or hybrid gene pathways made, used, sold, offered for sale or imported by Terragen that but for the license granted herein would infringe Diversa Patent Rights. It is understood that small molecules do not include proteins or nucleic acids. "VALID CLAIM" shall mean: (1) a claim of an issued and unexpired patent that has not been revoked or held unenforceable or invalid by a decision of a court or other governmental body of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been statutorally disclaimed; or (ii) a claim included in a pending patent application that is actively prosecuted and which has not been cancelled, withdrawn, finally determined to be unallowable by the applicable governmental body pursuant to an unappealable decision and/or abandoned in accordance with the terms hereof. ARTICLE 2--LICENSE GRANT 2.1 TERRAGEN LICENSE GRANT. Subject to the terms and conditions set forth herein, Terragen hereby grants to Diversa the following: *Confidential treatment requested: Material has been omitted and filed with the Commission. -3- a) a co-exclusive, non-royalty bearing, worldwide, non-sublicenseable license under Terragen Patent Rights to make, use, sell, offer to sell and/or import Diversa Products in Field 2. This license shall not extend to [ ]*. b) a non-exclusive, non-royalty bearing, non-sublicenseable, worldwide license under Terragen Patent Rights to make, use, self, offer to sell and/or import Diversa Products in Field 1, provided that for a period of one (1) year from the Effective Date, the license under this subparagraph shall not extend to [ ]*. 2.2 DIVERSA LICENSE GRANT. Subject to the terms and conditions set forth herein, Diversa hereby grants to Terragen the following: a) a non-exclusive, non-royalty bearing, worldwide, non-sublicenseable license under Diversa Patent Rights to make, use, sell, offer to sell and/or import Terragen Products in Field 1. 2.3 LICENSE LIMITATIONS. a) Diversa agrees that it will not utilize lichens in discovery and/or development of Diversa Products in Field 1 for a period of [ ]* years from the Effective Date. b) Terragen agrees that it will not utilize insect endosymbionts in the discovery and/or development of Terragen Products for a period of [ ]* years from the Effective Date. ARTICLE 3--CONSIDERATION 3.1 FEES. In consideration of the licenses granted to Diversa by Terragen under the forms of this Agreement, Diversa has granted the license referred to in Section 2.2 and will pay Terragen the following: a) a one time up front payment of [ ]*; b) an annual maintenance fee of [ ]* until all Valid Claims included in the Terragen Patent Rights have expired, unless the Agreement is terminated earlier pursuant to Article 7 below. ARTICLE 4--INTELLECTUAL PROPERTY *Confidential treatment requested: Material has been omitted and filed with the Commission. -4- 4.1 Except as permitted below, in further consideration of the licenses granted under the terms of this Agreement, Terragen will not institute a legal action challenging the validity and/or enforceability of Diversa Patent Rights, and Diversa will not institute any legal action challenging the validity and/or enforceability of Terragen Patent Rights, in each case, during the term of this Agreement. "Legal action challenging the validity and/or enforceability of Diversa Patent Rights/Terragen Patent Rights" shall include, but is not limited to, pre-grant or post-grant opposition proceedings, nullity suits, reexamination proceedings, declaratory judgement actions, and civil actions under 35 U.S.C. ss. 291 (interfering patents). 4.2 Except as permitted below, in further consideration of the licenses granted under the terms of this Agreement, neither party shall take any action to hinder or delay prosecution of patents or patent applications owned or controlled by the other party and within the scope of Patent Rights without the prior written consent of said other party during the term of this Agreement "Action taken to hinder or delay prosecution of patent applications" shall include, but is not limited to, formal or informal protests and third- party observations. 4.3 Upon the execution of this Agreement, a party who has brought a pending legal action challenging the validity or enforceability of any patent or patent application owned or controlled by the other party and within the scope of Patent Rights, shall take appropriate steps to terminate said pending legal action. 4.4 Notwithstanding the provisions of sections 4.1 and 4.2, a party may present and prosecute one or more claims that are directed to the same patentable invention as any claim(s) of the other party. Claims may be presented to satisfy the provisions of 35 U.S.C.ss.135(b) or otherwise, e.g., at the request of an Examiner. 4.5 Notwithstanding the provisions of sections 4.1 and 4.2, in the event a patent infringement action is brought against a party to this Agreement, the party charged with infringement shall be permitted to raise all defenses permitted by law, including invalidity or unenforceability of the patent asserted against the party charged with infringement. 4.6 Notwithstanding the provisions of sections 4.1 and 4.2, nothing in this agreement shall prevent a party from disclosing material information to the Patent and Trademark Office to satisfy the duty of disclosure under 37 C.F.R. ss. 1.56. 4.7 If the United States Patent and Trademark Office declares an interference proceeding involving Terragen Patent Rights and Diversa Patent Rights, the parties will negotiate a settlement of such an interference in good faith. These negotiations will address all priority and non-priority issues that could have been brought in the interference. *Confidential treatment requested: Material has been omitted and filed with the Commission. -5- 4.8 INFRINGEMENT BY THIRD PARTIES. a) In the event that either party determines that a third party is making, using, or selling a product that may infringe a patent included in the Patent Rights, it will promptly notify the other party in writing. b) Except as provided under section 4.8(c), the party in whose name the allegedly infringed Patent Rights are registered shall be solely responsible for determining whether to bring suit against such alleged infringer and controlling such suit, and the other party shall take all reasonable steps to assist in such suit, provided that the expenses of the other party are paid by the controlling party. c) If the matter involves an alleged infringement of the Terragen Patent Rights in Field 2, then Terragen shall be initially responsible for determining whether to bring suit against such alleged infringer. In the event Terragen decides to bring suit, it shall give prompt written notice to Diversa of that fact, and Diversa shall take all reasonable steps to assist Terragen in such suit. Terragen shall be entitled to all amounts recovered in such suit (other than amount to be paid to Diversa, should Diversa elect to join in such suit as provided for herein), except that Diversa shall have the right to elect to pay up to [ ]* percent ( *%) of the litigation costs and receive a percentage of any recovery equal to the percentage of total litigation costs, including reasonable attorneys' fees, paid by Diversa. Diversa must make such election within sixty (60) days of its receipt of Terragen's notice that it has decided to bring suit. Diversa shall also have the right to be represented by separate counsel in any such suit, Terragen shall have control over any such suit, and decisions as to settlement, methods and/or terms and conditions for resolving the suit shall be made by Terragen after good faith consultation with Diversa. Upon the earlier of (i) Terragen's election not to bring a suit against the alleged infringer, as indicated by prompt written notice to Diversa, or (ii) 180 days after Terragen has notice of such alleged infringement if Terragen has not been able to cause the alleged infringer to cease infringement, Diversa shall have the right. at its option, to commence such action at its own cost and expense, in which case Diversa shall have control over such suit and be entitled to all amounts recovered in such action, subject to payment of any *Confidential treatment requested: Material has been omitted and filed with the Commission. -6- costs of Terragen in assisting in such suit. Subject to the right to receive payment for its costs out of amounts recovered as aforesaid, Terragen shall take all reasonable steps to assist Diversa in such suit. 4.9 PARTIES TO MAINTAIN PATENT RIGHTS. Each party shall have the obligation and be responsible at its own cost and expense for maintaining and extending those Patent Rights under its control for the term of this License. Subject to section 4.10, each party shall use good faith efforts to prosecute, issue and maintain all Patent Rights. 4.10 NOTICE OF PATENT LAPSE OF PATENT RIGHTS. In the event that a party elects to abandon any of the Patent Rights under its control, it shall promptly advise the other party of the grant, lapse, nullification, revocation, surrender, or invalidation of any such Patent Rights at least in advance of any abandonment to enable the other party (the "Assuming Party") to assume that prosecution, at the Assuming Party's expense, should the Assuming Party not agree to such abandonment. ARTICLE 5--LIMITED WARRANTIES/ INDEMNIFICATION/LITIGATION 5.1 LIMITED WARRANTY. Each party warrants to the other that it has the full right and power to make the representations and agreements set forth herein. Terragen warrants that Exhibit B lists patent applications filed on or before the Effective Date owned by Terragen, and Diversa warrants that Exhibit A lists patent applications filed on or before the Effective Date owned by Diversa. 5.2 NO OTHER WARRANTIES BY TERRAGEN. WITH RESPECT TO TERRAGEN PATENT RIGHTS AND TERRAGEN TECHNOLOGY, TERRAGEN EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY KIND AND MAKES NO EXPRESS OR IMPLIED WARRANTIES WHATSOEVER INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY, SATISFACTORY QUALITY OR FITNESS FOR A PARTICULAR PURPOSE, EXCEPT AS EXPRESSLY PROVIDED IN PARAGRAPH 5.1 ABOVE. TERRAGEN EXPRESSLY DISCLAIMS ALL WARRANTIES AS TO THE VALIDITY OR SCOPE OF TERRAGEN PATENT RIGHTS, OR THAT THE TERRAGEN TECHNOLOGY WILL BE FREE FROM INFRINGEMENT OF PATENTS OR PROPRIETARY RIGHTS OF THIRD PARTIES, OR THAT NO THIRD PARTIES ARE IN ANY WAY INFRINGING TERRAGEN PATENT RIGHTS. In no event shall Terragen be liable for any consequential, indirect, or incidental damages. Further, Diversa shall make no statements, representations or warranties whatsoever to any third party which are inconsistent with this disclaimer by Terragen. *Confidential treatment requested: Material has been omitted and filed with the Commission. -7- 5.3 NO OTHER WARRANTIES BY DIVERSA. WITH RESPECT TO DIVERSA PATENT RIGHTS AND DIVERSA TECHNOLOGY, DIVERSA EXPRESSLY DISCLAIMS ALL WARRANTIES OF ANY KIND AND MAKES NO EXPRESS OR IMPLIED WARRANTIES WHATSOEVER INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY, SATISFACTORY QUALITY OR FITNESS FOR A PARTICULAR PURPOSE, EXCEPT AS EXPRESSLY PROVIDED IN PARAGRAPH 5.1 ABOVE. DIVERSA EXPRESSLY DISCLAIMS ALL WARRANTIES AS TO THE VALIDITY OR SCOPE OF DIVERSA PATENT RIGHTS, OR THAT THE DIVERSA TECHNOLOGY WILL BE FREE FROM INFRINGEMENT OF PATENTS OR PROPRIETARY RIGHTS OF THIRD PARTIES, OR THAT NO THIRD PARTIES ARE IN ANY WAY INFRINGING DIVERSA PATENT RIGHTS. In no event shall Diversa be liable for any consequential, indirect, or incidental damages. Further, Terragen shall make no statements, representations or warranties whatsoever to any third party which are inconsistent with this disclaimer by Diversa. 5.4 INFRINGEMENT LITIGATION. Each party shall notify the other party in writing in the event that any third party shall commence or threaten to commence an action against Terragen or Diversa alleging that the practice of a method or process embodied in one or more claims of Diversa Patent Rights or Terragen Patent Rights infringes a patent of a third party. Each party shall keep the other reasonably informed with respect to the progress of any such action from time to time. Upon a party's reasonable request and at its expense, the other party shall cooperate with the requesting party and its counsel with respect to the defense of any such action against the requesting party. ARTICLE 6--CONFIDENTIALITY 6.1 DEFINITION OF CONFIDENTIAL INFORMATION. Confidential Information shall mean any technical, business or other proprietary information, whether orally or in writing, furnished by one party (the "Disclosing Party") to the other party (the "Receiving Party") in connection with this Agreement. Such Confidential Information shall include, without limitation, the terms of this Agreement, Diversa Patent Rights, arid Terragen Patent Rights. 6.2 OBLIGATIONS. The Receiving Party agrees that it shall: (a) Maintain all Confidential Information in strict confidence, except that the Receiving Party may disclose or permit the disclosure of any Confidential Information to its Affiliates, directors, officers, employees, consultants and advisors who are obligated to maintain the confidential nature of such Confidential Information and who need to know such *Confidential treatment requested: Material has been omitted and filed with the Commission. -8- Confidential Information for the purposes set forth in this Agreement; (b) Use all Confidential Information solely for the purposes set forth in, or as permitted by, this Agreement; and (c) Allow its Affiliates, directors, officers, employees, consultants and advisors to reproduce the Confidential Information only to the extent necessary to effect the purposes set forth in this Agreement, with all such reproductions being considered Confidential Information. Each Party shall be responsible for any breaches of this Section 6.2 by any of its Affiliates, directors, officers, employees, consultants and advisors. 6.3 EXCEPTIONS. The obligations of the Receiving Party under Section 6.2 above shall not apply to any specific Confidential Information to the extent that the Receiving Party can demonstrate by written record that such Confidential Information; (a) Was in the public domain prior to the time of its disclosure under this Agreement: (b) Entered the public domain after the time of its disclosure under this Agreement through means other than an unauthorized disclosure resulting from an act or omission by the Receiving Party or its Affiliates, directors, officers, employees, consultants, advisors or agents; (c) Was or is independently developed or discovered by the Receiving Party without use of the Confidential Information; (d) Is or was disclosed to the Receiving Party at any time, whether prior to or after the time of its disclosure under this Agreement, by a third party having no fiduciary relationship with the Disclosing Party and having no obligation of confidentiality to the Disclosing Party with respect to such Confidential Information; or (e) Is required to be disclosed to comply with applicable laws or regulations (such as disclosure to the SEC, the EPA, the FDA, or the United States Patent and Trademark Office or to their foreign equivalents), or to comply with a court or administrative order, provided that the Disclosing Party receives prior written *Confidential treatment requested: Material has been omitted and filed with the Commission. -9- notice of such disclosure and that the Receiving Party takes all reasonable and lawful actions to obtain confidential treatment for such disclosure and, if possible, to minimize the extent of such disclosure. 6.4 SURVIVAL OF OBLIGATIONS. The obligations set forth in sections 6.1, 6.2 and 6.3 shall remain in effect after termination or expiration of this Agreement, until such time as the Confidential Information falls into one of the exceptions listed in section 6.3. 6.5 PUBLICITY. The parties shall issue a joint press release regarding this Agreement, the text of which shall be subject to mutual agreement of the parties. Except for the information disclosed in the joint press release, neither party shall use the name of the other party or reveal the terms of this Agreement on any publicity or advertising without the prior written approval of the other party, except that (i) either party may use the text of a written statement approved in advance by both parties without further approval, and (ii) either party shall have the right to identify the other party and to disclose the terms of this Agreement as required by applicable securities laws or other applicable law or regulation, provided that the receiving PARTY takes reasonable and lawful actions to minimize the degree of such disclosure. ARTICLE 7--TERM AND TERMINATION 7.1 DIVERSA LICENSE TERM. The term of the licenses granted to Diversa by Terragen pursuant to this Agreement shall expire on a country by country basis, upon the [ ]*. 7.2 TERRAGEN LICENSE TERM. The term of the license granted to Terragen by Diversa pursuant to this Agreement shall expire on a country by country basis, upon the [ ]*. 7.3 TERMINATION UPON MATERIAL BREACH. Either party may terminate the licenses granted to the other party under this Agreement if such other party breaches any material term of this Agreement and does not cure such breach within [ ]* days following written notice; except for non-payment of money, in which case the cure period shall be reduced to [ ]* days. Any right to terminate arising under this section 7.3 shall be stayed until resolved under section 9.2 if, during the relevant cure period, the party alleged to have been in default shall: (i) have initiated arbitration in accordance with section 9.2 below, with respect to the alleged default; and *Confidential treatment requested: Material has been omitted and filed with the Commission. -10- (ii) be diligently and in good faith co-operating in the prompt resolution of such arbitration proceedings. 7.4 TERMINATION UPON BANKRUPTCY. If either party (the "Insolvent Party") files for protection under bankruptcy laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver or trustee over its property, files a voluntary petition under any bankruptcy or insolvency act or has any such petition filed against it which is not discharged within sixty (60) days of the filing thereof, then the other party may, at its sole election upon notice to the Insolvent Party, terminate the rights granted to the Insolvent Party by written notice to such Insolvent Party. 7.5. TERMINATION UPON PATENT RIGHT LAPSE. Either party may terminate the license granted to the other party under this Agreement if the other party's Patent Rights have lapsed, been canceled or abandoned, been admitted to be invalid or unenforceable through reissue or disclaimer or have been declared invalid by decision or judgment of a court of competent jurisdiction. 7.6 TERMINATION UPON LICENSED RIGHTS REPRESENTING MAJORITY OF ASSETS. Either party may terminate the licenses granted to the other party under this Agreement if the licenses granted to the other party under this Agreement represent more than [ ]*% of the total assets of the other party. 7.7 TERRAGEN TERMINATION RIGHTS UPON CERTAIN DIVERSA ACQUISITIONS/MERGERS. Terragen may terminate the licenses granted to Diversa under this Agreement in the event that Diversa transfers all or substantially all of its business, whether by way of merger, sale of stock, sale of assets or otherwise to a Polyketide Discoverer within two (2) years of the Effective Date. In the event the license to Diversa is terminated by Terragen pursuant this section 7.7, such termination will be effective upon the date of such transfer. 7.8 DIVERSA TERMINATION RIGHTS UPON CERTAIN TERRAGEN ACQUISITIONS/MERGERS. Diversa may terminate the license granted to Terragen under this Agreement in the event that Terragen transfers all or substantially all of its business, whether by way of merger, sale of stock, sale of assets or otherwise to a DNA Shuffler during the term of this Agreement. In the event the license to Terragen is terminated by Diversa pursuant this section 7.8, such termination will be effective upon the date of such transfer. Further, in the event Terragen transfers all or substantially all of its business, whether by way of merger, sale of stock, sale of assets or otherwise to a DNA Shuffler without prior written approval from Diversa within five (5) years of the Effective Date, Terragen shall reimburse Diversa the [ ]* paid to Terragen by Diversa pursuant to section 3.1 above, within ninety (90) days of such transfer. *Confidential treatment requested: Material has been omitted and filed with the Commission. -11- 7.9 RIGHTS UPON EXPIRATION. Upon expiration of the licenses granted hereunder, neither party shall have any further rights or obligations with respect to this Agreement in the countries with respect to which this Agreement has then expired, except that expiration shall not relieve each party of any obligations accruing prior to such expiration or of its obligations under Articles 4, 5 and 6 herein. This section 7.9 (and the sections referenced herein) shall survive expiration of this Agreement. 7.10 RIGHTS UPON TERMINATION. Upon termination of the licenses granted by one party (the "Terminating Party") to the other party (the "Terminated Party") under this Agreement, the licenses granted by the Terminated Party to the Terminated Party shall remain in full force effect until expiration or termination in accordance with this Agreement. Any termination of licenses granted under this Agreement shall not relieve either party of any obligations with respect to such licenses accrued prior to the date of such termination or its obligations under Articles 4, 5 and 6 herein. This section 7.10 (and the sections referenced herein) shall survive termination of this Agreement. ARTICLE 5--ASSIGNMENT, CHANGE OF OWNERSHIP, RIGHTS UPON DISSOLUTION 8.1 ASSIGNMENT. Except as otherwise expressly provided herein, neither this Agreement nor any interest hereunder shall be assignable, nor any other obligation delegable, by either party without the prior written consent of the other, provided, however, that (subject to sections 7.7 and 7.8 above) a Party may assign this Agreement to any affiliate of it or to any successor by law or by sale of all or substantially all of its assets, provided that the assigning party shall guarantee and remain liable and responsible for the performance and further observance of all the assigning party's duties and obligations hereunder; provided further that, in the event of such transaction, no intellectual property rights of any person (other than Diversa or Terragen) that is an acquiring party shall be included in the technology licensed hereunder. The terms and provisions of this Agreement shall be binding upon the successors and permitted assigns of the parties. Any assignment not in accordance with this section 8.1 shall be void. 8.2 DIVERSA RIGHTS UPON DISSOLUTION, LIQUIDATION, WINDING UP OF TERRAGEN. Diversa will have a right of first option to negotiate the purchase of the Terragen Patent Rights in the event of the dissolution. liquidation or winding up of Terragen (an "Event") (subject to section 9.12 hereof and to applicable bankruptcy laws) within five (5) years of the Effective Date. Terragen will provide prompt written notice to Diversa of any Event or proposed Event. Diversa may exercise its option to negotiate the purchase of the Terragen Patent Rights by providing Terragen written notice within sixty (60) days after the date of such notice to Diversa by Terragen. If Diversa elects to exercise such option the parties shall *Confidential treatment requested: Material has been omitted and filed with the Commission. -12- negotiate in good faith with the goal of entering into a definitive agreement within ninety (90) days after the date of Diversa's notice to Terragen. If Diversa does not exercise such option within the sixty (60) day option period or the parties are unable to enter into a definitive agreement within the ninety (90) day period after Diversa's notice to Terragen that it has exercised the option (or such longer period as the parties may mutually agree in writing), then Terragen shall be free to sell or otherwise transfer the Terragen Patent Rights to a third party; provided that, for a period of six months following the end of the negotiation period, Terragen may not sell or otherwise transfer the Terragen Patent Rights to any third party containing terms and conditions which, in the aggregate. are more favorable to such third party than the terms and conditions last offered to Diversa by Terragen, unless Terragen first offers Diversa the opportunity to purchase the Terragen Patent Rights on such terms and conditions. ARTICLE 9--GENERAL PROVISIONS 9.1 INDEPENDENT CONTRACTORS. Terragen and Diversa shall be independent contractors and shall not be deemed to be partners, joint venturers or each other's agents and neither party shall have the right to act on behalf of the other except as is expressly set forth in this Agreement. 9.2 ARBITRATION. The Parties shall mutually consult in good faith in an attempt to settle amicably in the spirit of co-operation any and all disputes arising out of or in connection with this Agreement or questions regarding the interpretation of the provisions hereof. All controversies or claims under this Agreement, the enforcement or interpretation hereof, or because of an alleged breach, default or misrepresentation under the provisions hereof that cannot be settled amicably within one (1) month from the date of notification of either party to the other of such dispute or question, which notice shall specify the details of such dispute or question, shall be settled by final and binding arbitration in English, by one arbitrator appointed by the American Arbitration Association ("AAA"). If the parties cannot agree on the arbitrator to be so appointed, each party shall be entitled to appoint one (1) arbitrator, and the two (2) arbitrators so appointed shall agree upon a third. The arbitrator(s) shall have the technical expertise required to understand and arbitrate the dispute. The arbitration shall be conducted in San Diego, California, if initiated by Terragen and in Vancouver, British Columbia, if initiated by Diversa, in each case, in accordance with the then existing Commercial Arbitration Rules of the AAA. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof; provided. however, that the law applicable to any controversy shall be the law of the State of California or Federal Patent Law, as applicable, regardless of its or any other jurisdiction's choice of law principles. Notwithstanding the foregoing, either party may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction or other interim or conservatory relief, as necessary, without *Confidential treatment requested: Material has been omitted and filed with the Commission. -13- breach of this arbitration agreement and without any abridgement of the powers of the arbitrator. In no event shall the demand for arbitration be made after the date when institution of a legal or equitable proceeding based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The costs of any arbitration, including administrative and arbitrators' fees, shall be shared equally by the parties and each party shall bear its own costs and attorneys' and witness' fees, provided however, that the prevailing party, if determined by the arbitrator(s), shall be entitled to an award against the other party in the amount of the prevailing party's costs (including arbitration costs) and reasonable attorneys' fees. 9.3 ENTIRE AGREEMENT. This Agreement, together with the Non-Disclosure Agreement signed by the parties dated October 25, 1999, sets forth the entire agreement and understanding between the parties as to the subject matter hereof. There shall be no amendments or modifications to this Agreement, except by a written document signed by both parties. 9.4 CALIFORNIA LAW. This Agreement shall be construed and enforced in accordance with the laws of the State of California without giving effect to its principles of conflicts of taw. 9.5 SEVERABILITY. If any provision of this Agreement is ultimately held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 9.8 NO WAIVER. Any delay in enforcing a party's rights under this Agreement or any waiver as to a particular default or other matter shall not constitute a waiver of a party's right to the future enforcement of its rights under this Agreement. 9.7 NOTICES. Any notices in writing and payments to be made provided herein shall be deemed duly given and made if sent by courier or by certified or registered nail, postage prepaid, to the addressees below. Either party may change its address or its designated management representative by written notice to the other party. The date of giving such notices and payments shall be the date of mailing. To Terragen: Terragen Discovery Inc. Suite 300 2386 East Mall UBC Vancouver, British Columbia, Canada V6T 1Z3 *Confidential treatment requested: Material has been omitted and filed with the Commission. -14- Attention: Dr. Mario Thomas Chief Executive Officer To Diversa Corporation: Diversa Corporation 10665 Sorrento Valley Road San Diego, California 92121 Attention: Dr. Jay Short CEO, CTO and President 9.8 CAPTIONS. Captions and headings are relied on for convenience only and in no way are to be construed to define, limit or affect the construction or interpretation hereof. 9.9 GOVERNMENTAL APPROVALS. Each party shall be responsible for obtaining all necessary governmental approvals for the development, testing, production, distribution, sale and use of any products discovered and developed by such party using Diversa Technology or Terragen Technology licensed hereunder, at such party's sole expense. Each party shall have sole responsibility for any warning labels, packaging, instructions to use, and quality control with respect to any such product. 9.10 COMPLIANCE WITH LAWS AND REGULATIONS. Each party shall comply with all United States and foreign taws, regulations, rules and orders applicable to use of the Diversa Technology or Terragen Technology, as applicable, the development, testing, production, distribution, export, packaging, labeling, sales and use of products derived from the use of the Diversa Technology or Terragen Technology, as applicable. 9.11 NO USE OF NAME. Neither party shall use in advertising, promotion or sale of products, or the provision of services using the Diversa Technology or Terragen Technology, as applicable, any trade name, trademark, servicemark, trade-dress or other designation, or any confusingly similar variation thereof, of the other party, unless consented to in writing by such other party. 9.12 SECTION 365(n). All licenses granted under the Agreement will be deemed licenses of rights to intellectual property for purposes of Section 365(n) of the US Bankruptcy Code and a licensee under the Agreement will retain and may fully exercise all of its rights and elections under the US Bankruptcy Code. 9.13 COUNTERPARTS. This Agreement may be executed in counterparts. each of which, when so executed and delivered, shall be deemed to be an original, *Confidential treatment requested: Material has been omitted and filed with the Commission. -15- and all of which counterparts, taken together, shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the Effective Date. Terragen Discovery, Inc. Diversa Corporation /s/ DR. MARIO THOMAS /s/ DR. JAY M. SHORT - ---------------------------- ---------------------------- Dr. Mario Thomas Dr. Jay M. Short President CEO, President and CTO *Confidential treatment requested: Material has been omitted and filed with the Commission. EX-10.71 24 a2042768zex-10_71.txt EXHIBIT 10.71 EXHIBIT 10.71 CONVERTIBLE PROMISSORY NOTE (pound)1,500,000 8 April 1999 1.0 PARTICULARS OF THE NOTE In partial consideration for the sale by Xenova Discovery Limited ("XDL") of certain assets to TerraGen Diversity Inc. (the "Obligor") pursuant to a purchase and sale of assets agreement dated 31 March 1999 (the "Asset Purchase Agreement") the Obligor promises, subject to the terms and conditions of this Note, to pay to the order of XDL at its offices at 240 Bath Road, Slough, England, One Million Five Hundred Thousand Pounds ((pound)1,500,000) on 8 April 2002. Any capitalised terms used herein but not defined herein shall have the meanings ascribed to them in the Asset Purchase Agreement. 2.0 INTEREST 2.1 The Obligor promises to pay interest on the outstanding principal balance from time to time of the indebtedness evidenced hereby (the "Principal Amount") from the date hereof until payment in full of all amounts owing hereunder at a rate equal to LIBOR plus one per cent (1%) per annum. Such payment of interest by the Obligor shall be (a) made on (i) 8 July, 8 October, 2 January, 8 April in respect of the three calendar month period ending on the last day of the preceding calendar month, commencing on 8 July 1999 and (ii) at maturity and (b) calculated based on LIBOR on the first Business Day of the relevant Interest Period and on the Principal Amount outstanding from time to time during such Interest Period. Following an Event of Default (as hereinafter defined), interest shall accrue on the Principal Amount then outstanding at a rate per annum equal to 4% over the base rate of Lloyds Bank plc from time to time following the date of demand for payment to the date of actual payment and discharge of the amount due. For the purpose of this Article 2, the following definitions shall apply: "Business Day" means any day, other than a Saturday, Sunday or any day on which banks are required or authorised to close in London, England. "Interest Period" means each period in respect of which interest is paid hereunder. "LIBOR" the rate per annum determined by Lloyds Bank plc to be equal to the arithmetic mean (rounded upwards, if not already such a multiple, to the nearest whole multiple of one-sixteenth of one per cent. -2- (0.0625%)) of the offered quotations which appear on the relevant page (as defined below) for the relevant Interest Period at or about 11.00 am (London time) on the applicable date. "relevant page" means the Telerate Page 3750 of the Telerate Service which displays a British Bankers Association Interest Settlement Rate for sterling or if such page or such service shall cease to be available such other page or such other service (as the case may be) for the purpose of displaying London Interbank Offered Rates for sterling as Lloyds Bank plc shall select. 3.0 PAYMENTS Payments of both principal and interest are to be made in lawful money of the United Kingdom. If any payment of principal or interest on this Note shall become due on a day that is not a Business Day such payment shall be made on the next succeeding Business Day and such extension of time shall in such case be included in computing interest in connection with such payment. 4.0 PREPAYMENT 4.1 The Obligor shall have the right at any time to prepay, without premium or penalty, all or any part of the Principal Amount, provided that at the time of any such prepayment, the Obligor shall also pay all accrued interest on the amount of the Principal Amount so prepaid. 4.2 The Obligor may not prepay the Principal Amount after XDL has given notice of its intention to exercise its option to convert the Principal Amount into TerraGen Shares pursuant to Section 5.1 hereof. 5.0 CONVERSION INTO EQUITY 5.1 The Principal Amount shall be converted, in whole but not in part, into the equivalent amount of Class B Voting Preferred shares ("TerraGen Shares") of the Obligor at the Conversion Price (as hereinafter defined): (1) at the option of either XDL o the Obligator, at any time after 8 April 2001 by delivery to the other party hereto to accordance with Section 15.12 of the Asset Purchase Agreement of a written notice delivered specifying that such party is exercising its right to convert the Principal Amount into TerraGen Shares pursuant to this Article; or -3- (2) automatically on 8 April 2002, by which conversion the Principal Amount shall be satisfied; or (3) automatically upon the completion of an Initial Public Offering of the shares of the Obligor; PROVIDED that the Obligor shall have no right to convert pursuant to this Section 5.1 at any time when an Event of Default (as hereinafter defined) has occurred and is continuing. 5.2 For the purpose of this Article 5, an "Initial Public Offering" means the issuance of previously unissued common shares by the Obligor pursuant to a bona fide initial public offering pursuant to applicable securities laws of any of the provinces of Canada or of the United States of America or any state, territory or political subdivision thereof and the listing of the Obligor's common shares on a stock exchange determined by the directors of the Obligor. 5.3 The parties hereby agree that the Conversion price per share (the "Conversion Price") of the TerraGen Shares for the purposes of this Article 5 shall be equal to: (a) in the event that after the date hereof and prior to the conversion of the Principal Amount into TerraGen Shares the Obligor: (i) completes a Bona Fide Issue of TerraGen Shares (as hereinafter defined),the price equal to the cash issue price per share in respect of the last such Bona Fide Issue of TerraGen Shares completed, or (ii) completes an Initial Public Offering, the price pursuant to which the shares of the Obligor are sold pursuant to such Initial Public Offering; (b) in the event that after the date hereof and prior to the conversion of the Principal Amount into TerraGen Shares the Obligor neither completes a Bona Fide Issue of TerraGen Shares, nor completes an Initial Public Offering, the Conversion Price shall be CAD $3.75 per share; determined as of -4- (c) in the case of Section 5.1(1), the date that a conversion notice given pursuant to Section 5.1 is deemed to be received under Section 15.12 of the Asset Purchase Agreement, and (d) in the case of Section 5.1(2), 8 April 2002, and (e) in the case of Section 5.1(3), the date of the completion of the Initial Public Offering. 5.4 "Bona Fide Issue of TerraGen Shares" means an issue by the Obligor of any class of its shares of its capital stock (including any shares issued pursuant to rights, options, warrants or other securities convertible into shares, but not including the exercise or conversion of existing and outstanding share purchase warrants and options and conversion of shares currently issued and outstanding) made bona fide in good faith but shall specifically exclude: (i) share issues which yield proceeds to TerraGen, in the aggregate, of less than CAD $1,000,000, without deducting therefrom costs of the issue and omissions, (ii) shares issued to persons under the ESOP referenced in the Shareholders' Agreement or any employee, director or consultant options and the 2,339,182 Class B Voting Preferred shares which the Company has allotted to investors and any conversions thereof as set forth in the Minutes of a Meeting of the Directors of the Company held on March 25, 1999, a copy of which has been provided to the Purchaser, and (iii) shares issued for consideration other than cash. 6.0 CONVERSION RIGHTS 6.1 RESTRICTION The conversion set out in Article 5 will extend only to the maximum number of whole TerraGen Shares into which the Principal amount may be converted in accordance with Section 5.1 and fractions of TerraGen Shares will be adjusted for in the manner provided in Section 6.3. 6.2 COMPANY'S OBLIGATIONS ON CONVERSION -5- Forthwith following the conversion of the Principal Amount into TerraGen Shares pursuant to Section 5.1, the Obligor will: (1) deliver to XDL a certificate for the TerraGen Shares into which the Principal Amount has thereby been converted and, if applicable, a cheque for any amount payable under Section 6.3 in respect of such conversion; and (2) enter the name of XDL on the register of members and register or allotments of the Obligor 6.3 The Obligor will not be required to issue fractional TerraGen Shares upon the conversion of the Principal Amount and if any fractional interest in a share would except for the provisions of this Section 6.3, be deliverable upon the conversion thereof, the Obligor will, in lieu of issuing TerraGen Shares for such fractional interest, satisfy such fractional interest by paying to XDL an amount in lawful money of the United Kingdom equal to the principal amount of the Note which would otherwise have been converted into such fractional interest. 6.4 The Obligor will at all times reserve and keep available out of the TerraGen Shares now authorized by the Obligor, solely for the issuance upon conversion of this Note, a sufficient number of TerraGen Shares at least equal to the number of such shares that would be issuable upon the conversion of the entire Principal Amount. 6.5 In case of any reclassification of the TerraGen Shares any time outstanding or change of TerraGen Shares into other shares or any other capital reorganization in respect of the Obligor except as described below, or in case of the consolidation, amalgamation or merger of the Obligor with or into any other corporation (other than a consolidation, amalgamation or merger which does not result in any reclassification of the outstanding TerraGen Shares or a change or the TerraGen Shares into other shares), or in case of any transfer of the undertaking or assets of the Obligor as an entirety or substantially as an entirety to another corporation, at any time prior to the conversion of the Principal Amount into TerraGen Shares as herein set out, XDL will thereafter be entitled upon such conversion to receive, and will accept, in lieu of the number of TerraGen Shares to which XDL was theretofore entitled to receive upon such exercise, the kind and amount of shares and other securities or property which XDL would have been entitled to receive as a result of such reclassification, change, capital reorganization, consolidation, amalgamation, merger or transfer if, on the effective date thereof, XDL had been the registered holder of the number of TerraGen -6- Shares to which it was theretofore entitled upon conversion. If necessary, appropriate adjustments will be made in the application of the provisions set forth in this Section with respect to the rights and interests thereafter of XDL with the intent that the provisions set forth in this Section will thereafter be applicable in relation to any shares or other securities or property thereafter deliverable upon conversion. Any such adjustment will be made by and set forth in an agreement supplemental hereto approved by the Obligor and by XDL and will for all purposes be conclusively deemed to be an appropriate adjustment. The subdivision or consolidation of the TerraGen Shares will be deemed not to be a reclassification of the capital of the Obligor or a capital reorganization for the purpose of this Section 6.5. 6.6 If and whenever prior to the conversion of the Principal Amount into TerraGen Shares as set out herein, the TerraGen Shares are subdivided into a greater or consolidated into a lesser number of shares, or the Obligor issues TerraGen Shares as a stock dividend, XDL, if conversion of the Principal Amount Into TerraGen Shares has not occurred on or prior to the record date or the effective date, as the case may be, of such subdivision, consolidation or stock dividend, upon the conversion set out herein thereafter, will be entitled to receive and will accept in lieu (or, in the case of a stock dividend, in addition to) the number of TerraGen Shares then issued to XDL in accordance with the provisions for conversion set out herein, the aggregate number of TerraGen Shares that XDL would have been entitled to receive as a result of such subdivision, consolidation or stock dividend if, immediately before such issue or on such record date or effective date, XDL had been the registered holder of the number of TerraGen Shares so issued. 6.7 In any case in which this Note requires that an adjustment will become effective immediately after a record date for an event referred to herein, the Obligor may defer, until the occurrence of such event, issuing to XDL upon the conversion set out herein after such record date and before the occurrence of such event the additional TerraGen Shares issuable upon such exercise by reason of the adjustment required by such event before giving effect to such adjustment; provided, however, that the Obligor will deliver to XDL an appropriate instrument evidencing XDL's right to receive such additional TerraGen Shares upon the occurrence of the event requiring such adjustment and the right to receive any distributions made on such additional TerraGen Shares declared in favour of holders of the record of TerraGen Shares on and after the time of conversion set out herein or such later date as XDL would, but for the provisions of this Section 6.7, have become the holder of record of such additional TerraGen Shares pursuant to the conversion set out herein. -7- 6.8 The adjustment provided for in this Note are cumulative and will apply (without duplication) to successive subdivisions, consolidations, distributions, issuances or other events resulting in any adjustment under the provisions of this Note. 6.9 In the event of any question or dispute arising with respect to the adjustments provided in this Note such question will be conclusively determined by a firm of chartered accountants (who may be the Obligor's auditors) appointed by and acceptable to XDL provided that if XDL does not approve within 10 days of receipt of written notice of the name of the firm or chartered accountants proposed to be appointed by the Obligor for such purpose, such question will be conclusively determined by a firm of chartered accountants selected by the Obligor and, in either event, such accountants will have access to all necessary records of the Obligor and such determination will be conclusive and binding upon the Obligor and XDL. 6.10 As a condition precedent to the taking of any action which would require an adjustment pursuant to this Note, including the number of TerraGen Shares which are to be received upon conversion the Obligor will take any action which may, in the opinion of XDL, be necessary in order that the Obligor may validly and legally issue as fully paid and non-assessable all the TerraGen Shares which XDL is entitled to receive upon conversion in accordance with the provisions hereof. 6.11 Immediately after the occurrence of any event which requires an adjustment pursuant to this Note, including the number of TerraGen Shares which are to be received upon the exercise thereof, the Obligor will forthwith give notice to XDL of the particulars of such event and the required adjustment together with a certificate of the Obligor specifying the particulars of such event and the required adjustment and the computation of such adjustment. 7.0 EVENTS OF DEFAULT 7.1 If any of the following events ("Events of Default") shall occur: (1) default by the Obligor in the payment of any installment of principal or interest on this Note when the same becomes due and payable, which default continues unremedied for a period of five (5) days after notice by XDL requesting that such default be cured; or (2) default by the Obligor in the performance of or compliance with any other term or covenant contained in this Note, -8- which default continues unremedied for a period of thirty (30) days after notice by XDL requesting that such default be cured; or (3) if the Obligor shall make a general assignment for the benefit of creditors, or shall file a voluntary petition in bankruptcy, or shall file any petition or answer seeking for itself relief from its creditors any reorganisation, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall file any answer admitting or not contesting the material allegations of a petition filed against the Obligor in any such proceeding or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of the Obligor; or (4) if there shall be filed against the Obligor any petition or application for relief under any bankruptcy or similar law which is not discharged within sixty (60) days after such petition; or (5) the Obligor makes a general assignment for the benefit of or a composition with its creditors; or (6) the Obligor takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, dissolution, administration or reorganisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its revenues and assets; or (7) an encumbrancer takes possession of the whole or substantially all of, the property, undertaking or assets of the Obligor; then, and in any such event, XDL may, at any time. at its option, by written notice to the Obligor declare the Principal Amount and all accrued interest remaining unpaid on this Note due and payable. In case any one or more Events of Default shall occur and be continuing, XDL may proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any covenant contained in this Note, or for an injunction against a -9- violation of any of the terms hereof, or in aid of the exercise of any power granted hereby or by law. No course of dealing and no delay on the part of XDL in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice rights of XDL. No right conferred hereby to XDL shall be exclusive of any other right referred to herein or now or hereafter available at law, in equity, by statute or otherwise. 8.0 WAIVER The Obligor hereby waives demand, presentment, protest and notice of demand, presentment, protest and nonpayment. 9.0 SET-OFF & RETENTION In this Article: "Claim" means any claim made by the Purchaser in respect of the Warranties, as defined in, and in accordance with, the terms of the Asset Purchase Agreement or under any Indemnity in the Asset Purchase Agreement. "Relevant Events" has the meaning given to that expression by Section 9.4. 9.1 All sums payable under or pursuant to this Note whether in respect of principal, interest or otherwise shall be paid without any deduction, retention, set-off or other withholding on any account whatsoever save as otherwise expressly provided in this Article 9. 9.2 Subject as provided in this Article 9, the Obligor shall be entitled to set-off and retain the amount of any Claim against the amounts due or to become due and payable to XDL under this Note if a Relevant Event shall have occurred in relation thereto. 9.3 Such set-off and retention shall be exercised only by service of a notice in writing by the Obligor to XDL specifying the particular Claim in respect of which such set-off and retention is exercised and accompanied by evidence in writing of the occurrence of a Relevant Event in relation to such Claim. 9.4 A Relevant Event in relation to a Claim shall comprise any of the following events: (1) judgement being given against XDL the Second Seller or the Parent by a court or competent jurisdiction from which there shall be no subsisting right or appeal in respect of the Claim and -10- the amount of such judgement remaining unsatisfied in whole or in part 10 days after service of written notice by the Obligor to XDL requiring such judgement to be satisfied; (2) the Claim being settled or compromised by agreement between the parties and the amount so settled or compromised remaining unsatisfied in whole or in part 10 days after service of written notice by the Obligor to XDL requiring such amount to be satisfied; or (3) Leading Counsel of the English Bar of at least 10 years standing delivering an opinion: (1) that the Claim is a valid Claim pursuant to the Asset Purchase Agreement, and (2) that there are prima facie grounds for the Claim sufficient in his opinion to cause a court of competent jurisdiction not to accept an application for the Claim to be struck out on the basis of there being no real prospect of succeeding on the Claim or issue in question, and (3) that the Purchasers have a good and arguable case in respect of the Claim, and (4) of the amount in respect of which in his opinion there is such a good and arguable case; 9.5 In the event that any amount is deducted, set-off and retained by the Obligor pursuant to Sub-Section 9.4(c) and subsequently a court of competent jurisdiction from which there shall be no subsisting right of appeal rejects the claim or gives judgement against XDL, the Second Seller or the Parentor the parties agree a settlement or compromise for a sum including costs in either case for an amount falling short in aggregate of the sum deducted, set-off and retained pursuant to Sub-Section 9.4(c) then the Obligor shall forthwith on demand pay to XDL a sum equal to the amount of such shortfall (an "Excess"). Interest shall accrue on any such sum demanded and not paid and discharged at 4% over the base rate of Lloyds Bank plc from time to time from the date following the date of demand for payment to the date of actual payment and discharge of the amount due. 9.6 In the event that any amount is deducted, set-off or retained by the Obligor pursuant to Section 9.4, then the Principal Amount which shall fail to -11- be commuted under any right or obligation so to do under this Agreement shall be reduced by that amount save to the extent of any Excess. 10.0 NO ASSIGNMENT This Note shall not be assigned without the prior written consent of all of the parties hereto. 11.0 GOVERNING LAW This Note is made under and governed by the laws of England and Wales. TERRAGEN DIVERSITY INC. By: /s/ ----------------------------------------- Director XENOVA DISCOVERY LIMITED By: /s/ ----------------------------------------- Director EX-10.72 25 a2042768zex-10_72.txt EXHIBIT 10.72 EXHIBIT 10.72 CUBIST PHARMACEUTICALS, INC. AUDIT COMMITTEE CHARTER ORGANIZATION There shall be a committee of the board of directors to be known as the audit committee (the "Audit Committee"). The Audit Committee shall be composed of directors who are not officers or employees of the corporation or its subsidiaries and are free of any relationship that, in the opinion of the board of directors, would interfere with their exercise of independent judgment as a committee member. At least three members of the Audit Committee shall be conversant with the terms and terminology of finance, of which at least one member shall have accounting or related financial management expertise. STATEMENT OF POLICY The Audit Committee shall provide assistance to the corporate directors in fulfilling their responsibility to the stockholders, potential stockholders, and investment community relating to corporate accounting, reporting practices of the corporation, and the quality and integrity of the financial reports of the corporation. In so doing, it is the responsibility of the Audit Committee to maintain free and open means of communication between the directors, the independent auditors, and the financial management of the corporation. Independent auditors of the corporation shall be primarily accountable to the Audit Committee. MEETINGS The Audit Committee shall meet at least two times annually. The Audit Committee shall meet periodically with management and the independent accountants, either in separate executive sessions, to discuss any matters that the Audit Committee or either of these groups believes should be discussed privately. The Audit Committee may meet by telephone and may delegate specific functions to one or more of its members. RESPONSIBILITIES In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible, in order to best react to changing conditions and to ensure to the directors and stockholders that the corporate accounting and reporting practices of the corporation are in accordance with all requirements and are of the highest quality. In carrying out these responsibilities, the Audit Committee will: 1. Review and recommend to the directors the independent auditors, after considering their independence and effectiveness, to be selected to audit the financial statements of the corporation and its divisions and subsidiaries and receive from any potential auditor a written statement of all relationships of the auditor to the corporation. 2. Meet with the independent auditors, with and separately from financial management of the corporation to review the scope of the proposed audit for the current year and the audit procedures to be utilized, and at the conclusion thereof review such audit, including any comments or recommendations of the independent auditors. 3. Obtain satisfaction that the audit fee is appropriate and that the corporation will receive a complete and comprehensive audit for such fee. 4. Review with independent auditors and the corporation's financial and accounting personnel the adequacy and effectiveness of the accounting and financial controls of the corporation, and elicit any recommendations for the improvement of such internal control procedures or particular areas where new or more detailed controls or procedures are desirable. Particular emphasis should be given to the adequacy of such internal controls to expose any payments, transactions, or procedures that might be deemed illegal or otherwise improper. 5. Review the financial statements contained in the annual report to stockholders and quarterly reports on Form 10-Q, prior to their issuance, with management and the independent auditors to determine that the independent auditors are satisfied with the disclosure and content of the financial statements to be presented to the stockholders. Any changes in accounting principles should be reviewed. 6. Review separately with each of management and the independent auditors any significant disputes between management and the independent auditors that arose in connection with the preparation of the financial statements. 7. Provide sufficient opportunity for the independent auditors to meet with the members of the Audit Committee without members of management present. Among the items to be discussed in these meetings are the independent auditors' evaluation of the corporation's financial, accounting, and auditing personnel, and the cooperation that the independent auditors received during the course of the audit. 8. Review the corporation's compliance with law and significant corporate policies, including its code of conduct. 9. Review accounting and financial human resources and succession planning within the corporation. 10. Investigate any matter brought to its attention within the scope of its duties, with the power to retain outside counsel for this purpose if, in its judgment, that is appropriate. 11. Review and update this Charter periodically, at least annually, as conditions dictate. 12. Prepare a committee report to the stockholders. EX-10.73 26 a2042768zex-10_73.txt EXHIBIT 10.73 Exhibit 10.73 CUBIST PHARMACEUTICALS, INC. FOURTH AMENDMENT TO 1993 AMENDED AND RESTATED STOCK OPTION PLAN This FOURTH AMENDMENT (this "Amendment") to the Amended and Restated 1993 Stock Option Plan, as previously amended (the "Plan") of Cubist Pharmaceuticals, Inc., a Delaware corporation (the "Corporation"), is being adopted by resolution of the Board of Directors at a meeting held on March 3, 2000 (the "Effective Date"), subject to the approval of the stockholders of the Corporation within one year from the Effective Date. Effective from and after the Effective Date, and subject to obtaining the required stockholder approval, the Plan is hereby amended as follows: 1. Section 4 of the Plan hereby is amended by replacing the number "2,000,000" in the fifth (5th) line thereof with the number "4,000,000", said amendment being for the purpose of increasing the total number of shares of common stock, $.001 par value per share, that may be subject to options granted under the Plan from 3,000,000 shares to 4,000,000 shares. In addition, Section 4 of the Plan hereby is further amended by replacing the number "3,000,000" in the fourteenth (14th) line thereof with the number "6,000,000", said amendment being for the purpose of increasing the total number of shares of common stock, $.001 par value per share, that may be subject to Incentive Stock Options granted under the Plan from 3,000,000 shares to 6,000,000 shares. 2. The definition of "Fair Market Value" hereby is amended by deleting Section 1.10 in its entirety and inserting in its place the following new Section 1.10: 1.10. FAIR MARKET VALUE means on any date (i) if the Stock is traded on a stock exchange or on the Nasdaq National Market, the closing price on the date preceding the date in question or, if no trades were reported on such date, the closing price on the most recent trading day preceding such date on which a trade occurred, and (ii) if the Stock is not traded on a stock exchange or on the Nasdaq National Market, the value of a Share on such date as determined by the Committee. Except to the extent amended hereby, all of the terms, provisions and conditions set forth in the Plan, as previously amended, are hereby ratified and confirmed and shall remain in full force and effect. The Plan, all previous amendments and this Amendment shall be read and construed together as a single instrument. EX-10.74 27 a2042768zex-10_74.txt EXHIBIT 10.74 Exhibit 10.74 CUBIST PHARMACEUTICALS, INC. FIFTH AMENDMENT TO 1993 AMENDED AND RESTATED STOCK OPTION PLAN This FIFTH AMENDMENT (this "Amendment") to the Amended and Restated 1993 Stock Option Plan, as amended (the "Plan"), of Cubist Pharmaceuticals, Inc., a Delaware corporation (the "Company"), is being adopted by resolution of the Board of Directors at a meeting held on May 16, 2000 (the "Effective Date"). Effective from and after the Effective Date, the Plan is hereby amended as follows: 1. Section 8.2 of the Plan hereby is amended by replacing the reference therein to "2,000 Shares" with "10,000 Shares", said amendment being for the purpose of increasing the number of Shares subject to the Nonstatutory Option granted to Directors on the business day immediately following the annual meeting of stockholders of the Company. Except to the extent amended hereby, all of the terms, provisions and conditions set forth in the Plan are hereby ratified and confirmed and shall remain in full force and effect. The Plan and this Amendment shall be read and construed together as a single instrument. EX-10.75 28 a2042768zex-10_75.txt EXHIBIT 10.75 Exhibit 10.75 CUBIST PHARMACEUTICALS, INC. SIXTH AMENDMENT TO 1993 AMENDED AND RESTATED STOCK OPTION PLAN This SIXTH AMENDMENT (this "Amendment") to the Amended and Restated 1993 Stock Option Plan, as amended (the "Plan"), of Cubist Pharmaceuticals, Inc., a Delaware corporation (the "Company"), is being adopted by resolution of the Board of Directors at a meeting held on December 15, 2000 (the "Effective Date"). Effective from and after the Effective Date, the Plan is hereby amended as follows: 1. Section 8.1 of the Plan hereby is amended by adding the following sentence at the end of such Section 8.1: "Notwithstanding anything expressed or implied by the foregoing provisions of this Section 8.1, effective as of December 15, 2000 there shall be no further grants of Formula Options pursuant to this Section 8.1." 2. Section 8.2 of the Plan hereby is amended by adding the following sentence at the end of such Section 8.2: "Notwithstanding anything expressed or implied by the foregoing provisions of this Section 8.2, effective as of December 15, 2000 there shall be no further grants of Formula Options pursuant to this Section 8.2." Except to the extent amended hereby, all of the terms, provisions and conditions set forth in the Plan are hereby ratified and confirmed and shall remain in full force and effect. The Plan and this Amendment shall be read and construed together as a single instrument. EX-10.76 29 a2042768zex-10_76.txt EXHIBIT 10.76 Exhibit 10.76 CUBIST PHARMACEUTICALS, INC. 2000 NONSTATUTORY STOCK OPTION PLAN (adopted by the Board of Directors on December 15, 2000) The options granted under this 2000 Nonstatutory Stock Option Plan are NOT intended to be treated as "incentive stock options" within the meaning of Section 422 of the Code. 1. DEFINITIONS. As used in this 2000 Nonstatutory Stock Option Plan of Cubist Pharmaceuticals, Inc., the following terms shall have the following meanings: 1.1. AWARDED GRANT DATE means the date as of which an Awarded Option is granted, as determined under Section 7.1. 1.2. AWARDED OPTION means Options granted pursuant to Section 7 hereof. 1.3. BOARD means the Company's Board of Directors. 1.4 CHANGE IN CORPORATE CONTROL means (1) the time of approval by the shareholders of the Company of (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which Shares would be converted into cash, securities or other property, other than a merger in which the holders of Stock immediately prior to the merger will have the same proportionate ownership of common stock of the surviving corporation immediately after the merger as before the merger, (B) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or (C) adoption of any plan or proposal for the liquidation or dissolution of the Company, or (2) the date on which any "person" (as defined in Section 13(d) of the Exchange Act), other than the Company or a Subsidiary or employee benefit plan or trust maintained by the Company or any of its Subsidiaries shall become (together with its "affiliates" and "associates," as defined in Rule 12b-2 under the Exchange Act) the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 25% of the Stock outstanding at the time, without the prior approval of the Board of Directors of the Company. 1.5. CODE means the United States Internal Revenue Code of 1986, as amended. 1.6. COMMITTEE means a committee comprised of two or more Outside -2- Directors, appointed by the Board of Directors, responsible for the administration of the Plan, as provided in Section 5; PROVIDED, that the Board of Directors itself may at any time, in its sole discretion, exercise any or all functions and authority of the Committee. 1.7. COMPANY means Cubist Pharmaceuticals, Inc., a Delaware corporation. 1.8. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended. 1.9. ELIGIBLE DIRECTOR means a director of one or more of the Company and its Subsidiaries who is not also an employee or officer of one or more of the Company and its Subsidiaries. 1.10. FAIR MARKET VALUE means on any date (i) if the Stock is traded on a stock exchange or on the Nasdaq National Market, the closing price on the date preceding the date in question or, if no trades were reported on such date, the closing price on the most recent trading day preceding such date on which a trade occurred, and (ii) if the Stock is not traded on a stock exchange or on the Nasdaq National Market, the value of a Share on such date as determined by the Committee. 1.11. FORMULA GRANT means the grant of a Formula Option. 1.12. FORMULA GRANT DATE shall have the meaning specified in Section 8.1 hereof. 1.13. FORMULA OPTIONS means Options granted pursuant to Section 8 hereof. 1.14 HOLDER means, with respect to any Option, (i) the Optionee to whom such Option shall have been granted under the Plan, or (ii) any transferee of such Option to whom such Option shall have been transferred in accordance with the provisions of Section 14. 1.15. INCENTIVE OPTION means an "incentive stock options" within the meaning of Section 422 of the Code 1.16. OPTION means an Awarded Option or Formula Option granted under the Plan to purchase Shares. 1.17. OPTION AGREEMENT means an agreement between the Company and an Optionee, setting forth the terms and conditions of an Option. -3- 1.18. OPTION PRICE means the price paid by an Optionee for a Share upon exercise of an Option. 1.19. OPTIONEE means a person eligible to receive an Option, as provided in Section 6, to whom an Option shall have been granted under the Plan. 1.20. OUTSIDE DIRECTOR shall mean a member of the Board who is not an officer, employee or consultant of the Company or any Subsidiary. 1.21. PLAN means this 2000 Nonstatutory Stock Option Plan of the Company, as amended from time to time. 1.22. RETIREMENT means, with respect to any Optionee that is an employee or director of the Company, the voluntary retirement of such Optionee as an employee and/or director, as the case may be, of the Company at any time after age 65 or such earlier age as the Committee shall determine. 1.23. SECONDARY NIC means secondary national insurance contributions as defined in the SSCBA. 1.24. SECURITIES ACT means the United States Securities Act of 1933, as amended. 1.25. SHARES means shares of Stock. 1.26 SSCBA means the Social Security Contributions and Benefit Act 1992 of the United Kingdom. 1.27. STOCK means common stock, $.001 par value per share, of the Company. 1.28. SUBSIDIARY means any corporation which qualifies as a subsidiary of the Company under the definition of "subsidiary corporation" in Section 424(f) of the Code. 1.29. UK AWARDED OPTION means an Awarded Option granted to an employee of the UK Subsidiary who is a resident of the United Kingdom or any Awarded Option giving rise to the UK Subsidiary's liability for Secondary NIC. 1.30. UK SUBSIDIARY means Cubist Pharmaceuticals (UK) Ltd., a company organized under the laws of Wales and England. 2. PURPOSE. This Plan is intended to encourage ownership of Stock by -4- officers, employees and directors of and consultants to the Company and its Subsidiaries and to provide additional incentives for them to promote the success of the Company's business. The Plan is NOT intended to be an incentive stock option plan within the meaning of Section 422 of the Code. None of the Options granted hereunder will be Incentive Options. 3. TERM OF THE PLAN. Options may be granted hereunder at any time in the period commencing upon the effectiveness of the Plan pursuant to Section 21 and ending on December 15, 2010. 4. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 15 of the Plan, at no time shall the number of Shares then outstanding which are attributable to the exercise of Options granted under the Plan, PLUS the number of Shares then issuable upon exercise of outstanding Options granted under the Plan exceed 1,000,000 Shares. Shares to be issued upon the exercise of Options granted under the Plan may be either authorized but unissued Shares or Shares held by the Company in its treasury. If any Option expires or terminates for any reason without having been exercised in full, the Shares not purchased thereunder shall again be available for Options thereafter to be granted. 5. ADMINISTRATION. The Plan shall be administered by the Committee. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to make or to select the manner of making the following determinations with respect to each Awarded Option to be granted by the Company: (a) the officer, director, employee or consultant to receive such Awarded Option; (b) the time of granting the Awarded Option; (c) the number of Shares subject to the Awarded Option; (d) the Option Price; (e) the option period; (f) the exercise date or dates or, if the Awarded Option is immediately exercisable in full on its grant date or if the exercisability of the Awarded Option is accelerated by the Committee in whole or in part at any time following its grant date, the vesting schedule, if any, applicable to the Shares issuable upon the exercise of the Awarded Option; (g) the effect of termination of employment, consulting or association with the Company on the subsequent exercisability of the Awarded Option; and (h) whether the Awarded Option may be transferred by the Holder to a third party. Subject to the provisions of the Plan, the Committee shall have complete authority, in its discretion, to determine whether any Formula Option may be transferred by the Holder to a third party. In making such determinations, the Committee may take into account the nature of the services rendered by the respective officers, directors, employees and consultants, their present and potential contributions to the success of the Company and its Subsidiaries, and such other factors as the Committee in its discretion shall deem relevant. Subject to the provisions of the Plan, the Committee shall also have complete authority to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, to determine -5- the terms and provisions of the respective Option Agreements (which need not be identical), and to make all other determinations necessary or advisable for the administration of the Plan. The Committee's determinations on the matters referred to in this Section 5 shall be conclusive. 6. ELIGIBILITY. An Awarded Option may be granted only to an employee, director or officer of or consultant to one or more of the Company and its Subsidiaries. Each Eligible Director shall receive Formula Options pursuant to Section 8 hereof. 7. AWARDED OPTIONS. 7.1. TIME OF GRANTING AWARDED OPTIONS. The granting of an Awarded Option shall take place at the time specified by the Committee. Only if expressly so provided by the Committee, shall the Awarded Grant Date be the date on which an Option Agreement shall have been duly executed and delivered by the Company and the Optionee. 7.2. OPTION PRICE. The Option Price under each Awarded Option shall be determined by the Committee. 7.3. AWARDED OPTION PERIOD. The Option Period under each Awarded Option shall be determined by the Committee. 7.4. VESTING. An Awarded Option may become exercisable in such installments, cumulative or non-cumulative, as the Committee may determine. Notwithstanding anything in this Section 7 or any applicable Option Agreement to the contrary,in the case of an Awarded Option not otherwise immediately exercisable in full, the Committee may accelerate the exercisability of such Awarded Option in whole or in part at any time. In the event that the Committee accelerates the exercisability of any Awarded Option in whole or in part at any time, the Committee may require as a condition precedent to the effectiveness of any such acceleration that the holder of such Awarded Option shall enter into a written agreement with the Company providing, among other things, that the Shares subject to such Awarded Option shall, following their issuance upon exercise of such Awarded Option, be subject to a repurchase option in favor of the Company upon such terms as the Committee shall determine in its sole and absolute discretion. 7.5. UK AWARDED OPTION. To the extent that it is lawful to do so, a UK Awarded Option may be granted subject to a condition that any liability of the UK Subsidiary (as employer of the relevant Optionee) to pay Secondary NIC in respect of the exercise of such UK Awarded Option shall be the liability of the relevant Optionee and payable by or recoverable from that Optionee in -6- accordance with Section 12(c) of this Plan, PROVIDED that the Committee may in its discretion at any time or times release the Optionee from this liability or reduce his liability hereunder unless an election in the form envisaged in Paragraph 3B(1) of Schedule 1 to SSCBA has been entered into between the UK Subsidiary and that Optionee and that election (or the legislation which provides for such an election to be effective) does not allow for such an election to be subsequently varied. 8. FORMULA OPTIONS. 8.1. DIRECTORS ELECTED FOR FIRST TIME. Subject to the Plan's effectiveness as set forth in Section 21, each Eligible Director who is elected to the Board, and was never before a member of the Board, and who is elected to the Board during the term of the Plan (whether elected at an annual or special stockholders' meeting or by action of the Board or written consent of stockholders without a meeting), shall be granted, on the date of such meeting or other appointment (as used in or with reference to this Section 8.1, a "FORMULA GRANT DATE"), a Nonstatutory Option to purchase 15,000 Shares. Grants of Formula Options under this Section 8.1 occur automatically without any action being required of the Optionee, the Committee, the Board of Directors, the Company or any other person, entity or body. 8.2. ANNUAL FORMULA GRANTS. Subject to the Plan's effectiveness as set forth in Section 21, on the date of each annual meeting of stockholders of the Company commencing with the 2001 Annual Meeting of Stockholders of the Company, each Eligible Director who continues to be a director of the Company on the business day immediately following such annual meeting of stockholders shall be granted a Nonstatutory Option on such business day (also referred to as a "FORMULA GRANT DATE"), to purchase 10,000 Shares. Grants of Formula Options under this Section 8.2 occur automatically without any action being required of the Optionee, the Committee, the Board of Directors, the Company or any other person, entity or body. 8.3. CERTAIN TERMS OF FORMULA OPTIONS. Each Formula Option granted to an Optionee under this Section 8 shall have an exercise price equal to 100% of the Fair Market Value of the Stock on the applicable Formula Grant Date. No Formula Option granted pursuant to this Section 8 is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code. The Formula Grants shall be evidenced by Option Agreements containing provisions that are in all respects consistent with this Section 8. All of such Option Agreements shall contain identical terms and conditions, except as otherwise required or permitted by this Section 8. -7- 8.4. OPTION PERIOD. The option period for any Formula Option granted pursuant to this Section 8 shall be ten years from the date of grant. 8.5. EXERCISABILITY. Each Formula Option granted to an Eligible Director pursuant to Section 8.1 hereof (a "Section 8.1 Formula Option") shall become exercisable in twelve (12) equal installments, with the first installment becoming exercisable on the last day of the first full fiscal quarter following the Formula Grant Date applicable to such Section 8.1 Formula Option and an additional installment becoming exercisable on the last day of each of the eleven successive fiscal quarters following such first fiscal quarter; PROVIDED, HOWEVER, that if the Optionee with respect to such Section 8.1 Formula Option shall cease to be a director of the Company and each of its Subsidiaries, then, notwithstanding anything in this Section 8.5 to the contrary and subject to Sections 8.6 and 13 hereof, such Section 8.1 Formula Option shall thereafter be exercisable only with respect to those of such installments for which such Section 8.1 Formula Option is exercisable, pursuant to this Section 8.5, at the time of such cessation. Each Formula Option granted to an Eligible Director pursuant to Section 8.2 hereof (a "Section 8.2 Formula Option") shall become exercisable in four (4) equal installments, with the first installment becoming exercisable on the last day of the first full fiscal quarter following the Formula Grant Date applicable to such Section 8.2 Formula Option and an additional installment becoming exercisable on the last day of each of the three successive fiscal quarters following such first fiscal quarter; PROVIDED, HOWEVER, that if the Optionee with respect to such Section 8.2 Formula Option shall cease to be a director of the Company and each of its Subsidiaries, then, notwithstanding anything in this Section 8.5 to the contrary and subject to Sections 8.6 and 13 hereof, such Section 8.2 Formula Option shall thereafter be exercisable only with respect to those of such installments for which such Section 8.2 Formula Option is exercisable, pursuant to this Section 8.5, at the time of such cessation. 8.6. CERTAIN MODIFICATIONS OF FORMULA OPTIONS. Notwithstanding anything in this Section 8 or any applicable Option Agreement to the contrary, in the case of a Formula Option not otherwise immediately exercisable in full, the Committee may accelerate the exercisability of such Formula Option in whole or in part at any time. In the event that the Committee accelerates the exercisability of any Formula Option in whole or in part at any time, the Committee may require as a condition precedent to the effectiveness of any such acceleration that the holder of such Formula Option shall enter into a written agreement with the Company providing, among other things, that the Shares subject to such Formula Option shall, following their issuance upon exercise of such Formula Option, be subject to a repurchase option in favor of the Company upon such terms as the Committee shall determine in its sole and absolute discretion. -8- 9. EXERCISE OF OPTION. (a) An Option may be exercised only by giving written notice, in the manner provided in Section 20 hereof, specifying the number of Shares as to which the Option is being exercised, accompanied (except as otherwise provided in paragraph (b) of this Section 9) by full payment for such Shares in the form of a check or bank draft payable to the order of the Company or other Shares with a current Fair Market Value equal to the Option Price of the Shares to be purchased. Receipt by the Company of such notice and payment shall constitute the exercise of the Option or a part thereof. Upon receipt by the Company of any such notice of exercise with respect to a UK Awarded Option, the Company shall immediately deliver a copy thereof to the UK Subsidiary (as employer of the relevant Optionee). Subject to the provisions of the Plan (including, without limitation, Sections 10, 11 and 12) or any applicable Option Agreement, within 30 days after receipt of such notice and payment, the Company shall deliver or cause to be delivered to the Holder a certificate or certificates for the number of Shares then being purchased by the Holder. Such Shares shall be fully paid and nonassessable. If such Shares are not at that time effectively registered under the Securities Act, the Holder shall include with such notice a letter, in form and substance satisfactory to the Company, confirming that such Shares are being purchased for the Holder's own account for investment and not with a view to distribution. (b) In lieu of payment by check, bank draft or other Shares accompanying the written notice of exercise as described in paragraph (a) of this Section 9, a Holder may, unless prohibited by applicable law, elect to effect payment by including with the written notice referred to in paragraph (a) of this Section 9 irrevocable instructions to deliver for sale to a registered securities broker acceptable to the Company that number of Shares subject to the Option being exercised sufficient, after brokerage commissions, to cover the aggregate exercise price of such Option and, if the Holder further elects, the withholding obligations of the Optionee and/or such Holder pursuant to Section 12 with respect to such exercise, together with irrevocable instructions to such broker to sell such Shares and to remit directly to the Company such aggregate exercise price and, if the Holder has so elected, the amount of such withholding obligation. The Company shall not be required to deliver to such securities broker any stock certificate for such Shares until it has received from the broker such exercise price and, if the Holder has so elected, the amount of such withholding obligation. (c) The right of the Holder to exercise an Option pursuant to any provision of this Section 9, and the obligation of the Company to issue Shares upon any exercise of an Option pursuant to this Section 9, is subject to compliance with all of the other provisions of the Plan (including, without -9- limitation, Sections 10, 11 and 12) or any applicable Option Agreement. 10. RESTRICTIONS ON ISSUE OF SHARES. (a) Notwithstanding any other provision of the Plan, if, at any time, in the reasonable opinion of the Company the issuance of Shares covered by the exercise of any Option may constitute a violation of law, then the Company may delay such issuance and the delivery of a certificate for such Shares until (i) approval shall have been obtained from such governmental agencies, other than the Securities and Exchange Commission, as may be required under any applicable law, rule, or regulation; and (ii) in the case where such issuance would constitute a violation of a law administered by or a regulation of the Securities and Exchange Commission, one of the following conditions shall have been satisfied: (1) the Shares with respect to which such Option has been exercised are at the time of the issue of such Shares effectively registered under the Securities Act; or (2) a no-action letter in form and substance reasonably satisfactory to the Company with respect to the issuance of such Shares shall have been obtained by the Company from the Securities and Exchange Commission. The Company shall make all reasonable efforts to bring about the occurrence of said events. (b) Each certificate representing Shares issued upon the exercise of an Option will bear restrictive legends which may refer to this Plan. 11. PURCHASE FOR INVESTMENT; SUBSEQUENT REGISTRATION. (a) Without limiting the generality of Section 10 hereof, if the Shares to be issued upon exercise of an Option granted under the Plan have not been effectively registered under the Securities Act, the Company shall be under no obligation to issue any Shares covered by any Option unless the person who exercises such Option, in whole or in part, shall give a written representation to the Company which is satisfactory in form and substance to its counsel and upon which the Company may reasonably rely, that he or she is acquiring the Shares issued pursuant to such exercise of the Option as an investment and not with a view to, or for sale in connection with, the distribution of any such Shares. (b) Each Share issued pursuant to the exercise of an Option granted pursuant to this Plan may bear a reference to the investment representation made in accordance with this Section 11 and to the fact that no -10- registration statement has been filed with the Securities and Exchange Commission in respect to said Stock. (c) If the Company shall deem it necessary or desirable to register under the Securities Act or other applicable statutes any Shares with respect to which an Option shall have been granted, or to qualify any such Shares for exemption from the Securities Act or other applicable statutes, then the Company shall take such action at its own expense. The Company may require from each Option holder, or each holder of Shares acquired pursuant to the Plan, such information in writing for use in any registration statement, prospectus, preliminary prospectus or offering circular as is reasonably necessary for such purpose and may require reasonable indemnity to the Company and its officers and directors from such holder against all losses, claims, damage and liabilities arising from such use of the information so furnished and caused by any untrue statement of any material fact therein or caused by the omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made. 12. WITHHOLDING; NOTICE OF DISPOSITION OF STOCK PRIOR TO EXPIRATION OF SPECIFIED HOLDING PERIOD. (a) Whenever Shares are to be issued in satisfaction of an Option granted hereunder, the Company shall have the right to require the Optionee and/or any subsequent Holder to remit to the Company an amount sufficient to satisfy federal, state, local, employment or other tax withholding requirements if and to the extent required by law (whether so required to secure for the Company an otherwise available tax deduction or otherwise) prior to the delivery of any certificate or certificates for such Shares. (b) The Committee may, at or after grant, permit an Optionee and/or subsequent Holder to satisfy any tax withholding requirements pertaining to the exercise of an Option by delivery to the Company of Shares (including, without limitation, Shares retained from the Option exercise that is creating the tax obligation) having a value equal to the amount to be withheld. The value of Shares to be so delivered shall be based on the Committee's determination of the Fair Market Value of a Share on the date the amount of tax to be withheld is to be determined. (c) If a UK Awarded Option is exercised and the Optionee is required under Section 7.5 hereof to either bear the cost of all or part of the Secondary NIC or to enter into an election in the form envisaged in Paragraph 3B(1) of Schedule 1 to SSCBA, then the Optionee shall by having delivered a notice of exercise with respect to such UK Awarded Option be deemed to have -11- granted to the UK Subsidiary (as employer of the relevant Optionee) the irrevocable authority, as agent of the Optionee and on his behalf, to sell or procure the sale of sufficient Shares subject to such UK Awarded Option so that the net proceeds payable to the UK Subsidiary are so far as possible equal to but not less than the amount of the Secondary NIC which the Optionee is liable for and the UK Subsidiary shall account to the Optionee for any balance. No Shares subject to any such UK Awarded Option shall be issued to the Optionee until the UK Subsidiary has received payment of the amount of Secondary NIC for which such Optionee is liable as a result of the exercise of such UK Awarded Option. 13. TERMINATION OF ASSOCIATION WITH THE COMPANY. If an Optionee ceases to be an employee, director or consultant of the Company and its Subsidiaries for any reason other than Retirement or death of such Optionee, any Option held by such Optionee and/or any subsequent Holder may be exercised by such Optionee and/or such subsequent Holder at any time within 90 days after the termination of such relationship, but only to the extent exercisable at termination and in no event after the applicable option period. If an Optionee enters Retirement or dies, any Option held by such Optionee and/or any subsequent Holder may be exercised by such Optionee, such subsequent Holder and/or the executor or administrator of such Optionee or such subsequent Holder at any time within the shorter of the applicable option period or 12 months after the date of the Optionee's Retirement or death, but only to the extent exercisable at the time of such Optionee's Retirement or death. Options which are not exercisable at the time of termination of such relationship between the Company and the Optionee or which are so exercisable but are not exercised within the time periods described above shall terminate. Notwithstanding the foregoing, in the event that (i) the applicable Option Agreement with respect to an Option shall contain specific provisions governing the effect that any such termination shall have on the exercisability of such Option or (ii) the Board, the Committee or any other committee of the Board composed of Outside Directors that are disinterested on the matter, as appropriate, shall at any time adopt specific provisions governing the effect that any such termination shall have on the exercisability of such Option, then such provisions shall, to the extent that they are inconsistent with the provisions of this Section 13, control and be deemed to supersede the provisions of this Section 13. For purposes of this Section 13, military or sick leave shall not be deemed a termination of employment, PROVIDED that it does not exceed the longer of 90 days or the period during which the absent Optionee's reemployment rights, if any, are guaranteed by statute or by contract. 14. TRANSFERABILITY OF OPTIONS. Awarded Options shall not be transferable; PROVIDED, HOWEVER, that Awarded Options shall be transferable by will or the laws of descent and distribution; and PROVIDED, FURTHER, that Awarded Options may be transferred to a third party if and to the extent authorized and -12- permitted by the Committee. In granting its authorization and permission to any proposed transfer of an Awarded Option to a third party, the Committee may impose conditions or requirements that must be satisfied by the transferor or the third party transferee prior to or in connection with such transfer, including, without limitation, any conditions or requirements that may be necessary or desirable, in the sole and absolute discretion of the Committee, to ensure that such proposed transfer complies with applicable securities laws or to prevent the Company, such transferor or such third party transferee from violating or otherwise not be in compliance with applicable securities laws as a result of such transfer. The restrictions on transferability set forth in this Section 14 shall in no way preclude any Holder from effecting "cashless" exercises of an Option pursuant to, and in accordance with, Section 9(b) hereof. 15. ADJUSTMENT OF NUMBER OF OPTION SHARES. In the event of any stock dividend payable in Stock or any split-up or contraction in the number of Shares prior to the exercise in full of an Option, the number of Shares subject to the Option and the price to be paid for each Share subject to the Option shall be proportionately adjusted. In the event of any reclassification or change of outstanding Stock or in case of any consolidation or merger of the Company with or into another company or in case of any sale or conveyance to another company or entity of the property of the Company as a whole or substantially as a whole, shares of stock or other securities equivalent in kind and value to those shares a Holder would have received if he or she had held the full number of Shares subject to the Option immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and had continued to hold those Shares (together with all other shares, stock and securities thereafter issued in respect thereof) to the time of the exercise of the Option shall thereupon be subject to the Option. Upon dissolution or liquidation of the Company, the Option shall terminate, but the Holder (if at the time the Optionee is in the employ or retained as a consultant or serving as a director of the Company or any of its Subsidiaries) shall have the right, immediately prior to such dissolution or liquidation, to exercise the Option to the extent not theretofore exercised. No fraction of a share shall be purchasable or deliverable upon exercise, but in the event that any adjustment hereunder of the number of Shares covered by the Option shall cause such number to include a fraction of a Share, such number of Shares shall be adjusted to the nearest smaller whole number of shares. In the event of changes in the outstanding Stock by reason of any stock dividend, split-up, contraction, reclassification, or change of outstanding Shares of the nature contemplated by this Section 15, the number of Shares available for the purpose of the Plan as stated in Section 4 hereof shall be correspondingly adjusted. 16. CHANGE IN CORPORATE CONTROL. Upon a Change in Corporate Control, each outstanding Option shall immediately become fully exercisable. The -13- Committee shall have the discretion to exclude any event from being deemed a Change in Corporate Control for the purposes of the preceding sentence. 17. RESERVATION OF STOCK. The Company shall at all times during the term of the Plan and, without duplication, of any outstanding Options reserve or otherwise keep available such number of Shares as will be sufficient to satisfy the requirements of the Plan (if not then terminated) and such outstanding Options and shall pay all fees and expenses necessarily incurred by the Company in connection therewith. 18. LIMITATION OF RIGHTS IN STOCK; NO SPECIAL EMPLOYMENT OR OTHER RIGHTS. A Holder shall not be deemed for any purpose to be a stockholder of the Company with respect to any of the Shares covered by an Option, except to the extent that the Option shall have been exercised with respect thereto and, in addition, a certificate shall have been issued therefor and delivered to the Holder or his agent. Any Stock issued pursuant to the Option shall be subject to all restrictions upon the transfer thereof which may be now or hereafter imposed by the Certificate of Incorporation, and the By-laws of the Company, if any. Nothing contained in the Plan or in any Option shall confer upon any Optionee any right with respect to the continuation of his or her employment with, or retention as a consultant, director or advisor to, the Company (or any Subsidiary), or interfere in any way with the right of the Company (or any Subsidiary), subject to the terms of any separate employment or consulting agreement or provision of law or corporate articles or by-laws to the contrary, at any time to terminate such employment, consulting, directorship or advisory relationship or to increase or decrease the compensation of the Optionee from the rate in existence at the time of the grant of an Option. 19. TERMINATION AND AMENDMENT OF THE PLAN. The Board may at any time terminate the Plan or make such modifications of the Plan as it shall deem advisable. No termination or amendment of the Plan may, without the consent of the Holder of any Option, adversely affect the rights of such Holder under such Option. 20. NOTICES AND OTHER COMMUNICATIONS. All notices and other communications required or permitted under the Plan shall be effective if in writing and if delivered or sent by certified or registered mail, return receipt requested (a) if to the Holder, at his or her residence address last filed with the Company, and (b) if to the Company, at 24 Emily Street, Cambridge, Massachusetts 02139, Attention: President or to such other persons or addresses as the Holder or the Company may specify by a written notice to the other from time to time. Copies of all notices sent to any Holder that is not the Optionee shall also be sent to the Optionee in the manner set forth in this Section 20. -14- 21. EFFECTIVENESS. This 2000 Nonstatutory Stock Option Plan was approved by the Board of Directors on December 15, 2000. EX-23.1 30 a2042768zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Forms S-3 (File Nos. 333-64943, 333-96365, 333-90137, 333-32186 and 333-54142) and Forms S-8 (File Nos. 333-49522, 333-32178, 333-65385, 333-65383, 333-25707 and 333-54142) of Cubist Pharmaceuticals, Inc. (the "Company") of our report dated February 15, 2001 relating to the Company's financial statements, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts April 2, 2001 EX-23.2 31 a2042768zex-23_2.txt EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT ACCOUNTANTS' CONSENT The Board of Directors Cubist Pharmaceuticals Inc. (formerly TerraGen Discovery Inc.) We consent to the incorporation by reference in the registration statements (Nos. 333-64943, 333-90137, 333-96365, 333-32186 and 333-54142) on Form S-3 and (Nos. 333-49522, 333-32178, 333-65385, 333-65383, 333-25707 and 333-54142) on Form S-8 of Cubist Pharmaceuticals, Inc. (the "Company") of our report dated April 3, 2000, except as to the acquisition by the Company described in note A which is as of October 23, 2000, with respect to the consolidated balance sheet of Cubist Pharmaceuticals Inc. (formerly TerraGen Discovery Inc.) as at December 31, 1999 and the consolidated statements of operations, stockholders' equity and comprehensive income and cash flows for the years ended December 31, 1999 and 1998, which report appears in the Company's December 31, 2000 Annual Report on Form 10-K. /s/ KPMG LLP Chartered Accountants Vancouver, Canada March 29, 2001 -----END PRIVACY-ENHANCED MESSAGE-----