Convertible Loan Agreement With Keddem Bioscience Ltd., and Amendment Thereto

Exhibit 4.2







This Convertible Loan Agreement is made and enteredinto as of this 29th day of July, 2004 (the “Effective Date”), by and betweenKeddem Bio-Science Ltd., an Israeli company, of 11 Ha’amal St., Ashkelon 78785,Israel (“Borrower”) and Compugen Ltd., an Israeli company, of 72 Pinchas RosenSt., Tel Aviv 69512, Israel  (“Lender”).


WHEREAS, the partieshereto have executed an Asset Purchase Agreement dated as of June 30, 2004; and

WHEREAS, the Borrower wishes to borrow up to theamount of the Principal (as defined below) from the Lender, and the Lenderwishes to lend such sum to the Borrower, subject to the terms and conditions ofthis Agreement.

NOW THEREFORE, in consideration of the mutualobligations and undertakings herein contained, and subject to the terms herein,Borrower and Lender hereby agree as follows:


1.       Definitionsand Interpretation

1.1.     In this Agreement,the following terms shall have the following meaning ascribed to them:

1.1.1.   “Interest” shallhave the meaning ascribed to it in Section 3 below.

1.1.2.   “Loan Amount” meansthe Principal actually paid to the Borrower and all Interest accrued thereon.

1.1.3.   “M&A Event”means any of the following: (i) the initial public offering of the Borrower`ssecurities; (ii) the sale of all or substantially all of the Borrower`s assetsor securities; or (iii) a merger or consolidation of the Borrower with or intoanother corporation, where immediately after such merger or consolidation amajority of the voting power of the capital stock of the continuing orsurviving entity, or of any direct or indirect parent corporation of suchcontinuing or surviving entity, will not be owned by the persons who were theCompany`s stockholders immediately prior to such merger or consolidation insubstantially the same proportions as their ownership of the voting power ofthe Company`s capital stock immediately prior to such merger or consolidation.

1.1.4.   “Principal” shallhave the meaning ascribed to it in Section 2 below.

1.1.5.   “Repayment Date”means the earlier of: (i) June 30, 2011; and (ii) the date on which theLoan Amount is repaid in full to the Lender.

1.2.     The headings in thisAgreement are inserted for convenience only and shall not affect theconstruction thereof.

1.3.     The preamble andexhibits to this Agreement constitute an integral part hereof.



2.       Loan

2.1.     Loan.  Subject to and in reliance on therepresentations and warranties made by the Borrower hereunder and subject toSection 2.2, the Lender undertakes tolend to the Borrower one million and two hundred thousand US dollars($1,200,000) (“Principal“) to be paid in one installment within 3business days after the date of execution of this Agreement.

2.2.     Adjustment.  The Lender shall adjust the Principalbased on invoices that it receives within one (1) month after the date of execution of this Agreement that relate to Borrower`s activities. Lender shallgive to Borrower notice of such adjustment within two (2) months from executionof this Agreement. The adjustment shallbe effected by Lender either advancing to Borrower money in addition to thePrincipal or by charging Borrower for any excess that was advanced to it (asthe case may be).


3.       Interest

The outstanding Principal shall bear interest at anannual rate (each year considered separately) that is the greater of (i) 5%(five percent) and (iii) the twelve (12) month LIBOR as determined on the firstbusiness day after the corresponding anniversary, compounded annually (“Interest“),calculated from the date of its actualpayment to the Borrower.  Interest shall accrue on the outstandingLoan Amount not repaid or converted to Conversion Shares in the manner setforth herein until the date of repayment of such amount or of conversion ofsuch amount to Conversion Shares in the manner described herein.


4.       Conversion

4.1.     From the date onwhich the Lender advances to the Borrower the Principal and until the earlierof: (i) the Repayment Date; and (ii) the closing of an M&A Event, theLender shall be entitled, in its sole and absolute discretion, by delivery ofwritten notice to the Borrower to such effect (“Conversion Notice“), toconvert, any or all of the outstanding Loan Amount into shares of the Borroweron the terms and subject to the conditions set forth herein.

4.2.     Where Lenderexercises the conversion right set forth above concurrent with the closing ofan equity investment in the Borrower in consideration for which the Borrowerissues securities (an “Investment“), the shares to be issued to Lenderin connection with such conversion shall be of the same class of shares of theBorrower to be issued as part of the Investment (the “Conversion Shares“),the conversion of the Loan Amount into Conversion Shares shall be on the same terms and conditions as apply to the investorsin the Investment, including, without limitation, price per share and the Lender shall receive allrights and preferences granted to other holders of Conversion Shares inconnection with such Investment, whether such rights and preferences are grantedto such other holders by way of amending the Borrower`s articles ofassociation, contract or otherwise.  Where Lender  exercisesthe conversion right set forth above not concurrent with an Investment, theterms of such conversion shall be as mutually agreed by the parties.


5.       Repayment

5.1.     The Borrower shallrepay the unconverted Loan Amount (or, if any part of the Loan Amount has beenconverted into Conversion Shares, the remaining, unconverted Loan Amount) onthe earlier of: (i) June 30, 2011, and (ii) a Default Event (as defined inSection 6 below); unless the Lender shall deliver to the Borrower, prior tosuch date of repayment, a Conversion Notice under the circumstances set forthin Section 4.1 above.

5.2.     Notwithstanding theaforesaid in Section 5.1 above, the Borrower shall be entitled to repay thefull Loan Amount at any time prior to the earlier date specified in Section 5.1above, by providing to the Lender five (5) days` prior written notice to sucheffect.




6.       Default Events

Without derogating from any of the Lender`s rightshereunder, immediately upon the occurrence of a Default Event, any and allaccrued and outstanding Loan Amount will become due and payable. For purposesof this Agreement, the occurrence of any of the following shall be deemed a “DefaultEvent“:

6.1.     Any material breachby the Borrower of any of its obligations or representations under thisAgreement, which breach is not cured within thirty (30) days of receipt ofnotice of such breach from the Lender.

6.2.     The commencement bythe Borrower of any liquidation proceedings or the adoption of a winding upresolution by the Borrower, or the appointment of a receiver or trustee overall or any part of the Borrower’s assets, or the calling by Borrower of ameeting of creditors for the purpose of entering into a scheme or arrangementwith them, in each case if not canceled within forty five (45) days of itsinitiation. The Borrower shall notify the Lender within seven (7) days of anysuch proceeding.

6.3.     The levy of anattachment with respect to, or the institution of execution proceedingsagainst, all or a material part of the Borrower’s assets, where such attachmentor execution proceeding is not discharged within forty five (45) days.  TheBorrower shall notify the Lender within seven (7) days of any such attachmentor proceeding.

6.4.     Any action of theBorrower outside the ordinary course of business which may cause a materialadverse change in the financial situation, operations, or business of theBorrower, all in Lender`s reasonable opinion, provided Borrower has receivedwritten notice from Lender objecting to such action and Borrower has notremedied the situation within thirty (30) days of such notice.

6.5.     Borrower’s failureto pay when due any indebtedness for borrowed money of the Borrower, or uponany indebtedness for borrowed money of the Borrower becoming capable of beingdeclared to be or being declared to be due and payable prior to its specifiedmaturity date by reason of the occurrence of a default or a mandatoryprepayment event (however described), or upon the cancellation of anycommitment to lend under any facility available to the Borrower by reason ofthe occurrence of any default or mandatory prepayment event (howeverdescribed), provided that with respect to each of the foregoing, the Borrower hasnot remedied the situation within thirty (30) days of becoming aware thereof.


7.      Representationsand Warranties of the Borrower

7.1.     The Borrower herebyrepresents and warrants to the Lender as follows:

7.1.1.   The Borrower is dulyorganized and validly existing under the laws of the State of Israel, with fullpower and authority to carry on its business and to own or lease and to operateall of its properties as and in the places where such business is conducted andsuch properties are owned, leased or operated.


7.1.2.   The Borrower has thecorporate power and authority to execute and deliver this Agreement, to performfully its obligations hereunder, and to consummate the transactionscontemplated hereby.  The execution and delivery by the Borrower ofthis Agreement, and the consummation of the transactions contemplated hereby,have been duly authorized by all requisite corporate action of the Borrower.The Borrower has duly executed and delivered this Agreement, which is a legal,valid and binding obligation of the Borrower, enforceable against it inaccordance with its terms except (x) as limited by applicable bankruptcy,insolvency, reorganization, moratorium or other laws affecting enforcement ofcreditors` rights, (y) as limited by laws relating to the availability ofspecific performance, injunctive relief or other equitable remedies, and(z) to the extent enforceability of any indemnification provisions may belimited by applicable laws.  The Borrower hereby covenants andundertakes to the Lender, for so long as the Loan Amount or any part thereofremains outstanding (or unconverted as the case may be), as follows:

7.1.3.   The Borrower will door cause to be done all actions necessary to preserve and keep in full forceand effect its corporate existence, comply with all laws applicable toBorrower, and use its best efforts to avoid any event, occurrence or conditionthat could reasonably have a material adverse effect upon the Borrower`sbusiness.

7.1.4.   The Borrower will,except for the effects of reasonable wear and tear in the ordinary course ofbusiness, at all times maintain, preserve, protect and keep its property usedor useful in the conduct of its business in good repair, working order andcondition, and from time to time make all needful and proper repairs, renewals,replacements, betterments and improvements thereto.

7.1.5.   The Borrower willkeep adequately insured, by financially sound reputable insurers, all propertyof a character usually insured by similar entities and carry such otherinsurance as is usually carried by similar entities to the extent Borrower isnot covered under Lender’s insurance policies.

7.1.6.   The Borrower will,promptly following its obtaining knowledge of the occurrence of a DefaultEvent, notify the Lender in writing of such Default Event setting forth thedetails of such Default Event.

7.1.7.   The Borrower will atall times maintain books of account in which all of its financial transactionsare duly recorded in conformity with generally accepted accounting principles.

7.1.8.   Borrower willpromptly pay and discharge all lawful taxes, assessments and governmentalcharges or levies imposed upon it or upon its income and profits, or upon anyof its property, before the same shall become in default, as well as all lawfulclaims for labor, materials and supplies which, if unpaid, might become a lienor charge upon such properties or any part thereof; provided, however, thatBorrower shall not be required to pay and discharge any such tax, assessment,charge, levy or claim so long as the validity thereof shall be contested ingood faith by appropriate proceedings and Borrower, shall set aside on itsbooks adequate reserves with respect to any such tax, assessment, charge, levyor claim so contested.


8.      Indemnificationand Remedies

8.1.     The Borrower shallprotect, defend, indemnify, and hold harmless the Lender from and against anyand all loss, liability, deficiency, damage, cost, or expense, or actions inrespect of any of the aforesaid (including reasonable legal fees and expenses),as and when incurred, which results from any breach of any of therepresentations, warranties, or covenants of the Borrower hereunder.


8.2.     The provisions ofSection 8.1 shall come in addition to and not instead of any other remedyprovided by law or equity. Without derogating from the aforesaid in thisSection, Lender shall be entitled to an injunctive relief, and/or as the casemay be, the specific performance by the Borrower of its obligations hereunder.

8.3.     Neither party shallbe liable to the other party for any indirect damages, expenses, costs orliabilities, including economic harm or loss of profits, arising out of or inconnection with this Agreement.


9.      GoverningLaw and Jurisdiction

9.1.     This Agreement shallbe governed by and construed in accordance with the laws of the State of Israelwithout giving effect to the choice of laws rules thereof.

9.2.     The parties herebyagree that the competent courts of Tel Aviv shall have sole and exclusivejurisdiction over any dispute, suit, action or proceeding, arising inconnection with this Agreement, and each irrevocably consents to the exclusivejurisdiction of these courts.


10.   Miscellaneous

10.1.  The obligations ofBorrower to make the payments provided for in this Agreement are absolute andunconditional and not subject to any defense, set‑off, counterclaim,rescission or adjustment whatsoever.

10.2.  If the Lender shallseek to enforce the collection of any portion of the Loan Amount, in accordancewith the provisions of this Loan Agreement, there shall be immediately due andpayable from the Borrower, in addition to the then unpaid Loan Amount, allcosts and expenses incurred by the Lender in connection therewith, including,without limitation, reasonable attorneys’ fees and disbursements.

10.3.  The Borrower herebyexpressly waives demand and presentment for payment, notice of non-payment,notice of dishonor, protest, notice of protest, bringing of suit, and diligencein taking any action to collect amounts called for hereunder, and shall bedirectly and primarily liable for the payment of all sums owing and to be owinghereon, regardless of and without any notice, diligence, act or omission withrespect to the collection of any amount called for hereunder or in connectionwith any right, lien, interest or property at any and all times which theLender had or is existing as security for any amount called for hereunder,except as specifically provided herein.

10.4.  Each of the Borrowerand the Lender shall bear all of its own expenses, including attorneys’ fees,incurred in connection with the preparation of this Agreement, except thatLender shall bear the cost of services rendered by outside counsel to Borrowerin connection with the preparation of this Agreement.

10.5.  Any notice requiredor authorized to be given by any party under this agreement to any other partyshall be in writing, personally delivered or sent by facsimile transmission(with a copy by ordinary mail in either case) addressed to the other party atthe address stated for such party below or such other address as shall bespecified by the party in question by notice in accordance with the provisions ofthis Section 10.5. Any notice shall operate and be deemed to have been servedon the next following business day.

10.6.  This Agreementcontains the entire agreements between the parties relating to the transactionsprovided for in this Agreement and supersedes all previous agreements if anybetween such parties in respect of such matters and each of the parties to thisAgreement acknowledges that in agreeing to enter into this Agreement it has notrelied on any representations or warranties except for those contained in thisAgreement.


10.7.  No single or partialexercise of any power under this Agreement shall preclude any other or furtherexercise of such power or exercise of other power. No failure or delay by anyparty in exercising any claim, remedy, right, power or privilege under thisAgreement shall operate as a waiver nor shall any single or partial exercise ofany claim, remedy, right, power of privilege preclude any further exercisethereof or exercise of any other claim, right, power or privilege.

10.8.  This Agreement maybe executed in two or more counterparts, each of which shall be deemed anoriginal, but all of which constitute one and the same instrument.

10.9.  This Agreement maynot be modified or discharged (other than by payment or conversion) except by awritten instrument duly executed by the Borrower and the Lender.

10.10.                    This Agreement maynot be assigned by Borrower without the prior written consent of the Lender.  Subjectto the foregoing restriction, this Agreement shall inure to the benefit ofLender, its successors, assigns and representatives and shall bind Borrower itssuccessors, assigns and representatives. Nothing contained herein shall preventthe Lender from assigning all or part of its rights hereunder upon priorwritten notice provided that all of the Lender`s related liabilities are alsodelegated to such assignee and provided further that, with respect to anyassignment other than an assignment made in connection with the sale of all orsubstantially all of the assets of Lender (which assignment may be effectedwithout Borrower`s approval, but upon notice to Borrower), Borrower shall haveapproved such assignment in writing, which approval shall not be unreasonablywithheld.


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


Compugen Ltd.




(Print Name)


Keddem Bio-Science Ltd.  




(Print Name)









ThisAmendment To Convertible Loan Agreement (this “Amendment Agreement“) ismade and entered into as of this 27th day of February, 2005, by and between Keddem Bioscience Ltd., anIsraeli company, of 11 Ha’amal St., Ashkelon 78785, Israel (“Borrower“)and Compugen Ltd., an Israeli company, of 72 Pinchas Rosen St., Tel Aviv 69512,Israel  (“Lender“).


WHEREAS, the parties have executed a Convertible LoanAgreement dated as of July 29th, 2004 (the “Original Agreement“);and


WHEREAS, the parties now wish to amend the OriginalAgreement in accordance with the provisions of this Agreement


NOW,THEREFORE, the parties hereto, intending to be legally bound hereby agree asfollows:


1.       Scope ofAmendment. This AmendmentAgreement amends the Original Agreement only to the extent expressly specifiedherein. Otherwise, all the terms and conditions of the Original Agreement shallremain unchanged and in full force and effect. Unless expressly and freshlydefined herein, all capitalized terms shall have the meaning ascribed to the inthe Original Agreement.

2.       Amendments.

2.1.     The principal loanamount, which is specified in Section 2.1 of the Original Agreement, is herebyamended to be US$1,530,000 (the “Principal“).

2.2.     Section 2.2 shall bedeleted in its entirety.

2.3.     The amount ofUS$77,000 out of the Principal specified in Section 2.1 above, shall be paid tothe Borrower within 3 business days after the Lender shall receive thecorresponding funds from the Office of Chief Scientist at the Ministry ofIndustry, Commerce and Labor, under 2004 Approved Plan No. 34045.


In witness whereof, the parties hereto have causedthis Agreement to be executed and delivered as of the date first written above.





Keddem Bioscience Ltd.

Dr. Arnon Levy



Compugen Ltd.

Dr. Mor Amitai

President & CEO