a6282794.htm

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of March 31, 2010, and the results of operations and cash flows for the three-month periods ended March 31, 2010 and 2009. The results of operations for the three-month period ended March 31, 2010 are not necessarily indicative of the results to be expected for any other period or the full year. These financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, which includes consolidated financial statements and notes thereto for the years ended December 31, 2009, 2008 and 2007.

Since its inception, the Company has incurred significant operating losses related to its research and development programs and supporting activities. The Company has funded its losses through the sale of equity securities, debt and cash received pursuant to collaboration agreements, including its collaboration agreement with Merck & Co., Inc. (together with its subsidiaries, “Merck”) for the development, manufacture and commercialization of its lead product candidate, ridaforolimus (see Note 2). At March 31, 2010, the Company had $25.4 million of cash and cash equivalents.

In May 2010, the Company and Merck entered into an Amended and Restated Collaboration and License Agreement for the development, manufacture and commercialization of ridaforolimus that replaces the existing collaboration agreement between the parties (see Note 12). Among other things, the revised agreement provides that Merck will make an up-front payment of $50 million to the Company and will assume responsibility for and fund all costs associated with the development, manufacture and commercialization of ridaforolimus effective as of January 1, 2010. Merck will reimburse the Company for the Company’s costs incurred in the three-month period ended March 31, 2010 related to ridaforolimus, equal to approximately $14 million, and all ridaforolimus costs incurred by the Company after March 31, 2010.

The Company expects to continue to incur significant operating expenses through at least 2011 and, therefore, will require substantial additional funding to support its research and development programs, including preclinical development and clinical trials, for operating expenses, for the pursuit of regulatory approvals, and for establishing manufacturing, marketing and sales capabilities. There are numerous factors that affect the Company’s level of spending on its research and development programs and supporting activities, including the number, size and complexity of, and rate of enrollment of patients in, clinical trials for AP24534, the extent of other development activities for AP24534, the progress of the Company’s preclinical and discovery research programs, including AP26113, the timing and amount of any f uture milestone and royalty payments related to ridaforolimus from Merck, and the impact of business development activities, among other factors. The Company believes that, after taking into account the impact of the revised agreement with Merck, its cash and cash equivalents are sufficient to fund its operations into the second half of 2011.

2.	Collaboration Agreement with Merck & Co., Inc.

In July 2007, the Company entered into a collaboration agreement with Merck for the joint global development, manufacture and commercialization of ridaforolimus, the Company’s lead product candidate, for use in cancer (the “Collaboration Agreement”). The information in this Note 2 describes the Collaboration Agreement as in effect at March 31, 2010. As described in Note 12, this agreement was amended and restated in May 2010.

Under the terms of the Collaboration Agreement, as in effect through March 31, 2010, Merck and the Company have been conducting a broad-based development program in multiple types of cancer. Each party funded 50 percent of global development costs, except that Merck funded 100 percent of any cost of development specific to development or commercialization of ridaforolimus outside the United States. Under the Collaboration Agreement, the Company was responsible for supplying the active pharmaceutical ingredient used in the product and Merck was responsible for the formulation of the finished product, all under a separate supply agreement between the parties entered into in May 2008.

The Collaboration Agreement provided that, in the United States, the Company and Merck would co-promote the product, the Company would distribute and sell the product for all cancer indications and record all sales, and each party would receive 50 percent of the profit from such sales. Outside the United States, Merck would distribute, sell and promote the product and book all sales, and Merck would pay the Company tiered double-digit royalties on such sales. Royalties would be payable by Merck, on a country by country basis, until the later of (i) the expiration of the last valid claim of any patent rights owned by either the Company or Merck that cover the product, (ii) a specified number of years from first commercial sale, or (iii) the last date upon which the Company supplies the active pharmaceutical ingredient to Merck under the supply agreement, subject to partial reduction in certain circumstances.

Under the terms of the Collaboration Agreement, Merck paid the Company an initial up-front payment of $75 million in July 2007, and agreed to pay up to $652 million in milestone payments, of which $53.5 million had been paid through March 31, 2010, based on the successful development of ridaforolimus in multiple potential cancer indications, and achievement of specified product sales thresholds. The Company assessed each of the deliverables related to the Collaboration Agreement against the separation criteria for multiple element arrangements and concluded that the deliverables constituted one unit of accounting. The up-front and milestone payments received through March 31, 2010 have been deferred and are being recognized as revenue on a straight-line basis through 2023, the estimated expiration of the patents rela ted to the underlying technology.

Under the Collaboration Agreement, Merck had also agreed to provide the Company with up to $200 million in interest-bearing, repayable, development cost advances to cover a portion of the Company’s share of global costs, after the Company had paid $150 million in global development costs and had obtained regulatory approval to market ridaforolimus from the Food and Drug Administration (“FDA”) in the United States or similar regulatory authorities in Europe or Japan.

Development costs under the Collaboration Agreement were aggregated and split between the Company and Merck in accordance with the terms of the agreement. The Company’s share of such development costs for the three-month periods ended March 31, 2010 and 2009 are reflected in operating expenses in the Company’s statement of operations. Any amounts due to or from Merck in respect of such development costs and milestone payments earned but not received are recorded as such on the Company’s balance sheet. At March 31, 2010, the Company has recorded an amount due from Merck under the Collaboration Agreement of $4.6 million.

3.	Property and Equipment, Net

Property and equipment, net, was comprised of the following at March 31, 2010 and December 31, 2009:

In thousands	March 31, 2010			December 31, 2009
Leasehold improvements	$	22,033		$	22,027
Equipment and furniture		15,601			15,542
		37,634			37,569
Less accumulated depreciation and amortization		(29,636	)		(28,831	)
	$	7,998		$	8,738

Depreciation and amortization expense for the three-month periods ended March 31, 2010 and 2009 amounted to $805,000 and $773,000, respectively.

The Company leases certain assets under capital leases having terms up to three years. Assets under capital leases included in property and equipment were as follows at March 31, 2010 and December 31, 2009:

In thousands	March 31, 2010			December 31, 2009
Equipment and furniture	$	420		$	401
Less accumulated depreciation and amortization		(109	)		(87	)
	$	311		$	314

4.	Intangible and Other Assets, Net

Intangible and other assets, net, were comprised of the following at March 31, 2010 and December 31, 2009:

In thousands	March 31, 2010			December 31, 2009
Capitalized patent and license costs	$	11,754		$	11,817
Purchased technology		5,901			5,901
		17,655			17,718
Less accumulated amortization		(8,366	)		(8,127	)
		9,289			9,591
Other assets		40			36
	$	9,329		$	9,627

Amortization expense for intangible assets amounted to $570,000 and $203,000 for the three-month periods ended March 31, 2010 and 2009, respectively. The weighted average amortization period for intangible assets was 15.2 years in 2010 and in 2009.

5.	Long-term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations were comprised of the following at March 31, 2010 and December 31, 2009:

In thousands	March 31, 2010			December 31, 2009
Bank term loan	$	11,200		$	11,550
Capital lease obligations		223			261
		11,423			11,811
Less current portion		(11,313	)		(11,669	)
	$	110		$	142

The term loan provides for quarterly payments of principal and interest with final scheduled maturity in 2013. The loan bears interest at LIBOR plus 1.25 to 2.25 percent, depending on the percentage of the Company’s liquid assets on deposit with or invested through the bank, or at the prime rate. The effective interest on the loan was 1.66% at March 31, 2010. The loan is secured by a lien on all assets of the Company excluding intellectual property, which the Company has agreed not to pledge to any other party. The loan requires the Company to maintain a minimum of $15.0 million in unrestricted cash, cash equivalents and investments. The loan also contains certain covenants that restrict additional indebtedness, additional liens and sales of assets, and dividends, distributions or repurchases of common stock. In addition, a covenant in the loan agreement requires that the Company not receive an audit report on its annual audited financial statements that includes a “going concern” explanatory paragraph within the audit report. The Company obtained a waiver from the bank related to this requirement for the year ended December 31, 2009. The entire term loan balance is classified as a current liability at March 31, 2010 and December 31, 2009 because the Company is unable to conclude that it is not probable that future covenant violations would occur within the following twelve months.

In addition, the Company leases certain equipment under capital leases with original terms of generally three years. These leases have effective interest rates ranging from 5.6% to 7.2% and are secured by the underlying leased assets.

The future principal payments due under these financing obligations, absent any future debt covenant violations that would require early repayment of the loan, were as follows at March 31, 2010:

In thousands	Bank Term Loan			Capital Lease Obligations
Year ended December 31:
2010	$	1,575		$	87
2011		3,675			66
2012		4,725			55
2013		1,225			15
		11,200			223
Less current portion		(11,200	)		(113	)

Long-term portion	$	---		$	110

6.	Executive Compensation Plan

Under the Company’s deferred executive compensation plan, the Company accrues a liability for the value of the awards ratably over the vesting period. The value of awards made in March 2010 and 2009 were $1,709,000 and $1,121,000, respectively. The net expense for this plan was $401,000 and $204,000 for the three-month periods ended March 31, 2010 and 2009, respectively.

7.	Stockholders’ Equity and Warrant Liability

Authorized Common Stock

At December 31, 2009, the Company had 145,000,000 shares of common stock authorized. On January 20, 2010, following approval at a special meeting of stockholders of the Company, the Company filed a certificate of amendment to its certificate of incorporation to increase the number of authorized shares of common stock of the Company to 240,000,000 shares.

Financings

On February 25, 2009, the Company sold 14,378,698 shares of its common stock in a registered direct offering to institutional investors, at a purchase price of $1.69 per share, resulting in net proceeds after fees and expenses of $22.8 million. The investors also received warrants to purchase an additional 10,784,024 shares of the Company’s common stock exercisable at a price of $2.15 per share in cash or, under certain circumstances, pursuant to the net exercise provisions of the warrants. At the election of the warrant holder, upon certain transactions, including a merger, tender offer or sale of all or substantially all of the assets of the Company, the holder may receive cash in exchange for the warrant, in an amount determined by application of the Black-Scholes option valuation model at the time of any su ch event, if the consideration received by the stockholders from such transaction is less than $2.15 per share. The warrants became exercisable on August 25, 2009 and will expire on February 25, 2012 if not exercised by that date. No warrants have been exercised through March 31, 2010.

As a result of the potential cash settlement provision, the warrants do not qualify to be classified as an equity instrument but instead are classified as a derivative liability. Accordingly, the fair value of the warrants is reflected on the consolidated balance sheet as a liability and such fair value is adjusted at each financial reporting date with the adjustment reflected in the consolidated statement of operations. The Company has classified the warrant obligation as a long-term liability as there is no indication that a merger, tender offer or similar transaction is probable.

The fair value of the warrants on December 31, 2009 was determined to be $11.4 million using the Black-Scholes option valuation model applying the following assumptions: (i) a risk-free rate of 1.23%, (ii) an expected term of 2.2 years, (iii) no dividend yield, and (iv) a volatility of 79%. As of March 31, 2010, the fair value of the warrants was determined to be $17.4 million using the Black-Scholes option valuation model applying the following assumptions: (i) a risk-free rate of 0.96%, (ii) an expected term of 1.9 years, (iii) no dividend yield and (iv) a volatility of 56%. The increase in the fair value of the warrants was primarily due to the increase in the price of our common stock from December 31, 2009 to March 31, 2010 and was recognized in other income (expense) in the consolidated statement of operations. The change in the fair value of the warrant liability as of March 31, 2010 since its last measurement on December 31, 2009 was as follows (in thousands):

Balance at December 31, 2009	$	11,363
Revaluation of warrant liability		6,080
Balance at March 31, 2010	$	17,443

On January 11, 2010, the Company filed a shelf registration statement with the SEC for the issuance of common stock, preferred stock, various series of debt securities and/or warrants or rights to purchase any of such securities, either individually or in units, with a total value of up to $125 million, from time to time at prices and on terms to be determined at the time of any such offering. This filing was declared effective on January 21, 2010. As of March 31, 2010, the full $125 million of securities remain available for issuance under the shelf registration statement.

8.	Fair Value of Financial Instruments

The Company provides disclosure of financial assets and financial liabilities that are carried at fair value based on the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements may be classified based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities using the following three levels:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs that reflect the Company's estimates of the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.

The following table presents information about the Company’s assets and liabilities as of March 31, 2010 and December 31, 2009 that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

	March 31, 2010
In thousands	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	17,949	$	---	$	17,949	$	---
	$	17,949	$	---	$	17,949	$	---
Liabilities:
Warrant liability	$	17,443	$	---	$	---	$	17,443
	$	17,443	$	---	$	---	$	17,443

	December 31, 2009
In thousands	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	17,955	$	---	$	17,955	$	---
	$	17,955	$	---	$	17,955	$	---
Liabilities:
Warrant liability	$	11,363	$	---	$	---	$	11,363
	$	11,363	$	---	$	---	$	11,363

The Company’s cash equivalents are considered highly liquid, but are not included in an exchange traded fund and are therefore classified as Level 2 in the fair value hierarchy. The Company’s warrant liability is carried at fair value and is classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs.

The carrying amounts of cash, cash equivalents, accounts payable and accrued liabilities approximate fair value because of their short-term nature. The carrying amount of the Company’s bank term note of $11.2 million at March 31, 2010 approximates fair value due to its variable interest rate and other terms. The Company’s obligation under its executive compensation plan is based in part on the current fair market value of underlying securities, which is therefore stated at its estimated fair value.

9.	Stock-Based Compensation

The Company awards stock options and other equity-based instruments to its employees, directors and consultants and provides employees the right to purchase common stock (collectively “share-based payments”), pursuant to stockholder approved plans. The Company’s statement of operations included total compensation cost from share-based payments for the three-month periods ended March 31, 2010 and 2009, as follows:

	Three Months Ended March 31,
In thousands	2010		2009
Compensation cost from:
Stock options	$	476	$	753
Stock and stock units		1,008		190
Purchases of common stock at a discount		50		73
	$	1,534	$	1,016

	Three Months Ended March 31,
In thousands	2010		2009
Compensation cost included in:
Research and development expenses	$	497	$	525
General and administrative expenses		1,037		491
	$	1,534	$	1,016

10.	Net Loss Per Share

Net loss per share amounts have been computed based on the weighted-average number of common shares outstanding during each period. Because of the net loss reported in each period, diluted and basic net loss per share amounts are the same. For the three-month periods ended March 31, 2010 and 2009, the following potentially dilutive securities were not included in the computation of net loss per share because the effect would be anti-dilutive:

	Three Months Ended March 31,
	2010		2009

Outstanding stock options		7,777,638		7,957,227
Outstanding restricted stock and restricted stock units		3,079,200		1,501,500
Warrants to purchase common stock		10,784,024		10,784,024
		21,640,862		20,242,751

11.	Legal Proceedings

NF-κB Patent Infringement Litigation and Reexamination

Lilly Litigation

In 2002, the Company, together with Massachusetts Institute of Technology (“MIT”), The Whitehead Institute for Biomedical Research (“Whitehead”) and Harvard University (“Harvard”) (collectively, the Plaintiffs) filed a lawsuit in the United States District Court for the District of Massachusetts (the “U.S. District Court“) against Eli Lilly and Company (“Lilly”) alleging infringement of four claims (the “NF-κB ‘516 Claims”) of the Plaintiffs’ U.S. Patent No. 6,410,516 (the “‘516 Patent”), covering methods of treating human disease by regulating NF-κB cell-signaling activity through sales of Lilly’s drugs, Evista® and Xigris®. In 2006, a jury rendered a verdict in favor of the Plaintiffs and awarded damages of $65.2 million to the Plaintiffs, plus further damages equal to 2.3 percent of U.S. sales of Evista and Xigris from February 28, 2006 through the year 2019, when the patent expires.

Lilly appealed several of the District Court’s rulings to the U.S. Court of Appeals for the Federal Circuit (the “CAFC”) and, on April 3, 2009, the CAFC ruled in Lilly’s favor, finding that the four claims of the ‘516 Patent asserted in this lawsuit are not supported by adequate written description and are therefore invalid. The CAFC did not rule on other validity issues raised by Lilly or on the findings of infringement. In addition, the CAFC affirmed the District Court’s ruling that the patent’s enforceability is not impaired by inequitable conduct during its prosecution. The CAFC granted Plaintiffs subsequent petition requesting en banc rehearing of this matter before the full CAFC. The CAFC heard oral arguments on December 7, 2009. On Marc h 22, 2010, the CAFC ruled in Lilly’s favor, holding that the four patent claims are invalid due to inadequate written description.

PTO Reexamination

A reexamination at the United States Patent and Trademark Office (“PTO”) of aspects of patentability of the ‘516 Patent had been initiated by Lilly in April 2005. On October 16, 2008, the PTO issued a final office action confirming that 53 claims of the ‘516 patent are patentable, while rejecting 45 of the remaining claims, including claims relating to the Lilly litigation and claims relating to the Amgen litigation. The Company has appealed that decision to the Patent Office Board of Appeals and Interferences and filed its appeal brief on May 18, 2009.

12.	Subsequent Event

In May 2010, the Company and Merck entered into the Amended and Restated Collaboration and License Agreement (“License Agreement”) that replaces the Collaboration Agreement. Under the terms of the License Agreement, the Company has granted Merck an exclusive license to develop, manufacture and commercialize ridaforolimus in oncology, and Merck assumes responsibility for all activities related to the development, manufacture and commercialization of ridaforolimus and will fund 100 percent of all ridaforolimus costs effective as of January 1, 2010. If ridaforolimus receives regulatory approval, Merck will be responsible for selling ridaforolimus worldwide, will book global sales and will pay the Company tiered double-digit royalties on global net sales. The Company has an option to co-promo te ridaforolimus with up to 20 percent of the sales effort in all indications in the United States and, in such case, will be compensated by Merck for its sales efforts.

Under the License Agreement, Merck will pay the Company an initial up-front fee of $50 million and has agreed to pay the Company up to $514 million in regulatory and sales milestone payments, based on the successful development of ridaforolimus in multiple potential cancer indications and upon achievement of specified product sales thresholds. These potential milestone payments include up to $65 million associated with potential regulatory filings and approvals for the sarcoma indication, which is currently in Phase 3 clinical development (consisting of $25 million for acceptance of a new drug application by the FDA, $25 million for marketing approval in the United States, $10 million for marketing approval in Europe, and $5 million for marketing approval in Japan), up to $249 million associated with potential regulatory filing s and approvals for other cancer indications, and up to $200 million associated with the achievement of certain sales thresholds.

The License Agreement provides that all ridaforolimus activities that are currently the responsibility of the Company will be transitioned to Merck, a process the Company estimates will take approximately six months to complete. Merck will reimburse the Company for all costs it incurs related to the transition.

As a result of the Company’s entry into the License Agreement, the Company will not be eligible to receive the $74.5 million in milestones that it was eligible to receive under the original Collaboration Agreement upon the start of four Phase 3 clinical trials in indications other than sarcoma, or up to $200 million in development cost advances after the Company had paid $150 million in global development costs and obtained regulatory approval of ridaforolimus, since Merck will be responsible for fully funding all clinical trials and other development activities.

As a result of this License Agreement, in addition to the $50 million up-front payment from Merck, the Company will also receive a payment of approximately $14 million for its costs incurred in the quarter ended March 31, 2010 related to its development, manufacture and commercial activities for ridaforolimus. Of this amount, $4.6 million is reflected as due from Merck in the accompanying balance sheet as of March 31, 2010 in accordance with the cost sharing provisions of the Collaboration Agreement as in effect at that time.

The Company considers this License Agreement to be a new agreement for accounting purposes as the agreement has been materially modified. Accordingly, the impact of the new agreement terms will be reflected in the Company’s financial statements in the second quarter of 2010 when the transaction occurred. The Company is currently evaluating the accounting treatment to be applied to the License Agreement, including the impact on revenue recognition and presentation of costs incurred under the terms of the agreement.

In addition, the Company has not yet adopted new accounting guidance for multiple element revenue arrangements that is effective for the Company on January 1, 2011 and may consider early adoption of this guidance, which may impact the accounting treatment. This new accounting guidance requires an entity to allocate revenue to each unit of accounting in multiple deliverable arrangements based on the relative selling price of each deliverable. It also changes the level of evidence required to separate deliverables by requiring an entity to make its best estimate of the stand-alone selling price of the deliverables when more objective evidence of selling price is not available. Previously the Company was required to have objective evidence of fair value of the undelivered items in order to have separate units of accounting for multiple element arrangements.

New accounting guidance was approved in April 2010 that establishes the criteria for determining whether the milestone method of revenue recognition is appropriate. Under this method, a vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The Company has not yet evaluated the impact, if any, of this new guidance on its financial statements.

ITEM 2. MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information set forth below should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included herein, as well as our audited consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2010. Unless stated otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” or “our” refer to ARIAD Pharmaceuticals, Inc., a Delaware corporation, and our subsidiaries unless the context requires otherwise.

Overview

Our vision is to transform the lives of cancer patients with breakthrough medicines. Our mission is to discover, develop and commercialize small-molecule drugs to treat cancer in patients with the greatest and most urgent unmet medical need – aggressive cancers where current therapies are inadequate. Our goal is to build a fully integrated oncology company focused on novel, molecularly targeted therapies to treat solid tumors and hematologic cancers, as well as the spread of primary tumors to distant sites.

Product Development and Discovery

Our lead cancer product candidate, ridaforolimus, previously known as deforolimus, is being studied in multiple clinical trials in patients with various types of cancers. In July 2007, we entered into a global collaboration agreement, or the Collaboration Agreement, with Merck & Co., Inc., or Merck, to jointly develop, manufacture and commercialize ridaforolimus for use in cancer, which agreement was amended and restated in May 2010 as discussed further below. We initiated patient enrollment in our initial Phase 3 clinical trial of ridaforolimus in patients with metastatic sarcoma in the third quarter of 2007. We completed patient enrollment in this Phase 3 clinical trial in the fourth quarter of 2009. We expect to obtain the results of the second interim analysis of progression-free surviva l or PFS, the primary endpoint of the trial in the second quarter of 2010 and the final analysis of PFS in the second half of 2010. In addition, in 2008 and 2009 we and Merck initiated patient enrollment in Phase 2 clinical trials in patients with metastatic breast cancer, metastatic endometrial cancer, metastatic non-small-cell lung cancer and advanced prostate cancer, and Phase 1 clinical trials of ridaforolimus in combination with other agents, all as part of our joint global development plan with Merck. These various trials are ongoing at this time.

Our second product candidate, AP24534, is an investigational pan BCR-ABL inhibitor for which we initiated a Phase 1 clinical trial in the second quarter of 2008 in patients with chronic myeloid leukemia, or CML, acute myeloid leukemia, or AML, and other hematologic cancers, which is on-going at this time. Pending further analysis of the results of this trial and discussions with regulatory authorities, we believe that we will be able to proceed to a registration trial of this product candidate in the second half of 2010.

In the second quarter of 2009, we designated our third product candidate, AP26113, an investigational anaplastic lymphoma kinase, or ALK, inhibitor, as a development candidate. We have commenced preclinical testing and investigational new drug, or IND, enabling studies of this product candidate.

In addition to our lead development programs, we have a focused drug discovery program centered on small-molecule, molecularly targeted therapies and cell-signaling pathways implicated in cancer.

Our Collaboration with Merck

Under our Collaboration Agreement with Merck for the global development, manufacture and commercialization of ridaforolimus, we and Merck have been conducting a broad-based development program in multiple potential indications. The Collaboration Agreement as in effect at March 31, 2010 provided that each party would fund 50 percent of global development costs, except for certain specific costs to be funded 100 percent by Merck. The Collaboration Agreement established responsibilities for supply of the product for development and commercial purposes, promotion, distribution and sales of the product, governance of the collaboration, termination provisions and other matters.

In addition to cost-sharing provisions, the Collaboration Agreement as in effect at March 31, 2010 provided for an up-front payment by Merck of $75 million, which was paid to us in July 2007, and provided up to $452 million in milestone payments based on the successful development of ridaforolimus in multiple potential cancer indications, of which $53.5 million has been paid to us through March 31, 2010, and up to $200 million in milestone payments based on achievement of specified product sales thresholds. Merck had also agreed to provide us with up to $200 million in interest-bearing, repayable, development cost advances to cover a portion of our share of global development costs, after we had paid $150 million in global development costs and had obtained regulatory approval to market ridaforolimus from the FDA in the United States or similar regulatory authorities in Europe or Japan. The Collaboration Agreement provided that each party would receive 50 percent of the profit from the sales of ridaforolimus in the United States, and Merck would pay us tiered double-digit royalties on sales of ridaforolimus outside the United States.

In May 2010, we entered into an Amended and Restated Collaboration and License Agreement, or the License Agreement, with Merck that replaces the Collaboration Agreement. Under the terms of the License Agreement, we have granted Merck an exclusive license to develop, manufacture and commercialize ridaforolimus in oncology, and Merck assumes responsibility for all activities related to the development, manufacture and commercialization of ridaforolimus and will fund 100 percent of all ridaforolimus costs effective as of January 1, 2010. If ridaforolimus receives regulatory approval, Merck will be responsible for selling ridaforolimus worldwide, will book global sales and will pay us tiered double-digit royalties on global net sales. We have an option to co-promote ridaforolimus with up to 20 percent of the s ales effort in all indications in the United States and, in such case, we will be compensated by Merck for our sales efforts.

Under the License Agreement, Merck will pay us an initial up-front fee of $50 million and has agreed to pay us up to $514 million in regulatory and sales milestone payments, based on the successful development of ridaforolimus in multiple potential cancer indications or upon achievement of specified product sales thresholds. These potential milestone payments include up to $65 million in milestones associated with the potential sarcoma indication, which currently is in Phase 3 clinical development, up to $249 million associated with potential regulatory filings and approvals for other cancer indications and up to $200 million in milestones based on achievement of certain sales thresholds.

The License Agreement provides that all ridaforolimus activities that are currently our responsibility will be transitioned to Merck, a process we estimate will take approximately six months to complete. Merck will reimburse us for all costs we incur related to the transition.

As a result of our entry into the License Agreement, we will not be eligible to receive the $74.5 million in milestones that we were eligible to receive under the original Collaboration Agreement upon the start of four Phase 3 clinical trials in indications other than sarcoma, or up to $200 million in development cost advances after we had paid $150 million in global development costs and obtained regulatory approval of ridaforolimus, since Merck will be responsible for fully funding all clinical trials and other development activities.

As a result of this agreement, in addition to the $50 million up-front payment from Merck, we will also receive a payment of approximately $14 million for our ridaforolimus costs incurred in the quarter ended March 31, 2010. Of this amount, $4.6 million is reflected as due from Merck in the accompanying balance sheet as of March 31, 2010 in accordance with the cost sharing provisions of the Collaboration Agreement as in effect at that time. The impact of the revised agreement will be reflected in our financial statements in the second quarter of 2010.

Liquidity and Sources and Uses of Funding

As of March 31, 2010, we had cash and cash equivalents of $25.4 million, deferred revenue of $109.5 million related to non-refundable up-front and milestone payments from Merck, and total stockholders’ deficit of $110.8 million. After taking into account the impact of the License Agreement with Merck, we believe that our cash and cash equivalents will be sufficient to fund our operations into the second half of 2011. We expect to continue to incur significant operating expenses and net losses through at least 2011, and, therefore, we will require substantial additional funding to support our operations through 2011 and beyond. We are pursuing partnering opportunities with our other product candidates, AP24534 and AP26113, which could generate up-front and milestone payments as well as funding of on-g oing development costs, and other licensing possibilities with our technologies. In addition, we may seek to raise funding by issuing common stock or other securities in a private placement or a public offering, or through the issuance of debt.

Our operating losses are primarily due to the costs associated with our product development programs, personnel and intellectual property protection and enforcement. As our product development programs progress, we incur significant costs for toxicology and pharmacology studies, product development, manufacturing, clinical trials and regulatory support. We also incur costs related to planning for potential regulatory approval and commercial launch of products, including market research and assessment. These costs can vary significantly from quarter to quarter depending on the number of product candidates in development, the stage of development of each product candidate, the number of patients enrolled in and complexity of clinical trials and other factors. Costs associated with our intellectual property include legal fees and other costs to prosecute, maintain, protect and enforce our intellectual property, which can fluctuate from quarter to quarter depending on the status of patent issues being pursued.

Historically, we have relied primarily on the capital markets as our source of funding. We may also obtain funding from collaborations with pharmaceutical, biotechnology and/or medical device companies for development and commercialization of our product candidates, such as our collaboration with Merck for the global development, manufacture and commercialization of ridaforolimus. These collaborations can take the form of licensing arrangements, co-development or joint venture arrangements or other structures. In addition, we utilize long-term debt and leases to supplement our funding, particularly as a means of funding investment in property and equipment and infrastructure needs. If funding from these various sources is unavailable on reasonable terms, we may be required to reduce our operatio ns in order to conserve cash and capital by delaying, scaling back or eliminating one or more of our product development programs or enter into licenses or other arrangements with third parties on terms that may be unfavorable to us. Please see additional information under the caption “Liquidity and Capital Resources” below.

Each of our potential sources of funding is subject to numerous risks and uncertainties, and there is no assurance that such funding will become available in 2010, or at all, as discussed further in the “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009.

Critical Accounting Policies and Estimates

Our financial position and results of operations are affected by subjective and complex judgments, particularly in the areas of revenue recognition, the carrying value of intangible assets, stock-based compensation and the fair value of warrants to purchase our common stock.

Revenue Recognition

For the three months ended March 31, 2010, we reported license and collaboration revenue of $2.2 million. License and collaboration revenue is recorded based on up-front payments, periodic license payments and milestone payments received or deemed probable of receipt, spread over the estimated performance period of the license or collaboration agreement. Regarding our collaboration with Merck for the development, manufacture and commercialization of ridaforolimus, as of March 31, 2010, we have received an up-front payment of $75 million and milestone payments of $53.5 million related to the start of Phase 2 and Phase 3 clinical trials of ridaforolimus. We are recognizing revenues related to such payments on a straight-line basis through 2023, the estimated patent life of the underlying technology. 60;Changes in estimated performance periods, including changes in patent lives of underlying technology or changes in the terms of our agreements that alter our deliverables, could impact the rate of revenue recognition in any period. Such changes in revenue could have a material impact on our statement of operations.

Intangible Assets

At March 31, 2010, we reported $9.3 million of intangible assets, consisting of capitalized costs related primarily to purchased and issued patents, patent applications and licenses and the recorded value of the technology associated with our acquisition in September 2008 of the 20-percent minority interest of ARIAD Gene Therapeutics, Inc. that we did not previously own, net of accumulated amortization. The carrying value of these intangible assets is evaluated for possible impairment, and losses are recorded when the evaluation indicates that the carrying value is not recoverable. This evaluation involves estimates of future net cash flows expected to be generated by the asset. Such estimates require judgment regarding future events and probabilities. Changes in these estimates, including decis ions to discontinue using the technologies, could result in material changes to our balance sheet and statements of operations. If we were to abandon the ongoing development of the underlying product candidates or technologies or terminate our efforts to pursue collaborations or license agreements, we may be required to write off a portion of the carrying value of our intangible assets.

Stock-Based Compensation

In determining expense related to stock-based compensation, we utilize the Black-Scholes option valuation model to estimate the fair value of stock options granted to employees, consultants and directors. Application of the Black-Scholes option valuation model requires the use of factors such as the market value and volatility of our common stock, a risk-free discount rate and an estimate of the life of the option contract. Fluctuations in these factors can result in adjustments to our statements of operations. If, for example, the volatility of our common stock, or the expected life of stock options granted during the three-month period ended March 31, 2010 were 10% higher or lower than used in the valuation of such stock options, our valuation of, and total stock-based compensation expense to be recogniz ed for, such awards would have increased or decreased by up to $25,000, or $15,000, respectively.

Fair Value of Warrants

Warrants to purchase 10,784,024 shares of our common stock, issued on February 25, 2009 in connection with a registered direct offering of 14,378,698 shares of our common stock, are classified as a derivative liability. Accordingly, the fair value of the warrants is recorded on our consolidated balance sheet as a liability, and such fair value is adjusted at each financial reporting date with the adjustment to fair value reflected in our consolidated statement of operations. The fair value of the warrants is determined using the Black-Scholes option valuation model. Fluctuations in the assumptions and factors used in the Black-Scholes model would result in adjustments to the fair value of the warrants reflected on our balance sheet and, therefore, our statement of operations. If, for example, th e volatility of our common stock at March 31, 2010 were 10% higher or lower than used in the valuation of such warrants, our valuation of the warrants would have increased or decreased by up to $693,000 with such difference reflected in our statement of operations.

Results of Operations

For the three months ended March 31, 2010 and 2009

Revenue

We recognized license and collaboration revenue of $2.2 million in the three-month period ended March 31, 2010, compared to $1.9 million in the corresponding period in 2009. The increase in license and collaboration revenue was due primarily to the increase in revenue recognized from the Merck collaboration of $255,000, based on the non-refundable up-front and milestone payments totaling $128.5 million received from Merck to date, in accordance with our revenue recognition policy. We expect that our license and collaboration revenue will increase over the remaining quarters of 2010 due to the impact of the License Agreement we entered into with Merck in May 2010, although we have not yet determined the accounting consequences of the License Agreement.

Operating Expenses

Research and Development Expenses

Research and development expenses decreased by $2.9 million, or 16%, to $14.8 million in the three-month period ended March 31, 2010, compared to $17.7 million in the corresponding period in 2009, as described in further detail below.

The research and development process necessary to develop a pharmaceutical product for commercialization is subject to extensive regulation by numerous governmental authorities in the United States and other countries. This process typically takes years to complete and requires the expenditure of substantial resources. Current requirements include:

·	preclinical toxicology, pharmacology and metabolism studies, as well as in vivo efficacy studies in relevant animal models of disease;

·	manufacturing of drug product for preclinical studies and clinical trials and ultimately for commercial supply;

submission of the results of preclinical studies and information regarding manufacturing and control and proposed clinical protocol to the U.S. Food and Drug Administration, or FDA, in an Investigational New Drug application, or IND (or similar filings with regulatory agencies outside the United States);

·	conduct of clinical trials designed to provide data and information regarding the safety and efficacy of the product candidate in humans; and

·	submission of all the results of testing to the FDA in a New Drug Application, or NDA (or similar filings with regulatory agencies outside the United States).

Upon approval by the appropriate regulatory authorities, including in some countries approval of product pricing, we may commence commercial marketing and distribution of the product.

We group our research and development, or R&D, expenses into two major categories: direct external expenses and all other R&D expenses. Direct external expenses consist of costs of outside parties to conduct laboratory studies, to develop manufacturing processes and manufacture product candidates, to conduct and manage clinical trials and similar costs related to our clinical and preclinical studies. These costs are accumulated and tracked by product candidate. All other R&D expenses consist of costs to compensate personnel, to purchase lab supplies and services, to lease, operate and maintain our facility, equipment and overhead and similar costs of our research and development efforts. These costs apply to work on our clinical and preclinical candidates as well as our discovery res earch efforts. These costs have not been tracked by product candidate because the number of product candidates and projects in R&D may vary from time to time and because we utilize internal resources across multiple projects at the same time.

Direct external expenses are further categorized as costs for clinical programs and costs for preclinical programs. Preclinical programs include product candidates undergoing toxicology, pharmacology, metabolism and efficacy studies and manufacturing process development required before testing in humans can begin. Product candidates are designated as clinical programs once we have filed an IND with the FDA, or a similar filing with regulatory agencies outside the United States, for the purpose of commencing clinical trials in humans.

Our R&D expenses for the three-month period ended March 31, 2010, as compared to the corresponding period in 2009, were as follows:

	Three months ended March 31,
In thousands	2010		2009		Increase/ (decrease)
Direct external expenses:
Clinical programs	$	7,754	$	10,887	$	(3,133	)
Preclinical programs		1		0		1
All other R&D expenses		7,080		6,862		218
	$	14,835	$	17,749	$	(2,914	)

In 2010, our clinical programs consisted of our lead product candidate ridaforolimus, for which we initiated clinical development in 2003, and AP24534, for which we initiated clinical development in 2008. The direct external expenses for ridaforolimus reflect our share of such expenses, including our share of Merck’s costs, pursuant to the cost-sharing arrangement of our collaboration with Merck as in effect through March 31, 2010. As described above, this cost sharing provision is being modified by the License Agreement entered into in May 2010. The License Agreement provides that Merck will fund 100 percent of all ridaforolimus costs, including all costs incurred by us, effective as of January 1, 2010.

Direct external expenses for ridaforolimus were $6.2 million in the three-month period ended March 31, 2010, a decrease of $2.7 million, as compared to the corresponding period in 2009, primarily reflecting our share of decreases in clinical trial costs ($1.1 million) and manufacturing costs ($1.1 million) and supporting non-clinical costs ($511,000), offset in part by an increase in our share of Merck’s services ($245,000). Clinical trial costs decreased due primarily to completion of enrollment in our Phase 3 clinical trial of ridaforolimus in patients with metastatic sarcomas and a Phase 1 clinical trial of ridaforolimus in combination with bevacizumab. Manufacturing costs decreased due primarily to the completion in 2009 of initiatives related to development, qualification and validation of the process for manufacturing ridaforolimus. Non-clinical costs decreased due primarily to the completion in 2009 of certain toxicology and stability studies. Merck’s services provided to the collaboration increased as a result of Merck’s increasing activities in support of clinical trials and other activities for which Merck is responsible. As a result of the License Agreement with Merck, we expect that our direct external expenses for ridaforolimus over the remaining quarters of 2010 will decrease as we transition all responsibilities for development to Merck, and all expenses incurred by us related to the development of ridaforolimus and transition of responsibilities to Merck will be funded 100 percent by Merck.

Direct external expenses for our second clinical program, AP24534, were $1.6 million in the three-month period ended March 31, 2010, a decrease of $389,000 as compared to the corresponding period in 2009. The decrease is due primarily to a decrease in toxicology costs of $1.1 million, offset in part by an increase in contract manufacturing costs of $637,000. Toxicology costs decreased due to the completion in 2009 of long-term toxicology studies necessary to support development of this product candidate. Contract manufacturing costs increased due to the provision of the drug in support of increasing enrollment in the Phase 1 clinical trial. We expect that our direct external expenses for AP24534 will increase over the remaining quarters of 2010 as we expect to initiate additional clinical trials for this product candidate, including a registration trial in patients with chronic myeloid leukemia, pending further analysis of the results of the Phase 1 trial and discussions with regulatory authorities.

The direct external expenses incurred in our preclinical program relate to miscellaneous costs for our third product candidate, AP26113. We incurred no direct external expenses for preclinical programs in the three-month period ended March 31, 2009. Prior to the designation of our third product candidate, all programs other than clinical programs were designated as discovery research and are included in “all other R&D expenses” in the above table. We expect that our direct external expenses for our preclinical program, AP26113, will increase over the remaining quarters of 2010 as we conduct additional pharmacology, toxicology and other studies designed to support the potential filing of an IND for this product candidate.

All other R&D expenses increased by $218,000 in the three-month period ended March 31, 2010 as compared to the corresponding period in 2009. This increase is due to an increase in personnel expenses of $556,000 related to salary increases and annual performance awards as well as an increased use of temporary help to meet peak needs, and due to an increase in reserves related to certain capitalized patents and licenses of $188,000. These increases are offset in part by decreases in overhead and general expenses of $362,000 as a result of (1) decreases in supplies and travel expenses, (2) decreases in property taxes, maintenance and utilities as we focus on reducing the costs of our research and development facility, (3) decreases in professional services due to completion of several consulting initiatives in 2009, and (4) an increase in Merck’s reimbursement to us for our services to the collaboration of $144,000. These decreases were offset by an increase in personnel expenses of $587,000 due to salary increases and annual performance awards as well as increased use of temporary help to meet peak needs. We expect that all other R&D expenses will decrease over the remaining quarters of 2010 as Merck will reimburse us for 100 percent of our internal costs related to ridaforolimus under the provisions of the License Agreement, as compared to 50 percent in the first quarter of 2010 under the provisions of the Collaboration Agreement in effect as of March 31, 2010. This decrease will be offset in part by increasing resources required to support expanding work on our other product candidates.

The successful development of our product candidates is uncertain and subject to a number of risks. We cannot be certain that any of our product candidates will prove to be safe and effective or will meet all of the applicable regulatory requirements needed to receive and maintain marketing approval. Data from preclinical studies and clinical trials are susceptible to varying interpretations that could delay, limit or prevent regulatory clearance. We, the FDA or other regulatory authorities may suspend clinical trials at any time if we or they believe that the subjects participating in such trials are being exposed to unacceptable risks or if such regulatory agencies find deficiencies in the conduct of the trials or other problems with our products under development. Delays or rejections may be encountered based on additional governmental regulation, legislation, administrative action or changes in FDA or other regulatory policy during development or the review process. Other risks associated with our product development programs are described in the section entitled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K as updated from time to time in our other periodic and current reports filed with the SEC. Due to these uncertainties, accurate and meaningful estimates of the ultimate cost to bring a product to market, the timing of completion of any of our drug development programs and the period in which material net cash inflows from any of our drug development programs will commence are unavailable.

General and Administrative Expenses

General and administrative expenses increased by $448,000, or 11%, to $4.6 million in the three-month period ended March 31, 2010, compared to $4.1 million in the corresponding period in 2009. Personnel expenses increased by $427,000 due to salary increases and annual performance awards, including the impact of higher stock-based compensation expense, and increases in overhead and general expenses of $299,000. These increases were partially offset by a decrease in professional services of $262,000 primarily due to a reduction in corporate and commercial development initiatives. We expect that general and administrative expenses will remain at approximately the current levels over the remaining quarters of 2010 although they may fluctuate from quarter to quarter.

Other Income (Expense)

Interest Income/Expense

Interest income decreased to $8,000 in the three-month period ended March 31, 2010 from $37,000 in the corresponding period in 2009, as a result of a lower average balance of funds invested in 2010 and lower interest yields from our investments.

Interest expense remained relatively unchanged at $71,000 in the three-month period ended March 31, 2010 and $81,000 in the corresponding period in 2009.

Revaluation of Warrant Liability

The fair value of our warrant liability at March 31, 2010 was $6.1 million higher than its fair value at December 31, 2009, resulting in a non-cash charge of $6.1 million for the three-month period ended March 31, 2010. The increase in value of the warrant liability is primarily due to the impact of the increase in the market price of our common stock since December 31, 2009. Potential future increases or decreases in the price of our common stock, or other changes in the factors that impact the valuation of the warrant liability, will result in charges or credits recognized in our consolidated statement of operations in future periods. Such charges or credits will not have any impact on our cash balances, current liquidity or cash flows from operations.

Operating Results

We reported a loss from operations of $17.3 million in the three-month period ended March 31, 2010 compared to a loss from operations of $20.0 million in the corresponding period in 2009, a decrease of $2.7 million, or 14%. We also reported a net loss of $23.4 million in the three-month period ended March 31, 2010, compared to a net loss of $20.2 million in the corresponding period in 2009, an increase in net loss of $3.2 million or 16%, and a net loss per share of $0.21 and $0.26, respectively. The increase in net loss is largely due to the revaluation of our warrant liability described above. The decrease in net loss per share is largely due to the increase in our weighted average number of shares of common stock outstanding as a result of sales of common stock completed in February 2009 and August 2009. Our results of operations for the remaining quarters of 2010 will vary from those of the quarter ended March 31, 2010 and actual losses will depend on a number of factors, including the accounting treatment to be applied to the License Agreement with Merck and other impacts of this agreement on our expenses, the progress of our product development programs, the progress of our discovery research programs, the impact of commercial and business development activities and other factors. The extent of such losses will also depend on the sufficiency of funds on hand or available from time to time, which will influence the amount we will spend on operations and capital expenditures and the development timelines for our product candidates.

Liquidity and Capital Resources

We have financed our operations and investments to date primarily through sales of our common stock to institutional investors, collaborations with pharmaceutical companies and, to a lesser extent, through issuances of our common stock pursuant to our stock option and employee stock purchase plans, supplemented by the issuance of long-term debt. We sell securities and incur debt when the terms of such transactions are deemed favorable to us and as necessary to fund our current and projected cash needs. Our License Agreement with Merck for the development, manufacture and commercialization of ridaforolimus provides for additional funding in the form of up-front and potential milestone payments and, subject to regulatory approval, royalty payments on sales of ridaforolimus. We seek to balance the level of ca sh, cash equivalents and marketable securities on hand with our projected needs and to allow us to withstand periods of uncertainty relative to the availability of funding on favorable terms.

Sources of Funds

For the three months ended March 31, 2010 and 2009, our sources of funds were as follows:

	Three Months Ended March 31,
In thousands	2010		2009
Sales/issuances of common stock:
In common stock offerings, net of issuance costs	$	---	$	22,819
Pursuant to stock option and purchase plans		128		137
Maturities of marketable securities, net of purchases		---		7,227
	$	128	$	30,183

The amount of funding we raise through sales of our common stock depends on many factors, including, but not limited to, the status and progress of our product development programs, projected cash needs, availability of funding from other sources, our stock price and the status of the capital markets.

On February 25, 2009, we sold 14,378,698 shares of our common stock in a registered direct offering to institutional investors, at a purchase price of $1.69 per share, resulting in net proceeds after fees and expenses of $22.8 million. The investors also received warrants to purchase an additional 10,784,024 shares of our common stock exercisable at a price of $2.15 per share in cash or, under certain circumstances, pursuant to the net exercise provisions of the warrants. At the election of the warrant holder, upon certain transactions, including a merger, tender offer or sale of all or substantially all of our assets, the holder may receive cash in exchange for the warrant, in an amount determined by application of the Black-Scholes option valuation model at the time of any such event, if the consideration received by the stockholders from such transaction is less than $2.15 per share. The warrants became exercisable on August 25, 2009 and will expire on February 25, 2012 if not exercised by that date. As of March 31, 2010, no warrants have been exercised.

On August 7, 2009, we sold 21,850,000 shares of our common stock in an underwritten public offering, including 2,850,000 shares of common stock upon exercise by the underwriters of their over-allotment option, at a purchase price of $1.75 per share. Net proceeds of this offering, after underwriting discounts and commissions and direct expenses, were $35.6 million.

We have filed shelf registration statements with the SEC, from time to time, to register shares of our common stock or other securities for sale, giving us the opportunity to raise funding when needed or otherwise considered appropriate. On January 11, 2010, we filed a shelf registration statement with the SEC for the issuance of common stock, preferred stock, various series of debt securities and/or warrants or rights to purchase any of such securities, either individually or in units, with a total value of up to $125 million, from time to time at prices and on terms to be determined at the time of any such offering. This filing was declared effective on January 21, 2010. As of March 31, 2010, the full $125 million of securities remain available for issuance under the shelf registration statement.< /div>

Uses of Funds

The primary uses of our cash are to fund our operations and working capital requirements and, to a lesser degree, to repay our long-term debt, to invest in intellectual property and to invest in our property and equipment as needed for our business. For the three months ended March 31, 2010 and 2009, our uses of funds were as follows:

	Three Months Ended March 31,
In thousands	2010		2009

Net cash used in operating activities	$	14,327	$	10,110
Repayment of borrowings		350		350
Investment in intangible assets		268		339
Investment in property and equipment		74		1,071
	$	15,019	$	11,870

The net cash used in operating activities is comprised of our net losses, adjusted for non-cash expenses, deferred revenue, including deferrals of the up-front and milestone payments received from Merck, and working capital requirements. As noted above, our net loss for the three-month period ended March 31, 2010 increased by $3.2 million, as compared to the corresponding period in 2009, due primarily to the revaluation of our warrant liability. Our net cash used in operating activities increased by $4.2 million in the three-month period ended March 31, 2010 as compared to the corresponding period in 2009 reflecting the increase in net loss and the offsetting impacts of the non-cash charge of $6.1 million related to the warrant liability in 2010, a net change in other working capital items of $4.9 million, and a $12. 5 million milestone payment received from Merck in 2009.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities for financial partnerships, such as entities often referred to as structured finance or special purpose entities which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2010, we maintained an outstanding letter of credit of $749,000 in accordance with the terms of our long-term lease for our office and laboratory facility and for other purposes.

Contractual Obligations

We have substantial fixed contractual obligations under our long-term debt agreement, operating and capital lease agreements, employment agreements and benefit plans. These non-cancellable contractual obligations were comprised of the following as of March 31, 2010:

			Payments Due By Period
In thousands	Total		In 2010		2011 through 2013		2014 through 2015		After 2016

Long-term debt	$	11,200	$	1,575	$	9,625	$	---	$	---

Operating leases		5,118		1,661		3,457		---		---

Employment agreements		8,807		4,356		4,451		---		---

Other long-term obligations		5,318		360		3,376		1,582		---

Total fixed contractual obligations	$	30,443	$	7,952	$	20,909	$	1,582	$	---

Long-term debt consists of scheduled principal payments on such debt. Interest on our long-term debt is based on variable interest rates. Assuming a constant interest rate of 1.66%, our average interest rate on our debt at March 31, 2010, over the remaining term of the debt, our interest expense would total approximately $131,000 for the remainder of 2010, and $213,000 in the period 2011 through 2013.

Leases consist of payments to be made on our lease for our office and laboratory facility, the term of which extends to July 2012, and on agreements for certain assets acquired under capital leases which expire at various dates into 2013. Employment agreements represent base salary payments under agreements with officers that extend for terms ranging from one to four years. Other long-term obligations are comprised primarily of our obligations under our deferred executive compensation plan.

Liquidity

For the three-month period ended March 31, 2010, we incurred a net loss of $23.4 million and reported cash used in operating activities of $14.3 million. At March 31, 2010, we had cash and cash equivalents of $25.4 million.

In May 2010, we entered into the License Agreement with Merck for the development, manufacture and commercialization of ridaforolimus. The License Agreement provides that Merck assumes responsibility for all activities related to the development, manufacture and commercialization of ridaforolimus and will fund 100 percent of costs effective as of January 1, 2010. Under this agreement, Merck will pay us an initial up-front fee of $50 million. Merck will also reimburse us for our costs related to ridaforolimus incurred in the quarter ended March 31, 2010 totaling approximately $14 million. In addition, the agreement provides for up to $514 million in regulatory and sales milestone payments from Merck, based on the successful development of ridaforolimus in multiple cancer indications or upon achie vement of specified sales thresholds, and tiered double-digit royalty payments from Merck on global net sales upon regulatory approval of the product.

We expect to continue to incur significant operating expenses through at least 2011 as we advance our other product development programs through clinical trials and non-clinical studies. There are numerous factors that are likely to affect the level of spending on our research and development programs including the number, size and complexity of, and rate of enrollment of patients in, our clinical trials for AP24534, the extent of other development activities for AP24534, including product and process development, the progress of our preclinical and discovery research programs, and the impact of our business development activities.

After taking into account the impact of the License Agreement with Merck, including the up-front payment of $50 million, the reimbursement for our ridaforolimus costs incurred since January 1, 2010 and Merck’s assumption of 100 percent of ridaforolimus costs going forward, we believe that our cash and cash equivalents will be sufficient to fund our anticipated spending into the second half of 2011. However, we will require substantial additional funding for our research and development programs through 2011 and beyond. Assuming the results of our Phase 3 SUCCEED clinical trial of ridaforolimus in patients with bone and soft-tissue sarcomas achieves its pre-defined endpoints, we will be eligible to receive up to $65 million in milestone payments from Merck (consisting of $25 million for acceptance of a new drug application by the FDA, $25 million for marketing approval in the United States, $10 million for marketing approval in Europe, and $5 million for marketing approval in Japan) which would be anticipated in 2011 or 2012. In addition to milestone payments, if ridaforolimus receives regulatory approval, Merck will pay us tiered double-digit royalties on global net sales of the product.

In addition to potential funding from Merck, we are also pursuing partnering opportunities with our other product candidates, AP24534 and AP26113, and other licensing opportunities with our technologies. Such transactions could generate up-front and milestone payments as well as funding of on-going development costs.

We may also seek to raise funds by issuing common stock or other securities in one or more private placements or public offerings, as market conditions permit, or through the issuance of debt. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

There can be no assurance that additional funds will be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to: (1) delay, limit, reduce or terminate preclinical studies, clinical trials or other clinical development activities for one or more of our product candidates; (2) delay, limit, reduce or terminate our discovery research or preclinical development activities; or (3) delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.

Securities Litigation Reform Act

Safe harbor statement under the Private Securities Litigation Reform Act of 1995: This Quarterly Report on Form 10-Q, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements in connection with any discussion of future operations or financial performance are identified by the use of words such as “may,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. Such statements are based on management’s expectations and are subject to certain factors, risks and uncertainties that may cause actual results, outcome of events, timing and performance to differ materially from those expressed or implied by such statements. These risks and uncertainties include, but are not limited to, the costs associated with our research, development, manufacture and other activities, the conduct and results of pre-clinical and clinical studies of our product candidates, difficulties or delays in obtaining regulatory approvals to market products resulting from our development efforts, our reliance on strategic partners and licensees and other key parties for the successful development, manufacture and commercialization of products, the adequacy of our capital resources and the availability of additional funding, patent protection and third-party intellectual property claims relating to our and any partner's product candidates, the timing, scope, cost and outcome of legal proceedings, future capital needs, risks related to key employees, markets, economic conditions, prices, reimbursement rates, competition and other f actors detailed under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2009 and in our other periodic and current reports filed with the U.S. Securities and Exchange Commission. The information contained in this document is believed to be current as of the date of original issue. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest our available funds in accordance with our investment policy to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment.

We invest cash balances in excess of operating requirements first in short-term, highly liquid securities, with maturities of 90 days or less, and money market accounts. Depending on our level of available funds and our expected cash requirements, we may invest a portion of our funds in marketable securities, consisting generally of corporate debt and U.S. government and agency securities. Maturities of our marketable securities are generally limited to periods necessary to fund our liquidity needs and may not in any case exceed three years. These securities are classified as available-for-sale.

Our investments are sensitive to interest rate risk. We believe, however, that the effect of reasonably possible near-term changes in interest rates on our financial position, results of operations and cash flows would not be material due to the short-term nature of these investments. In particular, at March 31, 2010, because our available funds are invested solely in short-term securities with remaining maturities of six months or less, our risk of loss due to changes in interest rates is not material.

We record as a liability the fair value of warrants to purchase 10,784,024 shares of our common stock issued to investors in connection with a registered direct offering of our common stock on February 25, 2009. The fair value of this warrant liability is determined using the Black-Scholes option valuation model and is therefore sensitive to changes in the market price and volatility of our common stock. In the event of a hypothetical 10% increase in the market price or volatility of our common stock on which the March 31, 2010 valuation was based, the value would have increased by $3.1 million or $693,000, respectively. Such increase would have been reflected as additional loss on revaluation of the warrant liability in our statement of operations.

At March 31, 2010, we had $11.2 million outstanding under a bank term note which bears interest at prime or, alternatively, LIBOR + 1.25% to 2.25%. This note is sensitive to interest rate risk. In the event of a hypothetical 10% increase in the interest rate on which the loan is based (17 basis points at March 31, 2010), we would incur approximately $17,000 of additional interest expense per year based on expected balances over the next twelve months.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to management, incl uding the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, particularly during the period in which this Quarterly Report on Form

10-Q was being prepared.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b) Changes in Internal Controls. There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information contained in Note 11 to the Notes to our Unaudited Condensed Consolidated Financial Statements found elsewhere in this Quarterly Report on Form 10-Q is incorporated herein by reference.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

ITEM 6. EXHIBITS

3.1	Certificate of Incorporation of ARIAD Pharmaceuticals, Inc., as amended.

31.1	Certification of the Chief Executive Officer.

31.2	Certification of the Chief Financial Officer.

32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

ARIAD and the ARIAD logo are our registered trademarks and ARGENT is our trademark. The domain name and website address www.ariad.com, and all rights thereto, are registered in the name of, and owned by, ARIAD. The information in our website is not intended to be part of this Quarterly Report on Form 10-Q. We include our website address herein only as an inactive textual reference and do not intend it to be an active link to our website.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ARIAD Pharmaceuticals, Inc.

	By:	/s/ Harvey J. Berger, M.D.
		Harvey J. Berger, M.D.
		Chairman and Chief Executive Officer


	By:	/s/ Edward M. Fitzgerald
		Edward M. Fitzgerald
		Senior Vice President,
		Chief Financial Officer (Principal financial officer and chief accounting officer)

Date: May 10, 2010

EXHIBIT INDEX

Exhibit Title

No.

3.1	Certificate of Incorporation of ARIAD Pharmaceuticals, Inc., as amended.

31.1	Certification of the Chief Executive Officer.

31.2	Certification of the Chief Financial Officer.

32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-3.1 2 a6282794ex3-1.htm EXHIBIT 3.1 a6282794ex3-1.htm

EXHIBIT 3.1

ARIAD PHARMACEUTICALS, INC.

CERTIFICATE OF INCORPORATION, AS AMENDED

Delaware

________________________________________

The First State

I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED ARE TRUE AND CORRECT COPIES OF ALL DOCUMENTS ON FILE OF “ARIAD PHARMACEUTICALS, INC.” AS RECEIVED AND FILED IN THIS OFFICE.

THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED:

CERTIFICATE OF INCORPORATION, FILED THE TWELFTH DAY OF APRIL, A.D. 1991, AT 12:30 O’CLOCK P.M.

CERTIFICATE OF AMENDMENT, FILED THE SIXTEENTH DAY OF APRIL, A.D. 1991, AT 4:30 O’CLOCK P.M.

CERTIFICATE OF AMENDMENT, CHANGING ITS NAME FROM “ARIAD CORPORATION” TO “ARIAD PHARMACEUTICALS, INC.”, FILED THE THIRD DAY OF MAY, A.D. 1991, AT 9:01 O’CLOCK A.M.

CERTIFICATE OF AMENDMENT, FILED THE FIFTEENTH DAY OF JANUARY, A.D. 1992, AT 2:30 O’CLOCK P.M.

CERTIFICATE OF AMENDMENT, FILED THE EIGHTH DAY OF APRIL, A.D. 1994, AT 9 O’CLOCK A.M.

CERTIFICATE OF AMENDMENT, FILED THE SEVENTH DAY OF OCTOBER, A.D. 1994, AT 3 O’CLOCK P.M.

CERTIFICATE OF DESIGNATION, FILED THE SIXTEENTH DAY OF DECEMBER, A.D. 1994, AT 3 O’CLOCK P.M.

CERTIFICATE OF DESIGNATION, FILED THE EIGHTEENTH DAY OF MARCH, A.D. 1997, AT 9 O’CLOCK A.M.

CERTIFICATE OF DESIGNATION, FILED THE NINTH DAY OF NOVEMBER, A.D. 1998, AT 9 O’CLOCK A.M.

CERTIFICATE OF DESIGNATION, FILED THE NINETEENTH DAY OF JUNE, A.D. 2000, AT 11 O’CLOCK A.M.

CERTIFICATE OF AMENDMENT, FILED THE TWENTY-FIFTH DAY OF JUNE, A.D. 2004, AT 2:30 O’CLOCK P.M.

CERTIFICATE OF MERGER, FILED THE TWELFTH DAY OF SEPTEMBER, A.D. 2008, AT 2:36 O’CLOCK P.M.

CERTIFICATE OF AMENDMENT, FILED THE TWENTIETH DAY OF JANUARY, A.D. 2010, AT 5:49 O’CLOCK P.M.

AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE ONLY CERTIFICATES ON RECORD ON THE AFORESAID CORPORATION, “ARIAD PHARMACEUTICALS, INC.”.

	/s/ Jeffrey W. Bullock

	Jeffrey W. Bullock, Secretary of State
	DATE: 05-07-10

CERTIFICATE OF INCORPORATION

ARIAD Corporation

The undersigned incorporator, in order to form a corporation under the General Corporation Law of the State of Delaware, certifies as follows:

1. Name. The name of the corporation is ARIAD Corporation.

2. Address: Registered Agent. The address of the Corporation’s registered office is 32 Loockerman Square, Suite L-100, City of Dover, County of Kent, State of Delaware; and its registered agent at such address is The Prentice-Hall Corporation System, Inc.

3. Purposes. The nature of the business and purposes to be conducted or promoted by the Corporation are to engage in, carry on and conduct any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.

4. Number of Shares. The total number of shares of stock which the Corporation shall have authority to issue is: forty million (40,000,000), all of which shall be shares of Common Stock of the par value of one cent ($0.01) each.

5. Name and Address of Incorporator. The name and mailing address of the incorporator are: James T. Janover, 1285 Avenue of the Americas, New York, New York 10019-6064.

6. Election of Directors. Members of the Board of Directors may be elected either by written ballot or by voice vote.

7. Limitation of Liability. No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a directory, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefits.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

8. Indemnification.

8.1 The Corporation shall, to the extent not prohibited by law, indemnify any person who is or was made, or threatened to be made, a party to any threatened, pending or completed, action, suit or proceeding, whether civil, criminal, administrative or investigative, including an action by or in the right of the Corporation to procure a judgment in its favor (hereinafter a “Proceeding”), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director or officer of the Corporation, or is or was serving in any capacity at the request of the Corporation for any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, agains t judgments, fines, penalties, excise taxes, amounts paid in settlement and costs, charges and expenses (including attorneys’ fees and disbursements). Persons who are not directors or officers of the Corporation may be similarly indemnified in respect of service to the Corporation or to another such entity at the request of the Corporation to the extent the Board of Directors at any time denominates such persons entitled to the benefits of this Section 8.

8.2 The Corporation shall, from time to time, reimburse or advance to any director or officer or other person entitled to indemnification hereunder the funds necessary for payment of expenses, including attorneys’ fees and disbursements, incurred in connection with any Proceeding, in advance of the final disposition of such Proceeding, provided, however, that, if required by the Delaware General Corporation Law, such expenses incurred by or on behalf of any director of officer or other person may be paid in advance of the final disposition of a Proceeding only upon receipt by the Corporation o f an undertaking, by or on behalf of such director or officer (or other person indemnified hereunder), to repay any such amount so advanced if it shall ultimately be determined by final judicial decision from which there is no further right of appeal that such director, officer or other person is not entitled to be indemnified for such expenses.

8.3 The right to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 8 shall not be deemed exclusive of any other rights to which those seeking indemnification or reimbursement or advancement of expenses may have or hereafter be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office.

8.4 The right to indemnification and reimbursement or advancement of expenses provide by, or granted pursuant to, this Section 8 shall continue as to a person who has ceased to be a director or officer (or other person indemnified hereunder) and shall inure to the benefit of the heirs, executors and administrators of such person.

8.5 The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Section 8, the By-laws of the Corporation or under Section 145 of the Delaware Genera l Corporation Law or any other provision of law.

8.6 The provisions of this Section 8 shall be a contract between the Corporation, on the one hand, and each director and officer who serves in such capacity at any time while this Section 8 is in effect and any other person indemnified hereunder, on the hand, pursuant to which the Corporation and each such director, officer, or other person intend to be legally bound. No repeal or modification of this Section 8 shall affect any rights or obligations then existing or thereafter arising with respect to any state of facts then or theretofore existing or thereafter arising or any proceeding theretofore or thereafter brought or threatened based in whole or in part upon any such state of facts.

8.7 The right to indemnification and reimbursement or advancement of expenses provided by, or granted pursuant to, this Section 8 shall be enforceable by any person entitled to such indemnification or reimbursement or advancement of expenses of any court of competent jurisdiction. The burden of providing that such indemnification or reimbursement or advancement of expenses are not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that such indemnification or reimbursement or advancement of expenses is proper in circumstances nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that such person is not entitled to such indemnification or reimbursement or advancement of expenses, shall constitute a defense to the action or create a presumption that such person is not so entitled. Such a person shall also be indemnified for any expenses incurred in connection with successfully establishing his or her right to such indemnification or reimbursement or advancement of expenses, in whole or in part, in any such proceeding.

8.8 Any director or officer of the Corporation serving (1) another corporation of which a majority of the shares entitled to vote in the election of its directors is held by the Corporation, or (2) any employee benefit plan of the Corporation or any corporation referred to in clause (1), in any capacity, shall be deemed to be doing so at the request of the Corporation.

8.9 Any person entitled to be indemnified or to the reimbursement or advancement of expenses as a matter of right pursuant to this Section 8 may elect to have the right to indemnification or reimbursement or advancement of expenses interpreted in the basis of the applicable law in effect at the time of the occurrence of the event or events giving rise to the applicable Proceeding, to the extent permitted by law, or on the basis of the applicable law in effect at the time such indemnification or reimbursement or advancement of expenses is sought. Such election shall be made, by a notice in writing to the Corporation, at the time indemnification or reimbursement or advancement of expenses is sought; provided that if no such notice is given, the right to indemnification or reimbursement or advancement of expenses shall be determined by the law in effect at the time indemnification or reimbursement or advancement of expenses is sought.

9. Adoption, Amendment and/or Repeal of By-Laws. The Board of Directors may from time to time (after adoption by the undersigned of the original by-laws of the Corporation) make, alter or repeal the by-laws of the Corporation; provided, that any by-laws made, amended or repealed by the Board of Directors may be amended or repealed, and any by-laws may by made, by the stockholders of the Corporation.

IN WITNESS WHEREOF, this Certificate has been signed on this 12th of April, 1991.

	/s/ James T. Janover

	James T. Janover
	Incorporator

CERTIFICATE OF AMENDMENT OF CERTIFICATE

OF INCORPORATION BEFORE PAYMENT OF

ANY PART OF THE CAPITAL

ARIAD Corporation

It is hereby certificated that:

1. The name of the Corporation (hereinafter called the “Corporation”) is ARIAD Corporation.

2. The Corporation has not received any payment for any of its stock.

3. The Certificate of Incorporation of the Corporation is hereby amended by striking out Article 4 thereof and by substituting in lieu of said Article the following new Article 4:

“4. Number of Shares: The total number of shares of stock which the Corporation shall have authority to issue is forty million (40,000,000), all of which shall be shares of Common Stock of the Par Value of one tenth of one cent ($0.001) per share.

4. The amendment of the Certificate of Incorporation of the Corporation herein certified was duly adopted, pursuant to the provisions of Section 241 of the General Corporation Law of the State of Delaware, by the sole incorporator, no directors having been named in the Certificate of Incorporation and no directors having been elected.

Dated April 16, 1991.

	/s/ James T. Janover

	James T. Janover
	Sole Incorporator

Certificate of Amendment of Certificate of Incorporation

ARIAD Corporation

It is hereby certified that:

1. The name of the corporation (hereinafter called the “Corporation”) is ARIAD Corporation.

2. The certificate of incorporation of the Corporation is hereby amended by striking out Article 1 thereof and by substituting in lieu of said Article the following new article:

“1: The name of the Corporation is ARIAD Pharmaceuticals, Inc.”

3. The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.

Signed and attested to on April 30, 1991.

	/s/ Harvey J. Berger

	Harvey J. Berger - President
	Incorporator

Attest:

/s/ Harvey J. Berger

_______________________________

Harvey J. Berger - Secretary

Certificate of Amendment

Certificate of Incorporation

ARIAD PHARMACEUTICALS, INC.

1. The name of the corporation (hereinafter called the “Corporation”) is ARIAD Pharmaceuticals, Inc.

2. The certificate of Incorporation of the Corporation is hereby amended by striking out Article 4 thereof in its entirety and by substituting in lieu of said Article 4 the following new Article:

“4: Number of Shares. The total number of shares of stock which the Corporation shall have authority to issue is: eighty million (80,000,000) shares, all of which shares shall be shares of Common Stock, par value one-tenth of one cent ($.001) each.”

3. The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.

Signed and attested to on January 15, 1992.

	/s/ Harvey J. Berger

	Harvey J. Berger - President
	Incorporator

Attest:

/s/ David T. Washburn

_______________________________

David T. Washburn, Esq.

Secretary

Certificate of Amendment

Certificate of Incorporation

ARIAD PHARMACEUTICALS, INC.

(Pursuant to Section 242 of the General Corporation Law of the State of Delaware)

The undersigned, Harvey J. Berger and David T. Washburn, President and Secretary, respectively, of ARIAD Pharmaceuticals, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), do hereby certify as follows:

1. The name of the corporation is ARIAD Pharmaceuticals, Inc.

2. This Certificate of Amendment of Certificate of Incorporation amends the Certificate of Incorporation of the Corporation to, among other things, effect a 1.0 for 2.8 reverse split of the common stock of the Corporation, par value $0.001 per share, and to decrease the number of shares of the Corporation’s authorized capital stock.

3. The Certificate of Incorporation of the Corporation is hereby amended by striking out Article Four thereof in its entirety and by substituting in lieu of said Article Four the following new Article:

“4. Number of Shares. The total number or shares of stock which the Corporation shall have authority to issue is: sixty million (60,000,000), all of which shall be shares of Common Stock, par value one-tenth of one center ($0.001) each.”

Effective upon the filing of this Certificate of Amendment by the Secretary of State of the State of Delaware, every 2.8 shares of Common Stock issued and outstanding immediately prior thereto shall, without any action on the part of the holder thereof, be reclassified as one share of Common Stock. In lieu of the issuance of fractional shares arising from such reclassification, cash in an amount equal to the fair market value of each such fractional share as determined by the Board of Directors of the Corporation shall be paid to each stockholder entitled thereto upon surrender to the Corporation of certificates representing shares of Common Stock outstanding prior to the effectiveness of such reclassification.

4. The Board of Directors of the Corporation duly adopted resolutions pursuant to Section 242 of the General Corporation Law of the State of Delaware (the “GCL”) proposing that this Amendment of Certificate of Incorporation be approved and declaring the adoption of this Amendment of Certificate of Incorporation to be advisable, and the stockholders of the Corporation duly approved this Amendment of Certificate of Incorporation in accordance with Sections 211 and 242 of the GCL.

Dated and attested to as of April 8, 1994.

	/s/ Harvey J. Berger

	Harvey J. Berger - President
	Incorporator

Attest:

/s/ David T. Washburn

_______________________________

David T. Washburn, Esq.

Secretary

CERTIFICATE OF AMENDMENT OF

CERTIFICATE OF INCORPORATION OF

ARIAD PHARMACEUTICALS, INC.

It is hereby certified that:

1. The name of the corporation (hereinafter called the “Corporation”) is ARIAD Pharmaceuticals, Inc.

2. The certificate of incorporation of the Corporation is hereby amended as follows:

A. Section 4 of the certificate of incorporation is deleted in its entirety and replaced by the following new Section 4:

“4. Number of Shares. The total number of shares of stock that the Corporation shall have the authority to issue is: seventy million (70,000,000), consisting of sixty million (60,000,000) shares of common stock (the “Common Stock”) of the par value of one-tenth of one cent ($.001) each and ten million (10,000,000) shares of preferred stock (the “Preferred Stock”) of the par value of one cent ($.01) each.

“Designation of Classes; Relative Rights, etc. The designation, relative rights, preferences and limitations of the shares of each class are as follows:

“The shares of Preferred Stock may be issued from time to time in one or more series of any number of shares, provided that the aggregate number of shares issued and not cancelled of any and all such series shall not exceed the total number of shares of Preferred Stock hereinabove authorized, and with distinctive serial designations, all as shall hereafter be stated and expressed in the resolution or resolutions providing for the issue of such shares or Preferred Stock from time to time adopted by the Board of Directors pursuant to authority so to do which is hereby vested in the Board of Directors. Each series of shares of Preferred Stock (a) may have such voting powers, full or limited, or may be without voting powers; (b) may be subject to redemption at such time or times and at such prices; (c) may be entitled to receive dividends (which may be cumulative or non-cumulative) at such rate or rates, on such conditions and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or series of stock; (d) may have such rights upon the dissolution of, or upon any distribution of the assets of, the corporation; (e) may be made convertible into or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of shares of the Corporation at such price or prices or at such rates of exchange and with such adjustments; (f) may be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of such series in such amount or amounts; (g) may be entitled to the benefit of conditions and restrictions upon the creation of indebtedness of the Corporation or any subsidiary, upon the issue of any additional shares (including additional shares of such series or of any other series) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption of other distributions on, and the purchase, redemption or other acquisition by the Corporation or any subsidiary of, any outstanding shares of the Corporation; and (h) may have such other relative, participating, optional or other special rights, qualifications, limitations or restrictions thereof; all as shall be stated in said resolution or resolutions providing for the issue of such shares of Preferred Stock. Shares of Preferred Stock of any series that have been redeemed (whether through the operation of a sinking fund or otherwise) or that if convertible or exchangeable, have been converted into or exchanged shares of any other class or classes shall have the status of authorized and unissued shares of Preferred Stock of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of shares of Prefe rred Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of shares of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of shares of Preferred Stock.

“Subject to the provisions of any applicable law or of the By-laws of the Corporation as from time to time amended, with respect to the closing of the transfer books or the fixing of a record date for the determination of stockholders entitled to vote and except as otherwise provided by law or by the resolution or resolutions providing for the issue of any series of shares of Preferred Stock, the holders of outstanding shares of Common Stock shall exclusively possess voting power for the election of directors and for all other purposes, each holder of record of shares of Common Stock being entitled to one vote for each share of Common Stock standing in his or her name on the books of the Corporation. Except as otherwise provided by the resolution or resolutions providing for the issue of any series of shares of Preferred Stock, entitled, to the exclusion of the holders of shares of Preferred Stock of any and all series, to receive such dividends as from time to time may be declared by the Board of Directors. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after payment shall have been made to the holders or shares of Preferred Stock of the full amount to which they shall be entitled pursuant to the resolution or resolutions providing for the issue of any series of shares of Preferred Stock, the holders of shares of Common Stock shall be entitled, to the exclusion of the holders of shares of Preferred Stock of any and all series, to share, ratably according to the number of shares of Common Stock held by them, in all remaining assets of the Corporation available for distribution to its stockholders.

B. Section 6 of the certificate of incorporation is deleted in its entirety and replaced by the following new Section 6:

"6. Election of Directors. Members of the Board of Directors may be elected either by written ballot or by voice vote. The Board shall consist of one or more members. The number of Directors may be changed from time to time by action of the Board of Directors. The Directors shall be classified with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as shall be provided in the manner specified in the By-laws of the Corpor ation. The first class shall be originally elected for a term expiring at the annual meeting of stockholders to be held in 1995, the second class shall be originally elected for a term expiring at the annual meeting of stockholders to be held in 1996, and the third class shall be originally elected for a term expiring at the annual meeting of stockholders to be held in 1997, with the Directors of each class to hold office until their successors are elected and qualified. At each annual meeting of the stockholders of the Corporation, the successors of the class of Directors whose term expires at the meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Newly created Directorships resulting from an increase in the number of Directors and vacancies occurring in the Board of Directors may be filled by the affirmative vote of a majority of the entire Board of Directors, althoug h less a quorum, or by a sole remaining Director; any such vacancy may not be filled by the stockholders of the Corporation. A Director elected to fill a vacancy shall hold office until the next election of the class for which such Director shall have been chosen and until his successor shall have been elected and qualified.

“Effective upon the filing of the Certificate of Amendment with the Secretary of State of the State of Delaware, the Board of Directors without any further action shall be classified into three classes.”

3. The amendment of the certificate of incorporation herein certified has been duly adopted in accordance with the provisions of Sections 211 and 242 of the General Corporation Law of the State of Delaware.

Dated and attested to as of October 4, 1994

	ARIAD PHARMACEUTICALS, INC.

	/s/ Harvey J. Berger
By:
	Name: Harvey J. Berger
	Title: President and Chief Executive Officer

Attest:

/s/ Jay R. LaMarche

_______________________________

Name: Jay R. LaMarche

Title: Assistant Secretary

ARIAD PHARMACEUTICALS, INC.

CERTIFICATE OF DESIGNATIONS

in respect of

SERIES A PREFERRED STOCK

________________________________

Pursuant to Section 151 of the General Corporation Law

of the State of Delaware

________________________________

The undersigned, being the Chairman of the Board, President and Chief Executive Officer of ARIAD Pharmaceuticals, Inc. (the “Corporation”), a corporation organised and existing under the General Corporation Law of the State of Delaware, hereby certifies that, pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation duly adopted the following resolution at a meeting of said Board of Directors duly called and held on December 15, 1994, which resolution remains in full force and effect as of the date hereof:

RESOLVED, that the Board of Directors of the Corporation, pursuant to authority expressly vested in it by the provisions of the Corporation’s Certificate of Incorporation, as amended (the “Charter”), hereby establishes a series of the Preferred Stock, par value $0.01 per share, of the Corporation and fixes the number of shares of such series and the powers, designations, preferences and relative, participating, optional or other rights of such series, and the qualifications, limitations or restrictions thereof, as follows:

The first series of Preferred Stock, par value $0.01 per share, of the Corporation shall be, and hereby is, designated “Series A Preferred Stock” (the “Series A Shares”), and the number of shares constituting such series shall be five hundred thousand (500,000). The relative rights and preferences of the Series A Shares shall be as follows:

Section a. Dividends and Distributions.

(1) Subject to the prior and superior rights of the holders of any shares of any series of stock ranking prior and superior to the Series A Shares with respect to dividends, the holders of Series A Shares, in preference to the holders of Common Stock, par value $0.001 per share, of the Corporation (the “Common Stock”) and of any other junior stock, shall be entitled to receive, when and as declared by the Board of Directors, out of any funds lawfully available therefor, cash dividends thereon, payable quarterly, from the date of issuance thereof, upon the tenth days of January, April, July and October in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Series A Share, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) subject to the provisions for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend or distribution payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first issuance of any Series A Share. In the event the Corporation shall at any time after December 30, 1994 (i) declare any dividend on the Common Stock payable in shares of Common Stock, (ii) subdivide the outst anding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amounts to which holders of Series A Shares were entitled immediately prior to such event under clause (a) and clause (b) of the preceding sentence shall be adjusted by multiplying each such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(2) The Corporation shall declare a dividend or distribution on the Series A Shares as provided in paragraph (1) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend or distribution payable in shares of Common Stock); provided, however, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10.00 per share on the Series A Shares shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date; and provided further, that nothing contained in this paragraph (2) shall be construed so as to conflict with any provision relating to the declaration of dividends contained in the Charter.

(3) Dividends shall being to accrue and be cumulative on outstanding Series A Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such Series A Shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Series A Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accru ed but unpaid dividends shall not bear interest. Dividends paid on the Series A Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of Series A Shares entitled to receive payment of a dividend or distribution declared thereon.

Section b. Redemption. The Series A Shares are not redeemable.

Section c. Liquidation, Dissolution or Winding Up. In the event of the voluntary or involuntary liquidation of the Corporation the “preferential amount” that the holders of the Series A Shares shall be entitled to receive out of the assets of the Corporation shall be $100.00 per share plus all accrued and unpaid dividends thereon.

(1) Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (upon liquidation, dissolution or winding up) to the Series A Shares unless, prior thereto, the holders of Series A Shares shall have received $100.00 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the “Series A Liquidation Preference”). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of Series A Shares unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the “Common Adjustment”) equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in paragraph (3) of this Section c to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the “Adjustment Number”). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding Series A Shares and Common Stock, respectively, holders of Series A Shares and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to one with r espect to the Series A Shares and Common Stock, on a per share basis, respectively.

(2) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, that rank on a parity with the Series A Shares, then all such available assets shall be distributed ratably to the holders of the Series A Shares and the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then any such remaining assets shall be distributed ratably to the holders of Common Stock.

(3) In the event the Corporation shall at any time after December 30, 1994 (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock there were outstanding immediately prior to such event.

Section d. Sinking Fund. The Preferred Shares shall not be entitled to the benefit of any sinking fund for the redemption or purchase of such shares.

Section e. Conversion.

(1) Subject to paragraph (2) of this Section e, the Preferred Shares shall not be convertible.

(2) In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the Series A Shares shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate number of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stoc k payable in shares of Common Stock, or (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of Series A Shares shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

Section f. Voting Rights.

(1) The holders of Series A Shares shall have no voting rights except as provided by Delaware statutes or by paragraph (2) of this Section f.

(2) So long as any Series A Shares shall be outstanding, and in addition to any other approvals or consents required by law, without the consent of the holders of 66-2/3% of the Series A Shares outstanding as of a record date fixed by the Board of Directors, given either by their affirmative vote at a special meeting called for that purpose, or, if permitted by law, in writing without a meeting:

(i) The Corporation shall not sell, transfer or lease all or substantially all the properties and assets of the Corporation; provided, however, that nothing herein shall require the consent of the holders of Series A Shares for or in respect of the creation of any mortgage, pledge, or other lien upon all or any part of the assets of the Corporation.

(ii) The Corporation shall not effect a merger or consolidation with any other corporation or corporations unless as a result of such merger or consolidation and after giving effect thereto holders of Series A Shares are entitled to receive a per share amount and type of consideration equal to 100 times the per share amount and type of consideration received by holders of shares of Common Stock, or (1) either (A) the Corporation shall be the surviving corporation or (B) if the Corporation is not the surviving corporation, the successor corporation shall be a corporation duly organized and existing under the laws of any state of the United States of America or the District of Columbia, and all obligations of the Corporation with respect to the Series A Shares s hall be assumed by such successor corporation, (2) the Series A Shares then outstanding shall continue to be outstanding and (3) there shall be no alteration or change in the designation or the preferences, relative rights or limitations applicable to outstanding Series A Shares prejudicial to the holders thereof.

(iii) The Corporation shall not amend, alter or repeal any of the provisions of its Certificate of Incorporation in any manner that adversely affects the relative rights, preferences or limitations of the Series A Shares or the holders thereof.

Section g. Certain Restrictions.

(1) Whenever quarterly dividends or other dividends or distributions payable on the Series A Shares as provided in Section a are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on Series A Shares outstanding shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (as to dividends) to the Series A Shares;

(ii) declares or pay dividends on or make any other distributions on any shares of stock ranking on a party (as to dividends) with the Series A Shares, except dividends paid ratably on the Series A Shares and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (as to dividends) to the Series A Shares; provided, however, that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchanging for shares of any stock of the Corporation, ranking junior (as to dividends) to the Series A Shares; and

(iv) purchase or otherwise acquire for consideration any Series A Shares, or any shares of stock ranking on a parity (as to dividends) with the Series A Shares, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment amount the respective series or classes.

(2) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (1) of this Section g, purchase or otherwise acquire such shares at such time and in such manner.

Section h. Fractional Shares. The Corporation may issue fractions and certificates representing fractions of Series A Shares in integral multiples of 1/100th of a Series A Share, or in lieu thereof, at the election of the Board of Directors of the Corporation at the time of the first issue of any Series A Shares, evidence such fractions by depositary receipts, pursuant to an appropriate agreement between the Corporation and a depository selected by it, provided that such agreement shall provide that the holders of such depositary receipts shal l have all rights, privileges and preferences to which they would be entitled as beneficial owners of Series A Shares. In the event that fractional Series A Shares are issued, the holders thereof shall have all the rights provided herein for holders of full Series A Shares in the proportion that such fraction bears to a full share.

IN TESTIMONY WHEREOF, ARIAD Pharmaceuticals, Inc. has caused this Statement to be signed under its corporate seal by its Chairman of the Board, President and Chief Executive Officer and attested by its Secretary as of the 15th day of December, 1994.

	ARIAD PHARMACEUTICALS, INC.

	/s/ Harvey J. Berger
By:
	Harvey J. Berger, M.D.
	Chairman of the Board, President and Chief Chief Executive Officer

Attest:

/s/ David T. Washburn

_______________________________

David T. Washburn

Secretary

ARIAD PHARMACEUTICALS, INC.

CERTIFICATE OF DESIGNATIONS

in respect of

SERIES B PREFERRED STOCK

PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW

of the State of Delaware

The undersigned, being the Chairman of the Board, President and Chief Executive Officer of ARIAD Pharmaceuticals, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby certifies that, pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation duly adopted the following resolution, which resolution remains in full force and effect as of the date hereof:

RESOLVED:

That the Board of Directors of the Corporation, pursuant to authority expressly vested in it by the provisions of the Corporation’s Certificate of Incorporation, as amended, hereby establishes a series of Preferred Stock, $.01 par value, to be known as Series B Convertible Preferred Stock of the Corporation, consisting of Five Million (5,000,000) shares and having the voting and other powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as set forth in Exhibit A attached hereto.

IN WITNESS WHEREOF, ARIAD Pharmaceuticals, Inc. has caused this certificate to be signed by its Chairman of the Board, President and Chief Executive Officer the 18th day of March, 1997.

	ARIAD PHARMACEUTICALS, INC.

	/s/ Harvey J. Berger
By:
	Harvey J. Berger, M.D.
	Chairman of the Board, President and Chief Executive Officer

Exhibit A

Series B Convertible Preferred Stock

1. Liquidation Rights.

(a) Treatment at Liquidation, Dissolution or Winding Up.

(i) Except as otherwise provided in Section 1(b) below, in the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment of all amounts owing to holders of capital stock ranking senior to the Series B Convertible Preferred Stock, the holders of Series B Convertible Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to holders of the Corporation’s capital stock, on a parity with holders of any other class or series of the Corporation’s capital stock designated to be on a parity with the Series B Convertible Preferred Stock but before payment or distribution of any of such assets to the holders of Common Stock or of any other class or series of the Corporation’s capital stock designated to be junior to the Series B Convertible Preferred Stock, an amount equal to the price paid to the Corporation upon issuance thereof (the “Issue Price”) per share of Series B Convertible Preferred Stock (which amount shall be subject to equitable adjustment whenever there shall occur a stock dividend, distribution, combination of shares, reclassification or other similar event with respect to Series B Convertible Preferred Stock) plus all dividends thereon declared but unpaid, to and including the date full payment shall be tendered to the holders of Series B Convertible Preferred Stock with respect to such liquidation, dissolution or winding up.

(ii) Following payment in full to the holders of capital stock of the Corporation ranking senior to the Series B Convertible Preferred Stock, and to the holders of Series B Convertible Preferred Stock and the holders of any other class or series of the Corporation’s capital stock designated to be on a parity with the Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, the remaining assets of the Corporation available for distribution to holders of the Corporation’s capital stock shall be distributed to the respective holders of Common Stock ratably in proportion to the number of shares of Common Stock they then hold.

(iii) If the assets of the Corporation shall be insufficient to permit the payment in full to the holders of Series B Convertible Preferred Stock of all amounts distributable to them under Section 1(a)(i) hereof, then the entire assets of the Corporation available for such distribution, after distribution to capital stock ranking senior to the Series B Preferred, shall be distributed ratably among the holders of Series B Convertible Preferred Stock and the holders of any other class or series of the Corporation’s capital stock designated to be on a parity with the Series B Convertible Preferred Stock.

(b) Treatment of Consolidations, Mergers and Sales of Assets. A consolidation or merger of the Corporation, or a sale of all or substantially all of the assets of the Corporation, other than a merger, consolidation or sale of all or substantially all of the assets of the Corporation in a transaction in which the shareholders of the Corporation immediately prior to the transaction own equity securities of the surviving or successor entity (or parent, if any) having fifty percent (50%) or more of the voting power of all outstanding equity securities of such entity immediately after the transaction, shall be regarded as a liquidation, dissolution or winding up of the affairs of the Corporation within the meani ng of this Section 1; provided, however, that the Corporation shall provide no less than ten (10) business days notice to the holders of Series B Convertible Preferred Stock prior to such transaction and, at any time up to immediately before such transaction, the holders of the Series B Convertible Preferred Stock may convert their shares of Series B Convertible Preferred Stock in accordance with Section 2 below.

(c) Distributions other than Cash. Whenever the distribution provided for in this Section 1 shall be payable in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation.

2. Conversion.

2.1 Conversion of Series B Convertible Preferred Stock. The holders of Series B Convertible Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

(a) Right to Convert; Conversion Ratio.

(i) Each share of Series B Convertible Preferred Stock shall be convertible, without the payment of any additional consideration by the holder thereof and at the option of the holder thereof, at the office of the Corporation or any transfer agent for the Series B Convertible Preferred Stock, into one (1) fully paid and non-assessable share of Common Stock, subject to adjustment as set forth in Section 2.1(d), at any time upon the earliest to occur of: (1) a Change of Control or Acquisition of the Corporation (as such terms are defined in Section 2.1(a)(ii)); (2) in the event the Joint Venture (as such term is defined in the Joint Venture Master Agreement dated March 4, 1997 (the “JV Master Agreement”) between t he Corporation and Hoechst Marion Roussel, Inc. (“HMRI”)) is terminated pursuant to Section 9.3.1 or 9.3.3 of the JV Master Agreement and (A) any Supplemental Capital Loan (as such term is defined in the JV Master Agreement) remains outstanding as of the date of termination, three (3) months after the date on which such Supplemental Capital Loan is due to be repaid by the Corporation to HMRI or (B) no Supplemental Capital Loan remains outstanding as of the date of termination, six (6) months following the effective date of such termination; or (3) September 30, 2003, in the event the Corporation and HMRI have agreed on additional funding arrangements for the Joint Venture pursuant to Section 9.3.2 of the JV Master Agreement. The ratio of the number of shares of Common Stock to be issued in conversion to the number of shares of Series B Convertible Preferred Stock to be converted is referred to herein as the “Conversion Ratio.”

(ii) For purposes hereof, an “Acquisition” shall be deemed to have occurred if the Corporation shall consolidate or merge with another entity, or convey, sell or lease to another entity all or substantially all of the stock, assets or business of the Corporation and its subsidiaries taken as a whole, unless the stockholders of the Corporation immediately prior to the transaction own a majority of the voting equity securities of the merged, consolidated or acquiring entity after the transaction. For purposes hereof, a “Change of Control” shall be deemed to have occurred upon consummation of any transaction or event as a result of which any other entity acquires or controls and is able to vote without restriction (directly or through nominees or beneficial ownership or by proxy) more than fifty percent (50%) of the capital stock of the Corporation outstanding at the time having the power ordinarily to vote for directors of the Corporation.

(b) Mechanics of Conversion. Before any holder of Series B Convertible Preferred Stock shall be entitled to convert the same into full shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series B Convertible Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the name of such holder or the name or names of the nominees of such holder in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. No fractional shares of Common Stock shall be issued upon c onversion of any shares of Series B Convertible Preferred Stock and the number of shares of Common Stock to be issued upon conversion shall be rounded up to the next highest whole share. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series B Convertible Preferred Stock, or to such holder’s nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate or certificates for the shares of Series B Convertible Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

(i) Each share of Series B Convertible Preferred Stock issued and outstanding on December 31, 2006 (the “Automatic Conversion Date”) shall automatically be converted into shares of the Corporation’s Common Stock on such date at the then effective Conversion Ratio in accordance with the provisions of this Section 2 (the “Automatic Conversion”).

(ii) Upon such Automatic Conversion of the Series B Convertible Preferred Stock pursuant to Section 2(c)(i) hereof, all shares of Series B Convertible Preferred Stock shall be converted automatically without any further action by any holder of such shares and whether or not the certificate or certificates representing such shares are surrendered to the Corporation or the transfer agent for the Series B Convertible Preferred Stock; provided, however, that the Corporation shall not be obligated to issue a certificate or certificates evidencing such shares of Common Stock into which the Series B Convertible Preferred Stock is being converted until such certificates are either delivered to the Corporation or the transfer agent of the Series B Convertible Preferred Stock, or the holder notifies the Corporation or such transfer agent that such certificate or certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection therewith and, if the Corporation so elects, provides an appropriate indemnity.

(iii) Upon such Automatic Conversion of the Series B Convertible Preferred Stock pursuant to Section 2(c)(i) hereof, each holder of Series B Convertible Preferred Stock shall surrender the certificate or certificates representing such holder’s shares of Series B Convertible Preferred Stock at the office of the Corporation or of the transfer agent for the Series B Convertible Preferred Stock. Thereupon, there shall be issued and delivered to such holder, promptly at such office and in such holder’s name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series B Convertible Preferred Stock surrendered were conv ertible on the Automatic Conversion Date. No fractional shares of Common Stock shall be issued upon the Automatic Conversion of Series B Convertible Preferred Stock, and the number of shares of Common Stock to be issued upon conversion shall be rounded up to the next highest whole share.

(d) Adjustments to Conversion Ratio.

(i) Special Definitions. For purposes of this Section 2.1(d), the following definitions shall apply:

(A) “Original Issue Date” shall mean the date on which shares of Series B Convertible Preferred Stock were first issued.

(B) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Section 2.1(d)(ii), deemed to be issued) by the Corporation after the Original Issue Date.

(ii) Issue of Securities Deemed Issue of Additional Shares of Common Stock.

(A) Stock Dividends, Stock Distributions and Subdivisions. In the event the Corporation at any time or from time to time after the Original Issue Date shall declare or pay any dividend or make any other distribution on the Common Stock payable in Common Stock or effect a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), then and in any such event, Additional Shares of Common Stock shall be deemed to have been issued:

(I) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend or distribution, or

(II) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective.

If such record date shall have been fixed and such dividend shall not have been fully paid on the date fixed therefor, the adjustment previously made in the Conversion Ratio which became effective on such record date shall be cancelled as of the close of business on such record date, and thereafter the Conversion Ratio shall be adjusted pursuant to this Section 2.1(d)(ii) as of the time of actual payment of such dividend.

(iii) Adjustment for Dividends, Distributions, Subdivisions, Combinations or Consolidations of Common Stock.

(A) Stock Dividends, Distributions or Subdivisions. In the event the Corporation shall issue Additional Shares of Common Stock pursuant to Section 2.1(d)(ii)(A) in a stock dividend, stock distribution or subdivision, the Conversion Ratio in effect immediately prior to such stock dividend, stock distribution or subdivision shall, concurrently with the effectiveness of such stock dividend, stock distribution or subdivision, be proportionately increased.

(B) Combinations or Consolidations. In the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Ratio in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately decreased.

(e) Adjustments for Other Distributions. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons or assets (excluding cash dividends), in each such case for purposes of this subsection 2(e), the holders of the Series B Convertible Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series B Convertible Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution.

(f) Adjustments for Recapitalizations. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination, stock dividend, reclassification or other transaction provided for elsewhere in this Section 2), provision shall be made so that the holders of the Series B Convertible Preferred Stock shall thereafter be entitled to receive upon the conversion of the Series B Convertible Preferred Stock the number of shares of stock or other securities of the Corporation or otherwise, to which a holder of the number of shares of Common Stock deliverable upon conversion thereof immediately prior to such recapitalization would have been entitled upon such rec apitalization. In any such case, appropriate adjustment shall be made in the application of this Section 2 with respect to the rights of the holders of the Series B Convertible Preferred Stock after the recapitalization to the end that the provisions of this Section 2 (including adjustment of the Conversion Ratio then in effect and the number of shares issuable upon conversion of the Series B Convertible Preferred Stock) shall be applicable after that event in a manner as equivalent as may be practicable.

2.3 No Impairment. The Corporation shall not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Series B Convertible Preferred Stock against impairment.

2.4 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Ratio pursuant to this Section 2, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each affected holder of Series B Convertible Preferred Stock, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.

2.5 Common Stock Reserved. The Corporation shall reserve and keep available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series B Convertible Preferred Stock.

2.6 Certain Taxes. The Corporation shall pay any issue or transfer taxes payable in connection with the conversion of any shares of Series B Convertible Preferred Stock; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer to a name other than that of the holder of such Series B Convertible Preferred Stock.

2.7 Closing of Books. The corporation shall at no time close its transfer books against the transfer of any Series B Convertible Preferred Stock, or of any shares of Common Stock issued or issuable upon the conversion of any shares of Series B Convertible Preferred Stock, in any manner which interferes with the timely conversion or transfer of such Series B Convertible Preferred Stock.

3. Voting Rights. Except as otherwise required by law or by the provisions establishing any other series of Preferred Stock, the holders of Series B Convertible Preferred Stock and the holders of Common Stock and of all classes and series of Preferred Stock shall be entitled to notice of any stockholders’ meeting and to vote as one class upon any matter submitted to the stockholders for a vote, on the following basis:

(i) Holders of Common Stock shall have one vote per share of Common Stock held by them; and

(ii) Holders of Series B Convertible Preferred Stock shall have that number of votes per share of Series B Convertible Preferred Stock as is equal to the number of shares of Common Stock into which each such share of Series B Convertible Preferred Stock held by such holder could be converted on the date for determination of stockholders entitled to vote at the meeting (regardless of whether such shares of Series B Convertible Preferred Stock are then convertible).

4. Dividend Rights. In the event the Board of Directors of the Corporation shall declare a dividend payable upon the then outstanding shares of the Common Stock (other than a dividend payable entirely in shares of the Common Stock of the Corporation), the Board of Directors shall declare at the same time a dividend upon the then outstanding shares of the Series B Convertible Preferred Stock, payable at the same time as the dividend paid on the Common Stock, in an amount equal to the amount of dividends per share of Series B Convertible Preferred Stock, as would have been payable on the largest number of shares (including fractions of shares) of Common Stock which each share of Series B Convertible Preferred Stock held by each holder thereof would have received if such Series B Convertible Preferred Stock had been converted to Common Stock pursuant to the provisions of Section 2 hereof as of the record date for the determination of holders of Common Stock entitled to receive such dividends.

5. Covenants. So long as shares of Series B Convertible Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Convertible Preferred Stock, voting together as a single class:

(i) alter or change the rights, preferences or privileges of the shares of Series B Convertible Preferred Stock so as to affect adversely such shares;

(ii) increase the authorized number of shares of Series B Convertible Preferred Stock; or

(iii) issue additional shares of Series B Convertible Preferred Stock except pursuant to the JV Master Agreement or the other Joint Venture Agreements (as such term is defined in the JV Master Agreement).

6. No Reissuance of Series B Convertible Preferred Stock. No share or shares of Series B Convertible Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue.

7. Register. The Corporation shall maintain a register in which it shall record the price paid to the Corporation upon issuance of each share of Series B Convertible Preferred Stock. In the event any holder of Series B Convertible Preferred Stock holding Series B Convertible Preferred Stock with more than one Issue Price shall transfer any of such stock, such holder shall notify the Corporation of the Issue Price of the shares to be transferred.

8. Residual Rights. All rights accruing to the outstanding shares of the Corporation not expressly provided for in the terms of the Series B Convertible Preferred Stock shall be vested in the Common Stock or the other series or classes of the Corporation’s stock.

CERTIFICATE OF DESIGNATIONS, PREFERENCES

AND RIGHTS OF SERIES C CONVERTIBLE PREFERRED STOCK

ARIAD PHARMACEUTICALS, INC.

ARIAD Pharmaceuticals, Inc. (the “Company”), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company by the Certificate of Incorporation, as amended, of the Company, and pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company at a meeting duly held, adopted resolutions (i) authorizing a series of the Company’s previously authorized preferred stock, par value $.01 per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions t hereof, of Twenty Five Thousand (25,000) shares of Series C Convertible Preferred Stock of the Company, as follows:

RESOLVED, that the Company is authorized to issue 25,000 shares of Series C Convertible Preferred Stock (the “Preferred Shares”), par value $.01 per share, which shall have the following powers, designations, preferences and other special rights:

(1) Dividends. The Preferred Shares shall not bear any dividends.

(2) Holder’s Conversion of Preferred Shares. A holder of Preferred Shares shall have the right, at such holder’s option, to convert the Preferred Shares into shares of the Company’s common stock, $.001 par value per share (the “Common Stock”), on the following terms and conditions:

(a) Conversion Right. Subject to the provisions of Section 2(j), at any time or times on or after the Issuance Date (as defined below), any holder of Preferred Shares shall be entitled to convert any whole number of Preferred Shares into fully paid and nonassessable shares (rounded to the nearest whole share in accordance with Section 2(h)) of Common Stock, at the Conversion Rate (as defined below); provided, however, that in no event shall any holder be entitled to convert Preferred Shares in excess of that number of Preferred Shares which, upon giving effect to such conversion, would cause the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates to exce ed 4.99% of the outstanding shares of the Common Stock following such conversion. For purposes of the foregoing proviso, the aggregate number of shares of Common Stock beneficially owned by the holder and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Shares with respect to which the determination of such proviso is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted Preferred Shares beneficially owned by the holder and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any warrants or convertible preferred stock) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the holder and its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(a), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. Section 13 sets forth additional limitations on the Company’ obligation to issue shares of Common Stock upon conversion of the Preferred Shares.

(b) Conversion Rate and Other Definitions. The number of shares of Common Stock issuable upon conversion of each of the Preferred Shares pursuant to Sections (2)(a) and 2(g) shall be determined according to the following formula (the “Conversion Rate”):

Conversion Amount

Conversion Price

For purposes of this Certificate of Designations, the following terms shall have the following meanings:

(i) “Conversion Price” means, as of any Conversion Date (as defined below) or other date of determination, the lower of the Fixed Conversion Price (as defined below) and the Floating Conversion Price (as defined below), each in effect as of such date and subject to adjustment as provided herein.

(ii) “Fixed Conversion Price” means (A) with respect to any Preferred Shares issued on the Initial Issuance Date (I) on any Conversion Date prior to the Fixed Conversion Price Trigger Date, $5.00 and (II) on any Conversion Date on and after the Fixed Conversion Price Trigger Date, 120% of the Market Price of the Common Stock on the Fixed Conversion Price Trigger Date and (B) with respect to any Preferred Shares issued after the Initial Issuance Date, 120% of the Market Price on the Issuance Date of the applicable Preferred Shares, each subject to adjustment as provided herein.

(iii) “Floating Conversion Price” means, as of any date of determination, the amount obtained by multiplying the Conversion Percentage in effect as of such date by the Market Price as of such date, subject to adjustment as provided herein.

(iv) “Conversion Percentage” means (A) with respect to any Conversion Date prior to February 15, 1999, 100% and (B) with respect to any Conversion Date on or after February 15, 1999 (I) if the Company consummates one or more corporate collaborations or strategic partnerships during the period beginning on October 18, 1998 and ending on and including February 14, 1999 which provides the Company during such period with an aggregate of more than $7,000,000 of revenue and/or net proceeds from equity investments or the issuance of Qualified Subordinated Debt (as defined below) (including, without limitation, amounts received by the Company from Hoechst Marion Roussel (“HMR”) pursuant to any agreement entered into prior to the Initial Issuance Date and any amendments thereto) (collectively, a “Qualifying Financing”), 100% and (II) if the Company fails to consummate a Qualifying Financing during the period beginning on the Initial Issuance Date and ending on and including February 14, 1999, 90%, each subject to adjustment as provided herein.

(v) “Market Price” means, with respect to any security for any date of determination, the price which shall be computed as the arithmetic average of the four lowest Closing Bid Prices for such security during the 22 consecutive trading days immediately preceding such date.

(vi) “Conversion Amount” means the sum of (A) the Additional Amount (as defined below), provided that the Company has not elected to pay the Additional Amount in cash as described in Section 2(c), and (B) $1,000.

(vii) “Additional Amount” means the result of the following formula: (0.05)(N/365)($1,000).

(viii) “Closing Bid Price” means, for any security as of any date, the last closing bid price for such security on the Nasdaq National Market as reported by Bloomberg Financial Markets (“Bloomberg”), or, if the Nasdaq National Market is not the principal trading market for such security, the last closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the last closing trade price of such security as reported by Bloomberg, or, if no last closing trade price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the “pink sheets” by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the holders of a majority of the outstanding Preferred Shares including for purposes of this determination any Preferred Shares with respect to which the Closing Bid Price is being determined. If the Company and the holders of Preferred Shares are unable to agree upon the fair market value of the Common Stock, then such dispute shall be resolved pursuant to Section 2(f)(iii) with the term R 20;Closing Bid Price” being substituted for the term “Market Price.” (All such determinations to be appropriately adjusted for any stock dividend, stock split or other similar transaction during such period).

(ix) “N” means the number of days from, but excluding, the Issuance Date through and including the Conversion Date for the Preferred Shares for which conversion is being elected.

(x) “Issuance Date” means, with respect to each Preferred Share, the date of issuance of the applicable Preferred Share.

(xi) “Initial Issuance Date” means the first date on which any Preferred Shares are issued by the Company.

(xii) “Fixed Conversion Price Trigger Date” means the earlier of (A) February 15, 1999 and (B) the date of receipt by each holder of Preferred Shares of written notice from the Company of the Company’s election to reset the Fixed Conversion Price prior to February 15, 1999.

(xiii) “Securities Purchase Agreement” means that certain securities purchase agreement between the Company and the initial holders of the Preferred Shares concerning the purchase of Preferred Shares.

(xiv) “Registration Rights Agreement” means that certain registration rights agreement between the Company and the initial holders of the Preferred Shares concerning the registration of the resale of the shares of Common Stock issuable upon conversion of the Preferred Shares.

(xv) “Qualified Subordinated Debt” means any debt issued by the Company which has all of the following terms (A) such debt is issued to a strategic partner of the Company, (B) such debt has a maturity date not sooner than March 31, 2003, (C) such debt is convertible into Common Stock at any time only at the Company’s option without any conditions to the Company’s ability to exercise such option and only at a conversion price which is greater than the market price of the Common Stock at such time of conversion, (D) such debt is redeemable by the holder of such debt only upon the occurrence of an event which constitutes a Major Transaction (as defined in Section 3(c)), (E) the maturity date of such debt may not be accelerated at any time prior to March 31, 2003 and then only if the joint venture in connection with which such debt was issued is terminated, (F) such debt is not convertible at the option of the holder of such debt and (G) the Company does not issue any warrants or other securities to the holder of such debt in connection with the issuance of such debt.

(c) Company’s Option to Pay Additional Amount in Cash. Upon conversion pursuant to Sections 2(a) or 2(g), the Company shall have the right to elect to pay the Additional Amount in cash, in lieu of conversion to Common Stock. If the Company elects to pay the Additional Amount in cash, such cash shall be paid simultaneously with the delivery to the holder of the certificates representing the Common Stock issuable upon conversion in accordance with Section 2(f). In order to exercise its right to pay any Additional Amount in cash, the Company must advise each holder of Preferred Shares in writing (the “Cash Dividend No tice”) that the Additional Amount shall be paid in cash until such time as the Company shall terminate the Cash Dividend Notice by providing at least five business days prior written notice of such termination (the “Termination Notice”). The Cash Dividend Notice shall set forth the effective date of the Cash Dividend Notice, which date shall be at least five business days after the date the Cash Dividend Notice is deemed to have been delivered pursuant to Section 19. The Termination Notice shall be effective on the fifth business day after the date the Termination Notice is deemed to have been delivered pursuant to Section 19 unless a later date shall be specified in the Termination Notice.

(d) Adjustment to Conversion Price -- Dilution and Other Events. In order to prevent dilution of the rights granted under this Certificate of Designations, the Conversion Price will be subject to adjustment from time to time as provided in this Section 2(d).

(i) Adjustment of Fixed Conversion Price upon Issuance of Common Stock. If and whenever on or after the Issuance Date of the Preferred Shares with respect to which this determination is being made, the Company issues or sells, or is deemed to have issued or sold, any shares of Common Stock (other than the Conversion Shares (as defined in the Securities Purchase Agreement) and shares of Common Stock deemed to have been issued by the Company in connection with an Approved Stock Plan (as defined below)) for a consideration per share (as determined below) less than the Fixed Conversion Price, in effect immediately prior to such issuance or sale, of the Preferred Shares with respect to which this det ermination is being made (the “Applicable Price”), then immediately after such issue or sale, (a) in the event such issuance or sale is of a Convertible Security (as defined below) convertible at a Fixed Price (as defined below), the Fixed Conversion Price (of the Preferred Shares with respect to which this determination is being made) then in effect shall be reduced to an amount equal to the consideration per share which the Company issued or sold, or was deemed to have issued or sold, one share of Common Stock pursuant to such issuance or sale or (b) in the event such issuance is other than as described in (a) above, the Fixed Conversion Price (of the Preferred Shares with respect to which this determination is being made) then in effect shall be reduced to an amount equal to the product of (x) the Fixed Conversion Price (of the Preferred Shares with respect to which this determination is being made) in effect immediately prior to such iss ue or sale and (y) the quotient determined by dividing (1) the sum of (I) the product of the Applicable Price and the number of shares of Common Stock Deemed Outstanding (as defined below) immediately prior to such issue or sale, and (II) the consideration, if any, received by the Company upon such issue or sale, by (2) the product of (I) the Applicable Price and (II) the number of shares of Common Stock Deemed Outstanding (as defined below) immediately after such issue or sale; provided, however, that the Fixed Conversion Price shall not be reduced at any time that the amount of such reduction would be an amount less than 2% of the Fixed Conversion Price immediately preceding such reduction, but any such amount shall be carried forward and reduction with respect thereto shall be made when such amount, together with any amounts carried forward, shall aggregate 2% or more of the Fixed Conversion Price immediately preceding the last such reduction. For purposes of determining the adjusted Fixed Conv ersion Price (of the Preferred Shares with respect to which this determination is being made) under this Section 2(d)(i), the following shall be applicable:

(A) Issuance of Options. If on or after the Issuance Date of the Preferred Shares for which an adjustment is being determined the Company in any manner grants any rights or options to subscribe for or to purchase Common Stock (other than pursuant to an Approved Stock Plan or upon conversion of the Preferred Shares) or any stock or other securities convertible into or exchangeable for Common Stock (such rights or options being herein called “Options” and such convertible or exchangeable stock or securities being herein called “Convertible Securities”) and the pr ice per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than the Applicable Price, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For purposes of this Section 2(d)(i)(A), the “price per share for which Common Stock is issuable upon exercise of such Options or upon conversion or exchange of such Convertible Securities” is determined by dividing (I) the total amount, if any, received or receivable by the Company as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (II) the total maximum number of shares of Common Stock issuable upon exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No adjustment of the Fixed Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

(B) Issuance of Convertible Securities. If on or after the Issuance Date of the Preferred Shares for which an adjustment is being determined the Company in any manner issues or sells any Convertible Securities and the price per share for which Common Stock is issuable upon conversion or exchange of such Convertible Securities is less than the Applicable Price, then the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities shall be deemed to be outstanding and to have been issued and sold by the Company for such price per share. For the purposes of this Section 2(d)(i)(B), the “price per share for which Common Stock is issua ble upon such conversion or exchange” is determined by dividing (I) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange thereof, by (II) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No adjustment of the Fixed Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Fixed Conversion Price had been or are to be made pursuant to other provisions of this Section 2(d)(i), no further adjustment of the Fixed Conversion Price shall be made by reason of such issue or sale.

(C) Change in Option Price or Rate of Conversion. If the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock changes at any time, the Fixed Conversion Price (of the Preferred Shares with respect to which this determination is being made) in effect at the time of such change shall be readjusted to the Fixed Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional considera tion or changed conversion rate, as the case may be, at the time initially granted, issued or sold; provided that no adjustment shall be made if such adjustment would result in an increase of the Fixed Conversion Price then in effect.

(D) Certain Definitions. For purposes of determining the adjusted Fixed Conversion Price under this Section 2(d)(i), the following terms have meanings set forth below:

(I) “Approved Stock Plan” shall mean any contract, plan or agreement which has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, officer, director, consultant or other service provider.

(II) “Common Stock Deemed Outstanding” means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 2(d)(i)(A) and 2(d)(i)(B) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock issuable upon conversion of the Preferred Shares.

(III) “Fixed Price” shall mean the conversion price for a Convertible Security that is convertible into or exchangeable or exercisable for Common Stock at a price which by its terms has the possibility of not varying with the market price of the Common Stock.

(E) Effect on Fixed Conversion Price of Certain Events. For purposes of determining the adjusted Fixed Conversion Price under this Section 2(d)(i), the following shall be applicable:

(I) Calculation of Consideration Received. If any Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. In case any Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Company will be the fair value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Company will be the arithmetic average of the Closing Bid Prices of such security for the five (5) consecutive trading days immediately preceding the date of receipt. In case any Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or securities will be determined jointly by the Company and the holders of a majority of the Preferred Shares then outstanding. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within forty-ei ght (48) hours of the tenth (10th) day following the Valuation Event by an independent, reputable appraiser selected by the Company. The determination of such appraiser shall be binding upon all parties absent manifest error.

(II) Integrated Transactions. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction in which no specific consideration is allocated to such Options by the parties thereto, the Options will be deemed to have been issued for a consideration of $.01.

(III) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Company, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock.

(IV) Record Date. If the Company takes a record of the holders of Common Stock for the purpose of entitling them (1) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (2) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(ii) Adjustment of Fixed Conversion Price upon Subdivision or Combination of Common Stock. If the Company at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Fixed Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. If the Company at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Fixed Conversion Price in effect immediately prior to such combination will be proportionately increased.

(iii) Adjustment of Floating Conversion Price upon Issuance of Convertible Securities. If the Company in any manner issues or sells Convertible Securities that are convertible into or exchangeable for Common Stock at a price which varies with the market price of the Common Stock (the formulation for such variable price being herein referred to as, the “Variable Price”) and such Variable Price is not calculated using the same formula used to calculate the Floating Conversion Price in effect immediately prior to the time of such issue or sale, the Company shall provide written notice thereof via facsimile and overnight courier to each holder of the Preferred Shares (“Variable Notice”) within three (3) business days of the date of issuance of such Convertible Securities. If the holders of Preferred Shares representing at least a majority of the Preferred Shares then outstanding provide written notice via facsimile and overnight courier (the “Variable Price Election Notice”) to the Company within five (5) business days of receiving a Variable Notice that such holders desire to replace the Floating Conversion Price then in effect with the Variable Price described in such Variable Notice, then from and after the date of the Company’s receipt of the Variable Price Election Notice the Floating Conversion Price will automatically be replaced with the Variable Price (together with such modifications to this Certificate of Designations as may be required to give full effect to the substitutio n of the Variable Price for the Floating Conversion Price). A holder’s delivery of a Variable Price Election Notice shall serve as the consent required to amend this Certificate of Designations pursuant to Section 14 below. In the event that a holder delivers a Conversion Notice at any time after the Company’s issuance of Convertible Securities with a Variable Price but before such holder’s receipt of the Company’s Variable Notice, then such holder shall have the option by written notice to the Company to rescind such Conversion Notice or to have the Conversion Price be equal to such Variable Price for the conversion effected by such Conversion Notice.

(iv) Reorganization, Reclassification, Consolidation, Merger or Sale. Any recapitalization, reorganization, reclassification, consolidation, merger, sale of all or substantially all of the Company’s assets to another Person (as defined below) or other transaction which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an “Organic Change.” Prior to the consummation of any Organic Change, the Company will make appropriate provision (in fo rm and substance reasonably satisfactory to the holders of a majority of the Preferred Shares then outstanding) to insure that each of the holders of the Preferred Shares will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock otherwise acquirable and receivable upon the conversion of such holder’s Preferred Shares, such shares of stock, securities or assets as would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable had all of such holder’s Preferred Shares been converted into shares of Common Stock immediately prior to such Organic Change (without taking into account any limitations or restrictions on the timing or amount of conversions). In any such case, the Company will make appropriate provision (in form and substance reasonably satisfactory to the holders of a majority of the Preferred S hares then outstanding) with respect to such holders’ rights and interests to insure that the provisions of this Section 2(d) and Section 2(e) will thereafter be applicable to the Preferred Shares (including, in the case of any such consolidation, merger or sale in which the successor entity or purchasing entity is other than the Company, an immediate adjustment of the Fixed Conversion Price to the value for the Common Stock reflected by the terms of such consolidation, merger or sale, if the value so reflected is less than the Fixed Conversion Price in effect immediately prior to such consolidation, merger or sale). The Company will not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor entity (if other than the Company) resulting from consolidation or merger or the entity purchasing such assets assumes, by written instrument (in form and substance reasonably satisfactory to the holders of a majority of the Preferred Shares then outstandin g), the obligation to deliver to each holder of Preferred Shares such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. “Person” shall mean an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

(v) Certain Events. If any event occurs of the type contemplated by the provisions of this Section 2(d) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s Board of Directors will make an appropriate adjustment in the Conversion Price so as to protect the rights of the holders of the Preferred Shares; provided, however, that no such adjustment will increase the Conversion Price as otherwise determined pursuant to this Section 2(d).

(vi) Notices.

(A) As soon as practicable, but in no event later than three (3) business days, after any adjustment of the Conversion Price, the Company will give written notice thereof to each holder of the Preferred Shares, setting forth in reasonable detail and certifying the calculation of such adjustment.

(B) The Company will give written notice to each holder of the Preferred Shares at least ten (10) days prior to the date on which the Company closes its books or takes a record (I) with respect to any dividend or distribution upon the Common Stock, (II) with respect to any pro rata subscription offer to holders of Common Stock or (III) for determining rights to vote with respect to any Organic Change, dissolution or liquidation and in no event shall any notice pursuant to this Section 2(d)(vi)(B) be provided to such holder prior to such information being made known to the public.

(C) The Company will also give written notice to each holder of Preferred Shares at least ten (10) days prior to the date on which any Organic Change, dissolution or liquidation will take place and in no event shall any notice pursuant to this Section 2(d)(vi)(C) be provided to such holder prior to such information being made known to the public.

(vii) Adjustment of Fixed Conversion Price upon an Underwriting Lock-Up Period. If and whenever on or after the Issuance Date of the Preferred Shares with respect to which this determination is being made, the Company delivers a Lock-Up Request Notice (as defined in Section 4(n) of the Securities Purchase Agreement), then immediately following the end of the Underwriting Lock-Up Period (as defined in Section 4(n) of the Securities Purchase Agreement) the Fixed Conversion Price of the applicable Preferred Share in effect immediately prior to such Underwriting Lock-Up Period shall be adjusted to the lesser of (A) the Fixed Conversion Price of such Preferred Share immediately prior to such Underwri ting Lock-Up Period and (B) the offering price to the public of the Common Stock offered in the underwritten public offering with respect to which the Lock-Up Request was delivered.

(e) Purchase Rights. In addition to any adjustments of the Conversion Price pursuant to Section 2(d), if at any time after the Issuance Date the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the “Purchase Rights”), then the holders of the Preferred Shares will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon compl ete conversion of the outstanding Preferred Shares (without taking into account any limitations or restrictions on the timing or amount of conversions) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of the Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.

(f) Mechanics of Conversion. Subject to the Company’s inability to fully satisfy its obligations under a Conversion Notice (as defined below) as provided for in Section 4:

(i) Holder’s Delivery Requirements. To convert Preferred Shares into full shares of Common Stock on any date (the “Conversion Date”), the holder thereof shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior to 9:00 p.m., Eastern Time on such date, a copy of a fully executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”), to the Company and (B) surrender to a common carrier for delivery to the Company, as soon as reasonably practicable following such date, the original certificate(s) re presenting the Preferred Shares being converted (or an indemnification undertaking with respect to such shares reasonably satisfactory to the Company in the case of their loss, theft or destruction) (the “Preferred Stock Certificate(s)”).

(ii) Company’s Response. Upon receipt by the Company of a facsimile copy of a Conversion Notice, the Company shall as soon as practicable, but in any event no later than the next business day, send, via facsimile, a confirmation of receipt of such Conversion Notice to such holder. Upon receipt by the Company or the Transfer Agent of the Preferred Stock Certificate(s) to be converted pursuant to a Conversion Notice, the Company or the Transfer Agent (as applicable) shall, on the next business day following the date of receipt, (I) issue and surrender to a common carrier for overnight delivery to the address specified in the Conversion Notice, a certificate, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled, or (II) credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder’s or its designee’s balance account with The Depository Trust Company. If the number of Preferred Shares represented by the Preferred Stock Certificate(s) submitted for conversion is greater than the number of Preferred Shares being converted, then the Company or Transfer Agent, as the case may be, shall, as soon as practicable and in no event later than three business days after receipt of the Preferred Stock Certificate(s) and at its own expense, issue and deliver to the holder a new Preferred Stock Certificate representing the number of Preferred Shares not converted.

(iii) Dispute Resolution. In the case of a dispute as to the determination of the Market Price or the arithmetic calculation of the Conversion Rate, the Company shall promptly issue to the holder the number of shares of Common Stock that is not disputed and shall submit the disputed determinations or arithmetic calculations to the holder via facsimile within one (1) business day of receipt of such holder’s Conversion Notice. If such holder and the Company are unable to agree upon the determination of the Market Price or arithmetic calculation of the Conversion Rate within one (1) business day of such disputed determination or arithmetic calculation being submitted to the holder, then the Company shall within one (1) business day following such date of delivery submit via facsimile (A) the disputed determination of the Market Price to an independent, reputable investment bank or (B) the disputed arithmetic calculation of the Conversion Rate to its independent, outside accountant. The Company shall cause the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than forty-eight (48) hours from the time it receives the disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation, as the case may be, shall be binding upon all parties absent manifest error.

(iv) Record Holder. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of Preferred Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.

(v) Company’s Failure to Timely Convert. If after the Company’s receipt of the Preferred Stock Certificates to be converted the Company shall fail (I) within three (3) business days to issue a certificate for the number of shares of Common Stock to which a holder is entitled or to credit the holder’s balance account with The Depository Trust Company for such number of shares of Common Stock to which the holder is entitled upon such holder’s conversion of Preferred Shares or (II) within seven (7) business days to issue a new Preferred Stock Certificate representing the number of Preferred Shares to which such holder is entitled pursuant to Section 2(f)(ii), in addition to all other available remedies which such holder may pursue hereunder and under the Securities Purchase Agreement (including indemnification pursuant to Section 8 thereof), the Company shall pay additional damages to such holder on each date after the third or seventh business day, as applicable, that such conversion or delivery of such Preferred Stock Certificates, as the case may be, is not timely effected in an amount equal to 0.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the holder on a timely basis pursuant to Section 2(f)(ii) and to which such holder is entitled and, in the event the Company has failed to deliver a Preferred Stock Certificate to the holder on a timely basis pursuant to Section 2(f)(ii), the number of shares of Common Stock issuable upon conversion of the Preferred Shares represented by such Preferred Stock Certificate, as of the last possible date which the Company could have issued such Preferred Stock Certificate to such holder without vi olating Section 2(f)(ii) and (B) the Closing Bid Price of the Common Stock on the last possible date which the Company could have issued such Common Stock and the Preferred Stock Certificate, as the case may be, to such holder without violating Section 2(f)(ii).

(g) Mandatory Conversion at Maturity. If any Preferred Shares remain outstanding on the Maturity Date (as defined below), then all such Preferred Shares shall be converted as of such date in accordance with this Section 2 as if the holders of such Preferred Shares had given the Conversion Notice on the Maturity Date; provided, however, that if a Triggering Event (other than a Triggering Event resulting from Section 3(d)(vi) due to the Company’s breach of a representation or warranty set forth in Section 3 of the Securities Purchase Agreement) has occurred and is continuing on the Maturity Date or any event that with the passage of time would constitute a Triggering Event (assuming it was no t cured and other than a Triggering Event resulting from Section 3(d)(vi) due to the Company's breach of a representation or warranty set forth in Section 3 of the Securities Purchase Agreement) exists on the Maturity Date, then the Company shall, within five business days following the Maturity Date (unless otherwise notified in writing by the holder of its request to have the Preferred Shares converted into Common Stock), pay to each holder of Preferred Shares then outstanding, in immediately available funds, an amount equal to the Triggering Event Redemption Price (as defined below) as of the Maturity Date. All holders of Preferred Shares shall thereupon surrender all Preferred Stock Certificates, duly endorsed for cancellation, to the Company or the Transfer Agent, provided that the Company has complied with its obligations under this Section 2(g). “Maturity Date” means the date which is five years after the Initial Issuance Date for such Preferred Shares, unless extended (i) pursuant to Section 3(u) of the Registration Rights Agreement, which extension shall be equal to one and one-half 1 1/2) times the aggregate number of days of all Grace Periods (as defined in Section 3(u) of the Registration Rights Agreement) or (ii) pursuant to Section 4(n) of the Securities Purchase Agreement, which extension shall be equal to two (2) times the aggregate number of days of all Underwriting Lock-Up Periods (as defined in Section 4(n) of the Securities Purchase Agreement).

(h) Fractional Shares. The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one Preferred Share by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up or down to the nearest whole share.

(i) Taxes. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon the conversion of Preferred Shares.

(j) Conversion Restrictions. The right of a holder of Preferred Shares to convert Preferred Shares pursuant to this Section 2 shall be limited as set forth below. Without the prior written consent of the Company, a holder of Preferred Shares shall not be entitled to convert any Preferred Shares prior to the Fixed Conversion Price Triggering Date. Notwithstanding the foregoing, the conversion restrictions set forth in this Section 2(j) shall not apply (w) on and after any date on which the Common Stock is not listed on the Nasdaq National Market, The New York Stock Exchange, Inc. (“NYSE”) or The American Stoc k Exchange, Inc. (“AMEX”) or has been suspended from trading (excluding suspensions of not more than one day resulting from business announcements), or any such delisting or suspension is threatened or pending, (x) if there shall have occurred an event constituting a Major Transaction (as defined in Section 3(c)) or the public announcement of a pending Major Transaction, (y) there shall have occurred a Triggering Event (as defined in Section 3(d)) or (z) since the Initial Issuance Date there shall have occurred any change, event, result or happening involving, directly or indirectly, the Company or any of its Subsidiaries (as defined in the Securities Purchase Agreement) resulting in a material adverse effect on the business, financial condition or results of operations or, insofar as can reasonably be foreseen, prospects of the Company and its Subsidiaries, taken as a whole.

(3) Redemption at Option of Holders.

(a) Redemption Option Upon Major Transaction. In addition to all other rights of the holders of Preferred Shares contained herein, simultaneous with or after the occurrence of a Major Transaction (as defined below), each holder of Preferred Shares shall have the right, at such holder’s option, to require the Company to redeem all or a portion of such holder’s Preferred Shares at a price per Preferred Share equal to the greater of (i) 120% of the Liquidation Value (as defined in Section 10) and (ii) the product of (A) the Conversion Rate on the date the Notice of Redemption at Option of Buyer Upon Major Transaction (as defined in Section 3(e)) is given and (B) the C losing Bid Price on the date of the public announcement of such Major Transaction or the next date on which the exchange or market on which the Common Stock is traded is open if such public announcement is made (X) after 12:00 p.m., Central Time, on such date or (Y) on a date on which the exchange or market on which the Common Stock is traded is closed (“Major Transaction Redemption Price”).

(b) Redemption Option Upon Triggering Event. In addition to all other rights of the holders of Preferred Shares contained herein, simultaneous with or after the occurrence of a Triggering Event (as defined below), each holder of Preferred Shares shall have the right, at such holder’s option, to require the Company to redeem all or a portion of such holder’s Preferred Shares at a price per Preferred Share equal to the greater of (i) (X) with respect to a Triggering Event described in Section 4(d)(i), if a Notice of Redemption at Option of Holder Upon Triggering Event (as defined in Section 4(f)) delivered prior to the date which is 270 days after the Initial Issuance Date, 115% of the Liquidation Value and (Z) with respect to Triggering Events other than the instance described in the immediately preceding clause (X), 120% of the Liquidation Value and (ii) the product of (A) the Conversion Rate on the date of such holder’s delivery of a Notice of Redemption at Option of Holder Upon Triggering Event (as defined below) and (B) the greater of (I) the Closing Bid Price on the trading day immediately preceding such Triggering Event or (II) the Closing Bid Price on the date of the holder’s delivery to the Company of a Notice of Redemption at Option of Holder Upon Triggering Event or, if such date of delivery is not a trading day, the next date on which the exchange or market on which the Common Stock is traded is open (“Triggering Event Redemption Price” and, collectively with “Major Transaction Redemption Price,” the “Redemption Price”).

(c) “Major Transaction”. A “Major Transaction” shall be deemed to have occurred at such time as any of the following events:

(i) the consolidation, merger or other business combination of the Company with or into another Person (other than (A) a consolidation, merger or other business combination in which holders of the Company’s voting power immediately prior to the transaction continue after the transaction to hold, directly or indirectly, the voting power of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities, or (B) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company);

(ii) the sale or transfer, in one or more transactions, of all or substantially all of the Company’s assets; or

(iii) a purchase, tender or exchange offer made to and accepted by the holders of more than 50% of the outstanding shares of Common Stock.

(d) “Triggering Event”. A “Triggering Event” shall be deemed to have occurred at such time as any of the following events:

(i) the failure of the Registration Statement (as defined in the Registration Rights Agreement) to be declared effective by the SEC on or prior to the date that is 180 days after the Issuance Date to which such Registration Statement is related;

(ii) while the Registration Statement is required to be maintained effective pursuant to the terms of the Registration Rights Agreement, except for any Allowable Grace Periods (as defined in the Registration Rights Agreement), the effectiveness of the Registration Statement lapses for any reason (including, without limitation, the issuance of a stop order) or is unavailable to the holder of the Preferred Shares for sale of the Registrable Securities (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, and such lapse or unavailability continues for a period of at least ten consecutive trading days or for an aggregate of at least fifteen trading days in any 365 day period;

(iii) the suspension or halting from trading or failure of the Common Stock to be listed on the Nasdaq National Market, NYSE or AMEX for a period of five consecutive days or for an aggregate of at least ten days in any 365 day period;

(iv) the Company’s notice to any holder of Preferred Shares, including by way of public announcement, at any time, of its intention not to comply with proper requests for conversion of any Preferred Shares into shares of Common Stock, including due to any of the reasons set forth in Section 4(a), or the Company’s failure to deliver Conversion Shares within ten days of the applicable Conversion Date;

(v) upon the Company’s receipt of a Conversion Notice, the Company shall not be obligated to issue the Conversion Shares due to the provisions of Section 13; or

(vi) any representation or warranty by the Company was not true and correct at the time made (including the Issuance Date) or the Company breaches any covenant or other term or condition of the Securities Purchase Agreement, the Registration Rights Agreement, this Certificate of Designations, the Irrevocable Transfer Agent Instructions (as defined in the Securities Purchase Agreement), or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated thereby or hereby, except (i) to the extent that such breach would not have a Material Adverse Effect (as defined in Section 3(a) of the Securities Purchase Agreement), and (ii) in the case of a breach of a covenant which is curable, such breach does not continue fo r a period of at least ten days.

(e) Mechanics of Redemption at Option of Holder Upon Major Transaction. No sooner than 15 days nor later than 10 days prior to the consummation of a Major Transaction, but not prior to the public announcement of such Major Transaction, the Company shall deliver written notice thereof via facsimile and overnight courier (a “Notice of Major Transaction”) to each holder of Preferred Shares. At any time after receipt of a Notice of Major Transaction (or, in the event a Notice of Major Transaction is not delivered at least 10 days prior to a Major Transaction, at any time on or after the date which is 10 days prior to a Maj or Transaction), any holder of the Preferred Shares then outstanding may require the Company to redeem all or a portion of the holder’s Preferred Shares, which redemption shall be effective concurrent with the consummation of the Major Transaction, then outstanding by delivering written notice thereof via facsimile and overnight courier (a “Notice of Redemption at Option of Holder Upon Major Transaction”) to the Company, which Notice of Redemption at Option of Holder Upon Major Transaction shall indicate (i) the number of Preferred Shares that such holder is submitting for redemption and (ii) the applicable Major Transaction Redemption Price, as calculated pursuant to Section 3(a).

(f) Mechanics of Redemption at Option of Holder Upon Triggering Event. Within one business day after the occurrence of a Triggering Event, the Company shall deliver written notice thereof via facsimile and overnight courier (a “Notice of Triggering Event”) to each holder of Preferred Shares. At any time after the earlier of a holder’s receipt of a Notice of Triggering Event and such holder becoming aware of a Triggering Event, any holder of the Preferred Shares then outstanding may require the Company to redeem all or a portion of the holder’s Preferred Shares then outstanding by delivering written notice t hereof via facsimile and overnight courier (a “Notice of Redemption at Option of Holder Upon Triggering Event”) to the Company, which Notice of Redemption at Option of Holder Upon Triggering Event shall indicate the number of Preferred Shares that such holder is submitting for redemption.

(g) Payment of Redemption Price. Upon the Company’s receipt of a Notice(s) of Redemption at Option of Holder Upon Triggering Event or a Notice(s) of Redemption at Option of Holder Upon Major Transaction from any holder of Preferred Shares, the Company shall within one (1) business day notify each holder of Preferred Shares by facsimile of the Company’s receipt of such Notice(s) of Redemption at Option of Holder Upon Triggering Event or Notice(s) of Redemption at Option of Holder Upon Major Transaction and each holder which has sent such a notice shall promptly submit to the Company or its Transfer Agent such holder’s Preferred Stock Certificates which such holder has elected to have redeemed. The Company shall deliver the applicable Triggering Event Redemption Price, in the case of a redemption pursuant to Section 3(f), to such holder within five business days after the Company’s receipt of a Notice of Redemption at Option of Holder Upon Triggering Event and, in the case of a redemption pursuant to Section 3(e), the Company shall deliver the applicable Major Transaction Redemption Price concurrent with the consummation of the Major Transaction; provided that in either or both cases, as applicable, the redeeming holder’s Preferred Stock Certificates shall have been so delivered to the Company or the Transfer Agent; and provided further that if the Company is unable to redeem all of the Preferred Shares to be redeemed, the Company shall redeem an amount from each holder of Preferred Shares being redeemed equal to such holder’s pro rata amount (based on the number of Preferred Shares held by such holder relative to the number of Preferred Shares outstandin g) of all Preferred Shares being redeemed. If the Company shall fail to redeem all of the Preferred Shares submitted for redemption in addition to any remedy such holder of Preferred Shares may have under this Certificate of Designations, the Securities Purchase Agreement and the Registration Rights Agreement, the applicable Redemption Price payable in respect of such unredeemed Preferred Shares shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. Until the Company pays such unpaid applicable Redemption Price in full to a holder of Preferred Shares submitted for redemption, such holder shall have the option (the “Void Optional Redemption Option”) to, in lieu of redemption, require the Company to promptly return to such holder(s) any or all of the Preferred Shares that were submitted for redemption by such holder(s) under this Section 3 and for which the applicable Redemptio n Price has not been paid, by sending written notice thereof to the Company via facsimile (the “Void Optional Redemption Notice”). Upon the Company’s receipt of such Void Optional Redemption Notice(s) prior to payment of the full applicable Redemption Price to such holder: (i) the Notice(s) of Redemption at Option of Holder Upon Triggering Event or the Notice(s) of Redemption at Option of Holder Upon Major Transaction, as the case may be, shall be null and void with respect to those Preferred Shares submitted for redemption and for which the applicable Redemption Price has not been paid; (ii) the Company shall immediately return any Preferred Shares submitted to the Company by each holder for redemption under this Section 3(g) and for which the applicable Redemption Price has not been paid; and (iii) if the redemption was caused by a Triggering Event involving the Company’s inability to issue Conversion Shar es because of the Exchange Cap (as defined in Section 13) (an “Exchange Cap Triggering Event”), the holders of at least a majority of the Preferred Shares then outstanding, including Preferred Shares submitted for redemption pursuant to this Section 3 with respect to which the applicable Redemption Price has not been paid, may direct the Company to immediately delist the Common Stock from the exchange or automated quotation system on which the Common Stock is traded and have the Common Stock, at such holders’ option, traded in the electronic bulletin board or the “pink sheets”, provided, however, that if (A) there is scheduled to occur, within thirty (30) days of the date on which the Exchange Cap Triggering Event occurred, a meeting of the Company’s stockholders at which meeting the stockholder shall be requested to approve the issuance of the Conversion Shares in excess of the Exchange Cap and for which a definitive proxy statement has been filed with the SEC, (B) there has not already occurred prior to the date of such Exchange Cap Triggering Event a meeting of the Company’s stockholders at which the Company’s stockholders were asked to vote on a proposal to approve the issuance of the Conversion Shares in excess of the Exchange Cap and at which the Company’s stockholders did not approve such proposal and (C) the Company is, or will be with the passing of such 30 day period referred to in (A) above, in compliance with Section 4(k) of the Securities Purchase Agreement, then the Investors’ right in this Section 3(g) to direct the Company to delist the Common Stock (y) shall be suspended until the earlier of (I) the first (1st) business day following the date on which the meeting of the Company’s stockholders is scheduled to occur, regardless of any adjournment thereof and (II) the date on which such me eting of the Company’s stockholders is canceled, terminated, postponed or otherwise delayed or (z) will be terminated if the Stockholders approve the issuance of the Conversion Shares. Notwithstanding the foregoing, in the event of a dispute as to the determination of the Closing Bid Price or the arithmetic calculation of the Redemption Price, such dispute shall be resolved pursuant to Section 2(f)(iii) above with the term “Closing Bid Price” being substituted for the term “Market Price” and the term “Redemption Price” being substituted for the term “Conversion Rate”. A holder’s delivery of a Void Optional Redemption Notice and exercise of its rights following such notice shall not effect the Company’s obligations to make any payments which have accrued prior to the date of such notice, except for the applicable Redemption Price relating to such Void Optional Redemption Notice which Redemption Price thereafter shall no longer be due and payable. Payments provided for in this Section 3 shall have priority to payments to other holders of the Company’s capital stock of a class that is junior to the Preferred Shares in connection with a Major Transaction.

(4) Inability to Fully Convert.

(a) Holder’s Option if Company Cannot Fully Convert. If, upon the Company’s receipt of a Conversion Notice or on the Maturity Date, the Company cannot issue shares of Common Stock registered for resale under the Registration Statement (or which are exempt from the registration requirements under the 1933 Act pursuant to Rule 144(k) under the 1933 Act) for any reason, including, without limitation, because the Company (x) does not have a sufficient number of shares of Common Stock authorized and available, (y) is otherwise prohibited by applicable law or by the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Company or its Securities, including without limitation the Exchange Cap (as defined below), from issuing all of the Common Stock which is to be issued to a holder of Preferred Shares pursuant to a Conversion Notice or (z) fails to have a sufficient number of shares of Common Stock registered for resale under the Registration Statement, then the Company shall issue as many shares of Common Stock as it is able to issue in accordance with such holder’s Conversion Notice and pursuant to Section 2(f) and, with respect to the unconverted Preferred Shares, the holder, solely at such holder’s option, can elect to:

(i) require the Company to redeem from such holder those Preferred Shares for which the Company is unable to issue Common Stock in accordance with such holder’s Conversion Notice (“Mandatory Redemption”) at a price per Preferred Share (the “Mandatory Redemption Price”) equal to the Triggering Event Redemption Price as of such Conversion Date;

(ii) if the Company’s inability to fully convert Preferred Shares is pursuant to Section 4(a)(z), require the Company to issue restricted shares of Common Stock in accordance with such holder’s Conversion Notice and pursuant to Section 2(f);

(iii) void its Conversion Notice and retain or have returned, as the case may be, the nonconverted Preferred Shares that were to be converted pursuant to such holder’s Conversion Notice (provided that a holder’s voiding its Conversion Notice shall not effect the Company’s obligations to make any payments which have accrued prior to the date of such notice); or

(iv) if the Company’s inability to fully convert Preferred Shares is pursuant to Section 4(a)(y), require the Company to issue shares of Common Stock in accordance with such holder’s Conversion Notice and pursuant to Section 2(f) at a Conversion Price equal to the average of the Closing Bid Prices of the Common Stock for the five consecutive trading days preceding such holder’s Notice in Response to Inability to Convert (as defined below) or such other market price that satisfies the applicable exchange or trading market.

(b) Mechanics of Fulfilling Holder’s Election. The Company shall within one (1) business day send via facsimile to a holder of Preferred Shares, upon receipt of a facsimile copy of a Conversion Notice from such holder which cannot be fully satisfied as described in Section 4(a), a notice of the Company’s inability to fully satisfy such holder’s Conversion Notice (the “Inability to Fully Convert Notice”). Such Inability to Fully Convert Notice shall indicate (i) the reason why the Company is unable to fully satisfy such holder’s Conversion Notice, (ii) the number of Preferred Shares which cannot be converted and (iii) the applicable Mandatory Redemption Price. Such holder shall notify the Company of its election pursuant to Section 4(a) above by delivering written notice via facsimile to the Company (“Notice in Response to Inability to Convert”).

(c) Payment of Mandatory Redemption Price. If such holder shall elect to have its shares redeemed pursuant to Section 4(a)(i), the Company shall pay the Mandatory Redemption Price in cash by wire transfer to such holder within five (5) days of the Company’s receipt of the holder’s Notice in Response to Inability to Convert. If the Company shall fail to pay the applicable Mandatory Redemption Price to such holder within five (5) days of the Company’s receipt of the Notice in Response to Inability to Convert (other than pursuant to a dispute as to the determination of the arithmetic calculation of the Redemption Price), in addition to any remedy such holder of Preferred Shares may have under this Certificate of Designations, the Securities Purchase Agreement and the Registration Rights Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month (prorated for partial months) until paid in full. Until the full Mandatory Redemption Price is paid in full to such holder, such holder may void the Mandatory Redemption with respect to those Preferred Shares for which the full Mandatory Redemption Price has not been paid and receive back such Preferred Shares. Notwithstanding the foregoing, if the Company fails to pay the applicable Mandatory Redemption Price within such five (5) days time period due to a dispute as to the determination of the Mandatory Redemption Price, such dispute shall be resolved pursuant to Section 2(f)(iii) with the term “Mandatory Redemption Price” being substituted for the term “Conversion Rate”.

(d) Pro-rata Conversion and Redemption. In the event the Company receives a Conversion Notice, Notice of Redemption at Option of Holder Upon Major Transaction or Notice of Redemption at Option of Holder Upon Triggering Event from more than one holder of Preferred Shares on the same day and the Company can convert and/or redeem some, but not all, of the Preferred Shares pursuant to this Section 4, the Company shall convert and/or redeem from each holder of Preferred Shares electing to have Preferred Shares converted and redeemed at such time an amount equal to such holder’s pro-rata amount (based on the number of Preferred Shares held by such holder relative to the number of Preferred Shares outstanding) of all Preferred Shares being converted and redeemed at such time.

(5) Conversion at the Company’s Election. At any time or times on or after the date which is three years after the Issuance Date of the applicable Preferred Shares, the Company shall have the right, in its sole discretion, to require that any or all of the outstanding Preferred Shares be converted (“Conversion at Company’s Election”) at the Conversion Rate; provided that the Conditions to Conversion at the Company’s Election (as set forth below) are satisfied. The Company shall exercise its right to Conversion at Company’s Election by providing each holder of Preferred Shares written notice (“Notice of Conversion at Company’s Election”) at least 30 days prior to the date selected by the Company for conversion (“Company’s Election Conversion Date”). If the Company elects to require conversion of some, but not all, of the Preferred Shares, the Company shall convert a pro rata amount from each holder of Preferred Shares (based on the number of Preferred Shares held by such holder relative to the number of Preferred Shares outstanding on the date of the Company’s delivery of the Notice of Conversion at Company’s Election). The Notice of Conversion at Company’s Election shall indicate (x) the number of Preferred Shares the Company has selected for conversion, (y) the Company’s Election Conversion Date, which date shall not be less than 30 or more than 40 days after each holder’s receipt of such no tice, and (z) each holder’s pro rata share of outstanding Preferred Shares. All Preferred Shares selected for conversion in accordance with the provisions of this Section 5 shall be converted as of the Company’s Election Conversion Date in accordance with Section 2 as if the holders of such Preferred Shares selected by the Company to be converted had given the Conversion Notice on the Company’s Election Conversion Date. All holders of Preferred Shares shall thereupon and within two business days after the Company’s Election Conversion Date surrender all Preferred Stock Certificates selected for conversion, duly endorsed for cancellation, to the Transfer Agent. “Conditions to Conversion at the Company’s Election” means the following conditions: (i) on each day during the period beginning 20 days prior to the Notice of Conversion at the Company’s Election and ending on and including the Company’s Election Conversion Date, the Registration Statement shall be effective and available for the sale of no less than 150% of the sum of (A) the number of Conversion Shares then issuable upon the conversion of all outstanding Preferred Shares (without regard to any limitations on conversion herein or elsewhere), including the Conversion Shares to be issued pursuant to this Conversion at the Company’s Election and (B) the number of Conversion Shares that are then held by the holders of the Preferred Shares, (ii) on each day during the period beginning 20 days prior to the date of the Company’s Notice of Conversion at Company’s Election and ending on and including the Company’s Election Conversion Date, the Common Stock is designated for quotation on the Nasdaq National Market or listed on NYSE or AMEX and is not suspended from trading; (iii) on each day during the 20 consecutive trading days immediately preceding the date of the C ompany’s Notice of Conversion at the Company’s Election, the Closing Bid Price of the Common Stock is at least 250% of the Fixed Conversion Price of the applicable Preferred Shares being converted; (iv) on each day during the period beginning on the date of the Notice of Conversion at the Company’s Election and ending on and including the Company’s Election Conversion Date, the Closing Bid Price of the Common Stock is at least 230% of the Fixed Conversion Price of the applicable Preferred Shares being converted; (v) a Conversion at Company’s Election previously shall not have occurred; (vi) if the Company was required to seek stockholder approval pursuant to Section 4(k) of the Securities Purchase Agreement, the Company’s stockholders shall have approved the issuance of the Securities (as defined in the Securities Purchase Agreement) on or prior to the date of the Company’s Notice of Conversion at Company’s Election; (vii) during the period begin ning 20 trading days prior to the date of the Company’s Notice of Conversion at Company’s Election and ending on and including the Company’s Election Conversion Date, no holder of Preferred Shares shall have been subject to a lock-up pursuant to the terms of Section 4(n) of the Securities Purchase Agreement and there shall not have been any Grace Period under Section 3(u) of the Registration Rights Agreement; (viii) during the period beginning on the Initial Issuance Date and ending on and including the Company’s Election Conversion Date, the Company shall have delivered Conversion Shares upon conversion of the Preferred Shares to the Buyers within ten (10) business days of the applicable Conversion Date; (ix) during the period beginning on and including the date which is 20 trading days immediately preceding the date of the Company’s Notice of Conversion at the Company’s Election and ending on and including the Company’s Election Conversion Date, the Company sh all have delivered Conversion Shares upon conversion of the Preferred Shares to the Buyers on a timely basis as set forth in Section 2(f)(ii) of this Certificate of Designations; (x) neither a Triggering Event nor any event that with the passage of time would constitute a Triggering Event (assuming it was not cured) shall have occurred; and (xi) the Company otherwise has satisfied its obligations and is not in default under this Certificate of Designations, the Securities Purchase Agreement and the Registration Rights Agreement. Notwithstanding the above, any holder of Preferred Shares may convert such shares (including Preferred Shares selected for conversion) into Common Stock pursuant to Section 2(a) on or prior to the Company’s Election Conversion Date.

(6) Company’s Right to Redeem in Lieu of Conversion. Subject to the terms and conditions of this Section 6 below, at any time after the Issuance Date, and so long as the Company has provided appropriate notice as described below, the Company may elect to redeem Preferred Shares submitted for conversion in lieu of converting such Preferred Shares, provided that the Conversion Price for such Preferred Shares on the Conversion Date is less than a price (the “Redemption in Lieu of Conversion Trigger Price”) equal to 80% of the greater of (x) the Market Price on the Initial Issuance Date and (y) the Market Price on the date of t he Mandatory Closing (as defined in the Securities Purchase Agreement), if any, (appropriately adjusted for any stock split, stock dividend, combination or other similar transaction) (a “Company Redemption in Lieu of Conversion”).

(a) Redemption Price of Company Redemption in Lieu of Conversion. The “Redemption Price of Company Redemption in Lieu of Conversion” shall be an amount per Preferred Share equal to the product of (A) the Conversion Rate of the Preferred Shares on the date such Preferred Shares are submitted for conversion and (B) the Closing Bid Price of the Common Stock on the date the applicable Preferred Shares are submitted for conversion.

(b) Mechanics of Company Redemption in Lieu of Conversion. The Company shall exercise its right to redeem by delivering written notice by facsimile and overnight courier (“Notice of Company Redemption in Lieu of Conversion”) to (i) each holder of the Preferred Shares and (ii) the Transfer Agent. Such Notice of Company Redemption in Lieu of Conversion shall indicate (A) the maximum, if any, aggregate number of Preferred Shares which the Company will redeem for Company Redemption in Lieu of Conversion and (B) confirm the time period during which the Company may effect Company Redemption in Lieu of Con version, which period shall begin on and include the date which is five business days after the date of receipt by all of the holders’ of the Notice of Redemption in Lieu of Conversion and shall end on and include the date which is 30 calendar days after the fifth business day following the date of receipt by all of the holders of the Notice of Redemption in Lieu of Conversion (the “Redemption in Lieu of Conversion Period”). If the Company elects to limit the number of Preferred Shares which it will redeem during the Redemption in Lieu of Conversion Period, the Company shall allocate for redemption from each holder of Preferred Shares a number of Preferred Shares equal to such holder’s pro-rata amount (based on the number of Preferred Shares held by such holder on the date of the Notice of Company Redemption in Lieu of Conversion relative to the total number of Preferred Shares outstanding on such date). The Company may terminate a Redemption in Lieu of Conversion Period at any time with respect to Preferred Shares which have not been submitted for conversion by delivering written notice of such termination to each holder of Preferred Shares by facsimile and overnight courier at least three business days prior to the effective date of such termination. Notwithstanding anything to the contrary in this Section 6, the Company shall convert Preferred Shares pursuant to Section 2 if such Preferred Shares are submitted for conversion (i) before the beginning, or after the termination, of the Redemption in Lieu of Conversion Period, (ii) for a Conversion Price greater than or equal to the Redemption in Lieu of Conversion Trigger Price or (iii) are in excess of such holder’s pro rata allocation of the maximum number of Preferred Shares the Company indicated that it would redeem in its Notice of Company Redemption in Lieu of Conversion.

(c) Payment of Redemption Price. The Company shall pay the applicable Redemption Price of Company Redemption in Lieu of Conversion to the holder of the Preferred Shares being redeemed in cash by wire transfer within five business days after the applicable Conversion Date on which such Preferred Shares are submitted for conversion. If the Company shall fail to pay the applicable Redemption Price of Company Redemption in Lieu of Conversion to such holder on a timely basis as described in this Section 6(c), in addition to any remedy such holder of Preferred Shares may have under this Certificate of Designations and the Securities Purchase Agreement, such unpaid amount shall bear inte rest at the rate of 2.0% per month until paid in full. Until the Company pays such unpaid applicable Redemption Price of Company Redemption in Lieu of Conversion full to each holder, each holder of Preferred Shares submitted for redemption pursuant to this Section 6 and for which the applicable Redemption Price of Company Redemption in Lieu of Conversion has not been paid, shall have the option to, in lieu of redemption, (A) to require the Company to promptly return to each holder all of the Preferred Shares that were submitted for redemption by such holder under this Section 6 and for which the applicable Redemption Price of Company Redemption in Lieu of Conversion has not been paid or (B) to convert those Preferred Shares for which the applicable Redemption Price of the Company Redemption in Lieu of Conversion has not been paid at a Conversion Price equal to the lesser of (I) the Conversion Price applicable to such conversion on the date on which such Preferred Shares were originally presented f or conversion and (II) the Conversion Price which would have been in effect if such Preferred Shares were presented for conversion on the business day immediately following the last day on which the Company could have effected a timely Company Redemption in Lieu of Conversion, by sending written notice thereof to the Company via facsimile (the “Void Company Redemption Notice”). Upon the Company’s receipt of such Void Company Redemption Notice(s), requesting the return of the Preferred Shares, prior to payment of the full applicable redemption price to each holder, (i) the Company’s Redemption in Lieu of Conversion shall be null and void with respect to those Preferred Shares submitted for redemption and for which the applicable redemption price has not been paid and with respect to any Preferred Shares submitted in the future for conversion in the same Redemption in Lieu of Conversion Period, (ii) the Co mpany shall immediately return any Preferred Shares submitted to the Company by each holder for redemption under this Section 6 and for which the applicable Redemption Price of Company Redemption in Lieu of Conversion has not been paid and (iii) the Fixed Conversion Price of such returned Preferred Shares shall be adjusted to the lesser of (I) the Conversion Price applicable to such conversion on the date on which such Preferred Shares were originally presented for conversion and (II) the lowest Conversion Price which would have been in effect if such Preferred Shares were presented for conversion on any business day during the period beginning on the business day immediately following the last day on which the Company could have effected a timely Company Redemption in Lieu of Conversion and ending on the date of the Company’s receipt of the applicable Void Company Redemption Notice. Notwithstanding the foregoing, if the Company fails to pay the applicable Redemption Price of Company Redemption in Lieu of Conversion to a holder within the time period described in this Section 6(d) due to a dispute as to the arithmetic calculation of the Redemption Price of Company Redemption in Lieu of Conversion, such dispute shall be resolved pursuant to Section 2(f)(iii) above with the term “Redemption Price of Company Redemption in Lieu of Conversion” being substituted for the term “Conversion Rate.” If the Company fails to timely effect a Company Redemption in Lieu of Conversion in accordance with this Section 6, the Company shall not be allowed to submit another Notice of Company Redemption in Lieu of Conversion without the prior written consent of the holders of at least a majority of the Preferred Shares then outstanding.

(d) Company Must Have Immediately Available Funds or Credit Facilities. The Company shall not be entitled to send any Notice of Company Redemption in Lieu of Conversion pursuant to Section 6(a) and begin the redemption procedure under this Section 6, unless it has:

(i) the full amount of the Redemption Price of Company Redemption in Lieu of Conversion in cash, available in a demand or other immediately available account in a bank or similar financial institution;

(ii) credit facilities, with a bank or similar financial institutions that are immediately available and unrestricted for use in redeeming the Preferred Shares, in the full amount of the Redemption Price of Company Redemption in Lieu of Conversion;

(iii) a written agreement with a standby underwriter or qualified buyer ready, willing and able to purchase from the Company a sufficient number of shares of stock to provide proceeds necessary to redeem any Preferred Share that has not been converted prior to a Company Redemption in Lieu of Conversion; or

(iv) a combination of the items set forth in the preceding clauses (i), (ii) and (iii), aggregating the full amount of the Redemption Price of Company Redemption in Lieu of Conversion.

(7) Reissuance of Certificates. In the event of a conversion or redemption pursuant to this Certificate of Designations of less than all of the Preferred Shares represented by a particular Preferred Stock Certificate, the Company shall promptly cause to be issued and delivered to the holder of such Preferred Shares a preferred stock certificate representing the remaining Preferred Shares which have not been so converted or redeemed.

(8) Reservation of Shares. The Company shall, so long as any of the Preferred Shares are outstanding, reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Preferred Shares then outstanding (without regard to any limitations on conversions); provided that the number of shares of Common Stock so reserved shall at no time be less than 200% of the number of shares of Common Stock for which the Preferred Shares are at any time convertible. The initial number of shares of Common Stock reserved for conversions of the Preferred Shares and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Preferred Shares based on the number of Preferred Shares held by each holder at the time of issuance of the Preferred Shares or increase in the number of reserved shares, as the case may be. In the event a holder shall sell or otherwise transfer any of such holder’s Preferred Shares, each transferee shall be allocated a pro rata portion of the number of reserved shares of Common Stock reserved for such transferor. Any shares of Common Stock reserved and which remain allocated to any person or entity which does not hold any Preferred Shares or have the right to acquire any Preferred Shares shall be allocated to the remaining holders of Preferred Shares, pro rata based on the number of Preferred Shares then held by such holders.

(9) Voting Rights. Holders of Preferred Shares shall have no voting rights, except as required by law, including but not limited to the General Corporation Law of the State of Delaware, and as expressly provided in this Certificate of Designations.

(10) Liquidation, Dissolution, Winding-Up. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of the Preferred Shares shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders (the “Preferred Funds”), before any amount shall be paid to the holders of any of the capital stock of the Company of any class junior in rank to the Preferred Shares in respect of the preferences as to the distributions and payments on the liquidation, dissolution and winding up of the Company, an am ount per Preferred Share equal to the sum of (i) $1,000 and (ii) an amount equal to the product of (.05) (N/365) ($1,000) (such sum being referred to as the “Liquidation Value”); provided that, if the Preferred Funds are insufficient to pay the full amount due to the holders of Preferred Shares and holders of shares of other classes or series of preferred stock of the Company that are of equal rank with the Preferred Shares as to payments of Preferred Funds (the “Pari Passu Shares”), then each holder of Preferred Shares and Pari Passu Shares shall receive a percentage of the Preferred Funds equal to the full amount of Preferred Funds payable to such holder as a liquidation preference, in accordance with their respective Certificate of Designations, Preferences and Rights, as a percentage of the full amount of Preferred Funds payable to all holders of Pref erred Shares and Pari Passu Shares. The purchase or redemption by the Company of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Company. Neither the consolidation or merger of the Company with or into any other Person, nor the sale or transfer by the Company of less than substantially all of its assets, shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Company. No holder of Preferred Shares shall be entitled to receive any amounts with respect thereto upon any liquidation, dissolution or winding up of the Company other than the amounts provided for herein; provided that a holder of Preferred Shares shall be entitled to all amounts previously accrued with respect to amounts owed hereunder.

(11) Preferred Rank; Participation.

(a) All shares of Common Stock shall be junior in rank to the Preferred Shares, and the Preferred Shares shall be pari passu in rank to (i) the Company’s Series B Preferred Stock and (ii) any shares of the Company’s preferred stock issued to HMR which shares of preferred stock, by their terms, are not transferable or assignable for a period of at least one year from the date of issuance of such shares of preferred stock, in respect to the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. The rights of the shares of Common Stock shall be subject to the preferences and relative rights of the Preferred Shares. Without the prior express written consent of the holders of not less th an a majority of the then outstanding Preferred Shares, the Company shall not hereafter authorize or issue additional or other capital stock that is of senior or equal rank to the Preferred Shares in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company provided that shares of the Company’s Series B Preferred Stock and any shares of the Company’s preferred stock issued to HMR in the manner described in clause (ii) above shall not require the consent of the holders of the Preferred Shares in order to rank pari passu to the Preferred Shares. Without the prior express written consent of the holders of not less than a majority of the then outstanding Preferred Shares, the Company shall not hereafter authorize or make any amendment to the Company’s Certificate of Incorporation or bylaws, or file any resolution of the board of directors of the Company with the Delaware Secretary of State containing any provisions, which would adversely affect or otherwise impair the rights or relative priority of the holders of the Preferred Shares relative to the holders of the Common Stock or the holders of any other class of capital stock. In the event of the merger or consolidation of the Company with or into another corporation pursuant to which the Preferred Shares remain outstanding or the rights to acquire Preferred Shares under the Securities Purchase Agreement shall not have been terminated, the Preferred Shares shall maintain their relative powers, designations and preferences provided for herein and no merger shall result inconsistent therewith.

(b) Subject to the rights of the holders, if any, of the Pari Passu Shares, the holders of the Preferred Shares shall, as holders of Preferred Stock, be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if such holders of Preferred Shares had converted the Preferred Shares into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock.

(12) Restriction on Redemption and Cash Dividends with respect to Other Capital Stock. Until all of the Preferred Shares have been converted or redeemed as provided herein, the Company shall not, directly or indirectly, redeem, or declare or pay any cash dividend or distribution on, its capital stock without the prior express written consent of the holders of not less than a majority of the then outstanding Preferred Shares.

(13) Limitation on Number of Conversion Shares. Notwithstanding any other provision herein, the Company shall not be obligated to issue any shares of Common Stock upon conversion of the Preferred Shares if the issuance of such shares of Common Stock would exceed that number of shares of Common Stock which the Company may issue upon Conversion of the Preferred Shares (the “Exchange Cap”) without breaching the Company’s obligations under the rules or regulations of the Nasdaq National Market, except that such limitation shall not apply in the event that the Company (i) obtains the approval of its stockholders as required by a pplicable rules and regulations of the Nasdaq National Market for issuances of Common Stock in excess of the Exchange Cap, (ii) obtains a written opinion from outside counsel to the Company that such approval is not required, which opinion shall be reasonably satisfactory to the holders of a majority of the Preferred Shares then outstanding or (iii) the required number of holders of the Preferred Shares have exercised their rights pursuant to Section 3(g) of this Certificate of Designations to have the Company remove the Common Stock from quotation on the Nasdaq National Market. Until such approval or written opinion is obtained or such action has been taken by the required number of holders, no purchaser of Preferred Shares pursuant to the Securities Purchase Agreement (the “Purchasers”) shall be issued, upon conversion of Preferred Shares, shares of Common Stock in an amount greater than the product of (x) the Exchange Cap amoun t multiplied by (y) a fraction, the numerator of which is the number of Preferred Shares issued to such Purchaser pursuant to the Securities Purchase Agreement and the denominator of which is the aggregate amount of all the Preferred Shares issued to the Purchasers pursuant to the Securities Purchase Agreement (the “Cap Allocation Amount”). In the event that any Purchaser shall sell or otherwise transfer any of such Purchaser’s Preferred Shares, the transferee shall be allocated a pro rata portion of such Purchaser’s Cap Allocation Amount. In the event that any holder of Preferred Shares shall convert all of such holder’s Preferred Shares into a number of shares of Common Stock which, in the aggregate, is less than such holder’s Cap Allocation Amount, then the difference between such holder’s Cap Allocation Amount and the number of shares of Common Stock actually issued to such holder shall be allocated to the respective Cap Allocation Amounts of the remaining holders of Preferred Shares on a pro rata basis in proportion to the number of Preferred Shares then held by each such holder.

(14) Vote to Change the Terms of or Issue Preferred Shares. The affirmative vote at a meeting duly called for such purpose or the written consent without a meeting, of the holders of not less than a majority of the then outstanding Preferred Shares and of the holders of the rights to acquire a majority of the Preferred Shares which purchasers have the right to acquire under the Securities Purchase Agreement, shall be required for (a) any change to this Certificate of Designations or the Company’s Certificate of Incorporation which would amend, alter, change or repeal any of the powers, designations, preferences and rights of the Preferred Shares, or (b) any issuance of Preferred Shares othe r than pursuant to the Securities Purchase Agreement.

(15) Lost or Stolen Certificates. Upon receipt by the Company of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the Preferred Shares, and, in the case of loss, theft or destruction, of an indemnification undertaking by the holder to the Company in a form reasonably acceptable to the Company and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided, however, the Company shall not be obligated to re-issue preferred stock certificates if the holder contemporaneously r equests the Company to convert such Preferred Shares into Common Stock.

(16) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designations shall be cumulative and in addition to all other remedies available under this Certificate of Designations, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designations. The Company covenants to each holder of Preferred Shares that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the holders of the Preferred Shares and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holders of the Preferred Shares shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.

(17) Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designations shall limit or modify any more general provision contained herein. This Certificate of Designations shall be deemed to be jointly drafted by the Company and the initial holders of the Preferred Shares and shall not be construed against any person as the drafter hereof.

(18) Failure or Indulgence Not Waiver. No failure or delay on the part of a holder of Preferred Shares in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof (except to the extent that such power, right or privilege must, in accordance with the terms of this Certificate of Designations, be exercised within a specified period of time and such period of time has lapsed without such power, right or privilege being exercised), nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.

(19) Notices. Any notice required to be delivered pursuant to the terms of this Certificate of Designations shall be delivered, unless otherwise provided in this Certificate of Designations, in accordance with the terms, and subject to the notice provisions of, the Securities Purchase Agreement.

IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by Harvey J. Berger, M.D. its Chief Executive Officer, as of the 6th day of November, 1998.

	ARIAD PHARMACEUTICALS, INC.

	By	/s/ Harvey Berger
	Name:	Harvey J. Berger
	Its:	Chief Executive Officer

EXHIBIT I

ARIAD PHARMACEUTICALS, INC.

CONVERSION NOTICE

Reference is made to the Certificate of Designations, Preferences and Rights of Series C Convertible Preferred Stock (the “Certificate of Designations”). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series [C] Convertible Preferred Stock, par value $.01 per share (the “Preferred Shares”), of ARIAD Pharmaceuticals, Inc., a Delaware corporation (the “Company”), indicated below into shares of Common Stock, par value $.001 per share (the “Common Stock”), of the Company, by tendering the stock certificate(s) representing the Preferred Shares specified below as of the date specified below.

Date of Conversion:

Number of Preferred Shares to be converted:

Stock certificate no(s). of Preferred Shares to be converted:

Please confirm the following information:

Conversion Price:

Number of shares of Common Stock to be issued:

Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:

Issue to:


Facsimile Number:

Authorization:	By:
	Title:

Dated:

Account Number:
(if electronic book entry transfer):

Transaction Code Number
(if electronic book entry transfer):

THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT

AMENDED CERTIFICATE OF DESIGNATION

SERIES A PREFERRED STOCK

ARIAD PHARMACEUTICALS, INC.

Pursuant to Section 151 of the General Corporation Law

of the State of Delaware

ARIAD Pharmaceuticals, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), in accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:

1. That by resolution of the Board of Directors of the Company dated December 15, 1994, and by a Certificate of Designations filed in the office of the Secretary of State of the State of Delaware on December 16, 1994, the Company authorized a series of 500,000 shares of Series A Preferred Stock, par value $.01 per share, of the Company (the “Series A Preferred Stock) and established the powers, designations, preferences and relative, participating, optional and other rights of the Series A Preferred and the qualifications, limitations or restrictions thereof.

2. As of the date hereof no shares of Series A Preferred Stock are outstanding and no shares of Series A Preferred Stock have been issued.

3. That pursuant to the authority conferred on the Board of Directors of the Company by its Certificate of Incorporation and the provisions of Section 151(g) of the General Corporation Law of the State of Delaware, the Board of Directors on June 8, 2000 adopted the following resolution amending in their entireties the powers, designations, preferences, and relative, participating, optional and other rights of shares of the Series A Preferred Stock, and the qualifications, limitations or restrictions thereof effective upon the effectiveness of a new rights agreement between the Company and State Street Bank and Trust Company, as Rights Agent.

RESOLVED, that effective upon the effectiveness of a new rights agreement between the Company and State Street Bank and Trust Company, as Rights Agent, and pursuant to the authority conferred upon the Board of Directors of the Company and the Certificate of Incorporation and by the provisions of Section 151(g) of the General Corporation Law of the State of Delaware, the powers, designations, preferences, and relative, participating, optional and other rights of shares of the Series A Preferred Stock, par value $.01 per share of the Company, and the qualifications, limitations or restrictions thereof be, and the same hereby are, amended in their entireties as follows:

SERIES A PREFERRED STOCK

1. Designation and Amount. There shall be a series of Preferred Stock that shall be designated as “Series A Preferred Stock,” and the number of shares constituting such series shall be 500,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; provided, however, that no decrease shall reduce the number of shares of Series A Preferred Stock to less than the number of shares then issued and outstanding plus the number of shares issuable upon exercise of outstanding rights, options or warrants or upon conversion of outstanding securities issued by the Corporation.

2. Dividends and Distribution.

(A) Subject to the prior and superior rights of the holders of any shares of any class or series of stock of the Corporation ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of shares of any class or series of stock of the Corporation ranking junior to the Series A Preferred Stock in respect thereof, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the 10th day of January, April, July and October in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quar terly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or (b) the Adjustment Number (as defined below) times the aggregate per share amount of all cash dividends, and the Adjustment Number times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $.001 per share, of the Corporation (the “Common Stock”) since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. The “Adjustment Number” shall initially be 1000. In the event the Corporation shall at any time after June 8, 2000 (i) declare and pay any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.

(B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock).

(C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such divi dends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof.

3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights:

(A) Each share of Series A Preferred Stock shall entitle the holder thereof to a number of votes equal to the Adjustment Number on all matters submitted to a vote of the stockholders of the Corporation.

(B) Except as required by law, by Section 3(C) and by Section 10 hereof, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.

(C) If, at the time of any annual meeting of stockholders for the election of directors, the equivalent of six quarterly dividends (whether or not consecutive) payable on any share or shares of Series A Preferred Stock are in default, the number of directors constituting the Board of Directors of the Corporation shall be increased by two. In addition to voting together with the holders of Common Stock for the election of other directors of the Corporation, the holders of record of the Series A Preferred Stock, voting separately as a class to the exclusion of the holders of Common Stock, shall be entitled at said meeting of stockholders (and at each subsequent annual meeting of stockholders), unless all dividends in arrears on the Series A Preferred Stock have been paid o r declared and set apart for payment prior thereto, to vote for the election of two directors of the Corporation, the holders of any Series A Preferred Stock being entitled to cast a number of votes per share of Series A Preferred Stock as is specified in paragraph (A) of this Section 3. Each such additional director shall not be a member of Class I, Class II or Class III of the Board of Directors of the Corporation, but shall serve until the next annual meeting of stockholders for the election of directors, or until his successor shall be elected and shall qualify, or until his right to hold such office terminates pursuant to the provisions of this Section 3(C). Until the default in payments of all dividends which permitted the election of said directors shall cease to exist, any director who shall have been so elected pursuant to the provisions of this Section 3(C) may be removed at any time, without cause, only by the affirmative vote of the holders of the shares of Series A Preferred Stock at the time en titled to cast a majority of the votes entitled to be cast for the election of any such director at a special meeting of such holders called for that purpose, and any vacancy thereby created may be filled by the vote of such holders. If and when such default shall cease to exist, the holders of the Series A Preferred Stock shall be divested of the foregoing special voting rights, subject to revesting in the event of each and every subsequent like default in payments of dividends. Upon the termination of the foregoing special voting rights, the terms of office of all persons who may have been elected directors pursuant to said special voting rights shall forthwith terminate, and the number of directors constituting the Board of Directors shall be reduced by two. The voting rights granted by this Section 3(C) shall be in addition to any other voting rights granted to the holders of the Series A Preferred Stock in this Section 3.

4. Certain Restrictions.

(A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

(i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock;

(ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; or

(iii) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of Series A Preferred Stock, or to such holders and holders of any such shares ranking on a parity therewith, upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

(B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.

5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired promptly after the acquisition thereof. All such shares shall upon their retirement become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to any conditions and restrictions on issuance set forth herein.

6. Liquidation, Dissolution or Winding Up. (A) Upon any liquidation, dissolution or winding up of the Corporation, voluntary or otherwise, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received an amount per share (the “Series A Liquidation Preference”) equal to the greater of (i) $10.00 plus an amount equal to accrued and unpaid dividends and distri butions thereon, whether or not declared, to the date of such payment, or (ii) the Adjustment Number times the per share amount of all cash and other property to be distributed in respect of the Common Stock upon such liquidation, dissolution or winding up of the Corporation.

(B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other classes and series of stock of the Corporation, if any, that rank on a parity with the Series A Preferred Stock in respect thereof, then the assets available for such distribution shall be distributed ratably to the holders of the Series A Preferred Stock and the holders of such parity shares in proportion to their respective liquidation preferences.

(C) Neither the merger or consolidation of the Corporation into or with another corporation nor the merger or consolidation of any other corporation into or with the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 6.

7. Consolidation, Merger, Etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the outstanding shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share equal to the Adjustment Number times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged.

8. No Redemption. Shares of Series A Preferred Stock shall not be subject to redemption by the Corporation.

9. Ranking. The Series A Preferred Stock shall rank junior to all other series of the Preferred Stock as to the payment of dividends and as to the distribution of assets upon liquidation, dissolution or winding up, unless the terms of any such series shall provide otherwise, and shall rank senior to the Common Stock as to such matters.

10. Amendment. At any time that any shares of Series A Preferred Stock are outstanding, the Certificate of Incorporation of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of two-thirds of the outstanding shares of Series A Preferred Stock, voting separately as a class.

11. Fractional Shares. Series A Preferred Stock may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Preferred Stock.

IN WITNESS WHEREOF, the undersigned has executed this Certificate this 19th day of June, 2000.

	ARIAD PHARMACEUTICALS, INC.

	By:	/s/ Jay R. LaMarche
	Name:	Jay R. LaMarche
	Its:	Treasurer

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

ARIAD PHARMACEUTICALS, INC.

It is hereby certified that:

FIRST:

The name of the corporation is ARIAD Pharmaceuticals, Inc. (the “Corporation”).

SECOND:

The Certificate of Incorporation of the Corporation filed on April 12, 1991 under the name ARIAD Corporation, as amended to date, is hereby further amended by striking out the first paragraph of Section 4 in its entirety and by substituting in lieu thereof the following:

“4. Number of Shares. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 155,000,000 shares, consisting of 145,000,000 shares of common stock, $.001 par value per share (the “Common Stock”) and 10,000,000 shares of preferred stock, $.01 par value per share (the “Preferred Stock”).”

THIRD:

The amendment of the Certificate of Incorporation herein certified has been duly adopted in accordance with the provisions of Section 228 and Section 242 of the General Corporation Law of the State of Delaware.

EXECUTED, effective as of this 23rd day of June, 2004.

	ARIAD PHARMACEUTICALS, INC.

	By:	/s/ Harvey J. Berger, M.D.
		Harvey J. Berger, M.D.
		Chairman and Chief Executive Officer

STATE of DELAWARE

____________________________

CERTIFICATE OF MERGER

ARIAD GENE THERAPEUTICS, INC.

WITH AND INTO

ARIAD PHARMACEUTICALS, INC.

UNDER SECTION 251 OF THE

GENERAL CORPORATION LAW

OF THE STATE OF DELAWARE

Pursuant to Section 251(c) of the General Corporation Law of the State of Delaware (the “DGCL”), ARIAD Pharmaceuticals, Inc., a Delaware corporation, hereby certifies the following information relating to the merger (the “Merger”) of ARIAD Gene Therapeutics, Inc. with and into ARIAD Pharmaceuticals, Inc.:

1. The name and state of incorporation of each of the constituent corporations in the Merger (the “Constituent Corporations”) are as follows:

	Name		State of Incorporation
	ARIAD Gene Therapeutics, Inc.		Delaware
	ARIAD Pharmaceuticals, Inc.		Delaware

2. The Agreement and Plan of Merger dated as of September 11, 2008 (the “Merger Agreement”), by and between ARIAD Pharmaceuticals, Inc. and ARIAD Gene Therapeutics, Inc., setting forth the terms and conditions of the Merger, has been approved, adopted, certified, executed and acknowledged by each of the Constituent Corporations in accordance with Section 251 of the DGCL.

3. The name of the corporation surviving the Merger is ARIAD Pharmaceuticals, Inc. (the “Surviving Corporation”).

4. The certificate of incorporation of ARIAD Pharmaceuticals, Inc., as in effect immediately prior to the Merger becoming effective, shall be the certificate of incorporation of the Surviving Corporation, effective upon the filing of this Certificate of Merger, until thereafter further altered or amended as provided therein or by applicable law.

5. The executed Merger Agreement is on file at the principal place of business of the Surviving Corporation at the following address:

ARIAD Pharmaceuticals, Inc.

26 Landsdowne Street

Cambridge, MA 02139

6. A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of any of the Constituent Corporations.

7. This Certificate of Merger, and the Merger provided for herein, shall be effective upon filing in accordance with the provisions of Sections 103 and 251(c) of the DGCL (the “Effective Time”).

[The remainder of this page has been intentionally left blank.]

This Certificate of Merger has been executed on this 11th day of September, 2008.

	ARIAD PHARMACEUTICALS, INC.


	By:	/s/ Laurie Allen
	Name:	Laurie Allen
	Title:	Senior Vice President and Chief Legal Officer

[Certificate of Merger]

CERTIFICATE OF AMENDMENT

CERTIFICATE OF INCORPORATION

ARIAD PHARMACEUTICALS, INC.

It is hereby certified that:

FIRST:

The name of the corporation is ARIAD Pharmaceuticals, Inc. (the “Corporation”).

SECOND:

The Certificate of Incorporation of the Corporation was filed on April 12, 1991 under the name ARIAD Corporation. Thereafter the Certificate of Incorporation was amended by Certificates of Amendment filed on April 16, 1991, May 3, 1991, which changed the name of the Corporation to ARIAD Pharmaceuticals, Inc., January 15, 1992, April 8, 1994, October 7, 1994, Certificates of Designation filed on December 16, 1994, March 18, 1997, November 9, 1998, and June 19, 2000 and a Certificate of Amendment filed on June 25, 2004, and a Certificate of Merger was filed on September 12, 2008. The Certificate of Incorporation, as amended, is hereby further amended by striking out the first paragraph of Section 4 in its entirety and by substituting in lieu thereof the following:

“4. Number of Shares. The total number of shares of all classes of stock which the Corporation shall have authority to issue is 250,000,000 shares, consisting of 240,000,000 shares of common stock, $.001 par value per share (the “Common Stock”) and 10,000,000 shares of preferred stock, $.01 par value per share (the “Preferred Stock”).”

THIRD:

EXECUTED, effective as of this 20th day of January 2010.

	ARIAD PHARMACEUTICALS, INC.


	By:	/s/ Harvey J. Berger, M.D.
		Harvey J. Berger, M.D.
		Chairman and Chief Executive Officer

EX-31.1 3 a6282794ex311.htm EXHIBIT 31.1 a6282794ex311.htm

Exhibit 31.1

CERTIFICATIONS

Chief Executive Officer

I, Harvey J. Berger, M.D., certify that:

I have reviewed this quarterly report of ARIAD Pharmaceuticals, Inc.;

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Harvey J. Berger, M.D.
		Harvey J. Berger, M.D.
Date: May 10, 2010		Chairman and Chief Executive Officer

EX-31.2 4 a6282794ex312.htm EXHIBIT 31.2 a6282794ex312.htm

Exhibit 31.2

CERTIFICATIONS

Chief Financial Officer

I, Edward M. Fitzgerald, certify that:

1.	I have reviewed this quarterly report of ARIAD Pharmaceuticals, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	By:	/s/ Edward M. Fitzgerald
		Edward M. Fitzgerald
		Senior Vice President,
Date: May 10, 2010		Chief Financial Officer (Principal financial officer and chief accounting officer)

EX-32.1 5 a6282794ex321.htm EXHIBIT 32.1 a6282794ex321.htm

Exhibit 32.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of ARIAD Pharmaceuticals, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the period ended March 31, 2010 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

	Date: May 10, 2010		/s/ Harvey J. Berger, M.D.
			Harvey J. Berger, M.D. Chairman and Chief Executive Officer

	Date: May 10, 2010		/s/ Edward M. Fitzgerald
			Edward M. Fitzgerald Senior Vice President, Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

-----END PRIVACY-ENHANCED MESSAGE-----

Delaware		22-3106987
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
In thousands, except share and per share data	March 31, 2010			December 31, 2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	25,442		$	40,362
Amounts due under collaboration agreement		4,632			3,583
Inventory and other current assets		2,281			1,951

Total current assets		32,355			45,896

Restricted cash		749			749

Property and equipment, net		7,998			8,738

Intangible and other assets, net		9,329			9,627

Total assets	$	50,431		$	65,010

LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Current portion of long-term debt and capital lease obligations	$	11,313		$	11,669
Accounts payable		5,750			4,806
Accrued compensation and benefits		1,414			1,050
Accrued product development expenses		10,728			8,072
Other accrued expenses		2,289			2,708
Current portion of deferred revenue		8,555			8,592
Current portion of deferred executive compensation		359			655
Other current liabilities		136			132

Total current liabilities		40,544			37,684

Long-term debt and capital lease obligations		110			142
Deferred revenue		100,902			103,019
Deferred executive compensation		1,751			1,364
Other long-term liabilities		432			454
Warrant liability		17,443			11,363

Stockholders’ deficit:
Preferred stock, $.01 par value, authorized 10,000,000 shares, none issued
and outstanding
Common stock, $.001 par value; authorized, 240,000,000 shares in 2010,
145,000,000 shares in 2009; issued and outstanding, 109,385,127 shares in
2010 and 109,042,782 shares in 2009		109			109
Additional paid-in capital		431,146			429,483
Accumulated deficit		(542,006	)		(518,608	)

Total stockholders’ deficit		(110,751	)		(89,016	)

Total liabilities and stockholders’ deficit	$	50,431		$	65,010

ARIAD PHARMACEUTICALS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
	Three Months Ended March 31,
In thousands, except share and per share data	2010			2009

License and collaboration revenue	$	2,154		$	1,900


Operating expenses:
Research and development		14,835			17,749
General and administrative		4,574			4,126

Total operating expenses		19,409			21,875


Loss from operations		(17,255	)		(19,975	)


Other income (expense):
Interest income		8			37
Interest expense		(71	)		(81	)
Revaluation of warrant liability		(6,080	)		(215	)

Other income (expense), net		(6,143	)		(259	)


Net loss	$	(23,398	)	$	(20,234	)


Net loss per share – basic and diluted	$	(0.21	)	$	(0.26	)

Weighted-average number of shares of common stock outstanding – basic and diluted		109,016,202			77,237,551

	Three Months Ended March 31,
In thousands	2010			2009
Cash flows from operating activities:
Net loss	$	(23,398	)	$	(20,234	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,338			976
Accretion of discount on marketable securities		---			(15	)
Stock-based compensation		1,534			1,016
Deferred executive compensation expense		401			204
Revaluation of warrant liability		6,080			215
Increase (decrease) from:
Inventory and other current assets		(329	)		300
Amounts due under collaboration agreement		(1,049	)		(779	)
Other assets		(3	)		1
Accounts payable		943			974
Accrued compensation and benefits		364			473
Accrued product development expenses		2,657			(1,891	)
Other accrued expenses		(419	)		(1,677	)
Other current liabilities		18			---
Deferred revenue		(2,154	)		10,600
Deferred executive compensation paid		(310	)		(273	)
Net cash used in operating activities		(14,327	)		(10,110	)
Cash flows from investing activities:
Acquisitions of marketable securities		---			(7,599	)
Proceeds from maturities of marketable securities		---			14,826
Investment in property and equipment		(74	)		(1,071	)
Investment in intangible assets		(268	)		(339	)
Net cash provided by (used in) investing activities		(342	)		5,817
Cash flows from financing activities:
Repayment of long-term borrowings		(350	)		(350	)
Principal payments under capital lease obligation		(29	)		(15	)
Proceeds from issuance of common stock, net of issuance costs		---			22,819
Proceeds from issuance of common stock pursuant to stock
option and purchase plans		128			137
Net cash provided by (used in) financing activities		(251	)		22,591
Net increase (decrease) in cash and cash equivalents		(14,920	)		18,298
Cash and cash equivalents, beginning of period		40,362			23,544
Cash and cash equivalents, end of period	$	25,442		$	41,842

		Page

PART I.	FINANCIAL INFORMATION	1

ITEM 1.	UNAUDITED FINANCIAL STATEMENTS	1

	Condensed Consolidated Balance Sheets – March 31, 2010 and December 31, 2009	1

	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2010 and 2009	2

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009	3

	Notes to Unaudited Condensed Consolidated Financial Statements	4

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25

ITEM 4.	CONTROLS AND PROCEDURES	25

PART II.	OTHER INFORMATION	26

ITEM 1.	LEGAL PROCEEDINGS	26

ITEM 1A.	RISK FACTORS	26

ITEM 6.	EXHIBITS	27

	SIGNATURES	28

	EXHIBIT INDEX	29