SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
December 10, 2001
Date of Report (Date of earliest event reported)
Discovery Laboratories, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 000-26422 94-3171943
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
350 Main Street, Suite 307
Doylestown, Pennsylvania 18901
(Address of principal executive offices)
(215) 340-4699
(Registrant's telephone number, including area code)
(Former name or former address, if changed since last report)
Item 5. Other Events.
This amendment is being submitted to file amended forms of Exhibits 10.1,
10.2, 10.3 and 10.4, previously filed in the registrant's Current Report on Form
8-K on December 19, 2001, which have been revised to include certain information
previously omitted which is no longer the subject of a confidential treatment
request made by the Registrant.
Item 7. Financial Statements, Pro Forma Financial Statements and Exhibits
(c) Exhibits:
*10.1 Commercialization Agreement
*10.2 Investment and Commission Agreement
10.3 Common Stock and Warrant Purchase Agreement
*10.4 Loan Agreement
* Confidential treatment has been requested with respect to certain portions of
these exhibits. Such portions have been separately filed with the of the
Securities and Exchange Commission and redacted herein.
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 hereunto duly authorized.
DISCOVERY LABORATORIES, INC.
By: /s/ Robert J. Capetola
--------------------------------------
Name: Robert J. Capetola, Ph.D.
Title: President and Chief Executive
Officer
Date: January 14, 2002
2
Exhibit No. Description
*10.1 Commercialization Agreement
*10.2 Investment and Commission Agreement
10.3 Common Stock and Warrant Purchase Agreement
*10.4 Loan Agreement
* Confidential treatment has been requested with respect to certain portions of
these exhibits. Such portions have been separately filed with the of the
Securities and Exchange Commission and redacted herein.
3
EXHIBIT 10.1
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [***], have been
separately filed with the Securities and Exchange Commission.
COMMERCIALIZATION AGREEMENT
AMONG
DISCOVERY LABORATORIES, INC.
and
QUINTILES TRANSNATIONAL CORPORATION
TABLE OF CONTENTS
PAGE
ARTICLE 1 SERVICES OVERVIEW; QUINTILES EXCLUSIVITY....................1
1.1 Definitions.................................................1
1.2 Overview; Discovery Engagement of Quintiles.................1
1.3 Quintiles Exclusive Rights..................................1
1.4 Retained Rights by Discovery................................1
ARTICLE 2 COMMITTEES..................................................2
2.1 Joint Commercialization Committee ("JCC")...................2
2.1.1 Formation; Purposes and Principles..........................2
2.1.2 Membership..................................................2
2.1.3 Meetings....................................................3
2.2 Agendas and Minutes for the JCC.............................3
2.3 No Authority to Modify Agreement............................3
ARTICLE 3 MARKETING PLAN; DETERMINATION OF FULLY LOADED COST..........4
3.1 Marketing Plan..............................................4
3.2 Plan Contents...............................................4
3.3 Determination of Fully Loaded Cost..........................4
3.3.1 Baseline for Fully Loaded Cost of Sales Force...............5
ARTICLE 4 QUINTILES RESPONSIBILITIES..................................5
4.1 Covenant to Operate under the Agreement; General Diligence
Requirement.................................................5
4.2 Marketing Services..........................................5
4.2.1 Marketing Representative....................................5
4.3 Hiring Sales Force..........................................5
4.4 Fully Dedicated or Syndicated Sales Force...................6
4.5 Training Requirements.......................................6
4.6 Quintiles Responsibilities..................................6
4.7 Records and Reports Regarding Promotional Activities........7
4.8 Performance Audits..........................................7
ARTICLE 5 DISCOVERY'S RESPONSIBILITIES AND OBLIGATIONS................7
TABLE OF CONTENTS
(CONTINUED)
Page
5.1 Regulatory Affairs...........................................7
5.2 Minimum Pre-Launch Marketing Commitment......................7
5.3 Minimum Sales Force Expenditure.............................7
5.4 Obligation to Provide Samples................................8
5.5 Sales and Distribution.......................................8
5.5.1 Pricing......................................................8
5.5.2 Booking Sales; Distribution..................................8
5.5.3 Product Returns..............................................8
5.6 Discovery Responsibilities...................................8
ARTICLE 6 TRAINING; ADVERTISING AND PROMOTIONAL MATERIALS..............8
6.1 Training Programs............................................8
6.1.1 Content......................................................8
6.1.2 Cost.........................................................9
6.2 Advertising and Promotional Materials........................9
6.2.1 Creation and Use.............................................9
6.2.2 Ownership; FDA Approval......................................9
6.2.3 Discovery Logos..............................................9
ARTICLE 7 REGULATORY ISSUES AND COMPLAINTS.............................9
7.1 Ownership of Regulatory Filings and Compliance...............9
7.2 Communication with the FDA and Other Regulatory Agencies....10
7.3 New Developments Relating to Product........................10
7.4 Product Recalls.............................................10
7.5 Adverse Event Reporting Procedures..........................10
7.6 Product Inquiries; Complaints...............................10
7.7 Database of Clinical Trial Data.............................11
ARTICLE 8 ACCOUNTING; INVOICING AND PAYMENT...........................11
8.1 Accounting..................................................11
8.2 Payment Schedule ...........................................11
TABLE OF CONTENTS
(CONTINUED)
Page
8.3 Payment of Invoices.........................................11
8.3.1 Wiring Instructions.........................................11
8.4 Penalty for Late Payment....................................11
8.5 Record Keeping and Financial Audits.........................11
ARTICLE 9 REPRESENTATIVES AND COVENANTS ..............................12
9.1 Mutual Authority............................................12
9.1.1 Corporate Power.............................................12
9.1.2 Due Authorization...........................................12
9.1.3 Binding Agreement...........................................12
9.1.4 Grant of Rights; Maintenance of Agreements..................12
9.1.5 Validity....................................................13
9.2 Conformance with Laws.......................................13
9.3 Rights in Product...........................................13
9.4 Record Maintenance..........................................13
9.5 Firewall....................................................14
9.6 No Use of Names or Trademarks...............................14
9.7 NDA Filing..................................................14
9.8 Independent Contractor......................................14
ARTICLE 10 CONFIDENTIALITY.............................................14
10.1 Confidential Information....................................14
10.2 Ownership of Data; No License...............................14
10.3 Survival....................................................15
ARTICLE 11 INDEMNIFICATION.............................................15
11.1 Indemnification by Discovery................................15
11.2 Indemnification by Quintiles................................15
11.3 Procedure...................................................15
11.4 No Consequential Damages....................................16
11.5 Discovery Responsibility for Product Description............16
TABLE OF CONTENTS
(CONTINUED)
Page
11.6 Insurance...................................................16
ARTICLE 12 TERM AND TERMINATION........................................16
12.1 Term........................................................16
12.2 Renewal.....................................................16
12.3 Material Breach.............................................16
12.4 No Product Launch...........................................17
12.5 Bankruptcy..................................................17
12.6 Accrued Rights .............................................17
12.7 Right to Receive Data.......................................18
12.8 Survival....................................................18
ARTICLE 13 SALES FORCE CONVERSION......................................18
13.1 Right to Convert Sales Force................................18
13.2 Transition Plan.............................................18
13.3 Discovery Determination.....................................18
13.4 Proprietary Information.....................................18
ARTICLE 14 DISPUTE RESOLUTION..........................................19
14.1 Disputes....................................................19
14.2 Governing Law...............................................19
ARTICLE 15 MISCELLANEOUS...............................................19
15.1 Return of Materials.........................................19
15.2 Nonsolicitation of Employees................................19
15.3 Entire Agreement; Amendment.................................20
15.4 Force Majeure...............................................20
15.5 Notices.....................................................20
15.6 Consents Not Unreasonably Withheld or Delayed...............21
15.7 Maintenance of Records......................................21
15.8 United States Dollars.......................................21
15.9 No Strict Construction......................................21
TABLE OF CONTENTS
(CONTINUED)
Page
15.10 Assignment..................................................21
15.11 Performance by Affiliates...................................22
15.12 Counterparts................................................22
15.13 Further Actions.............................................22
15.14 Severability................................................22
15.15 Ambiguities.................................................22
15.16 Headings....................................................22
15.18 No waiver...................................................22
EXHIBIT A
DEFINITIONS.............................................................A-1
EXHIBIT B
MARKETING PLAN OUTLINE..................................................B-1
SCHEDULE I
QUINTILES RESPONSIBILITIES.............................................SI-1
SCHEDULE II
DISCOVERY RESPONSIBILITIES & OBLIGATIONS, DISCOVERY SALES PROJECT.....SII-1
SCHEDULE III
ROLE DEFINITIONS.....................................................SIII-1
1.
COMMERCIALIZATION AGREEMENT
THIS Commercialization Agreement (the "Agreement") is made effective as of the
10th day of December, 2001 (the "Effective Date"), by and between Discovery
Laboratories, Inc., a corporation organized and existing under the laws of
Delaware, having its principal place of business at 350 South Main Street, Suite
307 Doylestown, PA 18901-4874 ("Discovery"), and Quintiles Transnational Corp.,
a corporation organized and existing under the laws of North Carolina, with its
principal place of business at 4709 Creekstone Drive, Suite 200, Durham, NC
27703 ("Quintiles"), each on behalf of itself and its Affiliates. Discovery and
Quintiles are sometimes referred to herein individually as a "Party" and
collectively as the "Parties."
In consideration of the following covenants, promises and obligations,
Discovery and Quintiles agree as follows.
ARTICLE 1
SERVICES OVERVIEW; QUINTILES EXCLUSIVITY
1.1 Definitions. Capitalized terms used but not defined in the text of
this Agreement shall have the meanings ascribed to them on Exhibit A hereto.
1.2 Overview; Discovery Engagement of Quintiles. Pursuant to this
Agreement, and subject to the terms and conditions of, the Parties shall
collaborate to develop and sustain a market for and promote Surfaxin(R) (the
"Product", as further defined on Exhibit A) in the Territory. Subject to the
terms and conditions of this Agreement, Discovery shall engage Quintiles and/or
Quintiles Affiliates to provide (i) pre- and post-launch marketing activities
("Marketing Services") and (ii) the recruitment, deployment and management of a
dedicated Sales Force ("Sales Force Services" and, together with any Marketing
Services, "Services") for the Product in the Territory, on a preferred basis all
as provided herein. In recognition of the various undertakings provided to
Discovery herein and conditioned upon the performance of the payment obligations
of PharmaBio Development, Inc. ("PharmaBio") as set forth in the (X) Investment
and Commission Agreement (herein so called) and (Y) Loan Agreement (herein so
called) between Discovery and PharmaBio, as appropriate, executed on the date
hereof, Discovery shall pay Quintiles the compensation as set forth herein.
While the Parties have allocated their respective responsibilities under this
Agreement, the Parties intend this program to be broadly collaborative, and seek
to achieve consensus-based decision making to the extent practical, with the
common objective of maximizing the short-term and long-term commercial success
of the Product in the Territory, subject to the terms and conditions of this
Agreement. The Parties further intend to consider appropriate commercialization
constructs with respect to jointly commercializing other neonatal products and
the Product for other indications.
1.3 Quintiles Exclusive Rights. Subject to the terms and conditions of
this Agreement, during the Term, Quintiles (either itself or through an
Affiliate) shall have the exclusive right to provide Sales Force Services for
the Product in the Territory. Except as otherwise provided herein, Quintiles
shall not have any rights with respect to the Product inside or outside of the
Territory.
2.
1.4 Retained Rights by Discovery. Except as otherwise expressly provided
in Section 1.3, Discovery shall retain all right, title and interest in and to
the Product including, but not limited to, owning all clinical trial data and
designs, protocols, regulatory filings, applications, and approvals for the
Product and data in support thereof, and all manufacturing, distribution of
finished products to designated third party distributor, patent, copyright,
trade secret and trademark rights relating to the Product. Discovery shall be
responsible for conducting all activities for clinical development of the
Product. No license is granted to Quintiles hereunder, either directly or by
implication. Quintiles acknowledges that any study sponsored by or under the
direction of Discovery is a proprietary program of Discovery, containing
trademarks, trade secrets and other intellectual property of Discovery, whether
or not such rights are utilized in the marketing, promotion or sale of the
Product.
ARTICLE 2
COMMITTEES
2.1 Joint Commercialization Committee ("JCC").
2.1.1 Formation; Purposes and Principles. The JCC shall have overall
responsibility for the success of the matters related to the Product in the
Territory as established by this Agreement, including without limitation: (i) to
review and approve the pre- and post-launch Marketing Plan as well as any other
matters required for the sales and promotion of the Product in the Territory,
except to the extent that certain matters are solely the responsibility of a
single Party under this Agreement; (ii) to determine the overall strategy for
marketing, promotion and sales of the Product in the Territory; (iii) to advise,
provide input and determine strategy for future clinical and/or marketing
studies; (iv) to plan and coordinate the Parties' activities hereunder related
to sales and marketing of the Product in the Territory; (v) to adopt and approve
plans and budgets for the Services under this Agreement, including the Marketing
Plan, consistent with the maximization of short-term and long-term profits
derived from the sale of the Product in the Territory and any other activities
related to sales and marketing of the Product in the Territory that the JCC
deems appropriate to achieve the Parties' objectives under this Agreement; (vi)
to request the creation of sales, pricing, and financial reports pertaining to
pre- and post-launch Services and other marketing activities that may be
provided by third parties, and to review such reports in preparation for making
recommendations; (vii) facilitate the flow of information among the Parties,
including coordinating sales activity with manufacturing schedules and
distribution; and (viii) to promptly resolve disputes of the Parties, subject to
Article 14.
2.1.2 Membership. The JCC will be comprised of an equal number of
Discovery and Quintiles representatives, not exceeding three representatives of
each Party unless otherwise mutually agreed. The JCC shall be chaired by one of
the Discovery representatives. The representatives of Discovery shall
collectively be entitled to 1 vote and the representatives of Quintiles shall
collectively be entitled to 1 vote. The JCC shall to the extent practicable seek
to operate by consensus, provided that Discovery (through its chairperson) will
have the tie-breaking vote on all JCC decisions and further provided, however,
that Discovery shall not be entitled to use such tie-breaking vote to
unilaterally amend the Agreement or make decisions materially impacting
3.
the [***] pursuant to Article 3. To the extent the JCC is not unanimous with
respect to any of the matters set forth in the preceding sentence, the process
outlined in Section 14 of this Agreement shall be followed. Either Party may
appoint, substitute or replace members of the JCC to serve as their
representatives upon notice to the other Party. The Parties shall appoint the
initial members of the JCC within twenty (20) days after the Effective Date.
2.1.3 Meetings. The JCC shall meet in person, by video or by
teleconference (as mutually agreed by the Parties from time to time) on a
quarterly basis or more frequently as may be agreed upon, to exercise its
responsibilities as set forth in Section 2.1.1 of this Agreement, and to review
the progress of the Parties in performing the functions and obligations under
this Agreement. Each Party will be responsible for its own travel and related
costs to attend and host JCC meetings. Location of meetings shall alternate
between Discovery headquarters in Doylestown and Quintiles headquarters in
Research Triangle Park, or at such other locations as may be mutually agreed by
the Parties. In order for a meeting of the JCC to be convened, such meeting must
include at least one (1) committee member of each Party and, provided this
condition is met, an unanimous action taken at such meeting shall have been duly
and validly taken by the JCC. The first meeting of the JCC shall be convened
within [***] from the execution of this Agreement. An immediate task for the JCC
shall be to set forth an initial [***] plan including the setting of a deadline
for the development of the Marketing Plan.
2.2 Agendas and Minutes for the JCC. Unless otherwise decided by the JCC,
each Party will use reasonable efforts to disclose to the chair all proposed
agenda items along with appropriate background or supporting information at
least twenty (20) working days in advance of a JCC meeting. The chair will use
reasonable efforts to will present an agenda with appropriate background or
supporting information at least ten (10) working days in advance of a JCC
meeting. After each meeting of the JCC, the Party whose turn it was hosting such
meeting will prepare, within ten (10) working days after each meeting (whether
held in person, by video or by telecommunication), the minutes reporting in
reasonable detail the actions taken or to be taken by the JCC, or its designees,
the attendees, the status of goals and achievements as well as issues requiring
resolution, and resolutions of previously reported issues, which minutes shall
set forth all pertinent information presented during the meeting in form and
content reasonably acceptable to the other Party and shall be signed by one of
the JCC representatives from each of the Parties.
2.3 No Authority to Modify Agreement. The JCC shall have no authority to
amend or waive compliance with the terms and conditions of this Agreement, or to
approve actions of the Parties which are inconsistent with this Agreement. Any
such amendments and waivers or actions shall be implemented by means of Section
15.3.
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
4.
ARTICLE 3
MARKETING PLAN; DETERMINATION OF FULLY LOADED COST
3.1 Marketing Plan. The principal mechanism by which the Parties
coordinate their sales and marketing activities will be a Marketing Plan, to be
prepared and periodically updated as set forth below. The Parties shall take
preparatory steps with respect to the Marketing Plan in accordance with Section
2.1.3 but in any event the Marketing Plan shall be complete within the time set
forth in Section 2.1.3, at which time the JCC shall submit the Marketing Plan to
the respective Chief Executive Officers of the Parties (or their designees). In
preparation for submission thereof, a draft Marketing Plan shall be prepared by
members of the JCC or its designees, and submitted to the Chief Executive
Officers for approval. The initial Marketing Plan will cover the year 2002
through the first year following Product Launch. Periodically thereafter, but no
less frequently than annually (according to a schedule to be established by the
JCC), the JCC shall be responsible for causing the preparation or updating of
the Marketing Plan and submitting to the Chief Executive Officers for approval.
Each Marketing Plan shall include at least a two (2) year projection of Product
plans and budgets.
3.2 Plan Contents. Each Marketing Plan shall include a review of the
marketplace, marketing objectives, strategies, and supporting tactics (with
respective costs, timing, and responsibilities), clinical support plans,
marketing study plans for future clinical and/or marketing studies, Sales Force
effort, pricing, inventory requirements and distribution plans for the Product,
together with sales, revenue and expense forecasts for Product sales in the
Territory. The content of the Marketing Plan shall be determined by the JCC, but
shall generally be in a form consistent with the outline attached hereto as
Exhibit B, and shall include among other items the overall level of anticipated
field sales resource commitments. All budgets contained in the Marketing Plan
shall be based on estimates of the Quintiles Fully Loaded costs and associated
pass-through expenses of the component services contained in the Marketing Plan.
3.3 Determination of Fully Loaded Cost. Quintiles under this Agreement
shall be paid for by Discovery on the basis of the "Fully Loaded Cost" of such
Services. Fully Loaded Cost means the usual and customary fee charged by
Quintiles (or the Quintiles Affiliate, as the case may be) to Third Parties
under a fee for service arrangement for the type of services rendered by it
pursuant to this Agreement (such fee to be based on services of comparable
volume and comparable quality), inclusive of the service provider's customary
profit margin for such volume and quality of service. Fully Loaded Cost shall be
adjusted on an annual basis for increases or decreases caused by cost of living
adjustments, merit salary increases and similar financial adjustments necessary
to maintain continuity of the personnel and resource commitments or as otherwise
appropriate. Prior to Quintiles providing Marketing Services or Sales Force
Services, the JCC shall execute a work order in form and substance satisfactory
to the Parties (the "Work Order") setting forth the then current Fully Loaded
Cost of such. The JCC shall update such Work Order as needed to reflect changes
in the services being provided and/or changes in the usual and customary fees
charged by Quintiles and Quintiles Affiliates. The Parties (through the JCC)
shall indicate their agreement in advance regarding any new or revised type or
volume of services, or changes to the pricing of such services by executing an
appropriate change order.
5.
3.3.1 Sales Force Services. In accordance with Section 4.3,
Schedules I and II, and as otherwise appropriate in the circumstances, Quintiles
will provide to Discovery a Sales Force, at the Fully Loaded Cost, to commence
in a manner consistent with the then most currently approved version of the
Marketing Plan, consisting of such number of Sales Representatives and
management and administrative support as the JCC determines is in the best
interest of the Product. The post-Launch term of the Quintiles Sales Force
Services shall be for 7 years. The JCC may advance the start of the Sales Force
or amend the size of the Sales Force as necessary. In the event a Syndicated
Sales Force (as hereinafter defined) is recommended by the JCC, pursuant to
Section 4.4 of this Agreement, the Fully Loaded Cost shall be determined by
Quintiles, and except as otherwise provided herein, Discovery shall be
responsible for such Fully Loaded Cost, except for such portions of the Fully
Loaded Cost as may be contractually undertaken by one or more third parties,
with the consent of Quintiles, which consent shall not be unreasonably withheld.
ARTICLE 4
QUINTILES RESPONSIBILITIES
4.1 Covenant to Operate under the Agreement; General Diligence
Requirement. Quintiles shall use its commercial best efforts to market and sell
the Product in the Territory in accordance with the Marketing Plan, the
Promotional Materials, this Agreement and all applicable laws, rules and
regulations. Except as expressly set forth in this Agreement, the criteria for
Quintiles performance shall be consistent with the Quintiles standards for sales
and marketing projects of similar size and scope and shall be according to
performance metrics to be established and monitored by the JCC.
4.2 Marketing Services. Quintiles shall provide all Marketing Services on
a fee-for-service basis, charging the Fully Loaded Cost. Pre- and post-launch
Marketing Services shall be included in the Marketing Plan and shall include the
Fully Loaded Cost of a Product Manager as defined in Section 4.2.1. The fees and
expenses for Marketing Services may be paid by Discovery through advances from
PharmaBio or otherwise.
4.2.1 Product Manager. An initial activity of the JCC will be the
approval of a Quintiles Personnel as the primary product manager for the Product
(the "Product Manager") to coordinate and/or commence Marketing Services and
other marketing activities, including participation with and supporting the JCC
in the design of the pre- and post-launch Marketing Plan. Quintiles will
recommend for Discovery's approval a qualified employee for this role, who shall
be assigned full-time, unless otherwise agreed by the JCC. The Product Manager
shall report to a Quintiles Personnel of suitable experience and stature within
Quintiles and shall aggressively drive marketing and related pre- and
post-launch recommendations. As appropriate, the Product Manager will recommend
to the JCC when additional resources are needed, on a dedicated or non-dedicated
basis, to optimize marketing results. As a component of pre-launch marketing
activities, the Product Manager will recommend to the JCC solutions on a variety
of ancillary relationships, including, but not limited to distribution
relationships. The Marketing Plan shall include the costs related to the
services of the Product Manager at his or her usual and customary hourly rate
and the reasonable expenses of the Product
6.
4.3 Hiring Sales Force. As part of post-launch Marketing Services,
Quintiles shall hire, train and maintain the Sales Force for promotion of the
Product in the Territory on the terms and conditions of this Agreement, which
shall be completed at least one (1) month in advance of the date of the expected
Launch (as communicated by the JCC to Quintiles in writing at least four (4)
months in advance of the expected Launch). The hiring standards for the members
of the Sales Force shall be established by the JCC. The Quintiles Sales Force(s)
size will be determined by the JCC in accordance with the investment recommended
by the JCC as part of the Marketing Plan and at a minimum shall meet the
requirements of the Investment and Commission Agreement, including the Minimum
Sales Force Level, as defined therein. By unanimous agreement, the JCC may
establish a Sales Force Commencement Date different than as set forth herein.
4.4 Fully Dedicated or Syndicated Sales Force. During the Term, the
primary activity of the Sales Force shall be the marketing and promotion of the
Product in the Territory on a P1 basis, unless otherwise approved in advance by
the JCC. The Sales Force shall be composed of full-time employees of Quintiles.
Quintiles may use the P2 and/or P3 positions to promote non-conflicting
compounds or devices, subject to Discovery consent, which consent shall not be
unreasonably withheld. Discovery shall have the first option to place
Discovery's non-conflicting products, or non-conflicting products Discovery
identifies or acquires, in the P2 and P3 positions as the positions may become
available during the term of this Agreement. In addition, Discovery shall have
the right to take over any P2 or P3 services provided by Quintiles to a third
party on 120 days notice to Quintiles. All P2 and P3 services shall be provided
to Discovery on a fee for service basis based on the Fully Loaded Costs for such
services. Any syndicated team (a "Syndicated Sales Force"), will be branded
consistent with the Product being promoted in the P1 position and any
promotional materials with regard to the Syndicated Sales Force (business cards,
etc.) shall be approved by the JCC after giving due consideration to the
interests of the P2 or P3 third party partner, such approval not to be
unreasonable withheld.
4.5 Training Requirements. Quintiles shall train all Quintiles Personnel
in accordance with Article 6 hereof.
4.6 Quintiles Responsibilities. Without limitation a partial list of
responsibilities that shall be performed by Quintiles in providing Sales Force
Services are set forth on Schedule I to this Agreement.
4.7 Records and Reports Regarding Promotional Activities. Quintiles shall
promptly (and in any event as soon as it is generally available within the
Quintiles organization) provide to Discovery such information regarding ongoing
sales and marketing activities as relate to the plans and budgets hereunder as
Discovery may reasonably request and which are reasonably available to
Quintiles. Additionally, Quintiles will keep complete and accurate records of
all presentations made by the Sales Force in accordance with Quintiles's
customary call reporting procedures (including names of physicians, dates of
presentation and general response to such presentations) as well as other
activities carried out pursuant to the Marketing Plan. Quintiles will make all
such records available to Discovery during regular business hours and upon
reasonable notice, and will, within fifteen (15) days of the end of each month,
provide Discovery a monthly report on sales force activity. Quintiles will
maintain such records for three (3) years following the period to which they
7.
relate. The record-keeping and access requirements of this Section 4.7 shall
survive the termination of this Agreement for a two (2) year period.
4.8 Performance Audits. Discovery shall have the right to audit Quintiles'
performance of obligations as set forth in this Article 4, including other
provisions as described in the Schedules attached hereto (generally describing
the activities of the Parties) for the purpose of evaluating and monitoring
conformance with the terms and conditions of this Agreement. Such audits shall
occur during regular business hours and upon reasonable notice, shall not unduly
interfere with Quintiles activities, and shall be conducted at Discovery's sole
expense. In the event an outside auditor is hired to conduct an audit pursuant
to this Section 4.8, such auditor shall be reasonably acceptable to Quintiles
and expressly subject to the same confidentiality provisions as those that apply
to the Parties hereunder.
ARTICLE 5
DISCOVERY'S RESPONSIBILITIES AND OBLIGATIONS
5.1 Regulatory Affairs. Except as otherwise set forth therein, Discovery
shall have the responsibilities for regulatory affairs set forth in Article 7,
and shall keep the JCC informed generally on the status and conduct of all
clinical development activities related to the Product in the Territory.
Discovery shall inform Quintiles of its estimated date of Product Launch, and in
particular shall provide such date for purposes of Quintiles establishment of
the Sales Force under Section 4.3.
5.2 Minimum Pre-launch Marketing Services Commitment. Discovery shall
spend a minimum of [***] of the cost of all pre-Launch Marketing Services (the
aggregate amount of pre-Launch Marketing Services to be determined by the JCC)
on Services provided by Quintiles. The fees and expenses for such pre-Launch
Marketing Services may be paid by Discovery through advances from PharmaBio or
otherwise.
5.3 Obligation to Provide Samples. Discovery will provide to Quintiles for
distribution the quantity and configuration of Samples as determined appropriate
by the JCC to support the Sales Force Services, consistent with the Marketing
Plan and forecasts. Distribution of such Samples shall be carried out by
Quintiles consistent with the Marketing Plan and as otherwise set forth on
Schedule I. Except as set forth in the next sentence, the costs related to such
distribution hereunder shall be considered to be "Commercialization Expenses" as
defined in the Investment and Commission Agreement and, as such, may be funded
by Discovery with advances from PharmaBio in accordance therewith or otherwise.
Discovery shall be responsible for the manufacture, packaging and distribution
of Samples to the Sales Force and shall have primary responsibility for
compliance with the requirements of the FDA Final Rule implementing the PDMA (21
CFR Parts 203 & 205), including, but not limited to (a) a sample accountability
and tracking system for use by the Sales Representatives; (b) verification of
licensed practitioners; (c) annual physical inventories and reconciliation
reports; (d) monitoring and investigation of discrepancies, significant losses,
thefts and falsification of sample records; (e) notification and reporting to
FDA; (f) a sample distribution
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
8.
security and audit system, including conducting random and for cause audits of
sales representatives by personnel independent of the sales force; and (g)
training the Sales Force regarding the foregoing. Discovery and Quintiles shall
cooperate in connection with PDMA compliance investigations and audits.
Discovery will provide to Quintiles for review and comment, a copy of any PDMA
compliance report in connection with the Sales Force, prior to filing with the
FDA. Discovery will provide Innovex with results of annual Sales Representative
sample inventories. Discovery shall be responsible for the cost of independent
random audits of Sales Representatives, to be coordinated by Quintiles.
5.5 Sales and Distribution.
5.5.1 Pricing. Discovery, with the advice of the JCC, shall set all
prices and commercial terms for the sale of the Product in the Territory.
5.5.2 Booking Sales; Distribution. Discovery shall be responsible
for booking sales, fulfilling orders, and shall warehouse and distribute
the Product and perform all related services.
5.5.3 Product Returns. Discovery shall be responsible for handling
Product returns. The Quintiles Sales Force shall provide assistance as
reasonably requested by Discovery, to the extent consistent with the
normal activities of pharmaceutical sales personnel. Product returns shall
promptly be shipped to the facility responsible for shipment of such
Product lot or such other location as may be designated by Discovery in
writing.
5.6 Additional Discovery Responsibilities. A partial list of certain
additional responsibilities of Discovery responsibilities are set forth on
Schedule II attached to this Agreement.
5.7 Preferred Provider Relationship. Discovery hereby grants to Quintiles
the first and preferred opportunity to negotiate with Discovery to provide (a)
clinical trial development and/or (b) commercialization services of the type
commonly provided by the Quintiles (or any or its Affiliates), whether related
to the Product or otherwise, that Discovery has, in its sole discretion,
determined to outsource for the period beginning on the date hereof and ending
five years following the Funding Date; provided that, as determined in
Discovery's sole discretion: (i) the applicable services fall with the areas of
recognized expertise of the Quintiles (or its Affiliates), (ii) the Quintiles
(or its Affiliates) provides such services at competitive rates and makes its
proposal on a competitive time schedule, and (iii) the Quintiles (or its
Affiliates) expressly agrees to provide such services to meet Discovery's
timeline. Without limiting the foregoing, Discovery agrees to keep Quintiles
informed of the development of Surfaxin(R) in its present formulation for the
ARDS treatment indication and Discovery shall outsource such work to Quintiles
(or its Affiliates) with regard to the ARDS indication that Quintiles (or its
Affiliates) is capable of performing so long as Quintiles (or its Affiliates)
services can be performed in conformance with subsections (i), (ii) and (iii)
above.
9.
ARTICLE 6
TRAINING; ADVERTISING AND PROMOTIONAL MATERIALS
6.1 Training Programs.
6.1.1 Content. Quintiles will develop, subject to JCC approval (not
to be unreasonably withheld), initial and ongoing training programs for the
Sales Force during the Term. Each member of the Sales Force shall be required to
successfully complete such training program before providing services under this
Agreement. The Parties shall mutually agree to a minimum training standard and
pass rate, to be monitored by the JCC. Quintiles shall maintain records of such
training for each individual which shall be maintained by Quintiles in
accordance with Section 4.7 and made available to Discovery in accordance with
applicable law. Quintiles agrees to utilize such training programs on an ongoing
basis. Initial training shall be carried out at a time which is set by the JCC
and which is prior to but reasonably near the date on which Product Launch is
expected. As additional Sales Representatives are added under this Agreement,
training will be given to groups of the newly selected Sales Representatives,
provided that the training of such representatives is intended to occur as soon
as practicable. In addition to Product and selling skills training, training
programs shall include requirements of the Food, Drug and Cosmetic Act,
Medicare/Medicaid Anti-Fraud and Abuse Act, and other applicable laws, rules,
regulations and policies.
6.1.2 Cost. The cost of developing and delivering the training to
the Sales Force shall be borne by Discovery. Quintiles shall charge
Discovery its Fully Loaded Cost for training services as a post-Launch
Marketing Service.
6.2 Advertising and Promotional Materials.
6.2.1 Creation and Use. Discovery shall be responsible for the
development of all Promotional Materials. Such development shall be part
of and consistent with the Marketing Plan and budgets approved by the JCC.
The Quintiles Sales Force shall disseminate only Promotional Materials
provided by Discovery, for use by the Sales Force. Discovery will engage
Quintiles or Quintiles Affiliates to assist with the development and
creation of Promotional Materials.
6.2.2 Ownership; FDA Approval. Discovery shall own all rights to,
and title and interest in, the Promotional Material. The final content of
all Promotional Materials and Product-related training materials shall be
the legal responsibility of Discovery, including, but not limited to, FDA
approval thereof if such approval is required.
6.2.3 Discovery Logos. All written or visual materials related to
the Product shall display the Discovery logos and Discovery shall be
presented as the sole owner of the Product, except as required by law.
10.
ARTICLE 7
REGULATORY ISSUES AND COMPLAINTS
7.1 Ownership of Regulatory Filings and Compliance. Discovery will retain
exclusive right, ownership, authority and responsibility for regulatory filings,
compliance with all regulatory requirements and maintenance of all government
agency contacts relating to the Product; the reporting of any adverse drug
reactions to the FDA (to the extent applicable and required by law or
regulation); the filing of Promotional Materials with the FDA (to the extent
applicable and required by law or regulation); the payment of Medicaid and other
governmental rebates which in Discovery's sole judgment are due and owing; the
pricing of the Product for each customer; and compliance with Medicaid best
price law and the Department of Veterans Affairs Act. The development of each
indication and formulation of the Product shall be determined solely by
Discovery. Neither Party shall be responsible for actions of the other that are
outside the scope of this Agreement or not in accordance with applicable law.
7.2 Communication with the FDA and Other Regulatory Agencies. Except as
required by law, Quintiles shall not communicate with the Food & Drug
Administration, Office of Inspector General, Health Care Financing
Administration or any state agencies ("Regulatory Agencies") about anything
relating to the Product, except through, or with the prior written consent of
Discovery. If Quintiles is required by law to communicate directly with any
Regulatory Agency or if Quintiles receives any communication from a Regulatory
Agency with respect to the Product, promotion of the Product, Quintiles'
performance under this Agreement or any matter or that could affect Quintiles'
performance under this Agreement, Quintiles shall promptly notify Discovery in
writing. Quintiles shall reasonably cooperate at Discovery's expense with
Discovery in all proper respects in all regulatory matters relating to the
Product, including but not limited to preparation for inspections of Discovery
facilities and/or Quintiles facilities. Quintiles will provide Discovery with
pertinent records in Quintiles' possession which may be necessary to implement
any recall or any other corrective action mandated by a Regulatory Agency or
implemented by Discovery, including but not limited to names and addresses for
"Dear Doctor" letters.
7.3 New Developments Relating to the Product. Discovery will promptly
inform Quintiles of the following information relating to the Product in the
Territory: (i) new approved indications; (ii) new approved dosages or
administration regimens; (iii) material new studies by the scientific community
that Discovery becomes aware of which relate to the Product or a competitive
product in its therapeutic class; and (iv) any changes in regulations affecting
the Product or Discovery's obligations with respect to this Agreement. Quintiles
will promptly inform Discovery of information relating to changes in regulations
affecting Quintiles's obligations with respect to this Agreement. Based on such
information, and subject to any federal, state or local laws and/or regulations,
the Parties shall use commercially diligent efforts to maintain the training
materials and Promotional Materials supplied to the Sales Force pursuant to this
Agreement current with such new developments or information.
7.4 Product Recalls or Withdrawal. If either Party believes that a recall
of any Product in the Territory is necessary, such Party shall immediately
notify the other Party. Discovery shall retain sole authority and responsibility
for determining whether a Product recall shall occur. Any
11.
Product recall shall occur under the direction and control of Discovery, and
Quintiles shall reasonably cooperate in carrying out any such recall or any
regulatory matter, at Discovery's expense and with reasonable expedience.
Discovery shall make available, at Quintiles' request, any records that
Quintiles might reasonably require to assist Discovery in effecting any recall
of the Product.
7.5 Adverse Event Reporting Procedures. Discovery shall be responsible for
required reporting of adverse events and drug safety issues related to the use
of the Product. Discovery shall advise Quintiles of its standard procedures for
the reporting of adverse events, and the Quintiles Sales Force shall comply with
such procedures. The Discovery procedures for the reporting of adverse events
shall be included in the training program for the Quintiles Sales Force.
Quintiles shall report to Discovery within twenty-four (24) hours any adverse
events of which Quintiles becomes aware reported to it.
7.6 Product Inquiries; Complaints. Quintiles shall promptly notify
Discovery of any complaint, inquiry or (in compliance with Section 7.5) adverse
event relating to the Product in report form providing reasonable detail of such
complaint, event or inquiry. Discovery shall maintain a unified record of all
complaints it receives. Discovery shall be responsible for medical affairs
services and shall respond to inquiries from physicians and health care
providers. Discovery shall advise Quintiles of its procedures for handling such
inquiries and the Quintiles Sales Force shall be trained by Quintiles on such
procedures.
7.7 Database of Clinical Trial Data. Discovery shall own and maintain its
own database of clinical trial data accumulated from all clinical trials of the
Product and Discovery shall own and maintain a unified database of complaints
and adverse drug event information for the Product and shall develop and utilize
uniform report forms.
ARTICLE 8
ACCOUNTING; INVOICING AND PAYMENT
8.1 Accounting. Each Party agrees to calculate all costs and expenses
hereunder using its standard accounting procedures, in accordance with
accounting principles generally accepted in the United States, consistently
applied, to the maximum extent practicable.
8.2 Payment Schedule. Except as may otherwise be expressly provided in a
Work Order, Quintiles will invoice Discovery monthly for Quintiles's actual fees
and pass-through Expenses for the preceding calendar month (each an "Invoice").
Upon termination or expiration of the Services, any fees or pass-through
expenses incurred prior to such termination will be invoiced to Discovery.
8.3 Payment of Invoices. All Invoices are strictly net of any taxes
imposed on services, and except as otherwise set forth in this Agreement,
payment in full is due within thirty (30) days of the date of receipt of the
Invoice and shall be made by wire transfer.
8.3.1 If the method of payment is by direct transfer to the
Quintiles bank account, the wire transfer instructions are as follows:
12.
Quintiles Transnational Corporation
Accounting Number:
ABA Number: 053 101 121
Branch Banking & Trust Co., Raleigh, NC
Quintiles's Federal Employment ID Number is 56-1714315.
8.4 Penalty for Late Payment. Discovery and Quintiles agree that unless
there is a bona fide dispute as to amounts payable hereunder, if payment is not
made within 30 days of the due date of the invoice, interest shall accrue on a
daily basis at the lesser of two percent (2%) above the Prime Rate as announced
periodically by First Union National Bank (or its successor) or the maximum rate
permitted by law on any amount overdue from the date payment became due until
payment is made in full. In any event, such interest penalty shall only be
assessed for undisputed and unpaid amounts.
8.5 Record-Keeping and Financial Audits. Upon the written request (and
expense) of either Party, the other Party, but not more than once in each
calendar year, shall permit an independent certified public accountant appointed
by such Party and reasonably acceptable to the other Party, accompanied by
representatives of the financial department of such Party at reasonable times
and upon reasonable notice, to examine only those records as may be necessary to
determine compliance with this Agreement. The Party requesting the audit shall
bear the full cost of the performance of any such audit, unless such audit
discloses a variance of more than ten percent (10%) from the amount of the
original report, royalty or payment calculation. In such case, the Party being
audited shall bear the full cost of the performance of such audit. Auditors
shall be expressly subject to the same confidentiality obligations as the
Parties are to each other hereunder. This Section 8.5 shall survive for two (2)
years after the termination of this Agreement.
ARTICLE 9
REPRESENTATIONS AND COVENANTS
9.1 Mutual Authority. Each Party represents and warrants to the other
that:
9.1.1 Corporate Power. It is duly organized and validly existing
under the laws of its state or country of incorporation, and has full corporate
power and authority to enter into this Agreement and to carry out the provisions
hereof.
9.1.2 Due Authorization. It is duly authorized to execute and
deliver this Agreement and to perform its obligations hereunder, and the person
or persons executing this Agreement on its behalf has been duly authorized to do
so by all requisite corporate action.
9.1.3 Binding Agreement. This Agreement is legally binding upon it
and enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement by it does not conflict with any agreement,
instrument or understanding, oral or written, to which it is a Party or by which
it may be bound, nor violate any material law or regulation of any court,
governmental body or administrative or other agency having jurisdiction over it.
13.
9.1.4 Grant of Rights; Maintenance of Agreements. It has not, and
will not during the term of this Agreement, grant any right to any Third Party
which would conflict with the rights granted to the other Party hereunder or
enter into any agreement which would impair its ability to perform its
obligations under this Agreement. It has (or will have at the time performance
is due) maintained and will maintain and keep in full force and effect all
agreements necessary to perform its obligations hereunder.
9.1.5 Validity. It is aware of no action, suit or inquiry or
investigation instituted by any governmental agency that questions or threatens
the validity of this Agreement.
9.2 Conformance with Laws. Quintiles and Discovery agree to undertake all
of their respective obligations under this Agreement in material conformance
with all applicable local, state and federal laws and regulations, as amended,
including, without limitation, the Federal Equal Employment Opportunity Act, the
Fair Labor Standards Act, the Food Drug and Cosmetics Act, Section 1128B(b) of
the Social Security Act, the, the Medicaid Prescription Rebate Act, the Veterans
Health Care Act of 1992, and similar state laws. By entering into this
Agreement, it is not the intent of the Parties to enter into any financial
relationship or arrangement prohibited under state or federal fraud or abuse
regulations, including, but not limited to Sec. 1128B(b) of the Social Security
Act, and any regulations promulgated thereunder, nor do the Parties hereto have
any belief that the relationship and compensation arrangement provided in this
Agreement are prohibited by law or regulation. Neither Party shall assert
against the other that the compensation arrangement provided in this Agreement
is grounds for voiding the Agreement or rendering the Agreement unenforceable.
If either Party is notified by a state or federal agency, or it is alleged in a
qui tam proceeding, that performance of this Agreement is illegal, neither Party
shall be obligated to continue such performance hereof to the extent such
performance is an alleged violation of law. In such event, the Parties shall
proceed as described in the final sentence of Section 15.14.
9.3 Rights in Product. As of the Effective Date, Discovery warrants and
represents that it is not aware of any valid patent or trademark owned or
controlled by anyone other than Discovery or its licensors or an Affiliate
thereof which covers the Product and which would prevent Discovery from making,
using, or selling the Product or would prevent Discovery or Quintiles from
promoting or marketing the Product in the Territory. Discovery is not aware of
any valid patents or trademarks owned by Third Parties that would be infringed
by the promotion or sale of the Product in the Territory. Discovery is not
pursuing any action against any Third Party that Discovery believes infringes
its trademark, copyright or patent relating to the Product. There are no
actions, suits, claims or proceedings pending against Discovery or any of its
Affiliates in any court or before any agency in the Territory related to alleged
patent, trademark, or copyright infringement in connection with the Product, and
to the best of Discovery's knowledge, no such actions, suits, claims or
proceedings have been threatened. During the term of this Agreement, Discovery
will use commercially reasonable and diligent efforts not to diminish the rights
granted to Quintiles herein, including without limitation by not committing or
permitting any acts or omissions which would cause the material breach of any
agreements between Discovery and Third Parties which provide for intellectual
property rights applicable to the development, manufacture, use or sale of the
Product in the Territory. As of the Effective Date, Discovery is in compliance
in all material respects with any such agreements with Third Parties.
14.
9.4 Record Maintenance. Quintiles will (i) maintain all necessary
personnel and payroll records for Quintiles Sales Force and other Quintiles
employees providing Marketing Services and Sales Force Services; (ii) compute
their wages and withhold applicable Federal, State, and local taxes and Federal
FICA payments; (iii) remit employee withholdings to the proper governmental
authorities and make employer contributions for Federal FICA and Federal and
State unemployment insurance payments; (iv) pay net wages and fringe benefits,
if any, directly to its employees; and (v) provide for liability and Workers'
Compensation insurance coverage.
9.5 Firewall. Quintiles represents and warrants that it shall maintain as
confidential, shall keep separate and shall not share with other parts of the
Quintiles organization (including any Affiliate of Quintiles) that are or may be
engaged in the promotion and/or sales of a competing product, the material and
information supplied and/or generated hereunder for use in accordance with this
Agreement and the promotion and sale of the Product.
9.6 No Use of Names or Trademarks. Except as otherwise provided in this
Agreement, neither Party will use the other Party's name in connection with any
publication or promotion without the other Party's prior written consent. Nor
shall either Party use the other Party's corporate or product logo or trademark
in any manner without the other Party's prior written consent.
9.7 NDA Filing. Discovery agrees to continue to exercise diligent efforts
to submit the NDA for the Product to the FDA and to reasonably diligently seek
FDA approval for the Product, to the extent applicable. Upon the approval of
either the MAS or the IRDS indication, Discovery shall continue to use
commercially reasonable efforts to submit the NDA for the other indication to
the FDA and to seek FDA approval of such.
9.8 Independent Contractors. For the purposes of this Agreement, the
Parties hereto are independent contractors of each other, and nothing contained
in this Agreement shall be construed to place them in the relationship of
partners, principal and agent, employer and employee, licensee and sublicensee
or joint venturers. Neither Party shall have the power or right to bind or
obligate the other Party, nor shall either Party hold itself out as having such
authority. No provision of this Agreement shall be deemed to create or imply any
contract of employment between Discovery and any employee of Quintiles. All
persons performing Services shall be employees of Quintiles, or subcontractors
engaged by Quintiles with prior consent of Discovery, and shall not be entitled
to any benefits applicable to employees of Discovery. Quintiles shall be
responsible for management of all employer obligations in connection with
Quintiles employees who perform the Services. Quintiles employees shall remain
exclusively under the direct authority and control of Quintiles. The employer
obligations of Quintiles shall include: (i) human resource issues, including
establishment of employee policies, and administration of health and benefits
plans, 401K plan, and other employee benefit plans; (ii) work performance and
work behavior issues, including probationary period, periodic and annual
appraisals, employee discipline and termination; (iii) administration of systems
for time-keeping, payroll and employee expense reimbursement; (iv) day to day
management of employment issues in connection with performance of the Services.
15.
ARTICLE 10
CONFIDENTIALITY
10.1 Confidential Information. Quintiles and Discovery agree that all
information relating, directly or indirectly, to the Product, or the business
affairs or finances of the other or Affiliates or of any suppliers, agents,
distributors, licensees or customers of the other which comes into possession of
Quintiles or Discovery under this Agreement shall be Confidential Information
("Confidential Information"). This Agreement and related documentation shall
also be treated as Confidential Information. Quintiles agrees to hold
Confidential Information in strict confidence and disclose it only on a
need-to-know basis to Affiliates, subcontractors and employees who are under a
written obligation to maintain the confidentiality of the information.
Notwithstanding the foregoing, Confidential Information does not include,
information:
10.1.1 which can be shown by written documentation to have been
known by the recipient prior to its receipt from the other;
10.1.2 which is public or lawfully becomes generally available to
the public through no fault of the recipient;
10.1.3 which is lawfully acquired from a Third Party without being
made subject to an obligation of confidence by the Third Party provided such
Third Party is not itself under a legal or contractual obligation to keep such
information confidential;
10.1.4 which by mutual written agreement is released from a
confidential status; or
10.1.5 which is required to be disclosed under any statutory,
regulatory or judicial requirement, including, but not limited to, any filing
with the Securities Exchange Commission and, in that event, confidentiality will
be preserved and protected to the extent possible and; notice will be provided
to the other Party a reasonable amount of time prior to any such disclosure and
such other Party given a reasonable opportunity to contest or limit such
disclosure.
10.2 Ownership of Data and Intellectual Property; No License. It is
expressly agreed that neither Party transfers to the other Party by operation of
this Agreement any patent right or license, copyright or other proprietary
right. All data and information generated or derived by Quintiles as the result
of Services performed by Quintiles under this Agreement shall be and remain the
exclusive property of Discovery. Discovery acknowledges that Quintiles possesses
certain inventions, processes, know-how, trade secrets, improvements, other
intellectual properties and other assets, including but not limited to
analytical methods, procedures and techniques, computer technical expertise and
software, and business practices, including, but not limited to the Quintiles
Territory Management System (ITMS), which have been independently developed by
Quintiles (collectively "Quintiles Property"). Discovery and Quintiles agree
that any Quintiles Property or improvements thereto which are used, improved,
modified or developed by Quintiles under or during the term of this Agreement
are the sole and exclusive property of Quintiles.
16.
10.3 Publicity. Except as otherwise required by applicable law or by
obligations pursuant to any listing agreement with or rules of any securities
exchange or automated quotation system, each party shall, and shall cause its
respective Affiliates to, not, issue any press release or make any other public
statement relating to, connected with or arising out of this Agreement or the
matters contained herein without the other parties' prior written approval of
the contents and the manner of presentation and publication thereof (which
approval shall not be unreasonably withheld or delayed).
10.4 Survival. The obligations of Quintiles and Discovery under this
Article 10 shall survive the termination or expiration of this Agreement for a
period of five (5) years.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification by Discovery. Discovery shall indemnify, defend,
save, protect, and hold harmless Quintiles, its Affiliates, and its and their
respective directors, officers, employees, and agents ("Quintiles Indemnitees")
against any and all losses, claims, damages, liabilities, costs and expenses
(including reasonable attorneys' fees and expenses and court costs)
(collectively, "Losses") resulting or arising from any Third Party claims,
actions, proceedings, investigations or litigation relating to or arising from
or in connection with: (i) the design, development, manufacture, sale,
distribution or use of the Product; (ii) the breach by Discovery of any of its
obligations under this Agreement; (iii) the negligent or wrongful acts or
omissions of Discovery or any of its directors, officers, employees or agents;
(iv) a violation of any law, rule or regulation by Discovery relating to this
Agreement; (v) the Promotional Materials or any other materials referred to in
Section 6.2; or (vi) the infringement or violation, or alleged infringement or
violation, by Discovery or the Product of any patents or any copyrights,
trademark, trade secret or other intellectual property rights of a third party.
Notwithstanding the foregoing, Discovery shall not be required to indemnify
Quintiles for any Losses to the extent they arise from (a) the negligent or
willful misconduct of Quintiles or any of the Quintiles Indemnitees or (b)
Quintiles's breach of its obligations under this Agreement.
11.2 Indemnification by Quintiles. Quintiles shall indemnify, defend,
save, protect, and hold harmless Discovery, its Affiliates, and its and their
respective directors, officers, employees, and agents (the "Discovery
Indemnitees") against any and all Losses resulting or arising from any Third
Party claims, actions, proceedings, investigations or litigation relating to or
arising from or in connection with: (i) the marketing, promotion or sale of the
Product by Quintiles in a manner which violates this Agreement; (ii) the breach
by Quintiles of any of its obligations under this Agreement; (iii) the negligent
or wrongful acts or omissions of Quintiles or any of its directors, officers,
employees or agents; (iv) a violation of any law, rule or regulation by
Quintiles relating to this Agreement; or (v) the representations or
misrepresentations by Quintiles relating to the Product which were not
consistent with the labeled claims or Promotional Material. Notwithstanding the
foregoing, Quintiles shall not be required to indemnify Discovery for any Losses
to the extent they arise from (a) the negligent or wrongful acts or omissions of
Discovery or Discovery Indemnitees; (b) the breach by Discovery of its
obligations under this Agreement; (c) a manufacturing or design defect of the
Product; or (d) a strict liability claim related to the Product.
17.
11.3 Procedure. The Party seeking indemnification hereunder (the
"Indemnified Party") shall (a) promptly notify the Party obligated to indemnify
(the "Indemnifying Party") of any Losses for which the Indemnified Party seeks
indemnification (provided that the failure to so notify shall not affect or
reduce the Indemnifying Party's obligations hereunder, unless the Indemnifying
Party's ability to defend against such Third Party claim, action, proceeding,
investigation or litigation is materially prejudiced by such failure); (b)
cooperate fully with Indemnifying Party and its legal representatives in the
investigation of any matter that is the subject of indemnification; (c) permit
the Indemnifying Party full control over the defense and settlement of any
matter the subject of indemnification; and (d) not unreasonably withhold its
approval of the settlement of any claim, liability or action by Indemnifying
Party covered by this indemnification provision.
11.4 No Consequential Damages. Notwithstanding the Parties' rights and
remedies in equity neither Party, nor its Affiliates or their respective
directors, officers, employees or agents shall have any liability to the other
for any special, incidental, indirect or consequential damages, including, but
not limited to the loss of opportunity, use, revenue or profit, in connection
with or arising out of this Agreement, or the Services performed by Quintiles
hereunder, even if such damages were foreseeable.
11.5 Discovery Responsibility for Product Description. Quintiles shall not
be liable to Discovery for claims or losses arising out of the statements or
representations of the Quintiles Personnel with respect to the Product to the
extent the statements or representations conform to the oral, written or printed
statements or representations made to the Quintiles Personnel by Discovery with
respect to the Product or contained in the Product labeling, Promotional
Materials or other material referred to in Section 6.2, provided all such
materials have been approved in advance in writing by Discovery.
11.6 Insurance. Quintiles and Discovery shall each, at its own cost and
expense, obtain and maintain in full force and effect, the following insurance
during the Term (and any subsequent renewals thereof): (i) worker's compensation
insurance in accordance with the statutory requirements of each state in which
the Services are to be performed; (ii) employer's liability insurance with a
minimum limit of one million dollars ($1,000,000); (iii) comprehensive general
liability insurance, including contractual liability and professional errors and
omissions coverage, with a minimum limit of ten million dollars ($10,000,000),
combined single limit per occurrence; and (iv) comprehensive auto liability,
covering bodily injury and property damage, for owned, hired or non-owned
automobiles with a minimum limit of one million dollars ($1,000,000), combined
single limit per occurrence. In addition, Discovery shall carry product
liability insurance covering the Product in the Territory, in a minimum amount
of ten million dollars ($10,000,000) per claim at all times following Launch.
Each party shall provide the other party an original signed certificate of
insurance evidencing all coverage herein required, within thirty (30) days after
the effective date of this Agreement. The certificate must provide that thirty
(30) days prior written notice of cancellation or material change in insurance
coverage will be provided. The insurance obligations hereunder may be met by a
program of self-insurance.
18.
ARTICLE 12
TERM AND TERMINATION
12.1 Term. The Term of this Agreement will begin on the Effective Date and
continue until the seventh anniversary of the Product Launch Date, unless the
Agreement is terminated earlier, or renewed, in accordance with this Article 12
(together with all extension Terms as set forth in Section 12.2, the "Term").
12.2 Renewal. This Agreement will terminate at the end of the initial Term
set forth in Article 12.1 unless the Parties agree in writing on terms to renew
this Agreement at least 90 days prior to the end of such initial Term.
12.3 Material Breach. Either Party may terminate this Agreement by written
notice at any time if the other Party defaults in the performance of any
material obligations under this Agreement. In the event of such default, the
Party declaring the default shall provide the defaulting Party with written
notice setting forth the nature of the default, and the defaulting Party shall
have thirty (30) days to cure the default. If the defaulting Party fails to cure
the default within the 30-day periods, and provided the default is continuing,
the other Party may terminate this Agreement by written notice to the defaulting
Party, which notice shall be effective upon receipt.
12.4 No Product Launch. Either Party may terminate this Agreement (i) if
Discovery has terminated development of the Product and has determined that it
will market and launch neither the MAS or IRDS indication and provides Quintiles
written notice of such, or (ii) if Launch of the Product for neither the IRDS or
MAS indication occurs prior to April 30, 2005.
12.5 Bankruptcy. Either Party may terminate this Agreement by written
notice to the other Party, if the other Party files a petition for bankruptcy,
reorganization or arrangement under any state statute, or makes an assignment
for the benefit of creditors or takes advantage of any insolvency statute or
similar statute, or such filing is made by a Third Party, and such filing is not
withdrawn within sixty (60) days of the filing date, or if a receiver or trustee
is appointed for the property and assets of the Party and the receivership
proceedings are not dismissed within sixty (60) days of such appointment.
12.6 Accrued Rights. Termination of the Agreement for whatever reason
shall not affect the accrued rights of either Quintiles or Discovery arising
under or out of this Agreement. Termination of this Agreement shall not relieve
the Parties of any liability which accrued hereunder prior to the effective date
of such termination nor preclude either Party from pursuing all rights and
remedies it may have hereunder or at law or in equity with respect to any breach
of this Agreement nor prejudice either Party's right to obtain performance of
any obligation. In particular, upon termination for any reason, Discovery shall
(i) pay Quintiles all fees for Services rendered which are due and owing to
Quintiles because of any completed performance of Quintiles' obligations prior
to
19.
the effective date of termination, and (ii) pay all pass-through expenses
actually incurred by Quintiles prior to the effective date of termination; and
(iii) pay any other costs which have been expressly identified as being due upon
termination.
12.7 Right to Receive Data. Upon termination, and upon full satisfaction
of all outstanding invoices, Discovery shall have the right to receive from
Quintiles all data attendant or related to Services or other sales and marketing
activities under this Agreement.
12.8 Survival. The following provisions shall survive any expiration or
termination of this Agreement, and if time periods are specified, for the period
of time specified: Sections 1.1,1.4, 4.7, 4.8, 4.9, 5.5.3, 6.2.2, 7.1, 7.2, 7.4,
7.5 (last sentence only), 7.6 (first sentence only), 8.5, 9.2, 9.4, 9.5, 9.6,
12.6, 12.7 and Articles 10, 11, 13, 14 and 15.
12.9 Loss of Product Rights. Discovery holds the rights to the Product
under an exclusive license from a Third Party. This Agreement shall
automatically terminate if Discovery's license rights to the Product terminate
in the Territory.
ARTICLE 13
SALES FORCE CONVERSION
13.1 Right to Convert Sales Force. Discovery shall have the right to offer
Discovery employment to the Quintiles Personnel who are members of the Sales
Force at the end of the Term, the end of any Extension Term, or earlier upon a
termination of this Agreement by Discovery under Section 12.2 or 12.5. In the
event Discovery desires to convert some or all of the Sales Force to its
employment, it shall provide Quintiles notice of such election at least three
(3) months prior to the end of the Term, or with its notice of termination under
Section 12.3 or 12.5, as the case may be. Discovery shall pay Quintiles a fee of
[***] for each member of the Quintiles Personnel who is a member of the Sales
Force actually hired by Discovery.
13.2 Transition Plan. In the event Discovery decides to convert the Sales
Force, in accordance with Section 13.1, the Parties shall promptly meet and
determine a transition plan, which shall include a schedule for actions which
will enable a smooth transition date for all Quintiles Personnel: (i) who may be
offered employment by Discovery; (ii) who may not be offered such employment;
and (iii) who may decline such offers. Unless another timetable is established
by the JCC, no later than [***] before the end of the full scheduled Term or
otherwise within [***] from an applicable termination, Discovery shall identify
for Quintiles the names of Quintiles Personnel who have elected to accept
employment offers from Discovery and those who have not been offered employment
or have declined an employment offer.
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
20.
13.3 Discovery Determination. Discovery shall make an independent
determination regarding the qualifications and suitability of Quintiles
Personnel to be offered employment by Discovery, and the terms of such offers,
if any. Solely to the extent permitted by applicable law or as otherwise may be
lawfully allowed by appropriate prior written consent of the Quintiles Personnel
(which Quintiles shall endeavor to obtain as promptly as reasonably practicable
at Discovery's reasonable expense), relevant information contained in the
personnel files of Quintiles Personnel shall be disclosed to Discovery,
including, without limitation, resumes, applications, performance appraisals or
disciplinary records, or the results of drug screens, motor vehicle or
background reports. Notwithstanding the foregoing, Quintiles shall notify
Discovery of any material violation by any Quintiles Personnel of the PDMA.
13.4 Proprietary Information. In the event of any Sales Force conversion
under this Article 13, the Quintiles Personnel who become employed by Discovery
may continue to use in their employment by Discovery any and all Product
knowledge that they gained while in the employment of Quintiles, including,
without limitation, knowledge regarding Product customers, competition, selling
techniques, and the like.
ARTICLE 14
DISPUTE RESOLUTION
14.1 Governing Law. This Agreement, including, without limitation, the
interpretation, performance, enforcement, breach or termination thereof and any
remedies relating thereto, shall be governed by and construed in accordance with
the laws of the State of Delaware, United States of America, as applied to
agreements executed and performed entirely in the State of Delaware, without
regard to conflicts of law rules.
14.2 Internal Review. In the event that a dispute, difference, claim,
action, demand, request, investigation, controversy, threat, discovery request
or request for testimony or information or other question arises pertaining to
any matters which arise under, out of, in connection with, or in relation to
this Agreement (a "Dispute") and either party so requests in writing, prior to
the initiation of any formal legal action, the Dispute will be submitted to the
JCC, which will use its good faith efforts to resolve the Dispute within ten
(10) days. If the JCC is unable to resolve the Dispute in such period, the JCC
will refer the Dispute to the Chief Executive Officers of Discovery and
Quintiles Corp. For all Disputes referred to the Chief Executive Officers, the
Chief Executive Officers shall use their good faith efforts to meet at least two
times in person and to resolve the Dispute within ten (10) days after such
referral.
14.3 Arbitration.
(a) If the parties are unable to resolve any Dispute under Section 14.2,
then either party may require the matter to be settled by final and binding
arbitration by sending written notice of such election to the other party
clearly marked "Arbitration Demand". Thereupon such Dispute shall be arbitrated
in accordance with the terms and conditions of this Section 14.3 Notwithstanding
the foregoing, either party may apply to a court of competent jurisdiction for a
temporary restraining
21.
order, a preliminary injunction, or other equitable relief to preserve the
status quo or prevent irreparable harm.
(b) The arbitration panel will be composed of three arbitrators, one of
whom will be chosen by Discovery, one by Quintiles, and the third by the two so
chosen. If both or either of Discovery or Quintiles fails to choose an
arbitrator or arbitrators within 14 days after receiving notice of commencement
of arbitration, or if the two arbitrators fail to choose a third arbitrator
within 14 days after their appointment, the American Arbitration Association
shall, upon the request of both or either of the parties to the arbitration,
appoint the arbitrator or arbitrators required to complete the panel. The
arbitrators shall have reasonable experience in the matter under dispute. The
decision of the arbitrators shall be final and binding on the parties, and
specific performance giving effect to the decision of the arbitrators may be
ordered by any court of competent jurisdiction.
(c) Nothing contained herein shall operate to prevent either party from
asserting counterclaim(s) in any arbitration commenced in accordance with this
agreement, and any such party need not comply with the procedural provisions of
this Section 14.3 in order to assert such counterclaim(s).
(d) The arbitration shall be filed with the office of the American
Arbitration Association ("AAA") located in Wilmington, Delaware or such other
AAA office as the parties may agree upon (without any obligation to so agree).
The arbitration shall be conducted pursuant to the Commercial Arbitration Rules
of AAA as in effect at the time of the arbitration hearing, such arbitration to
be completed in a sixty (60) day period. In addition, the following rules and
procedures shall apply to the arbitration:
(e) The arbitrators shall have the sole authority to decide whether or not
any Dispute between the parties is arbitrable and whether the party presenting
the issues to be arbitrated has satisfied the conditions precedent to such
party's right to commence arbitration as required by this Section 14.3.
(f) The decision of the arbitrators, which shall be in writing and state
the findings the facts and conclusions of law upon which the decision is based,
shall be final and binding upon the parties, who shall forthwith comply after
receipt thereof. Judgment upon the award rendered by the arbitrator may be
entered by any competent court. Each party submits itself to the jurisdiction of
any such court, but only for the entry and enforcement to judgment with respect
to the decision of the arbitrators hereunder.
(g) The arbitrators shall have the power to grant all legal and equitable
remedies (including, without limitation, specific performance) and award
compensatory damages provided by applicable law, but shall not have the power or
authority to award punitive damages. No party shall seek punitive damages in
relation to any matter under, arising out of, or in connection with or relating
to this Agreement in any other forum.
(h) The parties shall bear their own costs in preparing for and
participating in the resolution of any Dispute pursuant to this Section 14.3,
and the costs of the arbitrator(s) shall be equally divided between the parties;
provided, however, that each party shall bear the costs incurred in connection
22.
with any Dispute brought by such party that the arbitrators determine to have
been brought in bad faith.
(i) Except as provided in the last sentence of Section 14.3(a), the
provisions of this Section 14.3 shall be a complete defense to any suit, action
or proceeding instituted in any federal, state or local court or before any
administrative tribunal with respect to any Dispute arising with regard to this
Agreement. Any party commencing a lawsuit in violation of this Section 14.3
shall pay the costs of the other party, including, without limitation,
reasonable attorney's fees and defense costs.
14.4 Costs. The parties shall bear their own costs in preparing for and
participating in the resolution of any Dispute, and the costs of mediator(s) and
arbitrator(s) shall be equally divided between the parties.
ARTICLE 15
MISCELLANEOUS
15.1 Return of Materials. At the completion of the services by Quintiles
or termination pursuant to Article 12, all materials and all other data owned by
Discovery under this Agreement, regardless of the method of storage or
retrieval, shall as promptly as practicable either be delivered to Discovery in
such form as is then currently in the possession of Quintiles or disposed of, at
the direction and written request of Discovery unless such materials are
otherwise required to be stored or maintained by Quintiles as a matter of law or
regulation. Discovery shall pay the reasonable costs associated with either of
the above options.
15.2 Nonsolicitation of Employees. Except as otherwise provided herein,
during the Term and for a period of [***] thereafter, each Party agrees that
neither it nor any of its Affiliates, divisions or operating groups that
directly participates in or is directly responsible for the development or
commercialization of the Product pursuant to this Agreement shall, directly or
indirectly, recruit, solicit or induce any employee of the other Party to
terminate his or her employment with such other Party, without the express
written consent from the other party.
15.3 Entire Agreement; Amendment. This Agreement, and the other agreements
referred to herein (or entered into as of the date hereof) between the Parties
(or between Discovery and PharmaBio), set forth the complete, final and
exclusive agreement and all the covenants, promises, agreements, warranties,
representations, conditions and understandings between the Parties hereto and
supersede and terminate all prior agreements and understandings between the
Parties. There are no covenants, promises, agreements, warranties,
representations, conditions or understandings, either oral or written, between
the Parties other than as are set forth herein and therein. No subsequent
alteration, amendment, change or addition to this Agreement shall be binding
upon the Parties unless reduced to writing and signed by an authorized officer
of each Party.
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
23.
15.4 Force Majeure. Both Parties shall be excused from the performance of
their obligations under this Agreement to the extent that such performance is
prevented by force majeure and the nonperforming Party promptly provides written
notice to the other Party. Such excused performance shall be continued so long
as the condition constituting force majeure continues and the nonperforming
Party takes reasonable efforts to remove the condition. For purposes of this
Agreement, force majeure shall include conditions beyond the control of the
Parties, including without limitation, an act of God, war, civil commotion,
labor strike or lock-out, epidemic, failure or default of public utilities or
common carriers, destruction of production facilities or materials by fire,
earthquake, storm or like catastrophe; provided, however, the payment of
invoices due and owing hereunder at the time of the force majeure shall not be
delayed by the payor because of a force majeure affecting the payor.
15.5 Notices. Any notice required or permitted to be given under this
Agreement shall be in writing, shall specifically refer to this Agreement and
shall be deemed to have been sufficiently given for all purposes if mailed by
first class certified or registered mail, postage prepaid, express delivery
service or personally delivered. Unless otherwise specified in writing, the
mailing addresses of the Parties shall be as described below.
For Quintiles: Quintiles Transnational Corp.
4709 Creekstone Drive, Suite 200
Durham, NC 27703
Attention: Chief Executive Officer
Fax: (919) 998-7456
Phone: (919) 998-2000
With a copy to: General Counsel, Quintiles Transnational Corp.
4709 Creekstone Drive, Suite 200
Durham, NC 27703
Fax: (919) 998-2090
Phone: (919) 998-2080
For Discovery: Discovery Laboratories, Inc
350 South Main Street, Suite 307
Doylestown, PA 18901-4874
Fax: (215) 340-3940
Phone: (215) 340-4699
With a copy to: Roberts, Sheridan & Kotel
The New York Practice of
Dickstein Shapiro's Corporate & Finance Group
1177 Avenue of the Americas
New York, NY 10036-2714
Attn: Ira L. Kotel
Phone: (212) 835-1400
Fax:
24.
or to such other destination as either Party may hereafter notify the other
Party in accordance with this section.
15.6 Consents Not Unreasonably Withheld or Delayed. Whenever provision is
made in this Agreement for either Party to secure the consent or approval of the
other, that consent or approval shall not unreasonably be withheld or delayed,
and whenever in this Agreement provisions are made for one Party to object to or
disapprove a matter, such objection or disapproval shall not unreasonably be
exercised.
15.7 Maintenance of Records. Each Party shall keep and maintain all
records required of it by law or regulation with respect to the Product and
shall make copies of such records available to the other Party upon request.
15.8 United States Dollars. References in this Agreement to "Dollars" or
"$" shall mean the legal tender of the United States of America.
15.9 No Strict Construction. This Agreement has been prepared jointly and
shall not be strictly construed against either Party.
15.10 Assignment. Neither Party may assign or transfer this Agreement or
any rights or obligations hereunder without the prior written consent of the
other, except that a Party may make such an assignment without the other Party's
consent to Affiliates or to a successor to substantially all of the business of
such Party, whether in a merger, sale of stock, sale of assets or other
transaction. Any permitted successor or assignee of rights and/or obligations
hereunder shall, in a writing to the other Party, expressly assume performance
of such rights and/or obligations. Any permitted assignment shall be binding on
the successors of the assigning Party. Any assignment or attempted assignment by
either Party in violation of the terms of this Section 15.10 shall be null and
void and of no legal effect.
15.11 Performance by Affiliates. Obligations under this Agreement may be
performed by Affiliates of Quintiles and Discovery only with the prior consent
of the other Party. In the event any such performance is carried out by
Affiliates with the prior consent of the other Party, each of Quintiles and
Discovery guarantees performance of this Agreement by its Affiliates. No
Affiliate of a Party may make decisions inconsistent with this Agreement, amend
the terms of this Agreement or act contrary to its terms in any way.
15.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.13 Further Actions. Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.
25.
15.14 Severability. If any one or more of the provisions of this Agreement
is held to be invalid or unenforceable by any court of competent jurisdiction
from which no appeal can be or is taken, the provision shall be considered
severed from this Agreement and shall not serve to invalidate any remaining
provisions hereof. The Parties shall make a good faith effort to replace any
invalid or unenforceable provision with a valid and enforceable one such that
the objectives contemplated by the Parties when entering this Agreement may be
realized.
15.15 Ambiguities. Ambiguities, if any, in this Agreement shall not be
construed against any Party, irrespective of which Party may be deemed to have
authored the ambiguous provision.
15.16 Headings. The headings for each article and section in this
Agreement have been inserted for convenience of reference only and are not
intended to limit or expand on the meaning of the language contained in the
particular article or section
15.17 No Waiver. Any delay in enforcing a Party's rights under this
Agreement or any waiver as to a particular default or other matter shall not
constitute a waiver of such Party's rights to the future enforcement of its
rights under this Agreement, except with respect to an express written and
signed waiver relating to a particular matter for a particular period of time.
26.
IN WITNESS WHEREOF, the Parties have executed this Agreement in duplicate
originals by their duly authorized officers as of the date and year first above
written.
DISCOVERY LABORATORIES, INC.
By: /s/ David L. Lopez
---------------------------------------------
Print: David L. Lopez
-------------------------------------------
Title: Vice President and General Counsel
-------------------------------------------
Date: December 10, 2001
-------------------------------------------
QUINTILES TRANSNATIONAL CORP.
By: /s/ Thomas C. Perkins
---------------------------------------------
Print: Thomas C. Perkins
-------------------------------------------
Title: Vice President and Deputy General Counsel
-------------------------------------------
Date: December 10, 2001
-------------------------------------------
27.
EXHIBIT A
DEFINITIONS
The following terms shall have the following meanings as used in this
Agreement:
1. "Affiliate" means, as to any Party, any corporation or business entity
controlled by, controlling, or under common control with such Party. For
this purpose, "control" shall mean direct or indirect beneficial ownership
of at least fifty percent (50%) of the voting stock or income interest in
such corporation or other business entity, or such other relationship as,
in fact, constitutes actual control.
2. "FDA" means the U.S. Food and Drug Administration.
3. "Field Manager" means a member of the Sales Force having the
responsibilities set forth on Schedule III for such job title.
4. "Fully Loaded Cost" will have the meaning provided in Section 3.3.
5. "Quintiles Personnel" means any individual who is performing any part of
the services hereunder on behalf of Quintiles.
6. "Joint Commercialization Committee" or "JCC" means the joint committee
formed pursuant to Section 2.1.
7. "Marketing Plan" means a plan detailing the activities to be performed by
each Party in the Territory as more fully described in Article 3 hereof.
8. "Marketing Services" means such pre- and post-launch promotional and
marketing activities as are included in the Marketing Plan and any other
activities identified by the JCC in furtherance of the objectives of this
Agreement, which activities are allowed by the FDA or under the Food Drug
& Cosmetic Act and its attendant regulations and as may be allowed by
applicable regulatory authorities and the AMA Guidelines on Gifts to
Physicians. Such activities may include without limitation, educational
programs, symposia, poster-sessions, seminars for physicians, market
research, pricing studies, development of promotional activities and
advertising agency fees. Such activities may include marketing input into
clinical strategic planning activities, i.e. protocol development, future
indications, clinical and/or marketing studies.
9. "National Sales Manager" means the leader of the Sales Force having the
responsibilities set forth on Schedule III for such job title.
10. "PDMA" means the Prescription Drug Marketing Act.
11. "Product" means the product currently known as Surfaxin, as such name may
change from time to time, for any and all formulations and delivery
mechanisms for the indications of (x)
A-1
idiopathic respiratory distress syndrome ("IRDS") and (y) meconium
aspiration syndrome ("MAS").
12. "Product Launch" or "Launch" means the first date upon which the Product
is shipped by Discovery in the United States for commercial sale.
13. "Project Administrator" means the Quintiles employee at the headquarters
office who will provide administrative support for the National Sales
Manager.
14. "Promotional Materials" means written materials generated for the purpose
of promotion and sale of the Product, in all cases with the prior written
approval of Discovery.
15. "Sales Force" means those Quintiles Personnel who shall possess suitable
expertise and who shall use diligent efforts to promote and sell the
Product at a level which is consistent with those marketing efforts
normally used for similar products in the pharmaceutical industry,
including without limitation Sales Representatives, Field Managers,
National Sales Manager and Project Administrator who promote the Product
under this Agreement.
17. "Sales Force Commencement Date" shall mean the first date upon which
Quintiles provides Sales Representatives under this Agreement.
18. "Sales Representative" means an employee of Quintiles: who is responsible
for meeting with customers and physicians and others who can buy (or
influence the buying process and decision regarding) the Product. The
responsibilities of a Sales Representative are set forth on Schedule III.
19. "Sample" means units of Product distributed by Quintiles, and for
complimentary distribution to patients by practitioners licensed to
recommend Product, whether packaged as individual samples or as trade
packages.
20. "Term" shall have the meaning provided in section 12.1.
21. "Territory" means the United States of America (including Puerto Rico).
22. "Third Party" means any entity or person other than Quintiles or Discovery
or an Affiliate of either of them.
23. "Work Order" means a specific order in a form approved by the JCC for
Marketing Services to be performed by Quintiles or an Affiliate.
A-2
EXHIBIT B
MARKETING PLAN OUTLINE (Example only. JCC may use its own format)
I. Executive Summary
II. Market Analysis
o Market
o Products
o Future Outlook
III. Product Profile
o Product Description
o Indications
o Clinical Experience and Program
o Formulation, Packaging and Administration
IV. SWOT Analysis
V. 5 year Sales Forecasts
o Units, Dollars, Prescriptions, Market Share
VI. Objectives
o Awareness
o Communication
o Product Use
o Sales
o Market Share
o Managed Care/Formulary
VII. Key Issues
VIII. Strategies
o Product Positioning
o Audiences
o Sales Force
o Pharmacoeconomics
IX. Tactics
o Pharmacoeconomics
o Market Research
o Medical Education
o Publication Plan
o Personal Selling Materials / Program
o Clinical Support
o Sales Force Support
C-1
o Sampling
o Managed Care / Formulary
o Territory Sales Force Effort
X. Budget Following Year
XI. Timelines
A-2
SCHEDULE I
QUINTILES RESPONSIBILITIES
1. Quintiles will provide the following Quintiles Personnel to comprise the
Sales Force:
(a) Sales Representatives (as certain responsibilities and duties are
defined in Schedule III, Section 1);
(b) Field Managers (as certain responsibilities and duties are defined in
Schedule III, Section 2);
(c) National Sales Manager (as certain responsibilities and duties are
defined in Schedule III, Section 3) and
(d) Project Administrator.
2. Quintiles will be responsible for recruitment and re-recruitment of the
Quintiles Personnel. Discovery will not be involved in the interviewing,
selection or hiring of Quintiles Personnel.
3. Quintiles will only hire qualified Quintiles Personnel, defined as meeting
a hiring profile to be established by the JCC.
4. Quintiles will manage all employer obligations in connection with the
employment of Quintiles Personnel, including, but not limited to,
discipline and termination of employees. Quintiles shall provide
administrative resources for Field Managers, and communication between
Quintiles and the Quintiles Personnel. Discovery will not be involved in
the management or supervision of Quintiles Personnel
5. Training: The JCC will be responsible for developing a POA for training.
In accordance with Section 6.1 of the Agreement, Quintiles shall be
responsible for developing and providing training for the Sales Force
regarding the Promotional Materials, disease and therapeutic areas,
Product knowledge, Product marketing strategy and regional management in
the Territory, Product recalls, reporting complaints and adverse events.
The training will be conducted in a manner so as to meet or exceed the
minimum training standards agreed to by the Parties and in accordance with
all laws, rules, regulations and policies, including but not limited to
the AMA Guidelines on Gifts to Physicians.
6. Quintiles shall be responsible for equipping the Sales Force with computer
hardware and software needed to carry out the promotion of the Product.
All Quintiles Personnel assigned to the Sales Force will receive a laptop
computer and printer with interface cable. Quintiles shall be responsible
for appropriate licenses and training, configuration, and replication/data
line access. Quintiles shall provide upgrades to hardware or software as
it deems necessary for successful promotion of the Product. In addition,
Quintiles shall establish and provide help desk support for the hardware
and software it provides.
SI-1
7. Quintiles will provide the Sales Force the Quintiles Territory Management
System ("ITMS") or other comparable sales force automation system and
email/voice mail systems which will include components for call reporting,
expense reporting, physician prescribing, call history, sales and
market-share reporting, customized reports and communications. Quintiles
shall also provide a sample tracking and compliance program. These systems
and programs shall be of similar quality and effectiveness to that which
Quintiles provides to its other clients. Quintiles may subcontract for all
or a portion of the sample accountability services. Quintiles will make
reasonable efforts to enable a reasonable number of Discovery personnel to
have access to and be able to link into the ITMS and email/voicemail
systems used by the Sales Force.
8. Quintiles shall be responsible for equipping the Field Managers with such
other equipment as needed to carry out the promotion of the Product.
9. All promotional and detailing activities and obligations undertaken by
Quintiles Personnel and the Sales Force hereunder shall be performed in
accordance with the Marketing Plan. No Quintiles Personnel shall create
Promotional Materials or other written materials relating to the Product
without first submitting those materials to Discovery for and obtaining
Discovery's written approval prior to use. Quintiles Personnel and the
Sales Force shall make no statements, claims or undertakings to any person
with whom they discuss or promote the Product that are inconsistent with
the Promotional Materials. Promotional activities shall be in compliance
with all applicable laws, rules, and regulations and policies. The
Quintiles Personnel and the Sales Force shall not offer, pay, solicit or
receive any remuneration to or from physicians or prescribers or health
facilities, in order to induce referrals of or purchase of the Product.
The Quintiles Personnel and the Sales Force shall have no direct contact
with, nor shall the Quintiles Personnel and the Sales Force be involved
with the delivery of the Product to patients of physicians, other than
delivery of Samples directly to physicians or practitioners authorized to
recommend the Product in the Territory. Quintiles shall permit Discovery
to accompany Sales Representatives on sales calls from time to time with
reasonable advance notice.
10. Quintiles shall provide monthly project management reports to Discovery in
Quintiles' standard form within fifteen (15) business days after the end
of each month.
11. Quintiles shall be responsible for organizing and coordinating the Product
Launch meeting, POA meetings and national, regional or district meetings,
subject to instructions from the JCC.
12. Quintiles Sales Representatives shall distribute the Samples provided by
Discovery as directed in the Marketing Plan.
13. Quintiles shall administer an incentive bonus plan as determined by the
JCC and designed to appropriately incent the Sales Representatives to use
best efforts to promote the Product.
SI-2
SCHEDULE II
DISCOVERY RESPONSIBILITIES & OBLIGATIONS
DISCOVERY SALES PROJECT
1. Discovery shall ensure that the Discovery sales, marketing and medical
personnel are fully briefed as to the complementary role of the Quintiles
Personnel and ensure cooperation with the Quintiles Personnel.
2. Discovery shall be responsible for:
o Communications within Discovery and from Discovery to Quintiles.
o Handling all aspects of order processing and fulfillment, invoicing
and collection, (may be accomplished through further Agreement with
Quintiles or an Affiliate), Product supply, inventory and
receivables.
o Discovery Business Cards.
SCHEDULE III
ROLE DEFINITIONS
1. Sales Representative
RESPONSIBILITIES AND DUTIES:
o Generates sales within an assigned territorial boundaries.
o Maintains current and prospective customer profiles and information.
o Keeps current with Product, competitor products, and market
knowledge.
o Maintains a professional image for Discovery and the Product at all
times.
o Organizes territory-planning to meet sales and call goals.
o Provides sales presentations: individual one-on-one, groups,
in-services.
o Maintains Sample inventories, distributes Samples, complies with
Sample accountability procedures and policies.
o Participates in all training programs.
o Completes and submits in a timely manner all accountability and
expense reports.
o Monitors that Product is appropriately stocked by local distribution
centers, hospitals and pharmacies.
o Monitors that Product is on hospital formularies.
o Attends trade shows as directed by National Sales Manager.
SKILLS:
o Initiative
o Persuasiveness/Sales ability
o Planning and Organizing
o Individual Leadership/Influencing
o Teamwork/Collaboration
o Motivational Fit
2. Field Manager
o Attains sales objectives within assigned districts.
o Deploys resources to maximize district sales potential.
o Implements Discovery Product strategies within district.
o Maintains District budgets and accurate records on all sales
activities.
o Makes regular field visits to develop, train, supervise, motivate
and monitor Sales Representative performance; completes field
contact reports.
o Makes final hiring decision; training and evaluation of Sales
Representatives.
o Documents and recommends all disciplinary actions to include
warnings, suspensions, probation, terminations.
o Communicates with Discovery management on a regular basis.
o Submits a formal monthly report to Quintiles National Sales Manager.
o Assists in the planning and delivery of initial training course.
C-3
o Assists in the planning and delivery of POA or trimester meetings.
o Monitors that Product is on managed care formularies that are within
the Field Manager's district.
3. National Sales Manager
o Hires, trains develops and evaluates Field Managers.
o Develops, supervises, motivates and monitors performance of Field
Managers.
o Maintains project budgets.
o Monitors days worked and directs Field Managers accordingly.
o Prepares and submits monthly summary report to Quintiles and
Discovery management
o Serves as key point of contact for Discovery.
o Approves all Sales Force disciplinary actions.
o Develops initial training program for Sales Representatives and
Field Managers.
o Coordinates POA or trimester meetings; plans and conducts meetings
with Discovery and its region management.
o Coordinates submissions for national managed care formularies.
o Directs coordination of Field Manager and Sales Representatives to
attend trade shows as appropriate.
EXHIBIT 10.2
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [***], have been
separately filed with the Securities and Exchange Commission.
INVESTMENT AND COMMISSION AGREEMENT
This Investment and Commission Agreement (the "Agreement") is made as of
December 10, 2001, by and between Discovery Laboratories, Inc., a Delaware
corporation ("Discovery"), and PharmaBio Development, Inc., a North Carolina
corporation ("PharmaBio").
Background and Overview
A. Discovery and Quintiles Transnational Corp. ("Quintiles"), an Affiliate of
PharmaBio, have executed a Commercialization Agreement (herein so called)
on the date hereof, pursuant to which Quintiles will provide exclusive
Commercialization Services in the Territory for the Product.
B. Discovery and PharmaBio have agreed that PharmaBio will fund the payments
for the Commercialization Services, pursuant to the terms and conditions
set forth herein.
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1.0 Definitions.
1.1 "Affiliate" shall mean, as to any person or entity, any corporation or
business entity controlled by, controlling, or under common control with
such party or entity. For this purpose, "control" shall mean direct or
indirect beneficial ownership of at least fifty percent (50%) of the
voting stock or income interest in such corporation or other business
entity.
1.2 "Annual Period" shall mean a twelve-month period beginning on the Launch
Date and each anniversary thereof.
1.3 "Commercialization Expenses" shall mean the fees and expenses payable to
Quintiles for the Commercialization Services.
1.4 "Commercialization Services" shall mean (i) sales and marketing services
provided by Quintiles under the Commercialization Agreement after the
Launch Date (including, but not limited to, services provided after the
Launch Date related to the deployment and management of a dedicated sales
force for the promotion of the Product), and (ii) services provided under
the Commercialization Agreement before the Launch Date for the following
specific activities: (x) recruitment, hiring and training for the sales
force; (y) establishing sales force targets, territory alignments, mapping
and sales
force optimization, and validation of practitioner's state license; and
(z) conducting launch meetings and the national, regional and district
meetings.
1.5 "Commission Term" means the ten (10) consecutive Annual Periods beginning
on the Launch Date.
1.6 "FDA" shall mean the US Food and Drug Administration.
1.7 "JCC" shall mean the joint commercialization committee established under
the Commercialization Agreement. If for any reason the Commercialization
Agreement is terminated or the JCC is otherwise disbanded under the
Commercialization Agreement, then Discovery and PharmaBio shall in good
faith, as promptly as practicable, form an advisory body composed of an
equal number of designees of Discovery and PharmaBio (the "Advisory
Board"); provided, that Discovery shall have at least the same rights and
authority with respect to such advisory body as it had with respect to the
JCC (and PharmaBio shall have at least the same rights and authority with
respect to such advisory body as Quintiles had with respect to the JCC).
In such event, (i) the Advisory Board shall perform all of the obligations
under this Agreement that would otherwise have been performed by the JCC,
and all references to the JCC herein shall thereafter be deemed references
to the Advisory Board, and (ii) PharmaBio shall appoint members to the
Advisory Board who are at least as experienced in pharmaceutical marketing
and sales activities as Quintiles' members of the JCC.
1.8 "Launch Date" shall mean the date upon which the Product is first shipped
in the United States for commercial sale.
1.9 "Maximum Investment" shall mean $10,000,000 per year for each of the seven
(7) years following the Launch Date. (All dollar references in this
Agreement shall refer to United States Dollars).
1.10 "Minimum Sales Force Level" shall mean the sales force size for the
Product recommended by the JCC from time to time as provided for in the
Commercialization Agreement (provided that, for purposes of such
calculation, the recommended sales force size will not exceed the sales
force size that could be reasonably supported by the amount of
Commercialization Expenses funded by PharmaBio under this Agreement). If
the parties are not able to unanimously agree to such sales force size
calculation, then such calculation shall be made in accordance with the
dispute resolution process set forth in Section 11 of this Agreement.
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1.11 "Net Sales" means the amount billed by Discovery or an Affiliate or any
sublicensee, or on behalf of or for the benefit of Discovery or an
Affiliate or any sublicensee, for sales of the Product to a third party in
the Territory less: (i) discounts, including cash and quantity discounts,
charge-back payments, refunds and rebates granted to managed health care
or similar organizations or to federal, state and local governments
(including, without limitation, Medicaid rebates), their agencies, and
purchasers and reimbursers or to trade customers, including but not
limited to, wholesalers and chain and pharmacy buying groups, (ii) credits
or allowances actually granted upon claims, damaged goods, rejections or
returns of such Product, including recalls, regardless of the party
requesting such, (iii) freight, postage, shipping and insurance charges
actually allowed or paid for delivery of Product, to the extent billed,
(iv) taxes, duties or other governmental charges levied on, absorbed or
otherwise imposed on sale of such Product, including without limitation
value-added taxes, or other governmental charges otherwise measured by the
billing, when included in billing, as adjusted for rebates, charge-backs
and refunds, and (v) bad debts related to Product sales (defined as any
bills unpaid for 120 days after due), provided that (a) any subsequent
collection by Discovery on such bad debt shall be restored as Net Sales at
the time of collection, and in the amount, of such collection, and (b)
Discovery shall follow commercially reasonable practices of collecting and
otherwise administering debt related to Product sales. Provided, however,
in no event shall Net Sales be less than [***] of the gross sales of the
Product in the Territory.
1.12 "Product" shall mean the product currently known as Surfaxin, as such name
may change from time to time, for any and all formulations and delivery
mechanisms (i) for the indications of (x) idiopathic respiratory distress
syndrome ("IRDS") and (y) meconium aspiration syndrome ("MAS"); and (ii)
solely for the purposes of Section 1.11, include all "off-label" uses.
1.13 "Territory" shall mean the United States (including Puerto Rico).
2.0 Commercialization Agreement.
The Commercialization Agreement is in the form attached hereto as Exhibit
A. All defined terms used herein but not defined in this Agreement shall
have the meanings set forth in the Commercialization Agreement.
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
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3.0 Investment and Commission; Related Agreements.
3.1 PharmaBio will support the commercialization of the Product as follows:
(a) PharmaBio shall fund one hundred percent (100%) of the
Commercialization Expenses for the period ending on the seventh
anniversary of the Launch Date (the "Commitment Period"), subject to
the Maximum Investment for each such year and the other terms and
conditions in this Agreement.
(b) PharmaBio shall fund the amounts payable under Section 3.1(a) by
paying the invoices submitted by Quintiles that correspond to the
applicable Commercialization Expenses that accrue during the
Commitment Period, which payments shall be made by PharmaBio within
twenty (20) days of PharmaBio's receipt of the invoice. As directed
by Discovery, PharmaBio shall make such payment through either (i) a
payment to Discovery, or (ii) an inter-company payment directly to
Quintiles.
3.2 In consideration for the performance of PharmaBio of its funding
commitments set forth in Section 3.1, Discovery shall pay PharmaBio a
commission on Net Sales during the Commission Term. The commission
payments payable by Discovery to PharmaBio with respect to each Annual
Period are as follows:
-------------------------------------------------------
Annual Period during the Commission on Net
Commission Term Sales
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1 [***]
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2 [***]
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3 [***]
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4 [***]
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5 [***]
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6 [***]
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7 [***]
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8 [***]
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9 [***]
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10 [***]
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The commission payments under this Section 3.2 shall be paid as soon as
reasonably practicable following the end of each calendar quarter (but not
later than thirty (30) days following the end of each calendar quarter)
during the ten (10) Annual Periods in the Commission Term.
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
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3.3 The JCC shall take the following actions a reasonable time prior to the
Launch Date: (i) prepare a marketing plan for the Product, including a
sales forecast; (ii) agree to the Commercialization Services reasonably
necessary to support sales of the Product in the Territory at the levels
set forth in such sales forecast (including the optimum sales force size
to support such sales of the Product); and (iii) agree to a related budget
for Commercialization Expenses. On or about each anniversary of the Launch
Date, the JCC shall update such items. The above actions will be taken by
the JCC with due regard to the size and value of the market for the
Product in the Territory, taking into account, among other variables, the
clinical safety and efficacy of the Product (and related labeling claims),
the competitive environment in which the Product is being promoted, and a
reasonable budget for the sales and marketing activities. Notwithstanding
anything to the contrary in this Agreement or the procedures for JCC
decisions set forth in the Commercialization Agreement, the parties agree
to the following:
(a) Discovery shall have the final decision on the marketing plan for
the Product and the activities (including the Commercialization
Services) necessary to implement such marketing plan.
(b) Notwithstanding anything to the contrary in this Agreement,
PharmaBio shall have the final decision on the amount of
Commercialization Expenses that will be funded by PharmaBio under
Section 3.1 of this Agreement, provided that PharmaBio shall not act
unreasonably or in bad faith in determining such amount. For
purposes of the preceding sentence, PharmaBio shall be deemed to
have acted unreasonably or in bad faith if PharmaBio sets the amount
of Commercialization Expenses that PharmaBio is willing to fund
under Section 3.1 at a level that cannot reasonably be justified in
light of the size and value of the market for the Product.
Notwithstanding anything to the contrary in this Agreement,
PharmaBio cannot be deemed to have acted unreasonably or in bad
faith for purposes of this Section 3.3(b) by failing to fund
Commercialization Expenses in excess of the Maximum Investment.
Further, PharmaBio shall not be deemed to have acted unreasonably or
in bad faith for purposes of this Section 3.3(b) by failing to fund
Commercialization Expenses (or suspending such funding) upon certain
events impacting the marketing of the Product that are not within
PharmaBio's control, which is defined as: (i) a material breach by
Discovery of any obligation or representation or warranty under this
Agreement; (ii) withdrawal of Product caused by actual or threatened
regulatory action by the FDA or other governmental entity, safety
concerns relating to Product, the loss of Discovery's license rights
or other rights to Product, or similar cause; (iii) significant
unforeseen new information regarding the safety or efficacy of
Product which has a material adverse effect on the sales of Product;
or (iv) other material factors adversely impacting Net Sales of the
Product that were not reasonably foreseeable by, or within the
control of, PharmaBio as of the date hereof. If PharmaBio shall
decide not to fund some amount of the Commercialization Expenses,
then (i) Discovery shall be entitled to fund such amounts
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directly, and (ii) subject to prior termination as provided for in
Section 7.0, PharmaBio's right to receive the commission payments
set forth in Section 3.2 shall not be reduced.
3.4 Discovery shall use commercially reasonable efforts to commercialize the
Product in the Territory. In this regard, Discovery will provide a sales
force of a size not less the Minimum Sales Force Level during the
Commitment Period. If, at any time during such period, Discovery reduces
the Product sales force below the Minimum Sales Force Level for a period
of more than [***], then Discovery and PharmaBio will negotiate in good
faith to restructure PharmaBio's commitments under Section 3.1 and the
corresponding commission amounts under Section 3.2 , which negotiations
will take into account the implications of the reduced sales force size on
future sales of the Product. If the parties are unable to agree to such
restructuring within thirty (30) days after PharmaBio gives written notice
to Discovery of its intent to pursue a remedy under this Section 3.4 for
Discovery's failure to maintain the Minimum Sales Force Level, then
PharmaBio may, at its sole discretion by written notice to Discovery,
elect to suspend the following: (i) all future funding obligations under
Section 3.1; and (ii) the running of the Commission Term (including,
without limitation, the then-current Annual Period). During the suspension
period, PharmaBio shall continue to receive royalties at the rate equal to
the commission amount applicable immediately prior to the effective date
of the suspension period. If PharmaBio elects this remedy, the then
operating Annual Period for commission payments under Section 3.2, and the
funding commitments under Section 3.1, shall be suspended until the
Minimum Sales Force Level is satisfied. Such Annual Period, and the
funding commitments under Section 3.1, shall restart when the Minimum
Sales Force Level is satisfied, at the same time point such Annual Period
was suspended, such that PharmaBio enjoys the full length of the ten (10)
Annual Periods described in Section 3.2 with the benefit of the Minimum
Sales Force Level for seven (7) full twelve-month periods, and the term
"Commission Term" shall, for all purposes under this Agreement, be
extended accordingly. PharmaBio's remedies under this Section 3.4 shall
not apply for any period that Quintiles fails to satisfy its sales force
staffing obligations under the Commercialization Agreement.
Notwithstanding anything herein to the contrary, PharmaBio's rights under
this Section 3.4 shall be expressly subject to the provisions of Section
3.5.
3.5 In the event that Discovery terminates the Commercialization Agreement
under Section 12.3 thereof, then:
(a) Discovery shall use commercially reasonable efforts in good faith to
identify, retain and train a new sales force (the "New Sales Force")
as soon as practicable to perform substantially similar functions as
were to have been provided by Quintiles under the Commercialization
Agreement;
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
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(b) During the period (the "Transition Period") beginning on the
effective date of Discovery's termination of the Commercialization
Agreement and ending on the first day of the month next following
the date on which the New Sales Force begins detailing physicians:
(i) Discovery's obligation to provide the Minimum Sales Force
Level shall be suspended;
(ii) PharmaBio shall have none of the suspension or other remedial
rights that it would otherwise have under Section 3.4 as a
result of Discovery's failure to provide the Minimum Sales
Force Level or otherwise;
(iii) in lieu of the commission rate set forth in Section 3.2,
Discovery's commission obligation to PharmaBio hereunder shall
equal the product of (A) the commission rate set forth in
Section 3.2 multiplied by (B) the percentage that Net Sales is
during the Transition Period of projected Net Sales for the
Transition Period (based on the JCC's most recent Net Sales
forecast, prorated, to the extent necessary, on a reasonable,
good faith basis); and
(iv) the Commission Term shall continue to run during the
Transition Period such that it will continue to expire on the
tenth (10th) anniversary of the Funding Date.
(c) PharmaBio's funding commitments under Section 3.1 shall continue in
full force and effect, and all references hereunder to Quintiles
shall be deemed to refer to the New Sales Force (and all references
to (i) the Commercialization Agreement hereunder shall be deemed to
refer to the agreement, if any, pursuant to which Discovery retains
the New Sales Force and (ii) Quintiles hereunder shall be deemed to
refer to the New Sales Force or the contract provider of the New
Sales Force, as applicable).
3.6 As of the date hereof, the parties have entered into a Common Stock and
Warrant Purchase Agreement. The representations and warranties set forth
in Article IV of the Stock Purchase Agreement with respect to Discovery
(excluding Sections 4.02, 4.14 through 4.18 and 4.20, and after modifying
Section 4.04 so that "Transaction Documents" shall mean this Agreement)
and in Article V with respect to PharmaBio (excluding Section 5.03 through
5.06 and after modifying Section 5.02 so that "Transaction Documents"
shall mean this Agreement) are incorporated in this Agreement by reference
and form part of the consideration given to each party in exchange for the
other party's commitments set forth herein. Discovery agrees to continue
to exercise diligent efforts to submit the NDA (as defined in the
Commercialization Agreement) for the Product to the FDA and to reasonably
diligently seek FDA approval for the Product. Upon the approval of either
the MAS or the IRDS indication, Discovery shall continue to use
commercially reasonable
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efforts to submit the NDA for the other indication to the FDA and to seek
FDA approval of such.
3.7 Each Party shall keep or cause to be kept such records as are required to
determine, in a manner consistent with generally accepted accounting
principles in the United States, the sums or credits due under this
Agreement. Upon the written request of either party, the other party shall
permit an independent certified public accountant appointed by such party
and reasonably acceptable to the other party, accompanied by
representatives of the financial department of such party at reasonable
times and upon reasonable notice, to audit only those records as may be
necessary to determine the correctness or completeness of any report or
payment made under this Agreement. Results of any such audit shall be (i)
limited to information relating to the Product, (ii) made available to
both parties and (iii) subject to the confidentiality protections set
forth herein. The party requesting the audit shall bear the full cost of
the performance of any such audit, unless such audit discloses a variance
of more than five percent (5%) from the amount of the original report,
royalty or payment calculation. In such case, the party being audited
shall bear the full cost of the performance of such audit.
3.8 Without the prior approval of PharmaBio, Discovery shall not, nor shall it
allow any Affiliate or third party acting on behalf of or for the benefit
of Discovery or any Affiliate to, commercialize a product that would
reasonably be expected to compete with the Product in the Territory during
the Commission Term.
3.9 The parties acknowledge and agree that (i) Discovery may pursue additional
formulations and/or delivery technologies for the Product, which may
result in pre-launch and launch promotional activities for the additional
formulations and/or delivery technologies, (ii) such pre-launch and launch
promotional activities are within the scope of the Commercialization
Agreement, and (iii) the expenses associated with such pre-launch and
launch promotional activities will be considered "Commercialization
Expenses" for purposes of this Agreement and shall be subject to
PharmaBio's funding obligations hereunder in accordance with the terms and
limitations set forth herein.
3.10 PharmaBio shall make milestone payments to Discovery pursuant to the terms
set forth in this Section 3.10. The "First Milestone" (herein so called)
shall be paid on the earlier to occur of the receipt of FDA approval ("FDA
Approval") to commercialize (x) the MAS Indication or (y) the IRDS
Indication. The amount of the First Milestone shall be seventy percent
(70%) of the outstanding principal (as of the controlling FDA Approval)
under the Loan Agreement (herein so called), dated as of the date hereof,
between PharmaBio and Discovery. The "Second Milestone" (herein so called)
shall be paid on the earlier to occur of (x) the completion by Quintiles
or an appropriate Affiliate of a written assessment and report in
customary form indicating the "approvability" by the FDA of Discovery's
NDA for the Product for the indication that was not approved as a
condition for the First Milestone, which shall include without limitation
an assessment and report as to the quality of the documentation comprising
such NDA and the clinical data included in such NDA, or
8
(y) the issuance by the FDA of a letter in customary form indicating that
Discovery's NDA for the Product for such indication is "approvable." The
amount of the Second Milestone payment shall be the remaining principal
amounts outstanding under the Loan Agreement. PharmaBio shall have the
right to apply the First Milestone and Second Milestone payments against
any amounts then outstanding under the Loan Agreement.
4.0 Confidentiality and Ownership of Information.
4.1 Discovery on the one part and PharmaBio on the other part each
acknowledges that, in the course of performing its obligations hereunder,
it may receive information from the other party which is proprietary to
the disclosing party and which the disclosing party wishes to protect from
public disclosure ("Confidential Information"). Each receiving party
agrees to retain in confidence, during the Commission Term, and thereafter
for a period of seven (7) years, all Confidential Information disclosed to
it by or on behalf of the other party, and that it will not, without the
written consent of such other party, use Confidential Information for any
purpose other than the purposes indicated herein. These restrictions shall
not apply to Confidential Information which: (i) is or becomes public
knowledge (through no fault of the receiving party); (ii) is made lawfully
available to the receiving party by an independent third party that, to
the knowledge of the receiving party, is under no duty of confidentiality
to the disclosing party; (iii) is already in the receiving party's
possession at the time of receipt from the disclosing party (and such
prior possession can be demonstrated by competent evidence by the
receiving party); (iv) is independently developed by the receiving party
and/or Affiliates (and such independent development can be demonstrated by
competent evidence by the receiving party); or (v) is required by law,
regulation, rule, act or order of any governmental authority or agency to
be disclosed by the receiving party, provided, however, if reasonably
possible, such receiving party gives the disclosing party sufficient
advance written notice to permit it to seek a protective order or other
similar order with respect to such Confidential Information and,
thereafter, the receiving party discloses only the minimum Confidential
Information required to be disclosed in order to comply.
4.2 PharmaBio on the one hand and Discovery on the other hand shall limit
disclosure of the other party's Confidential Information to only those of
their respective officers, representatives, agents and employees
(collectively "Agents") who are directly concerned with the performance of
this Agreement and have a legitimate need to know such Confidential
Information in the performance of their duties.
4.3 All Discovery inventions, processes, know-how, patents, trade secrets,
copyrights, trade names, trademarks, service marks, marketing materials,
proprietary materials or other intellectual property of any kind, and all
improvements to any of the foregoing (collectively, "Discovery Property"),
disclosed, used, improved, modified or developed in connection with the
relationship contemplated by this Agreement shall remain the sole and
exclusive property of Discovery. PharmaBio shall not have any right, title
or interest in or to any Discovery Property.
9
4.4 Discovery acknowledges that PharmaBio (and its Affiliates) possess certain
inventions, processes, know-how, trade secrets, improvements, other
intellectual properties and other assets, including but not limited to
analytical methods, procedures and techniques, computer technical
expertise and software, and business practices, including, but not limited
to the Innovex Territory Management System (ITMS), which have been
independently developed by PharmaBio and/or its Affiliates (collectively
"Quintiles Property"). Any Quintiles Property or improvements thereto
which are disclosed, used, improved, modified or developed by Quintiles
under or during the term of this Agreement shall remain the sole and
exclusive property of PharmaBio or the respective Affiliates.
5.0 Independent Contractor Relationship.
For the purposes of this Agreement, Discovery and PharmaBio are
independent contractors and nothing contained in this Agreement shall be
construed to place them in the relationship of partners, principal and
agent, employer and employee or joint venturers. Neither Discovery nor
PharmaBio shall have the power or right to bind or obligate the other
party, nor shall either party hold itself out as having such authority.
6.0 Termination.
Either party may terminate this Agreement for material breach upon thirty
(30) days written notice specifying the nature of the breach, if such
breach (i) has not been substantially cured within the thirty (30) day
period or (ii) is not curable within such 30-day period and the breaching
party has not commenced and diligently continued during such 30-day period
reasonable actions to cure such breach. During the 30-day cure period for
termination due to breach, each party will continue to perform its
obligations under this Agreement. Either party may terminate this
Agreement immediately upon provision of written notice if the other party
becomes insolvent or files for bankruptcy or is not otherwise able to pay
its obligations as they become due and payable.
7.0 Indemnification and Liability Limits.
7.1 PharmaBio shall indemnify, defend and hold harmless Discovery, its
Affiliates and its and their respective directors, officers, employees and
agents from and against any and all losses, claims, actions, damages,
liabilities, penalties, costs and expenses (including reasonable
attorneys' fees and court costs) (collectively, "Losses"), resulting from
any: (i) material breach by PharmaBio (or its employees) of its
obligations hereunder; (ii) willful misconduct or grossly negligent acts
or omissions of PharmaBio or its employees; and (iii) material violation
by PharmaBio or its employees of any municipal, county, state or federal
laws, rules or regulations applicable to the performance of PharmaBio's
obligations under this Agreement; except, in each case, to the extent such
Losses are determined to have resulted from the gross negligence or
willful misconduct of Discovery or its employees.
7.2 Discovery shall indemnify, defend and hold harmless PharmaBio and its
Affiliates and their respective directors, officers, employees and agents
from and against any and all
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Losses resulting from: (i) any third party claim arising from the
manufacture, storage, packaging, production, transportation, distribution,
use, sale or other disposition of the Product; (ii) material breach by
Discovery (or its employees) of its obligations hereunder; (iii) willful
misconduct or grossly negligent acts or omissions of Discovery or its
employees; and (iv) material violation by Discovery or its employees of
any municipal, county, state or federal laws, rules or regulations
applicable to the performance of Discovery's obligations under this
Agreement, except, in each case, to the extent such Losses are determined
to have resulted from the gross negligence or willful misconduct of
PharmaBio or any of its employees.
7.3 In the event of a third party claim or lawsuit, the party seeking
indemnification hereunder (the "Indemnified Party") shall give the party
obligated to indemnify (the "Indemnifying Party") prompt written notice of
any claim or lawsuit (including a copy thereof), provided that the failure
of an Indemnified Party to notify the Indemnifying Party on a timely basis
will not relieve the Indemnifying Party of any liability that it may have
to the Indemnified Party unless the Indemnifying Party demonstrates that
the defense of such action is materially prejudiced by the Indemnified
Party's failure to give such notice. The Indemnified Party and its
employees shall fully cooperate with Indemnifying Party and its legal
representatives in the investigation and defense of any matter the subject
of indemnification, which defense shall be managed by the Indemnifying
Party in a manner, including the selection of legal counsel, reasonably
acceptable to the Indemnified Party. The Indemnified Party shall not
unreasonably withhold its approval of the settlement of any such claim,
liability, or action by Indemnifying Party covered by this indemnification
provision; provided that such settlement does not include an admission or
acknowledgement of liability or fault of the Indemnified Party.
7.4 Neither PharmaBio nor Discovery, nor any of such party's Affiliates,
directors, officers, employees, subcontractors or agents shall have, under
any legal theory (including, but not limited to, contract, negligence and
tort liability), any liability to any other party hereto for any loss of
opportunity or goodwill, or any type of special, incidental, indirect or
consequential damage or loss, in connection with or arising out of this
Agreement. For the avoidance of doubt, a claim by PharmaBio for
commissions on Net Sales payable by Discovery hereunder or a claim by
Discovery for payments pursuant to Section 3.1 shall not be limited in any
way pursuant to the provisions set forth in the preceding sentence.
8.0 Notices.
Any notice required to be given by either party shall be in writing. All
notices shall be to the parties and addresses listed below, and shall be
deemed sufficiently given (i) when received, if delivered personally or
sent by facsimile transmission with confirmed receipt, or (ii) one
business day after the date mailed or sent by an internationally
recognized overnight delivery service with charges prepaid.
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If to PharmaBio: PharmaBio Development, Inc.
4709 Creekstone Drive
Durham, NC 27703
Attention: President
Fax: 919-998-2090
With a copy to: General Counsel
PharmaBio Development, Inc.
4709 Creekstone Drive
Durham, NC 27703
Fax: 919-998-2090
If to Discovery: Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, PA 18901
Attention: Robert J. Capetola, Ph.D., President and CEO
Fax: 215-340-3940
With a copy to: Roberts, Sheridan & Kotel
The New York Practice of
Dickstein Shapiro's Corporate & Finance Group
1177 Avenue of the Americas
New York, NY 10036-2714
Attn: Ira L. Kotel
Facsimile: (212) 835-1400
9.0 Assignment.
No party may assign any of its rights or obligations under this Agreement
to any third party without the written consent of the other party, except
that Discovery may assign its rights or obligations under this Agreement
to a bona fide third party that (i) acquires all of Discovery's business
(a "Permitted Sale") provided that such party assumes all of Discovery's
rights and obligations under this Agreement. Other than pursuant to a
Permitted Sale, Discovery may not, without the written approval of
PharmaBio, assign any of its rights in the Product in the Territory to a
third party. PharmaBio may at any time assign or transfer any of its
rights or obligations under this Agreement to an Affiliate so long as such
Affiliate agrees in an enforceable written instrument to be bound by all
the terms and conditions of this Agreement as if it were PharmaBio and a
party thereto, which instrument shall be delivered a reasonably
practicable time prior to such assignment. Nothing in this Section 9.0
shall preclude the transfer of a party's rights and obligations under this
Agreement in conjunction with a merger in which such party is not the
surviving entity.
10.0 General Provisions.
10.1 This Agreement shall be construed, governed, interpreted, and applied in
accordance with the laws of the State of Delaware, without giving effect
to the principles of conflict of laws.
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10.2 The provisions of Articles 1 (except for Section 1.7), 2, 45, 7, 8, 10 and
11 shall survive the termination of this Agreement for any reason.
10.3 This Agreement contains the entire understandings of the parties with
respect to the subject matter herein and cancels all previous agreements
(oral and written), negotiations and discussions dealing with the same
subject matter. The parties, from time to time during the term of this
Agreement, may modify any of the provisions hereof only by an instrument
in writing duly executed by the parties.
10.4 No failure or delay on the part of a party in either exercising or
enforcing any right under this Agreement will operate as a waiver of, or
impair, any such right. No single or partial exercise or enforcement of
any such right will preclude any other or further exercise or enforcement
thereof or the exercise or enforcement of any other right. No waiver of
any such right will have effect unless given in a signed writing. No
waiver of any such right will be deemed a waiver of any other right.
10.5 If any part or parts of this Agreement are held to be illegal, void or
ineffective, the remaining portions of this Agreement shall remain in full
force and effect. If any of the terms or provisions are in conflict with
any applicable statute or rule of law, then such term(s) or provision(s)
shall be deemed inoperative to the extent that they may conflict
therewith, and shall be deemed to be modified or conformed with such
statute or rule of law. In the event of any ambiguity respecting any term
or terms hereof, the parties agree to construe and interpret such
ambiguity in good faith in such a way as is appropriate to ensure its
enforceability and viability.
10.6 The headings contained in this Agreement are used only as a matter of
convenience, and in no way define, limit, construe or describe the scope
or intent of any section of this Agreement.
10.7 The individuals signing below are authorized and empowered to bind the
parties to the terms of this Agreement.
10.8 Whenever provision is made in this Agreement for either Party to secure
the consent or approval of the other, that consent or approval shall not
unreasonably be withheld or delayed, and whenever in this Agreement
provisions are made for one Party to object to or disapprove a matter,
such objection or disapproval shall not unreasonably be exercised. For the
avoidance of doubt, PharmaBio's funding decisions under Section 3.3(b)
shall not be deemed a "consent or approval" for purposes of this Section
10.8.
11.0 Dispute Resolution:
11.1 Governing Law. This Agreement, including, without limitation, the
interpretation, performance, enforcement, breach or termination thereof
and any remedies relating thereto, shall be governed by and construed in
accordance with the laws of the State
13
of Delaware, United States of America, as applied to agreements executed
and performed entirely in the State of Delaware, without regard to
conflicts of law rules.
11.2 Internal Review. In the event that a dispute, difference, claim, action,
demand, request, investigation, controversy, threat, discovery request or
request for testimony or information or other question arises pertaining
to any matters which arise under, out of, in connection with, or in
relation to this Agreement (a "Dispute") and either party so requests in
writing, prior to the initiation of any formal legal action, the Dispute
will be submitted to the JCC, which will use its good faith efforts to
resolve the Dispute within ten (10) days. If the JCC is unable to resolve
the Dispute in such period, the JCC will refer the Dispute to the Chief
Executive Officers of Discovery and Quintiles Corp. For all Disputes
referred to the Chief Executive Officers, the Chief Executive Officers
shall use their good faith efforts to meet at least two times in person
and to resolve the Dispute within ten (10) days after such referral.
11.3 Arbitration.
(a) If the parties are unable to resolve any Dispute under Section 11.2,
then either party may require the matter to be settled by final and
binding arbitration by sending written notice of such election to
the other party clearly marked "Arbitration Demand". Thereupon such
Dispute shall be arbitrated in accordance with the terms and
conditions of this Section 11.3 Notwithstanding the foregoing,
either party may apply to a court of competent jurisdiction for a
temporary restraining order, a preliminary injunction, or other
equitable relief to preserve the status quo or prevent irreparable
harm.
(b) The arbitration panel will be composed of three arbitrators, one of
whom will be chosen by Discovery, one by Quintiles, and the third by
the two so chosen. If both or either of Discovery or Quintiles fails
to choose an arbitrator or arbitrators within 14 days after
receiving notice of commencement of arbitration, or if the two
arbitrators fail to choose a third arbitrator within 14 days after
their appointment, the American Arbitration Association shall, upon
the request of both or either of the parties to the arbitration,
appoint the arbitrator or arbitrators required to complete the
panel. The arbitrators shall have reasonable experience in the
matter under dispute. The decision of the arbitrators shall be final
and binding on the parties, and specific performance giving effect
to the decision of the arbitrators may be ordered by any court of
competent jurisdiction.
(c) Nothing contained herein shall operate to prevent either party from
asserting counterclaim(s) in any arbitration commenced in accordance
with this agreement, and any such party need not comply with the
procedural provisions of this Section 11.3 in order to assert such
counterclaim(s).
14
(d) The arbitration shall be filed with the office of the American
Arbitration Association ("AAA") located in Wilmington, Delaware or
such other AAA office as the parties may agree upon (without any
obligation to so agree). The arbitration shall be conducted pursuant
to the Commercial Arbitration Rules of AAA as in effect at the time
of the arbitration hearing, such arbitration to be completed in a
sixty (60) day period. In addition, the following rules and
procedures shall apply to the arbitration:
(e) The arbitrators shall have the sole authority to decide whether or
not any Dispute between the parties is arbitrable and whether the
party presenting the issues to be arbitrated has satisfied the
conditions precedent to such party's right to commence arbitration
as required by this Section 11.3.
(f) The decision of the arbitrators, which shall be in writing and state
the findings the facts and conclusions of law upon which the
decision is based, shall be final and binding upon the parties, who
shall forthwith comply after receipt thereof. Judgment upon the
award rendered by the arbitrator may be entered by any competent
court. Each party submits itself to the jurisdiction of any such
court, but only for the entry and enforcement to judgment with
respect to the decision of the arbitrators hereunder.
(g) The arbitrators shall have the power to grant all legal and
equitable remedies (including, without limitation, specific
performance) and award compensatory damages provided by applicable
law, but shall not have the power or authority to award punitive
damages. No party shall seek punitive damages in relation to any
matter under, arising out of, or in connection with or relating to
this Agreement in any other forum.
(h) The parties shall bear their own costs in preparing for and
participating in the resolution of any Dispute pursuant to this
Section 11.3, and the costs of the arbitrator(s) shall be equally
divided between the parties; provided, however, that each party
shall bear the costs incurred in connection with any Dispute brought
by such party that the arbitrators determine to have been brought in
bad faith.
(i) Except as provided in the last sentence of Section 11.3(a), the
provisions of this Section 11.3 shall be a complete defense to any
suit, action or proceeding instituted in any federal, state or local
court or before any administrative tribunal with respect to any
Dispute arising with regard to this Agreement. Any party commencing
a lawsuit in violation of this Section 11.3 shall pay the costs of
the other party, including, without limitation, reasonable
attorney's fees and defense costs.
15
11.4 Costs. The parties shall bear their own costs in preparing for and
participating in the resolution of any Dispute, and the costs of
mediator(s) and arbitrator(s) shall be equally divided between the
parties.
16
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
through their duly authorized officers on the date(s) set forth below.
PHARMABIO DEVELOPMENT, INC. DISCOVERY LABORATORIES, INC.
By: /s/ Thomas C. Perkins By /s/ David L. Lopez
------------------------------- ---------------------------------
Name: Thomas C. Perkins Name: David L. Lopez
------------------------------- ---------------------------------
Title: Vice President and General Title: Vice President and
Counsel General Counsel
------------------------------- ---------------------------------
17
EXHIBIT 10.3
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (this "Agreement") is
dated and entered into as of December 10, 2001, by and between DISCOVERY
LABORATORIES, INC., a Delaware corporation (the "Company"), and PHARMABIO
DEVELOPMENT INC., a North Carolina corporation ("Purchaser").
WHEREAS, the Company and Purchaser have entered into an Investment and
Commission Agreement and a Loan Agreement, both dated as of the date hereof, and
the Company and Quintiles Transnational Corp., an Affiliate of the Purchaser,
have entered into a Commercialization Agreement also dated as of the date hereof
(together with this Agreement, and the Warrants, collectively, the "Transaction
Agreements"); and
WHEREAS, in connection with the foregoing, Purchaser desires to acquire
and the Company is willing to issue and sell to Purchaser: shares of common
stock, $.001 par value per share, of the Company (the "Common Stock"); and
warrants to purchase shares of Common Stock as described herein, subject to the
terms and conditions specified herein;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties agree
as follows:
ARTICLE I
DEFINITIONS
1.01 Definitions. For purposes of this Agreement, in addition to the terms
defined elsewhere herein, the following terms shall have the meanings set forth
below:
"Affiliate" shall mean, as to any person or entity, any corporation or
business entity controlled by, controlling, or under common control with such
party or entity. For this purpose, "control" shall mean direct or indirect
beneficial ownership of at least fifty percent (50%) of the voting stock or
income interest in such corporation or other business entity.
"beneficial ownership" or "beneficially own" shall have the meaning given
under Rule 13d-3 promulgated under the Exchange Act.
"Business Day" shall mean any day other than a Saturday, Sunday or legal
holiday on which banks in North Carolina and New York are open for the conduct
of their banking business.
"Closing" shall have the meaning specified in Section 2.02(a) herein.
"Closing Date" shall have the meaning specified in Section 2.02(a) herein
"Event of Default" shall have the meaning given such term in the Loan
Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FFDCA" shall mean the United States Federal Food, Drug and Cosmetic Act,
as amended from time to time, and all regulations promulgated thereunder.
"Five-Day Average Trading Price" of the Common Stock on any date shall
mean the average of the closing sales prices quoted on the Nasdaq SmallCap
Market for the five (5) trading days prior to such date.
"knowledge" shall mean, when used with respect to the Company, the
knowledge of the executive officers and directors of the Company.
"Loan Agreement" shall mean the Loan Agreement dated as of the date hereof
between the Company and Purchaser, as amended, modified or supplemented from
time to time.
"Registrable Securities" shall mean (i) the Shares, (ii) the Warrant
Shares, and (iii) any Common Stock issued as a dividend or other distribution
with respect to, or in exchange for or in replacement of, such above-described
securities; provided however, that "Registrable Securities" shall not include
any securities sold by a person either pursuant to a registration statement or
Rule 144.
"Rule 144" shall mean Rule 144 as promulgated by the SEC under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"SEC" shall mean the Securities and Exchange Commission.
"Shares" shall mean all shares of Common Stock of the Company issued at
the Closing.
"Thirty-Day Average Trading Price" of the Common Stock on any date shall
mean the average of the closing sales prices quoted on the Nasdaq SmallCap
Market for the thirty (30) trading days prior to such date.
"Warrants" shall mean the Class G and Class H Warrants described in
Section 2.01.
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"Warrant Shares" shall mean the shares issuable by the Company upon the
exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
2.01 Issuance of the Shares and Warrants.
(a) Shares and Class G Warrant. Subject to the terms and conditions
of this Agreement, at the Closing, the Company agrees to issue and sell to
Purchaser, and Purchaser agrees to purchase from the Company for an aggregate
purchase price of $3,000,000:
(1) a number of shares of Common Stock equal to $3,000,000
divided by the higher of (x) 125% of the Thirty-Day Average Trading Price, and
(y) the Five-Day Average Trading Price, with any fractional share amount rounded
to the nearest whole share and with 0.5 shares or more rounded up; and
(2) a warrant to purchase 357,143 shares of Common Stock with
an initial exercise price equal to the higher of (x) 115% of the Thirty-Day
Average Trading Price, and (y) the Five-Day Average Trading Price, in form and
substance satisfactory to the parties (the "Class G Warrant").
(b) Class H Warrant. Subject to the terms and conditions of this
Agreement, at the Closing, the Company agrees to issue to Purchaser a warrant to
purchase 320,000 shares of Common Stock with an initial exercise price equal to
the higher of (x) the Thirty-Day Average Trading Price, and (y) the Five-Day
Average Trading Price and a vesting schedule and otherwise in form and substance
satisfactory to the parties (the "Class H Warrant").
2.02 Closing; Delivery of the Shares.
(a) Closing.
(i) The purchase and sale of the Shares and Warrants shall
take place at a closing (the "Closing") to be held at the offices of Smith,
Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P., 2500 First Union Capitol
Center, Raleigh, NC 27601 at 10:00 a.m. Eastern Time on the date of this
Agreement, or at such other location, time and date as may be mutually agreed
upon by the parties (the "Closing Date"). The Closing shall take place
contemporaneously with the execution and delivery of this Agreement and the
other Transaction Agreements by the parties thereto.
(ii) At the Closing, subject to the terms and conditions
contained in this Agreement, in payment of the full purchase price for the
Shares and the Warrants, Purchaser shall provide a wire transfer of immediately
available funds to the Company in an amount equal to Three Million Dollars
($3,000,000) using the following wire transfer instructions:
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Bank Name: First Union National Bank
Roanoke, Virginia (USA)
ABA No.: 051400549
Beneficiary: First Clearing Corporation
Account No.:
To further credit Discovery Laboratories, Inc., Account No.
(b) Delivery of Shares and Warrants. At the Closing, the Company
shall deliver the Class G Warrant and the Class H Warrant, and as soon as
reasonably practicable after the Closing the Company shall deliver a stock
certificate evidencing the Shares, all issued in the name of Purchaser and dated
as of the Closing Date.
ARTICLE III
CONDITIONS TO CLOSING
3.01 Conditions to Purchaser's Obligations at Closing. The obligation of
Purchaser to purchase and pay for the Shares and the Warrants at the Closing is
subject to each of the following conditions precedent:
(a) Opinion of Counsel. Dickstein Shapiro Morin & Oshinsky, LLP,
counsel to the Company, shall have delivered its legal opinion to Purchaser, in
the form acceptable to the parties regarding this Agreement and the transactions
contemplated hereby;
(b) Board Resolutions. Purchaser shall have received at the Closing
copies of the resolutions of the Board of Directors of the Company authorizing
the execution and delivery of this Agreement and the performance by the Company
of all transactions contemplated hereby, certified by an appropriate officer of
the Company;
(c) Officer's Certificate. Purchaser shall have received at the
Closing, a certificate, executed by the appropriate officer of the Company and
dated as of the Closing Date, together with and certifying (i) the names of the
officers of the Company authorized to sign this Agreement together with the true
signatures of such officers; (ii) a copy of the certificate of incorporation of
the Company, as amended and in effect as of the Closing Date; (iii) a copy of
the bylaws of the Company, as amended and in effect as of the Closing Date; (iv)
that the representations and warranties contained in Article IV hereof are true
and correct as of the Closing Date; and (v) the Company has complied with all
the agreements and satisfied all the conditions herein on its part to be
performed or satisfied on or prior to the Closing Date;
(d) Transaction Agreements. Purchaser shall have received at the
Closing the Transaction Agreements, duly executed by an authorized officer of
the Company; and
(e) Instruction Letter. The Company shall have transmitted an
instruction letter to its stock transfer agent directing it to issue to
Purchaser the stock certificate for the Shares, and Purchaser shall have
received a copy of such letter.
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3.02 Conditions to Company's Obligations at Closing. The obligation of the
Company to issue and sell the Shares and Warrants at the Closing is subject to
each of the following additional conditions precedent:
(a) Transaction Agreements. The Company shall have received at the
Closing the Transaction Agreements, duly executed by an authorized officer of
Purchaser or its Affiliates, as the case may be.
(b) Payment. Purchaser shall have delivered Three Million Dollars
($3,000,000) in immediately available funds to Company's specified account in
accordance with Section 2.02(a)(ii).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company represents and warrants to Purchaser as follows:
4.01 Corporate Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
and the Company is qualified to do business as a foreign corporation in each
jurisdiction in which qualification is required, except where failure to so
qualify would not have a Material Adverse Effect (as defined herein). Except for
Acute Therapeutics, Inc., a wholly owned subsidiary of the Company that is
presently inactive, the Company does not own or control, directly or indirectly,
any interest in any other corporation, partnership, limited liability company,
association, or other business entity. The Company is not a participant in any
joint venture, partnership, or similar arrangement. The Company has all
requisite corporate power and authority to carry on its business as now
conducted.
4.02 Authorized Capital Stock.
(a) As of the Closing Date, 24,753,138 shares of Common Stock and no
shares of the Company's preferred stock, par value $.001 per share ("Preferred
Stock"), were issued and outstanding. All of the outstanding shares of the
Company's capital stock are duly authorized, validly issued, fully paid and
nonassessable.
(b) Except as set forth on Schedule 4.02(b), there are no
outstanding subscriptions, options, warrants, rights, calls, contracts, demands,
commitments, conversion rights or other agreements or arrangements of any
character or nature whatever under which the Company is or may be obligated (x)
to issue or sell shares of its Common Stock or Preferred Stock, or (y) to
register shares of its Common Stock or Preferred Stock. No holder of any
security of the Company is entitled to any preemptive or similar rights to
purchase any securities of the Company.
(c) The Company has reserved a reasonably adequate number of
authorized but unissued shares of Common Stock for issuance upon exercise of the
Warrants and such
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shares shall remain so reserved (subject to reduction from time to time for
Common Stock issued upon the exercise of the Warrants), as long as the Warrants
are exercisable.
4.03 Issuance, Sale and Delivery of the Securities. The Shares, the
Warrants and the Warrant Shares, when issued and paid for pursuant to the terms
of this Agreement or the exercise provisions of the Warrants, as the case may
be, will be duly and validly authorized, issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions (other than restrictions arising under federal or state securities
or "blue sky" laws). The issuance of the Shares, the Warrants and the Warrant
Shares by the Company pursuant to this Agreement (hereinafter such securities
are sometimes collectively referred to as the "Securities") are not subject to
any preemptive or other similar rights. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
issuance and sale of the Securities to be sold by the Company as contemplated
herein. Assuming the accuracy of the representations and warranties of Purchaser
contained in Article V, the issuance of the Shares, the Warrants and the Warrant
Shares as contemplated by this Agreement is exempt from the registration
provisions of the Securities Act.
4.04 Due Execution, Delivery and Performance of the Agreements. The
Company has full legal right, corporate power and authority to enter into the
Transaction Agreements and to perform the transactions contemplated under the
Transaction Agreements. The Transaction Agreements have been duly authorized,
executed and delivered by the Company. The making and performance of the
Transaction Agreements by the Company and the consummation of the transactions
contemplated therein will not violate any provision of the organizational
documents of the Company, and will not result in the creation of any lien,
charge, security interest or encumbrance upon any assets of the Company pursuant
to the terms or provisions of, or will not conflict with, result in the breach
or violation of, or constitute, either by itself or upon notice or the passage
of time or both, a default under any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
is a party or by which the Company or its properties may be bound or affected
and in each case which would have a material adverse effect on the financial
condition, properties, business or results of operations of the Company (a
"Material Adverse Effect") or any statute or any authorization, judgment,
decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body, applicable to the Company or
any of its properties. No consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body, or any
other party, is required for the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement. The Transaction
Agreements constitute valid and binding obligations of the Company, enforceable
in accordance with their respective terms except as such enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and as to
limitations on the enforcement of the remedy of specific performance and other
equitable remedies.
4.05 Financial Statements and Reports. Prior to the execution hereof, the
Company has made available to Purchaser true and complete copies of the
Company's most recently filed Form 10-KSB and the Proxy Statement filed in
connection with the Company's most recent annual meeting of stockholders and all
Forms 10-QSB and 8-K filed by the Company with the SEC after
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January 1, 2001, in each case without exhibits thereto (the "SEC Reports"). As
of their respective filing dates, the SEC Reports were prepared in all material
respects in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such SEC Reports. The SEC Reports, when
read as a whole, do not contain any untrue statements of a material fact and do
not omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim financial
statements of the Company included in the SEC Reports have been prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis (except as may be indicated therein or in the notes
thereto) and fairly present, in all material respects, the financial position of
the Company as at the dates thereof and the results of its operations and cash
flows for the periods then ended subject, in the case of the unaudited interim
financial statements, to normal year-end adjustments and any other adjustments
described in such financial statements. The Company has filed with the SEC on a
timely basis, or received a valid extension of such time of filing, all forms,
reports and documents required to be filed by it under the Exchange Act.
4.06 No Defaults. Except as to defaults, violations and breaches which
individually or in the aggregate would not have a Material Adverse Effect on the
Company, the Company is not in violation or default of any provision of its
certificate of incorporation or bylaws, or other organizational documents, or in
breach of or default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which it is a party or by which it or any of its
properties are bound; and there does not exist any state of fact which, with
notice or lapse of time or both, would constitute an event of default or default
on the part of the Company as defined in such documents, except such defaults
which individually or in the aggregate would not have a Material Adverse Effect
on the Company.
4.07 Contracts. (a) The contracts and agreements of the Company described
in the SEC Reports, including without limitation the Company's licenses and
options for licenses, are in full force and effect on the date hereof; and the
Company is not, nor to the Company's knowledge is any other party, in breach of
or default under any of such contracts or agreements which would have a Material
Adverse Effect on the Company. All such contracts and agreements constitute
valid and binding obligations of the Company, enforceable in accordance with
their respective terms except as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and as to limitations
on the enforcement of the remedy of specific performance and other equitable
remedies.
(b) Without limiting the generality of Section 4.07(a), the Company
makes the representations and warranties in this Section 4.07(b) regarding the
Sublicense Agreement dated October 28, 1996 (the "Sublicense") among Johnson &
Johnson and Ortho Pharmaceutical Corporation, as licensors (collectively,
"Licensor"), and Acute Therapeutics, Inc., as licensee, as follows:
-7-
(i) Company is the successor to Acute Therapeutics, Inc. under
the Sublicense.
(ii) The Sublicense is in full force and effect, and the
Company is not, nor to the Company's knowledge is the Licensor, in breach or
default under the Sublicense in any material respect or in any manner that would
permit a party to terminate the Sublicense. To the Company's knowledge, no event
or condition exists or has occurred which would permit a party to terminate the
Sublicense. The Sublicense is a valid and binding agreement, enforceable in
accordance with its terms.
(iii) To the Company's knowledge, after reasonable
investigation and inquiry, (x) the representations and warranties of the
Licensor under Section 12 of the Sublicense are true and correct and (y) the
Scripps Agreement (as defined in the Sublicense) is in full force and effect.
(iv) The Company has received a valid and binding extension of
the deadline for the filing of the NDA referred to in Section 6 of the
Sublicense until October 28, 2002. The Company has achieved all milestones
required to be achieved under the Sublicense by the dates required thereunder,
taking into account any valid and binding extensions obtained by the Company.
4.08 No Actions. There are no legal or governmental actions, suits,
proceedings or investigations pending or, to the Company's knowledge, threatened
to which the Company is or may be a party or of which property owned or leased
by the Company is or may be the subject, or related to environmental or
discrimination matters, which actions, suits, proceedings or investigations,
individually or in the aggregate, might prevent or might reasonably be expected
to have a material adverse affect the transactions contemplated by this
Agreement or result in a material adverse change in the financial condition,
properties, business, or results of operations of the Company (a "Material
Adverse Change"); and no labor disturbance by the employees of the Company
exists or is imminent, to the Company's knowledge, which might reasonably be
expected to have a Material Adverse Effect. The Company is not a party to or
subject to the provisions of any material injunction, judgment, decree or order
of any court, regulatory body administrative agency or other governmental body.
4.09 Properties. The Company has good and marketable title to all the
properties and assets reflected as owned by it in the SEC Reports, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except (i) those, if
any, reflected in such SEC Reports, or (ii) those which are not material in
amount and do not adversely affect the use made and proposed to be made of such
property by the Company. The Company holds its leased properties under valid and
binding leases. The Company owns, leases or licenses all such properties
necessary for the conduct of its business (as described in the SEC Reports).
4.10 No Material Change. Other than the private placement of shares of
Common Stock on October 1, 2001, since September 30, 2001, (i) the Company has
not incurred any material liabilities or obligations, indirect, or contingent,
or entered into any material verbal or written agreement or other transaction
which is not in the ordinary course of business or which
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could reasonably be expected to result in a material reduction in the future
earnings of the Company; (ii) the Company has not sustained any material loss or
interference with its business or properties from fire, flood, windstorm,
accident or other calamity not covered by insurance; (iii) the Company has not
paid or declared any dividends or other distributions with respect to its
capital stock and the Company is not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been any change
in the capital stock of the Company, other than options issued pursuant to
employee equity incentive plans or purchase plans approved by the Company's
Board of Directors, or indebtedness material to the Company; and (v) except for
the operating losses and negative cash flow the Company has continued to incur,
there has not been any Material Adverse Change.
4.11 Intellectual Property. (a) The Company owns or has obtained valid
rights to use the inventions, patent applications, patents, trademarks (both
registered and unregistered), tradenames, copyrights and trade secrets necessary
for the conduct of the Company's business (as described in the SEC Reports)
(collectively, the "Intellectual Property"); and (b) to the Company's knowledge:
(i) there are no third parties who have any ownership rights to any Intellectual
Property that is owned by, or has been licensed to, the Company for the product
indications described in the SEC Reports that would preclude the Company from
conducting its business (as described in the SEC Reports), except for the
ownership rights of the owners of the Intellectual Property licensed or optioned
by the Company; (ii) there are currently no sales of any products that would
constitute an infringement by third parties of any Intellectual Property owned,
licensed or optioned by the Company; (iii) there is no pending or threatened
action, suit, proceeding or claim by others challenging the rights of the
Company in or to any Intellectual Property owned, licensed or optioned by the
Company; (iv) there is no pending or threatened action, suit, proceeding or
claim by others challenging the validity or scope of any Intellectual Property
owned, licensed or optioned by the Company; (v) there is no pending or
threatened action, suit, proceeding or claim by others that the Company
infringes or otherwise violates any patent, trademark, copyright, trade secret
or other proprietary right of others; and (vi) the Company is not subject to any
judgment, order, writ, injunction or decree of any court or any Federal, state,
local, foreign or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any arbitrator, and the
Company has not entered into or is a party to any contract which restricts or
impairs the use of any such Intellectual Property in a manner which would have a
Material Adverse Effect on the Company.
4.12 Compliance. The Company has been and is in compliance in all material
respects with all applicable laws, rules, regulations and orders, in respect of
the conduct of its business and the ownership of its properties, including
without limitation with respect to the FFDCA, environmental issues, and taxes
and other governmental charges.
4.13 Taxes. The Company has filed all federal, state, local and foreign
income and other tax returns required to be filed by it and has paid or accrued
all taxes shown as due thereon, and the Company has no knowledge of a tax
deficiency which has been or might be asserted or threatened against it.
4.14 Transfer Taxes. On the Closing Date, all stock transfer or other
taxes (other than income taxes) which are required to be paid in connection with
the sale and transfer of the Shares
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to be sold to the Purchaser hereunder will be, or will have been, fully paid or
provided for by the Company and all laws imposing such taxes will be or will
have been fully complied with.
4.15 Registration and Listing of Stock. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is listed on the
Nasdaq SmallCap Market, and the Company has taken no action designed to, or
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act or de-listing the Common Stock from the Nasdaq SmallCap
Market, nor has the Company received any notification that the SEC or the
National Association of Securities Dealers, Inc. (the "NASD") is contemplating
terminating such registration or listing.
4.16 No Manipulation of Stock. The Company has not taken any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
transactions contemplated hereby.
4.17 Investment Company. The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for an
investment company, within the meaning of the Investment Company Act of 1940, as
amended.
4.18 No Solicitation. The Company has not in the past nor will it
hereafter take any action to sell, offer for sale or solicit offers to buy any
securities of the Company which would bring the offer, issuance or sale of the
Shares, as contemplated by this Agreement, within the provisions of Section 5 of
the Securities Act, unless such offer, issuance or sale was or shall be within
the exemptions of Section 4 (or other appropriate exemption) of the Securities
Act.
4.19 Insurance. The Company maintains insurance with sound and reputable
insurance companies of the types and in the amounts that the Company reasonably
believes is adequate for its business, including, but not limited to, insurance
covering all real and personal property owned or leased by the Company against
all risks customarily insured against by similarly situated companies, all of
which insurance is in full force and effect.
4.20 No Integration. Neither the Company nor any of its Affiliates nor any
person acting on the Company's behalf has, directly or indirectly, at any time
within the past six (6) months made any offer or sale of any security or
solicitation of any offer to buy any security under circumstances, that in the
opinion of the Company's counsel, concurred by the Purchaser's counsel, would
eliminate the availability of the exemption from registration under Regulation D
under the Securities Act in connection with the offer and sale of the Securities
as contemplated hereby.
4.21 No Implied Representations. All of the Company's representations and
warranties are contained in this Agreement, and no other representations or
warranties by the Company shall be implied.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Company as follows:
5.01 Corporate Status. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of North Carolina.
Purchaser has all requisite corporate power and authority to carry on its
business as now conducted.
5.02 Due Execution, Delivery and Performance of Agreement. Purchaser and
its Affiliates have full legal right, corporate power and authority to enter
into the Transaction Agreements and to perform the transactions contemplated
thereunder. This Agreement has been duly authorized, executed and delivered by
Purchaser. This Agreement constitutes the valid and binding obligation of
Purchaser enforceable in accordance with its terms.
5.03 Investment. Purchaser is acquiring the Securities for Purchaser's own
account, and not with a view to, or for resale in connection with, any
distribution or public offering thereof within the meaning of the Securities
Act. Purchaser acknowledges receiving and reviewing the SEC Reports. Purchaser
is aware of the Company's business affairs and financial condition has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
business affairs and financial condition of the Company and (ii) the opportunity
to request such additional information which the Company possesses or can
acquire without unreasonable effort or expense and has had access to and has
acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Securities to be purchased hereunder.
Purchaser, either by reason of its own business or financial experience or the
business or financial experience of its professional advisors (who are
unaffiliated with and who are not compensated by the Company or any affiliate,
finder or selling agent of the Company, directly or indirectly), has such
business and financial experience as is required to give it the capacity to
utilize the information received, to evaluate the risks involved in purchasing
such securities, to make an informed decision about purchasing the Securities
and to protect its own interests in connection with the purchase of the
Securities and is able to bear the risks of an investment in the Securities.
Purchaser is able to bear the economic risk of holding the Securities for an
indefinite period of time and can afford a complete loss of its investment.
Purchaser is not itself a "broker" or a "dealer" as defined in the Exchange Act
and is not an "affiliate" of the Company as defined in Rule 405 promulgated
under the Securities Act.
5.04 Accredited Investor. Purchaser is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act.
5.05 Shares and Warrants Not Registered. Purchaser understands that the
Securities are not registered under the Securities Act or registered or
qualified under any state securities or "blue sky" laws in reliance on specific
exemptions therefrom. Purchaser acknowledges and agrees that (i) it shall not
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the
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Securities, except in compliance with the Securities Act and State securities or
"blue sky" laws and the rules and regulations promulgated thereunder and with
this Agreement, and (ii) neither the Shares, the Warrants nor the Warrant Shares
may be resold or otherwise transferred except in a transaction registered under
the Securities Act or unless an exemption from such registration is available.
Purchaser understands that until the Shares and the Warrant Shares have been
registered for resale by the Purchaser in compliance with applicable securities
laws, the certificates evidencing the Shares, the Warrants and the Warrant
Shares will be imprinted with a legend (in accordance with Section 5.06) that
prohibits the transfer of the Shares, the Warrants and the Warrant Shares unless
(a) such transaction is registered or such registration is not required or (b)
if the transfer is pursuant to an exemption from registration, upon the
reasonable request of the Company, an opinion of counsel reasonably satisfactory
to the Company is obtained to the effect that the transaction is not required to
be registered or is so exempt.
5.06 Legend. To the extent applicable, each certificate evidencing the
Shares and the Warrant Shares, shall be endorsed with the legend substantially
in the form set forth below:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES OR "BLUE-SKY" LAWS AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER SUCH ACT OR UNDER SUCH LAWS, OR PURSUANT TO AN
EXEMPTION FROM SUCH REGISTRATION, AND ARE SUBJECT TO THE TERMS AND
CONDITIONS OF THE COMMON STOCK AND WARRANT PURCHASE AGREEMENT DATED
DECEMBER 10, 2001, BETWEEN DISCOVERY LABORATORIES, INC. AND
PHARMABIO DEVELOPMENT INC., A COPY OF WHICH IS AVAILABLE UPON
WRITTEN REQUEST OF THE CORPORATE SECRETARY OF DISCOVERY
LABORATORIES, INC."
ARTICLE VI
SUBSCRIPTION RIGHT
6.01 Subscription Right.
(a) If at any time after the date hereof until the date on which
there shall no longer remain outstanding at least 25% of the Shares (computed on
an as converted to Common Stock basis) purchased by Purchaser under this
Agreement, the Company proposes to issue equity securities of the Company of any
kind, the primary purpose of which is to raise equity capital (the term "equity
securities" shall include for these purposes any warrants, options or other
rights to acquire equity securities and debt securities convertible into equity
securities), other than (x) to the public in an underwritten offering pursuant
to a registration statement filed under the Securities Act, (y) issued in
connection with bona fide acquisitions, mergers, joint ventures, collaborative
arrangements, strategic alliances or similar transactions, the terms of which
are approved by the Company's Board of Directors, or (z) pursuant to any stock
option,
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stock purchase or similar plan or arrangement for the benefit of the employees
of the Company or its subsidiaries, adopted by the Board of Directors, then, the
Company shall:
(i) give written notice to Purchaser (no less than fifteen
(15) Business Days prior to the closing of such issuance) setting forth in
reasonable detail (A) the designation and all of the terms and provisions
of the securities proposed to be issued (the "Proposed Securities"),
including, where applicable, the voting powers, preferences and relative
participating, optional or other special rights, and the qualification,
limitations or restrictions thereof; (B) the price and other terms of the
proposed sale of such securities; (C) the amount of such securities
proposed to be issued; and (D) such other information as Purchaser may
reasonably request in order to evaluate the proposed issuance; and
(ii) offer to issue and sell to Purchaser, on such terms as
the Proposed Securities are issued, upon full payment by Purchaser, a
portion of the Proposed Securities equal to a percentage determined by
dividing (A) the number of shares of Common Stock then held by Purchaser
(computed on an as converted to Common Stock basis but excluding any
Warrant Shares attributable to the Class H Warrant that are unvested as of
the date thereof), by (B) the total number of shares of Common Stock then
outstanding, including for purposes of this calculation all shares of
Common Stock issuable upon conversion or exercise in full of any
convertible or exercisable securities (other than employee stock options)
then outstanding (including shares of Common Stock issuable upon
conversion of convertible securities or issuable upon exercise of
outstanding warrants).
(b) Purchaser must exercise its purchase rights hereunder within ten
(10) Business Days after receipt of such notice from the Company. The
closing of the exercise of such subscription right shall take place
simultaneously with the closing of the sale of the Proposed Securities
giving rise to such subscription right.
(c) Upon the expiration of the ten (10) Business Day offering period
described above, the Company will be free to sell such Proposed Securities that
Purchaser has not elected to purchase during the ninety (90) days following such
expiration on financial and economic terms and conditions no more favorable to
the purchasers thereof than those offered to Purchaser. Any Proposed Securities
offered or sold by the Company after such ninety (90) day period must be
reoffered to Purchaser pursuant to this Section 6.01.
(d) The election by Purchaser not to exercise its subscription
rights under this Section 6.01 in any one instance shall not affect its
subscription rights as to any subsequent proposed issuance.
(e) Any sale of such securities by the Company without first giving
Purchaser the rights described in this Section 6.01 shall be void and of no
force and effect.
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ARTICLE VII
REGISTRATION RIGHTS
7.01 Required Registration.
(a) At any time following one hundred eighty (180) days after the
date of this Agreement, the holders of Registrable Securities who hold and
propose to sell Registrable Securities with an aggregate value of at least
$500,000 shall have the right to require the Company to register under the
Securities Act on Form S-3 or other comparable or successor form such shares by
delivering written notice thereof to the Company. All such registrations shall
be non-underwritten. For so long as the Company may be obligated to effect a
registration statement pursuant to this Section 7.01, the Company shall use its
reasonable best efforts to be and remain eligible to use Form S-3 or other
appropriate comparable or successor form under the Securities Act.
(b) The Company shall be obligated to register Registrable
Securities pursuant to this Section 7.01 on not more than one occasion during
any twelve-month rolling period, or on more than two occasions in the aggregate;
provided, however, that such obligation shall be deemed satisfied only when a
registration statement covering all shares of Registrable Securities requested
to be included in such registration statement by the holders thereof, for sale
in accordance with the method of disposition specified by the requesting
holders, shall have become effective or if the holders participating in the
registration withdraw from the registration; provided, further, that if such
registration statement has become effective but the contemplated public offering
is withdrawn prior to the completion thereof, or if holders participating in the
registration withdraw, causing the requirements of this Section not to be met,
because of material adverse developments affecting the Company that were not
known to the participating holders prior to such effectiveness, then such
registration shall not count as one of the registrations hereunder.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 7.01, for sale in accordance with the
method of disposition specified by requesting holders, shares of Common Stock to
be sold by the Company for its own account or for the account of other security
holders of the Company, but only to the extent that such inclusion will not
adversely affect the offering for the account of the holders of Registrable
Securities.
7.02 Incidental Registration. If the Company at any time (other than
pursuant to Section 7.01) proposes to register any of its securities under the
Securities Act for sale to the public, whether for its own account or for the
account of other security holders or both (except with respect to registration
statements on Forms S-4, S-8 or another form not available for registering the
Registrable Securities for sale to the public, or which relate to employee
benefit plans or with respect to corporate reorganizations or other transactions
subject to Rule 145 of the Securities Act), each such time it will give written
notice to all holders of outstanding Registrable Securities of its intention so
to do. Upon the written request of any such holder, received by the Company
within thirty (30) days after the giving of any such notice by the Company, to
register
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any of its Registrable Securities, the Company will use its best efforts to
cause such Registrable Securities to be included in the registration statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition of such Registrable Securities so registered. In the
event that any registration pursuant to this Section 7.02 shall be an
underwritten public offering of Common Stock, the number of shares of
Registrable Securities to be included in such an underwriting may be limited if
and to the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company therein, and, in such case, the number of shares of securities
that are entitled to be included in the registration and underwriting shall be
allocated in the following manner: The securities of the Company held by
officers, directors and other stockholders of the Company, other than securities
held by holders ("Demand Holders") who have contractual rights (existing prior
to the date of this Agreement) to participate in or demand such registration,
shall be excluded from such registration and underwriting to the extent required
by such limitation, and, if a limitation on the number of shares is still
required, the number of shares that may be included in the registration and
underwriting by each of the holders Registrable Securities and Demanding Holders
shall be reduced, on a pro rata basis (based on the number of shares held by
such holders of Registrable Securities and Demanding Holders), by such minimum
number of shares as is necessary to comply with such limitation.
7.03 Registration Procedures. If and whenever the Company is required by
the provisions of Section 7.01 or 7.02 to effect the registration of any
Registrable Securities under the Securities Act, the Company will, as
expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such securities as soon as reasonably practicable after delivery of
the applicable notice, and in any event within thirty (30) days thereof, and use
its reasonable best efforts to cause such registration statement to become
effective within ninety (90) days after delivery of such notice and remain
effective for the period of the distribution contemplated thereby (determined as
hereinafter provided); provided, however, that that Company's obligation to file
a registration statement, or cause such registration statement to become and
remain effective, shall be suspended for a period not to exceed ninety (90) days
in any twelve-month period if in the reasonable judgment of the Company's Board
of Directors it would be detrimental to the Company to effect a registration at
such time;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the related prospectus as may be necessary to
keep such registration statement effective for the period specified in paragraph
(a) above and comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities covered by such registration
statement in accordance with the sellers' intended method of disposition set
forth in such registration statement for such period; provided, however, the
holders hereby acknowledge that the Company may notify the holders of the
suspension of the use of the prospectus forming a part of the registration
statement until such time as an amendment to such registration statement has
been filed by the Company and declared effective by the SEC or until the Company
has otherwise amended or supplemented such prospectus, and upon receipt of such
notice the holders shall suspend the use of the prospectus and shall not offer
-15-
or sell any securities pursuant to said prospectus during the period commencing
at the time at which the Company gives the holders notice of the suspension of
the use of said prospectus and ending at the time the Company gives the holders
notice that holders may thereafter effect sales pursuant to said prospectus.
Notwithstanding anything herein to the contrary, the Company (i) shall not
suspend use of the registration statement by holders unless such suspension is
in the good faith opinion of the Company and its counsel advisable under the
federal securities laws and the rules and regulations promulgated thereunder;
and (ii) shall use its best efforts to amend to such registration statement or
amend or supplement such prospectus as soon as practicable to again permit sales
pursuant to said prospectus;
(c) furnish to each seller of Registrable Securities and to each
underwriter, if applicable, such number of copies of the registration statement
and the prospectus included therein (including each preliminary prospectus) as
such persons reasonably may request in order to facilitate the public sale or
other disposition of the Registrable Securities covered by such registration
statement;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or "blue
sky" laws of such jurisdictions as the sellers of Registrable Securities or, in
the case of an underwritten public offering, the managing underwriter reasonably
shall request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) immediately notify each seller of Registrable Securities and
each underwriter, if applicable, under such registration statement, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event of which the Company has knowledge
as a result of which the prospectus contained in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
and
(f) if the offering is underwritten and at the request of any seller
of Registrable Securities, use its best efforts to furnish on the date that
Registrable Securities are delivered to the underwriters for sale pursuant to
such registration: (i) an opinion dated such date of counsel representing the
Company for the purposes of such registration, addressed to the underwriters and
to such seller, in form and substance as is customarily given in an underwritten
public offering; and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters and to such
seller, in form and substance as is customarily given in an underwritten public
offering.
For purposes of Section 7.03(a) and (b), the period of distribution of
Registrable Securities in any registration shall be deemed to extend until the
earlier of the sale of all Registrable Securities covered thereby and one
hundred twenty (120) days after the effective date thereof.
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7.04 Expenses. All expenses incurred by the Company in complying with
Sections 7.01, 7.02 and 7.03, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the NASD, transfer taxes, fees of transfer agents and
registrars and the reasonable fees and disbursements of one counsel for the
sellers of Registrable Securities (not to exceed $25,000 in the aggregate), but
excluding any Selling Expenses, are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities are called "Selling Expenses". The Company will pay all
Registration Expenses in connection with each registration statement under
Section 7.01 or 7.02. All Selling Expenses in connection with each such
registration statement shall be borne by the participating sellers on a pro rata
basis based on the number of Registrable Securities included in such
registration statement.
7.05 Indemnification and Contribution.
(a) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Section 7.01 or 7.02, to the
extent permitted by applicable law, the Company will indemnify and hold harmless
each seller of such Registrable Securities thereunder, each underwriter of such
Registrable Securities thereunder and each other person, if any, who controls
such seller or underwriter within the meaning of Section 5 of the Securities
Act, against any losses, claims, damages or liabilities, joint or several, to
which such seller, underwriter or controlling person may become subject under
the Securities Act or other applicable Federal or State securities or "blue sky"
laws, to the extent that such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such Registrable Securities were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each such seller, each such underwriter and each such
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable, to
any such indemnitee if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an (i) untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by or on behalf of such indemnitee in writing specifically
for use in such registration statement or prospectus or (ii) such untrue
statement or alleged untrue statement or omission or alleged omission was
contained in a preliminary or earlier effective prospectus and corrected in a
final or amended prospectus, and such holder of Registrable Securities failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Registrable Securities to the buyer of such
Registrable Securities; provided, further, that the indemnity agreement
contained in this Section 7.05(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld, provided that such consent shall not be required if the
settlement shall
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include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of such
claim or litigation.
(b) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Section 7.01 or 7.02, to the
extent permitted by applicable law, each seller of such Registrable Securities
thereunder, severally and not jointly, will indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or other applicable Federal or State
securities or "blue sky" laws, to the extent that such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the registration statement under which such Registrable Securities was
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such officer,
director, underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that such
seller will be liable hereunder in any such case if and only to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
seller, as such, furnished in writing to the Company by or on behalf of such
seller specifically for use in such registration statement or prospectus, and
provided, further, that the indemnity agreement contained in this Section
7.05(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of such seller, which consent shall not be unreasonably withheld, provided that
such consent shall not be required if the settlement shall include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such claim or
litigation; provided, further, that the liability of each seller hereunder shall
be limited to the net proceeds received for the account of such seller from the
sale of Registrable Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 7.05 and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 7.05 if and to the extent the indemnifying party is prejudiced by
such omission. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate in and, to the
-18-
extent it shall wish, to assume and undertake the defense thereof with counsel
reasonably satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 7.05 for any legal expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected, provided, however, that, if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be reasonable
defenses available to it which are different from or additional to those
available to the indemnifying party or if the interests of the indemnified party
reasonably may be deemed to conflict with the interests of the indemnifying
party, the indemnified party shall have the right to select a separate counsel
and to assume such legal defenses and otherwise to participate in the defense of
such action, with the reasonable expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the
indemnifying party as incurred; provided, further, that the Company shall not
have any reimbursement obligation for the expenses and fees of more than one
such separate counsel for all indemnitees.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 7.05 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7.05 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling holder or any such controlling person in circumstances for which
indemnification is provided under this Section 6; then, and in each such case,
the Company and such holder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other, as well as any other relevant equitable considerations. The relative
fault of the parties shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that, in any such case, (A) no such
holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
7.06 Changes in Common Stock. If, and as often as, there is any change in
the Common Stock by way of a stock split, stock dividend, combination or
reclassification, or through a merger, consolidation, reorganization or
recapitalization, or by any other means,
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appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock as
so changed.
7.07 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the SEC that may at any time permit the sale of
the Registrable Securities to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use commercially reasonable efforts to file with the SEC in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Registrable Securities forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing such holder to sell any Registrable Securities without
registration.
7.08 Future Registration Rights. The Company shall not, except with the
consent of the holders of a majority of the Registrable Securities, enter into
any agreement with any holder or prospective holder of any securities of the
Company that would allow such holder or prospective holder to include such
securities in any registration filed pursuant to Section 7.01 or 7.02 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion thereof will not reduce the amount of Registrable Securities that is
included.
7.09 Certain Holder Obligations. (a) As a condition to the inclusion of
its Registrable Securities in a registration effected pursuant to Section 7.01
or 7.02, the holders will promptly provide the Company with such information as
the Company shall reasonably request in order to prepare the applicable
registration statement for such registration, including, but not limited to,
information regarding the holders, the securities of the Company owned
beneficially or of record by the holders, the distribution proposed by the
holders, a customary selling securityholders questionnaire and, upon the
Company's request, the holders shall provide such information in writing and
signed by the holders and stated to be specifically for inclusion in the
applicable registrations. In the event that the distribution of the Common Stock
covered by the applicable registration statement shall be effected pursuant to
an underwritten offering as contemplated by Section 7.02, the inclusion of the
Registrable Securities shall be conditioned on the holders' execution and
delivery of a customary underwriting agreement with terms and conditions
reasonably satisfactory to the Company with respect thereto.
(b) The holders shall not take any action with respect to any
distribution deemed to be made pursuant to any registration statement pursuant
to Section 7.01 or 7.02, which would constitute a violation of Regulation M
under the Exchange Act.
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(c) If, at the end of any period during which the Company is
obligated to keep a registration statement pursuant to Section 7.01 or 7.02
effective, the holders have Registrable Securities which were included in such
registration statement, the holders shall discontinue sales of such securities
pursuant to the registration statement and prospectus upon receipt of notice
from the Company of its intention to remove from registration the shares covered
by registration statement which remain unsold (as permitted under the provisions
of this Article VII, and the holders shall notify the Company of the number of
shares registered which remain unsold promptly upon receipt of such notice from
the Company.
(d) The holders shall have no right to take any action to restrain,
enjoin or otherwise delay any registration as a result of any controversy that
may arise with respect to the interpretation or implementation of the terms of
this Article VII.
7.10 Termination of Registration Rights.The obligations of the Company to
register shares of Registrable Securities under Section 7.01 or 7.02 for a
holder of Registrable Securities shall terminate on the earlier to occur of (i)
the date on which such holder can, in the reasonable opinion of counsel to the
Company, sell all shares of its Registrable Securities in a three-month period
without registration under the Securities Act pursuant to Rule 144 under the
Securities Act.
7.11 Listing. The Company shall use its best efforts to list, and keep
authorized for listing, the Registrable Securities on the Nasdaq SmallCap
Market, the Nasdaq National Market or any national securities exchange on which
the Common Stock is traded.
ARTICLE VIII
ADDITIONAL AGREEMENTS
8.01 Short Sales, etc. Purchaser represents and agrees that, during the
period from October 3, 2001 through the date of this Agreement, Purchaser and
its Affiliates did not and, from the date hereof until the first anniversary of
the date of this Agreement, Purchaser will not, and shall cause its Affiliates
not to, execute or effect or cause to be executed or effected any "short sale"
(as defined in Rule 3b-3 of the Exchange Act) of Common Stock or any hedging
transaction in which the other party to such transaction is reasonably likely to
engage in such a short sale as a direct result of such transaction.
8.02 Restriction on Purchase of Common Stock. Until the expiration or
termination of the Commercialization Agreement, Purchaser will not, and shall
cause its Affiliates not to, purchase or become the beneficial owner of any
shares of Common Stock which results in Purchaser and its Affiliates
beneficially owning more than nineteen percent (19%) of the issued and
outstanding shares of Common Stock; provided, however that (a) nothing in this
Section shall prevent Purchaser and its Affiliates from acquiring Common Stock
contemplated by the Transaction Agreements and (b) Purchaser shall not be deemed
to violate this Section as a result of any reorganization, recapitalization,
stock repurchase, stock combination or other similar transaction effected by the
Company with respect to the Common Stock if Purchaser and its
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Affiliates beneficially owned less than 19% of the issued and outstanding shares
of Common Stock before giving effect to such transaction.
8.03 Restrictions on Sale of Shares.
(a) Until one hundred eighty (180) days after the date of this
Agreement, Purchaser will not sell or otherwise transfer the Shares.
(b) If, at any time prior to the first anniversary of the date of
this Agreement, Purchaser proposes to sell Shares constituting one percent
(1.0%) or more of the outstanding shares of Common Stock, then Purchaser shall
first offer to sell such Shares of the Company, and the parties agree to
negotiate in good faith to reach an agreement on the purchase price and other
terms of the sale of such Shares to the Company. If the parties are not able to
reach such an agreement within ten (10) Business Days, then Purchaser shall be
free to proceed with such sale to a third party so long as it complies with any
other applicable terms of this Agreement.
(c) Until the expiration or termination of the Commercialization
Agreement, Purchaser will not knowingly sell the Shares to a person or entity
which actively sells, distributes, markets, develops, or produces a
pharmaceutical product which directly competes with the Product (as defined in
the Investment and Commission Agreement) for any of the indications contemplated
by the Transaction Agreements on the date hereof. In any event, this subsection
(c) shall not prevent Purchaser from selling the Shares in open-market
transactions.
(d) The restrictions under this Section shall not be applicable to
any transfers of the Shares to any Affiliate of Quintiles Transnational Corp.,
so long as such Affiliate agrees in an enforceable written instrument to be
bound by all the terms and conditions of this Agreement as if it were Purchaser
and a party hereto, which instrument shall be delivered a reasonably practicable
time prior to such sale or transfer.
8.04 Voting Agreement. Until the earlier of (i) such time that Purchaser
beneficially owns less than one percent of the issued and outstanding shares of
Common Stock of the Company, and (ii) the completion of the Company's annual
meeting of shareholders for the calendar year 2003, at each annual meeting of
the shareholders of the Company or in connection with any other meeting or
action by written consent in lieu of a meeting of the shareholders of the
Company, Purchaser shall vote or act with respect to all shares of Common Stock
beneficially owned by it (x) in favor of all persons nominated by the then
current Board of Directors of the Company for election to the Board of Directors
of the Company and (y) in accordance with the recommendations of the Board of
Directors with respect to any other issue; provided, that this clause (y) shall
not apply to any issue that is directly related to the matters which are subject
to the Transaction Agreements or to any Change of Control (as defined in the
Loan Agreement). The voting agreement contained in this Section 8.04 is
irrevocable to the extent permitted by applicable law and is coupled with an
interest. Until the earlier of (i) such time that Purchaser
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beneficially owns less than five percent of the issued and outstanding shares of
Common Stock of the Company, and (ii) three years after the date of this
Agreement, at and in relation to each annual meeting of the shareholders of the
Company or in connection with any other meeting or action by written consent in
lieu of a meeting of shareholders of the Company, Purchaser will not actively
oppose any items referred to in clauses (x) and (y) above.
8.05 Continuation of Certain Restrictions. If at any time prior to the
second anniversary of the date of this Agreement, Purchaser transfers Shares in
accordance with the provisions of this Agreement, Purchaser shall not effect
such transfer unless the transferee agrees in an enforceable written instrument
to be bound by the terms and conditions of Sections 8.01, 8.03(c), and 8.04;
provided, however, that (i) such transferee shall not be bound to any greater
extent as to duration of time or otherwise than Purchaser is bound under such
Sections on the date of this Agreement and (ii) this Section 8.05 shall not
apply to any transfer by Purchaser to a transferee that will own one percent or
less of the Company's outstanding shares of Common Stock after giving effect to
such transfer.
8.06 Termination of Restrictions. Upon the occurrence of an Event of
Default under the Loan Agreement or the termination of the Investment and
Commission Agreement by Purchaser in accordance with its terms, all of the
provisions of this Article VIII shall immediately terminate and have no further
force or effect.
ARTICLE IX
MISCELLANEOUS
9.01 Amendments, Etc. No amendment or waiver of any provision of this
Agreement, nor consent to any departure by the Company therefrom, shall in any
event be effective unless the same shall be in writing and signed by Purchaser,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
9.02 Notices. All notices and other communications provided for hereunder
shall be in writing, shall specifically refer to this Agreement, shall be
addressed to the receiving party's address set forth below or to such other
address as a party may designate by notice hereunder, and shall be deemed to
have been sufficiently given for all purposes if (a) mailed by first class
certified or registered mail, postage prepaid, (b) sent by nationally recognized
overnight courier for next Business Day delivery, (c) personally delivered, or
(d) made by telecopy or facsimile transmission with confirmed receipt.
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If to Company: Discovery Laboratories, Inc.
350 South Main Street, Suite 307
Doylestown, PA 18901-4874
Attn: President
Facsimile: (215) 340-3940
with a copy to: Roberts, Sheridan & Kotel
The New York Practice of
Dickstein Shapiro's Corporate & Finance Group
1177 Avenue of the Americas, 41st Floor
New York, NY 10036-2714
Attn: Ira L. Kotel
Facsimile: (212) 997-9880
If to Purchaser: PharmaBio Development Inc.
4709 Creekstone Drive
Suite 200 Riverbirch Bldg.
Durham, NC 27703
Attn: President
Facsimile: (919) 998-2090
with a copy to: Smith, Anderson, Blount, Dorsett
Mitchell & Jernigan, L.L.P.
2500 First Union Capitol Center
Raleigh, NC 27601
Attn: Christopher B. Capel
Facsimile: (919) 821-6800
9.03 No Waiver; Remedies. No failure on the part of Purchaser to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
9.04 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expense of appeals.
9.05 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Company and Purchaser and their respective
successors and assigns, provided that neither the Company nor Purchaser may
assign or transfer any or all of its rights or obligations under this Agreement
without the prior written consent of the other party and any
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attempted assignment without such consent shall be null and void; provided,
however, that Purchaser may at any time assign or transfer any of its rights or
obligations under this Agreement to an Affiliate.
9.06 Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
9.07 Entire Agreement. This Agreement and the other Transaction Agreements
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter thereof and supersede all prior oral or written
agreements and understandings relating to the subject matter thereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the Transaction Agreements shall affect, or be used to
interpret, change or restrict, the express terms and provisions of the
Transaction Agreements.
9.08 Further Action. Each party shall, without further consideration, take
such further action and execute and deliver such further documents as may be
reasonably requested by the other party in order to carry out the provisions and
purposes of this Agreement.
9.09 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one and the same instrument. This Agreement may
be executed and delivered by telecopy or facsimile transmission and any
execution by such means shall be deemed an original.
9.10 Survival. The representations, warranties, covenants and agreements
made herein by the Company and Purchaser shall survive the Closing.
9.11 Publicity. Except as otherwise required by applicable law or by
obligations pursuant to any listing agreement with or rules of any securities
exchange or automated quotation system, each party shall, and shall cause its
respective Affiliates to, not, issue any press release or make any other public
statement relating to, connected with or arising out of this Agreement or the
matters contained herein without the other parties' prior written approval of
the contents and the manner of presentation and publication thereof (which
approval shall not be unreasonably withheld or delayed).
9.12 Governing Law. This Agreement, including, without limitation, the
interpretation, performance, enforcement, breach or termination thereof and any
remedies relating thereto, shall be governed by and construed in accordance with
the laws of the State of Delaware, United States of America, as applied to
agreements executed and performed entirely in the State of Delaware, without
regard to conflicts of law rules.
9.13 Internal Review. In the event that a dispute, difference, claim,
action, demand, request, investigation, controversy, threat, discovery request
or request for testimony or
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information or other question arises pertaining to any matters which arise
under, out of, in connection with, or in relation to this Agreement (a
"Dispute") and either party so requests in writing, prior to the initiation of
any formal legal action, the Dispute will be submitted to the JCC (as defined in
the Commercialization Agreement), which will use its good faith efforts to
resolve the Dispute within ten (10) days. If the JCC is unable to resolve the
Dispute in such period, the JCC will refer the Dispute to the Chief Executive
Officers of the Company and Purchaser. For all Disputes referred to the Chief
Executive Officers, the Chief Executive Officers shall use their good faith
efforts to meet at least two times in person and to resolve the Dispute within
ten (10) days after such referral.
9.14 Arbitration. (a) If the parties are unable to resolve any Dispute
under Section 9.13, then either party may require the matter to be settled by
final and binding arbitration by sending written notice of such election to the
other party clearly marked "Arbitration Demand". Thereupon such Dispute shall be
arbitrated in accordance with the terms and conditions of this Section 9.14.
Notwithstanding the foregoing, either party may apply to a court of competent
jurisdiction for a temporary restraining order, a preliminary injunction, or
other equitable relief to preserve the status quo or prevent irreparable harm.
(b) The arbitration panel will be composed of three arbitrators, one of
whom will be chosen by the Company, one by Purchaser, and the third by the two
so chosen. If both or either of the Company or Purchaser fails to choose an
arbitrator or arbitrators within 14 days after receiving notice of commencement
of arbitration, or if the two arbitrators fail to choose a third arbitrator
within 14 days after their appointment, the American Arbitration Association
shall, upon the request of both or either of the parties to the arbitration,
appoint the arbitrator or arbitrators required to complete the panel. The
arbitrators shall have reasonable experience in the matter under dispute. The
decision of the arbitrators shall be final and binding on the parties, and
specific performance giving effect to the decision of the arbitrators may be
ordered by any court of competent jurisdiction.
(c) Nothing contained herein shall operate to prevent either party from
asserting counterclaim(s) in any arbitration commenced in accordance with this
agreement, and any such party need not comply with the procedural provisions of
this Section 9.14 in order to assert such counterclaim(s).
(d) The arbitration shall be filed with the office of the American
Arbitration Association ("AAA") located in Wilmington, Delaware or such other
AAA office as the parties may agree upon (without any obligation to so agree).
The arbitration shall be conducted pursuant to the Commercial Arbitration Rules
of AAA as in effect at the time of the arbitration hearing, such arbitration to
be completed in a sixty (60) day period. In addition, the following rules and
procedures shall apply to the arbitration:
(e) The arbitrators shall have the sole authority to decide whether or not
any Dispute between the parties is arbitrable and whether the party presenting
the issues to be arbitrated has satisfied the conditions precedent to such
party's right to commence arbitration as required by this Section 9.14.
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(f) The decision of the arbitrators, which shall be in writing and state
the findings the facts and conclusions of law upon which the decision is based,
shall be final and binding upon the parties, who shall forthwith comply after
receipt thereof. Judgment upon the award rendered by the arbitrator may be
entered by any competent court. Each party submits itself to the jurisdiction of
any such court, but only for the entry and enforcement to judgment with respect
to the decision of the arbitrators hereunder.
(g) The arbitrators shall have the power to grant all legal and equitable
remedies (including, without limitation, specific performance) and award
compensatory damages provided by applicable law, but shall not have the power or
authority to award punitive damages. No party shall seek punitive damages in
relation to any matter under, arising out of, or in connection with or relating
to this Agreement in any other forum.
(h) The parties shall bear their own costs in preparing for and
participating in the resolution of any Dispute pursuant to this Section 9.14,
and the costs of the arbitrator(s) shall be equally divided between the parties;
provided, however, that each party shall bear the costs incurred in connection
with any Dispute brought by such party that the arbitrators determine to have
been brought in bad faith.
(i) Except as provided in the last sentence of Section 9.14(a), the
provisions of this Section 9.14 shall be a complete defense to any suit, action
or proceeding instituted in any federal, state or local court or before any
administrative tribunal with respect to any Dispute arising with regard to this
Agreement. Any party commencing a lawsuit in violation of this Section 9.14
shall pay the costs of the other party, including, without limitation,
reasonable attorney's fees and defense costs.
9.15 HSR Filings. Purchaser acknowledges and agrees that if any of the
transactions contemplated by this Agreement or any other Transaction Agreement
shall require compliance with any applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder (the "HSR Act"), and the antitrust,
competition, foreign investment or similar laws of any foreign countries or
supranational commissions or boards that require pre-merger notifications or
filings by either the Company or Purchaser, neither party shall have breached in
any material respect its obligations under this Agreement if the closing of any
such transaction is delayed to allow the parties to comply with any such laws,
rules and regulations, and any waiting periods required thereunder, including,
but not limited to compliance with any "Second Requests" as provided for, and
defined in, the HSR Act.
[signature page follows]
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[Signature Page to Common Stock and Warrant Purchase Agreement]
IN WITNESS WHEREOF, Company and Purchaser have caused this Common Stock
and Warrant Purchase Agreement to be executed in their names by their duly
authorized officers or representatives effective as of the date first above
written.
DISCOVERY LABORATORIES, INC.
By: /s/ David L. Lopez
--------------------------------------
David L. Lopez
Vice President and General Counsel
PHARMABIO DEVELOPMENT INC.
By: /s/ Thomas C. Perkins
--------------------------------------
Thomas C. Perkins
Vice President and General Counsel
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EXHIBIT 10.4
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [***], have been
separately filed with the Securities and Exchange Commission.
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is dated and entered into as of
December 10, 2001 (the "Effective Date") by and between DISCOVERY LABORATORIES,
INC., a Delaware corporation ("Borrower"), and PHARMABIO DEVELOPMENT INC., a
North Carolina corporation ("Lender").
WHEREAS, Borrower and Lender are parties to the Common Stock and Warrant
Purchase Agreement dated as of the date hereof (the "Purchase Agreement") and
the Investment and Commission Agreement dated as of the date hereof (the
"Investment and Commission Agreement");
WHEREAS, Borrower and Quintiles Transnational Corp., an Affiliate of
Lender ("Quintiles"), are parties to a Commercialization Agreement (the
"Commercialization Agreement"), dated as of the date hereof;
WHEREAS, in connection with the Purchase Agreement, Investment and
Royalty, and Commercialization Agreement, Lender is willing to extend certain
credit facilities to Borrower, subject to and upon the terms and conditions of
this Agreement; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties hereby
agree as follows:
ARTICLE I
DEFINITIONS
1.01 Definitions. Capitalized terms used but not defined in the text of
this Agreement shall have the meanings ascribed to them on Exhibit A attached
hereto and incorporated herein by reference.
ARTICLE II
Amount and Terms of Loan
2.01 Advances.
(a) Subject to and upon the terms and conditions set forth herein,
Lender agrees, at any time and from time to time, from and after the occurrence
of Milestone One (as defined below) and prior to December 10, 2004 (the
"Maturity Date"), to make advances (each an
1
"Advance" and collectively the "Advances") to Borrower at such times and in such
amounts as Borrower shall request pursuant to this Agreement, up to an aggregate
principal amount of Eight Million, Five Hundred Thousand Dollars ($8,500,000)
(as adjusted and subject to the satisfaction of certain milestones in accordance
with this Section 2.01, the "Commitment") in lawful money of the United States
of America in immediately available funds. The Commitment shall become available
to Borrower as follows:
(i) Upon the occurrence of Milestone One (as defined below),
one third (1/3) of the Commitment shall be available. "Milestone
One" shall mean the later to occur of (i) the completion by The
Lewin Group of a market opportunity assessment and report in
customary form regarding the Product, which shall include without
limitation an assessment and report as to pre-launch
commercialization requirements and sales forecasts, and (ii)
Borrower shall have obtained a valid and binding extension of the
deadline for the filing of the NDA referred to in Section 6 of the
License Agreement until at least October 28, 2003.
(ii) Upon the occurrence of Milestone One and Milestone Two
(as defined below), two thirds (2/3) of the Commitment shall be
available. "Milestone Two" shall mean the earlier to occur of (i)
the sale after the date of this Agreement by Borrower of shares of
its capital stock for cash proceeds with an aggregate purchase price
of at least $10,000,000 in one or more capital financing
transactions or pursuant to the exercise of options, warrants or
rights to purchase its capital stock, and in each case the proceeds
of which may be used for general corporate purposes or (ii) the
public disclosure by Borrower of Phase III clinical trial data
regarding the indication for the Product known as idiopathic
respiratory distress syndrome ("IRDS"), and the completion by
Quintiles or an appropriate Affiliate of a written assessment and
report indicating that such data is favorable and that such data
substantially enhances the Company's prospects with respect to its
ability to repay the Commitment as increased by such Milestone Two.
(iii) Upon the occurrence of Milestone One, Milestone Two, and
Milestone Three (as defined below), the full Commitment shall be
available. "Milestone Three" shall mean the earlier to occur of (i)
the completion by Quintiles or an appropriate Affiliate of a written
assessment and report in customary form indicating the
"approvability" by the FDA of Borrower's NDA for the Product for
either the IRDS indication or the indication known as meconium
aspiration syndrome ("MAS"), which shall include without limitation
an assessment and report as to the quality of the documentation
comprising such NDA and the clinical data included in such NDA, or
(ii) the issuance by the FDA of a letter in customary form
indicating that Borrower's NDA for the Product is "approvable" with
respect to Borrower's NDA for either the IRDS indication or the MAS
indication.
(b) Notwithstanding anything to the contrary in this Agreement, upon
the occurrence of the "First Milestone" (as defined in the Investment and
Commission Agreement),
2
Borrower shall prepay Advances as described in Section 2.05(b), and the
Commitment shall be automatically reduced by the amount of such required
prepayment.
(c) Notwithstanding anything to the contrary in this Agreement, upon
the occurrence of the "Second Milestone" (as defined in the Investment and
Commission Agreement), Borrower shall prepay the aggregate outstanding amount of
all Advances and the Commitment shall be automatically terminated.
(d) As contemplated by the Commercialization Agreement, the JCC (as
defined therein) may authorize expenditures for pre-Launch Marketing Services in
excess of $8,500,000 up to $10,000,000 (without the consent of Lender). In the
event that the JCC authorizes such expenditures in excess of $8,500,000 (but not
in excess of $10,000,000), (i) the Commitment shall be deemed increased by a
commensurate amount, but in any event not in excess of a maximum Commitment of
$10,000,000 in the aggregate, and (ii) Borrower shall execute a new promissory
note as described in Section 3.02(e).
(e) In the event that the parties mutually agree to authorize
expenditures for pre-Launch Marketing Services in excess of $10,000,000 (but not
in excess of $15,000,000), (i) the Commitment shall be deemed increased by a
commensurate amount, and (ii) Borrower shall execute a new promissory note as
described in Section 3.02 (e). Notwithstanding anything in this Agreement to the
contrary, any increase in the Commitment in excess of $10,000,000 shall require
the express written agreement of Lender in the sole discretion of Lender, and
this subsection (e) shall not imply that Lender is willing, or obligate Lender
in any manner, to agree to any such increase or to agree to any increase in
Lender's obligations under the Investment and Commission Agreement, with any
such increase in Lender's obligations being required to be set forth in an
express written agreement referring to the Investment and Commission Agreement.
(f) Borrower may use the Commitment, as in effect from time to time,
on a revolving basis by borrowing, repaying the Advances in whole or in part,
and reborrowing, all in accordance with the terms and conditions of this
Agreement. The aggregate outstanding amount of the Advances at any time shall
not exceed the Commitment as in effect at such time. If at any time, the
aggregate outstanding principal amount of the Advances exceeds the Commitment,
Borrower shall immediately pay to Lender in cash the amount of such excess.
(g) Each Advance shall be a principal amount of a loan, evidenced by
the Note referred to below.
2.02 Use of Proceeds. At least sixty-five percent (65%) of the Advances
shall be used for the payment of pre-Launch Marketing Services (as defined in
the Commercialization Agreement) provided by Quintiles Transnational Corp. or
its Affiliates and the remainder of the Advances may be used for general
corporate purposes.
3
2.03 Notices of Advances; Disbursement of Funds.
(a) Whenever Borrower desires to obtain an Advance, Borrower shall
give to Lender a written notice of the requested Advance, signed by an
authorized officer of Borrower (each a "Notice of Advance"), and received no
later than 3:00 p.m. Eastern Time three (3) Business Days before the day on
which Borrower desires the Advance to be made. The Notice of Advance shall
specify: (i) the aggregate principal amount of the Advance to be made; (ii) the
date on which Borrower desires the Advance to be made, which date shall be a
Business Day; and (iii) an account of Borrower to which the Advance shall be
directed and wire transfer instructions. The giving of each Notice of Advance
shall constitute a representation and warranty by Borrower to Lender that the
conditions precedent set forth in Section 3.02 have been satisfied.
(b) Whenever Borrower desires to obtain an Advance, Lender shall
make available to Borrower, at an account of Borrower specified to Lender, not
later than 2:00 p.m. Eastern Time on the date specified in the applicable Notice
of Advance the aggregate amount of such requested Advance. Each such payment
shall be an Advance under this Agreement and the Note. Each Notice of Advance
requesting an Advance shall be irrevocable when sent by Borrower, unless
otherwise agreed by Lender.
(c) The amount of each Advance shall not be less than $250,000.
2.04 Note. Borrower's obligation to pay the principal of, and interest on,
the Advances made by Lender shall be evidenced by a single promissory note (the
"Note") duly executed and delivered by Borrower in the form of Exhibit B
attached hereto. All Advances made by Lender to Borrower, and all payments in
respect thereof (and all reborrowings thereof, if any), shall be recorded by
Lender and shall be endorsed on the grid attached to the Note. Failure to make
any such notation shall not affect Borrower's obligations in respect of such
Advances.
2.05 Repayment; Interest; Fees.
(a) Borrower shall pay the aggregate outstanding principal amount
of, and all accrued interest on, all Advances on or before the Maturity Date,
unless due and payable sooner pursuant to the provisions of this Agreement.
Borrower may prepay any Advance or any accrued interest on Advances at any time
and from time to time without penalty, on the following terms and conditions:
(i) Borrower shall give Lender at least three (3) Business Days' prior notice of
its intent to prepay and the amount of the prepayment and (ii) each prepayment
shall not be less than [***].
(b) Upon the occurrence of the "First Milestone" (as defined in the
Investment and Commission Agreement), Borrower shall prepay the Advances in an
aggregate principal amount equal to seventy percent (70%) of the aggregate
amount of the outstanding Advances.
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
4
(c) Upon the occurrence of the "Second Milestone" (as defined in the
Investment and Commission Agreement), Borrower shall prepay the aggregate
outstanding amount of all Advances.
(d) Borrower agrees to pay interest in respect of the outstanding
principal amount of each Advance from the date the proceeds are made available
to Borrower until repaid. Interest on the outstanding principal amount of each
Advance shall accrue and be payable at a rate per annum (the "Base Rate") equal
to the greater of (i) [***] or (ii) [***] in excess of the Prime Rate in effect
from time to time, or, if less, the maximum rate permitted by law. Interest
shall be calculated on the basis of a 360-day year for the actual number of days
elapsed.
(e) Accrued interest shall be due and payable (i) in respect of each
Advance, quarterly in arrears on the last Business Day of each calendar quarter,
and (ii) upon any payment of principal, on the amount paid.
(f) Borrower agrees to pay to Lender commitment fees as follows:
[***]
(g) The outstanding principal amount of an Advance or any accrued
interest amounts thereon or any commitment fees that are not paid when due shall
accrue interest on a daily basis at the lesser of (i) [***] in excess of the
Base Rate, or (ii) the maximum rate permitted by law, such accrual beginning on
the date payment is due and continuing until the date payment is made in full.
(h) All payments of principal, interest and fees described above
shall be made to Lender in lawful money of the United States of America in
immediately available funds.
ARTICLE III
Conditions Precedent
3.01 Initial Conditions Precedent to Lender's Obligations. The obligation
of Lender to perform its obligations under this Agreement is subject to the
conditions precedent that Lender shall have received from Borrower each of the
following documents on the date of this Agreement:
(a) The Note duly executed by Borrower;
(b) The Security Agreement in the form acceptable to the parties
(the "Security Agreement"), and the related financing statement in the form
acceptable to the parties, in each case duly executed by Borrower;
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
5
(c) Copies of (i) resolutions of the Board of Directors of Borrower
approving this Agreement, the Note, and the Security Agreement and any other
documents required or necessary to consummate the transactions contemplated in
this Loan Agreement (collectively, the "Loan Documents"), the Purchase
Agreement, the Investment and Royalty Agreement, and the Commercialization
Agreement (together with the Loan Documents, collectively, the "Transaction
Documents"), (ii) the Certificate of Incorporation of Borrower, and (iii) the
Bylaws of Borrower, in each case certified by an appropriate officer of
Borrower;
(d) A certificate of the appropriate officers of Borrower certifying
(i) the names and true signatures of the officers of Borrower authorized to sign
the Transaction Documents, (ii) that the representations and warranties
contained in Article IV of the Purchase Agreement are true and correct as of the
date hereof, (iii) that Borrower has performed, satisfied and complied with all
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with on or prior to the date of this Agreement, and (iv)
that no event has occurred and is continuing, which constitutes an Event of
Default (as defined in Section 6.01 hereof) or would constitute an Event of
Default but for the requirement that notice be given or time elapse or both;
(e) A certificate of good standing (or comparable document)
regarding Borrower from the State of Delaware; and
(f) A legal opinion of Dickstein Shapiro Morin & Oshinsky, LLP,
counsel for Borrower, regarding the Transaction Documents and the transactions
contemplated thereby in the form acceptable to the parties.
3.02 Conditions Precedent to All Advances. The obligation of Lender to
make each Advance shall be subject to the further conditions precedent that, on
the date of such Advance:
(a) The representations and warranties contained in Article IV of
the Purchase Agreement (other than Sections 4.01 and 4.02) are true and correct
in all material respects on and as of the date of such Advance, before and after
giving effect to such Advance, as though made on and as of such date;
(b) Borrower shall have performed, satisfied and complied with in
all material respects all covenants, agreements and conditions required under
the Transaction Documents to be performed, satisfied or complied with on or
prior to the date of such Advance;
(c) No event has occurred and is continuing, or would result from
such Advance, which constitutes an Event of Default, or would constitute an
Event of Default but for the requirement that notice be given or time elapse or
both;
(d) All principal amount of Advances, accrued interest or commitment
fees under this Agreement, which are due and payable at the time of such
Advance, shall have been paid in full; and
6
(e) If the Commitment shall have been increased pursuant to Section
2.01(d), Lender shall have received a new promissory note duly executed by
Borrower in the form of the Note, except that the amount thereof shall be equal
to the amount of the Commitment as so increased, to replace the Note executed by
Borrower on the date hereof. Simultaneously with such replacement, the Note
executed by the Borrower on the date hereof shall be cancelled and returned to
Borrower and deemed null and void and of no further force and effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01 Representations and Warranties. The representations and warranties of
Borrower set forth in Article IV of the Purchase Agreement (excluding Sections
4.02, 4.14 through 4.18, 4.20, and 4.21 and after modifying Section 4.04 so that
"Transaction Documents" shall mean this Agreement) are hereby incorporated by
reference into this Agreement, and Borrower hereby makes such representations
and warranties to Lender.
ARTICLE V
Covenants of Borrower
So long as any or all of the Advances or other obligations of Borrower
under this Agreement shall remain unpaid or Lender shall have any Commitment
hereunder, Borrower shall comply with the following covenants:
5.01 Compliance with Laws. Borrower shall comply, and cause each of its
subsidiaries to comply, in all material respects with all applicable laws,
rules, regulations and orders, in respect of the conduct of its business and the
ownership of its properties, including without limitation with respect to the
FFDCA, environmental issues, and taxes and other governmental changes, where the
failure to so comply would have a material adverse effect on Borrower.
5.02 Transfers of Assets. Borrower shall not sell, convey, transfer,
lease, license, assign or otherwise dispose of (whether in one transaction or in
a series of transactions) (a) all or substantially all of its assets or
properties (whether now owned or hereafter acquired) to any entity or person, or
(b) any of its assets or properties except in the ordinary course of business,
or in each case permit any of its subsidiaries to do so, if, in the case of this
subsection (b), such sale, conveyance, transfer, lease, license, assignment or
other disposition is likely to have a material adverse effect on Borrower or on
Lender's rights hereunder.
5.03 Debt. Borrower shall not create or incur or allow to be created,
incurred or exist, or permit any of its subsidiaries to create or incur or allow
to be created, incurred or exist, any Debt, except (a) accounts payable incurred
or created in the ordinary course of Borrower's business, (b) Debt incurred or
created in the ordinary course of Borrower's business and which does not exceed
$1,000,000 in the aggregate, (c) Debt incurred or created solely for the purpose
of
7
financing the acquisition of property (other than real property) and equipment
for use in Borrower's business and which does not exceed $2,5000,000 in the
aggregate, and (d) Debt which is junior and subordinate in right of payment to
Borrower's obligations to Lender under the Loan Documents ("Junior Debt") so
long as, prior to the creation of such Junior Debt, Lender has consented in
writing to such Junior Debt (such consent not to be unreasonably withheld), and
Lender and the holder of such Junior Debt have entered into a subordination
agreement in form and substance reasonably satisfactory to Lender providing for
the subordination of the Junior Debt to the obligations of Borrower under the
Loan Documents.
5.04 Liens, Etc. Borrower shall not create or incur or allow to be
created, incurred or exist, or permit any of its subsidiaries to create or incur
or allow to be created, incurred or exist, any Lien upon or with respect to any
of Borrower's or its subsidiaries' assets or properties, except (a) Permitted
Liens, as defined in the Security Agreement, (b) purchase money Liens upon
property and equipment of Borrower acquired for use in Borrower's business,
securing the purchase price thereof or securing Debt incurred solely for the
purpose of financing the acquisition thereof, and all of which Liens in the
aggregate do not secure Debt in excess of [***], (c) Liens securing capital
lease obligations under which the Lessor's recourse is limited to the leased
property, and (d) Liens securing indebtedness which is junior and subordinate in
right of payment to Borrower's obligations to Lender under the Loan Documents
("Junior Liens") so long as, prior to the creation of such Junior Liens, Lender
has consented in writing to such Junior Liens (such consent not to be
unreasonably withheld), and Lender and the holder of such Junior Liens have
entered into a subordination agreement in form and substance reasonably
satisfactory to Lender providing for the subordination of the indebtedness
secured by the Junior Liens to the obligations of Borrower under the Loan
Documents.
5.05 Corporate Existence; Business. Borrower will (i) maintain and
preserve in full force and effect its corporate existence, and (ii) continue to
engage in the business in which it is engaged on the date hereof.
5.06 Exchange Act Registration. Borrower will cause its Common Stock to
continue to be registered under Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), will comply in all material respects with
its reporting and filing obligations under the Exchange Act, and will not take
any action or file any documents to terminate or suspend such registration or
terminate or suspend its reporting or filing obligations under the Exchange Act.
5.07 SEC Information. Upon request, Borrower will provide to Lender a copy
of any publicly available forms, reports or other documents filed with the
Securities and Exchange Commission.
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
8
5.08 Notice of Certain Events. Promptly, and in any event within five (5)
Business Days after an executive officer of the company obtains knowledge
thereof, Borrower will notify Lender of (a) the occurrence of an Event of
Default, (b) any litigation, governmental proceeding or investigation or other
event that is likely to materially and adversely affect the financial condition,
properties, business, or results of operations of Borrower, or (c) any Change of
Control.
5.09 Compliance with Certain Agreements. Borrower shall perform and
fulfill all of its obligations under the License Agreement and the Research
Agreement as necessary to maintain Borrower's rights in such agreements in full
force and effect in all material respects. Borrower shall provide written notice
to Lender within five (5) Business Days of Borrower's receipt of any notice from
any other parties to the License Agreement or the Research Agreement proposing
or threatening to terminate any such agreement.
ARTICLE VI
Events of Default
6.01 Events of Default. The occurrence of each of the following events
shall be considered an event of default ("Event of Default"):
(a) Borrower shall fail to pay any principal of, or interest on, the
Note when the same becomes due and payable and four (4) Business Days have
elapsed following receipt of notice of such non-payment from Lender to Borrower;
(b) Any representation or warranty made by Borrower under this
Agreement shall prove to have been incorrect or untrue in any material respect
when made or deemed made and such incorrect or untrue representation or warranty
has a material adverse effect on Borrower or significantly impairs the prospect
that Lender will be repaid in accordance with the terms of this Agreement and is
not cured within thirty (30) days upon receipt of notice thereof by Borrower;
(c) Borrower shall fail to perform or observe any term, covenant or
agreement contained in this Agreement required to be performed or observed by
Borrower (other than Section 5.02, 5.03 or 5.04) and such failure to perform or
observe such term, covenant or agreement has a material adverse effect on
Borrower or significantly impairs the prospect that Lender will be repaid in
accordance with the terms of this Agreement and is not cured within thirty (30)
days after receipt of notice thereof by Borrower;
(d) Borrower shall fail to perform or observe the provisions of
Section 5.02, 5.03 or 5.04 above, except, in the case of Section 5.04, if such
Event of Default is based on a tax lien, judgment lien or materialman's lien,
such judgment shall continue without discharge or stay for a period of sixty
(60) days;
(e) One or more judgments, decrees or orders for the payment of
money shall be entered against Borrower or any of its subsidiaries involving in
the aggregate a liability of
9
[***] or more, and any such judgment, decree or order shall continue without
discharge or stay for a period of sixty (60) days;
(f) Borrower shall (i) commence a voluntary case under the federal
bankruptcy laws (as now or hereafter in effect), (ii) file a petition seeking to
take advantage of any other laws relating to bankruptcy, insolvency,
reorganization, winding up or composition for adjustment of debts, (iii) consent
to or fail to contest in a timely manner any petition filed against it in an
involuntary case under such bankruptcy laws or other laws, (iv) apply for or
consent to, or fail to contest in a timely and appropriate manner, the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
or liquidator of itself or of a substantial part of its property, (v) admit in
writing its inability to pay its debts as they become due, (vi) make a general
assignment for the benefit of creditors, or (vii) take any corporate action for
the purpose of authorizing or effecting any of the foregoing;
(g) A case or other proceeding shall be commenced against Borrower
or any of its subsidiaries in any court of competent jurisdiction seeking (i)
relief under the federal bankruptcy laws (as now or hereafter in effect) or
under any other laws relating to bankruptcy, insolvency, reorganization, winding
up or adjustment of debts, or (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like for Borrower or any of its subsidiaries or for
all or any substantial part of their respective assets, and such case or
proceeding shall continue without dismissal or stay for a period of sixty (60)
consecutive days, or an order granting the relief requested in such case or
proceeding (including, but not limited to, an order for relief under such
federal bankruptcy laws) shall be entered;
(h) A Change of Control shall occur; provided, however, that a
Change of Control, as defined in clauses (ii) and (iii) of the definition of
Change of Control, shall not be an Event of Default so long as the surviving,
acquiring or continuing entity has a net worth (after giving effect to the
consummation of the applicable transaction and determined in accordance with
generally accepted accounting principles) at least equal to the net worth of
Borrower immediately prior to the consummation of the applicable transaction and
such entity agrees in an enforceable written instrument to be bound by all the
terms and conditions of this Agreement as if it were Borrower and a party
hereto, which instrument shall be delivered a reasonably practicable time prior
to the consummation of such transaction;
(i) Borrower or any of its subsidiaries shall default in the
performance or observance of any agreement or instrument relating to any Debt,
or any other event shall occur or condition exist, and the effect of such
default, event or condition is to cause or permit the holder of any such Debt to
cause any such Debt to become due prior to its stated maturity;
(j) the Borrower shall fail to perform or observe any term, covenant
or agreement under the Security Agreement in any material respect;
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
10
(k) There shall have been a material adverse change (other than with
respect to matters relating to general economic conditions on Borrower's
industry as a whole) in the financial condition, properties, business or results
and operations of Borrower, taken as a whole, which materially adversely effects
Borrower's ability to satisfy its obligations under the Loan Documents;
provided, however, that in no event shall a material adverse change be deemed to
have occurred by virtue of the incurrence by the Company or its Affiliates of
any debt or other obligations permitted by this Agreement or the other
Transaction Documents;
(l) Borrower shall fail to meet the continued listing criteria of
the Nasdaq SmallCap Market at any time if such failure shall continue for thirty
(30) consecutive days following receipt of notice thereof by Borrower of the
occurrence thereof from the Nasdaq SmallCap market or Lender;
(m) The License Agreement or the Research Agreement shall have been
terminated;
(n) The Commercialization Agreement shall have been terminated; or
(o) The Investment and Commission Agreement shall have been
terminated.
6.02 Effect of Event of Default. If any Event of Default shall occur and
be continuing, then Lender (i) may, by notice to Borrower, declare the
Commitment and its obligation to make Advances to be terminated, whereupon the
same shall forthwith terminate, (ii) may, by notice to Borrower, declare the
Note, all interest thereon and all other amounts payable under this Agreement to
be forthwith due and payable, whereupon the Note, all such interest and all such
amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by Borrower, and (iii) exercise any rights or remedies under the Security
Agreement; provided, however, that if an Event of Default specified in Section
6.01(f) or (g) shall occur, (A) the Commitment and the obligation of Lender to
make Advances shall automatically be terminated and (B) the Note, all such
interest and all such amounts shall automatically become and be due and payable,
without presentment, demand, protest or any notice of any kind, all of which are
hereby expressly waived by Borrower.
ARTICLE VII
MISCELLANEOUS
7.01 Amendments. No amendment or waiver of any provision of this Agreement
or the Note, nor consent to any departure by Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by Borrower
and Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
7.02 Notices. All notices and other communications provided for hereunder
shall be in writing, shall specifically refer to this Agreement, shall be
addressed to the receiving party's address set forth below or to such other
address as a party may designate by notice hereunder, and shall be deemed to
have been sufficiently given for all purposes if (i) mailed by first class
11
certified or registered mail, postage prepaid, (ii) sent by nationally
recognized overnight courier for next Business Day delivery, (iii) personally
delivered, or (iv) made by telecopy or facsimile transmission with confirmed
receipt.
If to Borrower: Discovery Laboratories, Inc.
350 South Main Street
Suite 307
Doyelstown, PA 18901-4874
Attn: President
Facsimile: (215) 340-3940
with a copy to: Roberts, Sheridan & Kotel
The New York Practice of
Dickstein Shapiro's Corporate & Finance Group
1177 Avenue of the Americas
New York, NY 10036-2714
Attn: Ira L. Kotel
Facsimile: (212) 997-9880
If to Lender: PharmaBio Development Inc.
4709 Creekstone Drive
Riverbirch Bldg., Suite 200
Durham, NC 27703
Attn: President
Facsimile: (919) 998-2090
with a copy to: Smith, Anderson, Blount, Dorsett,
Mitchell & Jernigan, L.L.P.
2500 First Union Capitol Center
Raleigh, NC 27601
Attn: Christopher B. Capel
Facsimile: (919) 821-6800
7.03 No Waiver; Remedies. No failure on the part of Lender to exercise,
and no delay in exercising, any right hereunder or under the Notes shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
7.04 Right of Set-off. If an Event of Default shall have occurred and be
continuing, Lender is hereby authorized at any time and from time to time, to
the fullest extent permitted by law, to set off and apply any payment obligation
by Lender to Borrower under the Transaction Documents against any and all of the
obligations of Borrower now or hereafter existing under this Agreement and the
Note, whether or not Lender shall have made any demand under this Agreement or
the Note and although such obligations may be unmatured. Lender agrees promptly
to notify Borrower after any such set-off and application, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of Lender
12
under this Section 7.04 are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which Lender may have.
7.05 Attorneys' Fees. In the event that any dispute among the parties to
the Loan Documents should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses enforcing any right of such prevailing party under or with respect to
the Loan Documents, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expense of appeals.
7.06 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of Borrower and Lender and their respective successors and
assigns, provided that neither Borrower nor Lender may assign or transfer any or
all of its rights or obligations under the Loan Documents without the prior
written consent of the other party and any attempted assignment without consent
shall be null and void; provided, however, that Lender may at any time assign or
transfer any of its rights or obligations under the Loan Documents to an
Affiliate of Lender so long as such Affiliate agrees in an enforceable written
instrument to be bound by all the terms and conditions of the Loan Documents as
if it were Lender and a party thereto, which instrument shall be delivered a
reasonably practicable time prior to such assignment.
7.07 Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
7.08 Entire Agreement. This Agreement and the other Transaction Agreements
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter thereof and supersede all prior oral or written
agreements and understandings relating to the subject matter thereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in the Transaction Agreements shall affect, or be used to
interpret, change or restrict, the express terms and provisions of the
Agreements. If any provision contained in this Agreement shall be deemed to
conflict with any provision of any of the other Transaction Agreements, then the
provision contained in this Agreement shall be controlling.
7.09 Further Action. Each party shall, without further consideration, take
such further action and execute and deliver such further documents as may be
reasonably requested by the other party in order to carry out the provisions and
purposes of this Agreement.
7.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which,
when taken together, shall constitute one and the same instrument. This
Agreement may be executed and delivered by telecopy or facsimile transmission
and any execution by such means shall be deemed an original.
7.11 Publicity. Except as otherwise required by applicable law or by
obligations pursuant to any listing agreement with or rules of any securities
exchange or automated quotation
13
system, each party shall, and shall cause its respective Affiliates to, not,
issue any press release or make any other public statement relating to,
connected with or arising out of this Agreement or the matters contained herein
without the other parties' prior written approval of the contents and the manner
of presentation and publication thereof (which approval shall not be
unreasonably withheld or delayed).
7.12 Termination by Borrower. At such time that all Advances and accrued
interest have irrevocably been paid in full, the Commitment has expired or been
terminated and Borrower has satisfied all of its obligations under this
Agreement, Lender shall, at the request of Borrower, promptly, and in no event
later than ten (10) Business Days thereafter, make, execute, endorse,
acknowledge, file and/or deliver to Borrower any and all agreements,
certificates, instruments or other documents, and take all other action, as
reasonably requested by Borrower to terminate this Agreement.
7.13 Disclaimer. Neither Lender nor Borrower, nor any of such party's
Affiliates, directors, officers, employees, subcontractors or agents shall have,
under any legal theory (including, but not limited to, contract, negligence and
tort liability), any liability to any other party hereto for any loss of
opportunity or goodwill, or any type of special, incidental, indirect or
consequential damage or loss, in connection with or arising out of this
Agreement.
7.14 Governing Law. This Agreement, including, without limitation, the
interpretation, performance, enforcement, breach or termination thereof and any
remedies relating thereto, shall be governed by and construed in accordance with
the laws of the State of Delaware, United States of America, as applied to
agreements executed and performed entirely in the State of Delaware, without
regard to conflicts of law rules.
7.15 Internal Review. In the event that a dispute, difference, claim,
action, demand, request, investigation, controversy, threat, discovery request
or request for testimony or information or other question arises pertaining to
any matters which arise under, out of, in connection with, or in relation to
this Agreement (a "Dispute") and either party so requests in writing, prior to
the initiation of any formal legal action, the Dispute will be submitted to the
JCC (as defined in the Commercialization Agreement), which will use its good
faith efforts to resolve the Dispute within ten (10) days. If the JCC is unable
to resolve the Dispute in such period, the JCC will refer the Dispute to the
Chief Executive Officers of Borrower and Lender. For all Disputes referred to
the Chief Executive Officers, the Chief Executive Officers shall use their good
faith efforts to meet at least two times in person and to resolve the Dispute
within ten (10) days after such referral.
7.16 Arbitration. (a) If the parties are unable to resolve any Dispute
under Section 7.15, then either party may require the matter to be settled by
final and binding arbitration by sending written notice of such election to the
other party clearly marked "Arbitration Demand". Thereupon such Dispute shall be
arbitrated in accordance with the terms and conditions of this Section 7.15.
Notwithstanding the foregoing, either party may apply to a court of competent
jurisdiction for a temporary restraining order, a preliminary injunction, or
other equitable relief to preserve the status quo or prevent irreparable harm.
14
(b) The arbitration panel will be composed of three arbitrators, one
of whom will be chosen by Borrower, one by Lender, and the third by the two so
chosen. If both or either of Borrower or Lender fails to choose an arbitrator or
arbitrators within 14 days after receiving notice of commencement of
arbitration, or if the two arbitrators fail to choose a third arbitrator within
14 days after their appointment, the American Arbitration Association shall,
upon the request of both or either of the parties to the arbitration, appoint
the arbitrator or arbitrators required to complete the panel. The arbitrators
shall have reasonable experience in the matter under dispute. The decision of
the arbitrators shall be final and binding on the parties, and specific
performance giving effect to the decision of the arbitrators may be ordered by
any court of competent jurisdiction.
(c) Nothing contained herein shall operate to prevent either party
from asserting counterclaim(s) in any arbitration commenced in accordance with
this agreement, and any such party need not comply with the procedural
provisions of this Section 7.16 in order to assert such counterclaim(s).
(d) The arbitration shall be filed with the office of the American
Arbitration Association ("AAA") located in Wilmington, Delaware or such other
AAA office as the parties may agree upon (without any obligation to so agree).
The arbitration shall be conducted pursuant to the Commercial Arbitration Rules
of AAA as in effect at the time of the arbitration hearing, such arbitration to
be completed in a sixty (60) day period. In addition, the following rules and
procedures shall apply to the arbitration:
(i) The arbitrators shall have the sole authority to decide
whether or not any Dispute between the parties is arbitrable and whether the
party presenting the issues to be arbitrated has satisfied the conditions
precedent to such party's right to commence arbitration as required by this
Section 7.16.
(ii) The decision of the arbitrators, which shall be in
writing and state the findings the facts and conclusions of law upon which the
decision is based, shall be final and binding upon the parties, who shall
forthwith comply after receipt thereof. Judgment upon the award rendered by the
arbitrator may be entered by any competent court. Each party submits itself to
the jurisdiction of any such court, but only for the entry and enforcement to
judgment with respect to the decision of the arbitrators hereunder.
(iii) The arbitrators shall have the power to grant all legal
and equitable remedies (including, without limitation, specific performance) and
award compensatory damages provided by applicable law, but shall not have the
power or authority to award punitive damages. No party shall seek punitive
damages in relation to any matter under, arising out of, or in connection with
or relating to this Agreement in any other forum.
(iv) The parties shall bear their own costs in preparing for
and participating in the resolution of any Dispute pursuant to this Section
7.16, and the costs of the arbitrator(s) shall be equally divided between the
parties; provided, however, that each party shall bear the costs incurred in
connection with any Dispute brought by such party that the arbitrators determine
to have been brought in bad faith.
15
(e) Except as provided in the last sentence of Section 7.16(a), the
provisions of this Section 7.16 shall be a complete defense to any suit, action
or proceeding instituted in any federal, state or local court or before any
administrative tribunal with respect to any Dispute arising with regard to this
Agreement. Any party commencing a lawsuit in violation of this Section 7.16
shall pay the costs of the other party, including, without limitation,
reasonable attorney's fees and defense costs.
[REST OF PAGE INTENTIONALLY LEFT BLANK;
SIGNATURES ON FOLLOWING PAGE]
16
[Signature Page to Loan Agreement]
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER:
DISCOVERY LABORATORIES, INC.
By: /s/ David L. Lopez
--------------------------------------
Name: David L. Lopez
Title: Vice President and General Counsel
LENDER:
PHARMABIO DEVELOPMENT INC.
By: /s/ Thomas C. Perkins
--------------------------------------
Name: Thomas C. Perkins
Title: Vice President and General Counsel
17
EXHIBIT A
DEFINITIONS
"Affiliate" shall mean, as to any person or entity, any corporation or
business entity controlled by, controlling or under common control with such
party or entity. For this purpose, "control" shall mean direct or indirect
beneficial ownership of at least fifty percent (50%) of the voting stock or
income interest in such corporation or other business entity.
"Business Day" shall mean any day other than a Saturday, Sunday or legal
holiday on which banks in North Carolina and New York are open for the conduct
of their banking business.
"Change of Control" shall mean the occurrence of any of the following
events: (i) the acquisition, whether directly or indirectly, by any person or
entity, including a "group" as defined in Section 13(d)(3) of the Exchange Act,
of fifty percent (50%) or more of the Common Stock of Borrower; (ii) Borrower
shall merge or consolidate (or engage in any other share exchange, acquisition
or business combination transaction) with or into another corporation or other
entity, with the effect that the persons who were the shareholders of Borrower
immediately prior to the effective time of such transaction hold less than
fifty-one percent (51%) of the combined voting power of the outstanding equity
securities of the surviving, continuing or acquiring entity in such transaction;
(iii) Borrower shall sell, convey, transfer, lease, license, assign or otherwise
transfer or dispose of (whether in one transaction or a series of transactions)
all or substantially all of its assets or properties (whether now owned or
hereafter acquired) to any person or entity, or permit any of its subsidiaries
to do so; or (iv) at any time during any calendar year, fifty percent (50%) or
more of the members of the full Board of Directors of Borrower shall have
resigned or been removed or replaced. The determination of "combined voting
power" shall be based on the aggregate number of votes that are attributable to
outstanding securities entitled to vote in the election of directors, general
partners, managers or persons performing analogous functions to directors of the
entity in question, without regard to contractual arrangements or rights
accruing in special circumstances.
"Debt" shall mean (i) indebtedness for borrowed money, (ii) obligations
evidenced by bonds, debentures, notes or other similar instruments, (iii)
obligations to pay the deferred purchase price of property or services, (iv)
obligations as lessee under leases which shall have been or should be, in
accordance with generally accepted accounting principles, recorded as capital
leases, and (v) obligations under direct or indirect guaranties in respect of,
and obligations (contingent or otherwise) to purchase or otherwise acquire, or
otherwise to assure a creditor against loss in respect of, indebtedness or
obligations of others of the kinds referred to in clauses (i) through (iv)
above; provided, however, Debt shall not include any Debt of Borrower under this
Agreement.
"FDA" shall mean the United States Food and Drug Administration.
"FFDCA" shall mean the United States Federal Food, Drug and Cosmetic Act,
as amended from time to time, and all regulations promulgated thereunder.
"License Agreement" shall mean the Sublicense Agreement dated October 28,
1996 between Johnson & Johnson and Ortho Pharmaceutical Corporation, as
licensors, and the Company (formerly known as Acute Therapeutics, Inc.), as
licensee.
"Liens" shall mean any lien, security interest, mortgage, pledge,
encumbrance, charge or claim.
"NDA" shall mean a "new drug application" as such term is used under the
FFDCA.
"Prime Rate" shall mean the rate which First Union National Bank (or its
successor) announces from time to time as its prime lending rate, the Prime Rate
to change when and as such prime lending rate changes.
"Product" shall have the meaning given such term under the Investment and
Commission Agreement.
"Research Agreement" shall mean the Research Funding and Option Agreement
dated March 1, 2000 between the Scripps Research Institute and the Company.
EXHIBIT B
FORM OF NOTE
PROMISSORY NOTE
$8,500,000 December __, 2001
FOR VALUE RECEIVED, DISCOVERY LABORATORIES, INC., a Delaware
corporation ("Borrower"), hereby promises to pay to the order of PHARMABIO
DEVELOPMENT INC., a North Carolina corporation ("Lender"), in lawful money of
the United States of America in immediately available funds, the lesser of (i)
the principal sum of Eight Million, Five Hundred Thousand Dollars ($8,500,000)
and (ii) the aggregate unpaid principal amount of all Advances (as defined in
the Loan Agreement referred to below) made by Lender to Borrower pursuant to the
Loan Agreement (as defined below), together with interest accrued thereon. The
interest shall accrue on the unpaid principal amount of each Advance at the
rates and in the manner provided in the Loan Agreement. Payment of the principal
amount of this Note and accrued interest on this Note shall be made at the times
and in the manner provided in the Loan Agreement. Capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Loan Agreement.
Each Advance made by Lender to Borrower, and all payments made on
account of the principal amount hereof, shall be recorded and endorsed by Lender
on the grid attached hereto which is a part of this Note. Failure to so record
and endorse such Advances and payments, however, shall not affect Borrower's
obligations in respect of such Advances.
This Promissory Note is the Note referenced in the Loan Agreement
between Borrower and Lender dated as of the date of this Note (as same may be
amended from time to time, the "Loan Agreement"), and is entitled to the
benefits of the Loan Agreement. The Loan Agreement, among other things, (i)
provides for the making of certain Advances by Lender to Borrower from time to
time, the principal amount of each such Advance being a principal amount
evidenced by this Note, and (ii) provides that this Note is secured by, and
Borrower has granted a security interest in, certain of its assets as set forth
in that certain Security Agreement between Borrower and Lender dated as of the
same date as this Note.
In case an Event of Default shall occur and be continuing and not
cured prior to the expiration of any applicable cure or grace periods set forth
in the Loan Agreement, the unpaid principal amount of, and accrued interest on,
this Note may be declared to be due and payable in the manner and with the
effect provided in the Loan Agreement.
Borrower hereby waives presentment, demand, notice, protest and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note.
This Note is subject to early termination as set forth in the Loan
Agreement. This Note may be voluntarily prepaid, in whole or in part, on the
terms and conditions set forth in the Loan Agreement. Provided that no Advances
or accrued interest are outstanding and have irrevocably been paid in full and
the Commitment shall have expired or been terminated in accordance with the
terms of the Loan Agreement, the Lender shall, at the request of Borrower,
promptly, and in no event later than ten (10) Business Days after notice from
Borrower, cancel and return this Note to Borrower.
This Note shall be governed by and construed in accordance with the
law of the State of Delaware without regard to the conflicts of law rules of
such state.
This Note may not be assigned by Lender except to an Affiliate of
Lender which agrees in an enforceable written instrument to be bound by all the
terms and conditions of this Note as if it were Lender, which instrument shall
be delivered a reasonably practicable time prior to such assignment.
Lender and Borrower agree that disputes relating to this Note shall
be subject to the provisions of the Loan Agreement entitled "Internal Review"
and "Arbitration" set forth in Sections 7.15 and 7.16 thereof, respectively.
BORROWER:
DISCOVERY LABORATORIES, INC.
By: ________________________
Name:
Title:
ADVANCES AND PAYMENTS OF PRINCIPAL
Amount Amount of Principal Paid Unpaid Notation
Date of Advance or Prepaid Principal Balance Made By
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